**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 September 30, 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
      November 13, 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 SEPTEMBER 30, 2006**





**CONTENTS**








**PART
      I - FINANCIAL INFORMATION**





Item
                1.
            
            Condensed
                Consolidated Financial StatementsCondensed
                Consolidated Statements of Operations -Three
                months ended September 30, 2006 and October 1, 2005
            2Condensed
                Consolidated Statements of Operations -Nine
                months ended September 30, 2006 and October 1, 2005
            3Condensed
                Consolidated Balance Sheets -September
                30, 2006 and December 31, 2005
            4Condensed
                Consolidated Statements of Cash Flows -Nine
                months ended September 30, 2006 and October 1, 2005
            5Notes
                to Condensed Consolidated Financial Statements
            6Item
                2.
            
            Management’s
                Discussion and Analysis of Financial ConditionAnd
                Results of Operations
            27Item
                3.
            
            Quantitative
                and Qualitative Disclosures about Market Risk
            38Item
                4.
            
            Controls
                and Procedures
            38**PART
                II - OTHER INFORMATION**Item
                1A.
            
            Risk
                Factors
            39Item
                6.
            
            Exhibits
            39Signatures
            40


1





**PART
      I - FINANCIAL INFORMATION**





**Item
      1.**  **FINANCIAL
      STATEMENTS**








**PLY
      GEM HOLDINGS, INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


**(UNAUDITED)**











**For
                the three months ended****September
                30,**
            
            **October
                1,****2006**
            
            **2005**(Amounts
                in thousands)Net
                Sales
            
            $
            257,058
            
            $
            225,515Costs
                and Expenses:Cost
                of products sold
            
            
            196,371
            
            
            170,472Selling,
                general and administrative expense
            
            
            30,431
            
            
            21,194Amortization
                of intangible assets
            
            
            2,910
            
            
            2,439Total
                Costs and Expenses
            
            
            229,712
            
            
            194,105Operating
                earnings
            
            
            27,346
            
            
            31,410Foreign
                currency gain (loss)
            
            
            (79
            )
            
            1,282Interest
                expense
            
            
            (16,985
            )
            
            (14,482
            )Investment
                income
            
            
            373
            
            
            244Income
                before provision for income taxes
            
            
            10,655
            
            
            18,454Provision
                for income taxes
            
            
            4,123
            
            
            7,183Net
                Income
            
            $
            6,532
            
            $
            11,271
















See
      accompanying notes to condensed consolidated financial
      statements.


2


**PLY
      GEM HOLDINGS, INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


**(UNAUDITED)**














**For
                the nine months ended****September
                30,**
            
            **October
                1,****2006**
            
            **2005**(Amounts
                in thousands)Net
                Sales
            
            $
            761,480
            
            $
            627,553Costs
                and Expenses:Cost
                of products sold
            
            
            588,670
            
            
            483,080Selling,
                general and administrative expense
            
            
            88,747
            
            
            67,928Amortization
                of intangible assets
            
            
            8,434
            
            
            7,320Total
                Costs and Expenses
            
            
            685,851
            
            
            558,328Operating
                earnings
            
            
            75,629
            
            
            69,225Foreign
                currency gain
            
            
            1,014
            
            
            745Interest
                expense
            
            
            (49,509
            )
            
            (43,157
            )Investment
                income
            
            
            786
            
            
            467Other
                expense
            
            
            (2,497
            )
            
            -Income
                before income taxes andcumulative
                effect of accounting change
            
            
            25,423
            
            
            27,280Provision
                for income taxes
            
            
            9,843
            
            
            10,756Income
                before cumulative effectof
                accounting change
            
            
            15,580
            
            
            16,524Cumulative
                effect of accounting change,net
                of income tax benefit of $57
            
            
            (86
            )
            
            -Net
                Income
            
            $
            15,494
            
            $
            16,524







See
      accompanying notes to condensed consolidated financial statements .








3


**PLY
      GEM HOLDINGS, INC. AND SUBSIDIARIES**


**CONDENSED** **** **CONSOLIDATED
      BALANCE SHEETS**


**(UNAUDITED)**





September
                30,
            
            December
                31,2006
            
            2005(Amounts
                in thousands, exceptshare
                amounts)**ASSETS****Current
                Assets:**Cash
                and cash equivalents
            
            $
            45,537
            
            $
            22,173Accounts
                receivable, less allowances of $7,435 and $8,320, respectively
            
            
            103,142
            
            
            70,357Inventories:Raw
                materials
            
            
            41,836
            
            
            31,415Work
                in process
            
            
            7,018
            
            
            5,080Finished
                goods
            
            
            20,492
            
            
            18,723Total
                inventory
            
            
            69,346
            
            
            55,218Prepaid
                expenses and other current assets
            
            
            10,953
            
            
            9,427Deferred
                income taxes
            
            
            14,919
            
            
            13,330Total
                current assets
            
            
            243,897
            
            
            170,505**Property
                and Equipment, at cost:**Land
            
            
            1,377
            
            
            2,020Buildings
                and improvements
            
            
            13,984
            
            
            15,568Machinery
                and equipment
            
            
            140,093
            
            
            119,225Total
                property and equipment
            
            
            155,454
            
            
            136,813Less
                accumulated depreciation
            
            
            (40,179
            )
            
            (27,085
            )Total
                property and equipment, net
            
            
            115,275
            
            
            109,728**Other
                Assets:**Goodwill
            
            
            671,472
            
            
            578,992Intangible
                assets, less accumulated amortization of $23,942 and $15,506,respectively
            
            
            172,626
            
            
            152,894Other
            
            
            34,963
            
            
            37,879Total
                other assets
            
            
            879,061
            
            
            769,765$
            1,238,233
            
            $
            1,049,998**LIABILITIES
                AND STOCKHOLDERS' EQUITY****Current
                Liabilities:**Current
                maturities of long-term debt
            
            $
            4,000
            
            $
            1,692Accounts
                payable
            
            
            55,654
            
            
            42,342Accrued
                expenses and taxes
            
            
            76,673
            
            
            64,019Total
                current liabilities
            
            
            136,327
            
            
            108,053Deferred
                income taxes
            
            
            71,941
            
            
            58,184Other
                long term liabilities
            
            
            38,230
            
            
            32,471Long-term
                debt, less current maturities
            
            
            754,242
            
            
            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
            
            
            180,919
            
            
            175,461Retained
                earnings
            
            
            53,401
            
            
            37,907Accumulated
                other comprehensive income
            
            
            3,173
            
            
            2,146Total
                stockholders' equity
            
            
            237,493
            
            
            215,514$
            1,238,233
            
            $
            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 nine months ended**September
                30,
            
            October
                1,2006
            
            2005(Amounts
                in thousands)**Cash
                flows from operating activities:**Net
                Income
            
            $
            15,494
            
            $
            16,524**Adjustments
                to reconcile net income to****cash
                provided by operating activities:**Depreciation
                and amortization expense
            
            
            22,723
            
            
            19,496Fair
                value premium on purchased inventory
            
            
            304
            
            
            -Non-cash
                interest expense, net
            
            
            3,982
            
            
            3,669(Gain)
                loss on foreign currency transactions
            
            
            (1,014
            )
            
            (745
            )Loss
                on sale of building
            
            
            572
            
            
            -Other
                non-cash items
            
            
            2,482
            
            
            -Deferred
                income taxes
            
            
            668
            
            
            8,228**Changes
                in operating assets and****liabilities,
                net of effects from acquisitions:**Accounts
                receivable, net
            
            
            (21,883
            )
            
            (32,271
            )Inventories
            
            
            (7,035
            )
            
            1,556Prepaid
                expenses and other current assets
            
            
            3,687
            
            
            (2,532
            )Accounts
                payable
            
            
            6,986
            
            
            17,228Accrued
                expenses and taxes
            
            
            6,332
            
            
            (10,516
            )Other
            
            
            (368
            )
            
            35**Net
                cash provided by operating activities**
            
            
            32,930
            
            
            20,672**Cash
                flows from investing activities:**Capital
                expenditures
            
            
            (14,787
            )
            
            (7,591
            )Proceeds
                from sale of building
            
            
            4,474
            
            
            -Acquisition
                of business, net of cash acquired
            
            
            (120,754
            )
            
            380Other
            
            
            -
            
            
            -**Net
                cash used in investing activities**
            
            
            (131,067
            )
            
            (7,211
            )**Cash
                flows from financing activities:**Proceeds
                from long-term debt
            
            
            122,808
            
            
            -Proceeds
                from revolver borrowings
            
            
            15,000
            
            
            35,500Payments
                on long-term debt
            
            
            (2,000
            )
            
            (8,881
            )Payments
                on revolver borrowings
            
            
            (15,000
            )
            
            (21,500
            )Debt
                issuance costs
            
            
            (2,249
            )
            
            -Equity
                contribution
            
            
            2,718
            
            
            261**Net
                cash provided by financing activities**
            
            
            121,277
            
            
            5,380Impact
                of exchange rate movements on cash
            
            
            224
            
            
            199Net
                increase in cash and cash equivalents
            
            
            23,364
            
            
            19,040Cash
                and cash equivalents at the beginning of the period
            
            
            22,173
            
            
            6,794Cash
                and cash equivalents at the end of the period
            
            $
            45,537
            
            $
            25,834







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
      September 30, 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. On September 25, 2006, Ply
      Gem
      Prime Holdings, Inc. amended the Phantom Plan and awards thereunder in order
      to
      structure the awards and the Phantom Plan in a manner intended to comply with
      recently enacted rules governing nonqualified deferred compensation
      arrangements.





The
      accompanying financial statements include the consolidated results of operations
      for the Company for the three month and nine month periods ended September
      30,
      2006 and October 1, 2005, and consolidated financial position for the Company
      as of
      September 30, 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 September 30, 2006 and December 31, 2005, approximately $11.6
      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 each of September 30, 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 .





**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 $0.7 million and
      $0.8 million for the three month periods ended September 30, 2006 and October
      1,
      2005, respectively, and approximately $1.9 million and $1.8 million for the
      nine
      month periods ended September 30, 2006 and October 1, 2005, respectively. 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.




7




**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
      nine month periods ending September 30, 2006 and October 1, 2005, the Company
      recorded a gain from foreign currency transactions of approximately $1.0 million
      and $0.7 million, respectively. As of September 30, 2006, and December 31,
      2005
      accumulated other comprehensive income included a currency translation
      adjustment of approximately $4.6 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 $18.0 million and $6.3 million
      at
      September 30, 2006 and December 31, 2005, respectively. This customer accounted
      for approximately 17.7% of net sales for the nine month period ended September
      30, 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 was approximately
      $360.2 million and $360.3 million at September 30, 3006 and December 31, 2005,
      respectively. The fair value of the Company’s senior subordinated notes at
      September 30, 2006 and December 31, 2005 was estimated to be approximately
      $286.2 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.





In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. SFAS
      No. 157 defines fair value, establishes a framework for measuring fair value
      in
      generally accepted accounting principles, and expands disclosures about fair
      value measurements. This statement addresses how to calculate fair value
      measurements required or permitted under other accounting pronouncements.
      Accordingly, this statement does not require any new fair value measurements.
      However, for some entities, the application of this statement will change
      current practice. SFAS No. 157 is effective for the Company beginning January
      1,
      2008. The Company is currently evaluating the impact of this
      standard.





8


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





In
      September 2006, the Securities and Exchange Commission issued Staff Accounting
      Bulletin No. 108 “Considering the Effects of Prior Year Misstatements when
      Quantifying Misstatements in Current Year Financial Statements,” (“SAB 108”).
      SAB 108 provides interpretive guidance on how the effects of the carryover
      or
      reversal of prior year misstatements should be considered in quantifying a
      current year misstatement. The SEC staff believes that companies should quantify
      errors using both a balance sheet and an income statement approach and evaluate
      whether either approach results in quantifying a misstatement that, when all
      relevant quantitative and qualitative factors are considered, is material.
      SAB
      108 is effective for our December 31, 2007 financial statements, and the Company
      does not expect the adoption of SAB 108 to have a material effect on its
      financial statements.








**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 expands 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 fair values.  The following is a preliminary
      allocation of the purchase price.




*(in
                thousands)*Other
                current assets, net of cash
            
            $
            16,937Inventories
            
            
            7,312Property,
                plant and equipment
            
            
            10,580Trademarks
            
            
            7,000Customer
                relationships
            
            
            21,950Goodwill
            
            
            90,776Other
                assets
            
            
            198Current
                liabilities
            
            
            (11,883
            )Other
                liabilities
            
            
            (16,081
            )Purchase
                price, net of cash acquired
            
            $
            126,789





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 nine months of 2006 for third-party charges associated with acquisition
      financing costs.





Unaudited
      pro forma results of operations for the nine month periods ended September
      30,
      2006 and October 1, 2005, and the three month period ended October 1, 2005
      as if
      the purchase had occurred at the beginning of the
      periods are as follows:


Nine
                months
              Ended
              September
                30, 2006
            
            Nine
                months
              Ended
              October
                1, 2005(Amounts
                in thousands)Net
                sales
            
            $
            782,743
            
            $
            729,577Net
                income
            
            
            16,421
            
            
            19,163





Three
                months
              Ended
              October
                1, 2005(Amounts
                in thousands)Net
                sales
            
            $
            260,741Net
                income
            
            
            12,039





9


**3.**
            **INTANGIBLE
                ASSETS AND GOODWILL**





The
      table
      that follows presents the components of intangible assets as of September 30,
      2006 and December 31, 2005:





Average
              Amortization
              Period
              (in
                Years)
            
            Cost
            
            Accumulated
              Amortization
            
            Net
                Carrying
              Value*(Amounts
                in thousands)***As
                of September 30, 2006:**Patents
            
            
            13
            
            $
            12,000
            
            $
            (2,416
            )
            $
            9,584Trademarks/Tradenames
            
            
            15
            
            
            32,
                145
            
            
            (4,858
            )
            
            27,287Customer
                relationships
            
            
            14
            
            
            119,923
            
            
            (16,668
            )
            
            103,255Total
                intangible assets
            
            
            
            
            $
            164,068
            
            $
            (23,942
            )
            $
            140,126Intangible
                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 nine month periods ended September 30, 2006 and October 1,
      2005
      was approximately $8.4 million and $7.3 million, respectively. Amortization
      expense for the remainder of 2006, and for the five succeeding fiscal years
      is
      estimated to be approximately $2.9 million, $11.6 million, $11.6 million, $11.6
      million, $11.6 million, and $11.5 million, respectively. Due to the Sarver
      facility closure, intangible asset impairments of approximately $0.8 million
      were recognized in the second quarter of 2006 as Selling, general and
      administrative expense.





In
      the
      nine months ended September 30, 2003, goodwill increased by approximately $90.8
      million for the Alenco Acquisition, and approximately $1.7 million due to
      currency translation changes.














**4.**
            **COMPREHENSIVE
                INCOME**





Comprehensive
      income is comprised of the following:




**Three
                Months Ended**
            
            **Nine
                Months Ended**September
                30, 2006
            
            October
                1, 2005
            
            September
                30, 2006
            
            October
                1, 2005*(Amounts
                in thousands)*Net
                income
            
            $
            6,532
            
            $
            11,271
            
            $
            15,494
            
            $
            16,524Foreign
                currency translation adjustment
            
            
            (34
            )
            
            1,587
            
            
            1,027
            
            
            1,261Comprehensive
                income
            
            $
            6,498
            
            $
            12,858
            
            $
            16,521
            
            $
            17,785








10





**5.**
            **LONG-TERM
                DEBT**





Long-term
      debt in the accompanying consolidated balance sheets at September 30, 2006
      and
      December 31, 2005 consists of the following:





September
                30, 2006
            
            December
                31,2005*(Amounts
                in thousands)*Senior
                term loan facility
            
            $
            398,000
            
            $
            277,192Senior
                subordinated notes
            
            
            360,242
            
            
            360,276758,242
            
            
            637,468Less
                current maturities
            
            
            4,000
            
            
            1,692$
            754,242
            
            $
            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 September 30,
      2006 the balances of the two tranches are approximately $373.1 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 September 30, 2006 ranged from 7.6% to
      7.7%.




Our
      senior credit facilities require scheduled quarterly principal payments on
      the
      term loan facilities of $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 September 30, 2006: *(Amounts
      in thousands)*








**Twelve
                month period ending:**September
                30, 2006
            
            $
            4,000September
                29, 2007
            
            
            4,000September
                27, 2008
            
            
            4,000October
                3, 2009
            
            
            4,000October
                2, 2010
            
            
            382,000Thereafter
            
            
            360,242$
            758,242





As
      of
      September 30, 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.







Subsequent
      to the end of the third quarter, in connection with its acquisition of Alcoa
      Home Exteriors, Inc. (the “AHE Acquisition”), the Company entered into an
      amendment to its existing credit agreement. Under the terms of the amended
      agreement, the Company borrowed an additional $187.0 million in U.S. term loans
      to fund the AHE Acquisition, which was completed on October 31, 2006 (see Note
      12). Additionally, the Company entered into a Second Lien Credit Agreement
      and
      borrowed $105.0 million, also used to fund the AHE Acquisition.  In
      conncection with the amended credit agreement, the financial covenant
      requirements under the credit facilities were also amended.









**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 nine
              months
                ended
              September
                30, 2006
            
            For
                the nine
              months
                ended
              October
                1, 2005*(Amounts
                in thousands)*Service
                cost
            
            $
            247
            
            $
            253Interest
                cost
            
            
            1,406
            
            
            1,440Expected
                return on plan assets
            
            
            (1,374
            )
            
            (1,241
            )Net
                periodic expense
            
            $
            279
            
            $
            452










12


**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 September 30, 2006.





The
      Company has indemnified third parties in certain transactions involving
      dispositions of former subsidiaries. As of September 30, 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)**September
                  30, 2006**
              
              **December
                  31, 2005**Product
                  claim liabilities
              
              $
              3,795
              
              $
              3,801Long-term
                  lease liabilities
              
              
              208
              
              
              231Multiemployer
                  pension plan withdrawal liability
              
              
              3,902
              
              
              4,028Other
              
              
              1,046
              
              
              1,054$
              8,951
              
              $
              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 September 30, 2006, warranty liabilities of approximately
      $4.7
      million have been recorded in current liabilities and approximately $7.5 million
      have been recorded in long term liabilities.








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





For
                the nine
              months
                ended
              September
                30, 2006
            
            For
                the nine months ended
              October
                1, 2005*(Amounts
                in thousands)***Balance,
                beginning of period**
            
            $
            10,790
            
            $
            11,095Warranty
                expense provided during period
            
            
            1,323
            
            
            2,510Settlements
                made during period
            
            
            (1,412
            )
            
            (2,544
            )Liability
                assumed with Alenco Acquisition
            
            
            1,461
            
            
            -**Balance,
                end of period**
            
            $
            12,162
            
            $
            11,061










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 September 30, 2006 and December
      31, 2005:




September
                30, 2006
            
            December
                31, 2005*(Amounts
                in thousands)*Insurance
            
            $
            6,720
            
            $
            4,660Employee
                compensation and benefits
            
            
            18,642
            
            
            11,727Sales
                and marketing
            
            
            18,668
            
            
            16,061Product
                warranty
            
            
            4,658
            
            
            4,331Short-term
                product claim liability
            
            
            2,321
            
            
            2,321Interest
            
            
            6,943
            
            
            16,576Federal
                taxes
            
            
            4,611
            
            
            285Other
                taxes
            
            
            3,306
            
            
            1,911Other,
                net
            
            
            10,804
            
            
            6,147$
            76,673
            
            $
            64,019







Other
      long-term liabilities consist of the following at September 30, 2006 and
      December 31, 2005:




September
                30, 2006
            
            December
                31, 2005*(Amounts
                in thousands)*Insurance
            
            $
            3,474
            
            $
            1,731Pension
                liabilities
            
            
            13,244
            
            
            14,974Product
                warranty
            
            
            7,504
            
            
            6,459Long-term
                product claim liability
            
            
            1,474
            
            
            1,480Employee
                compensation
            
            
            4,256
            
            
            -Contingent
                tax liability
            
            
            6,646
            
            
            6,646Other
            
            
            1,632
            
            
            1,181$
            38,230
            
            $
            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 elected the
        modified prospective transition method as permitted by SFAS No. 123(R) and,
        accordingly, prior periods were not restated to reflect the impact of SFAS
        No.
        123(R). In accordance with SFAS No. 123(R), the Company considered 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. On
        September 29, 2006 the Company amended the put right section of its
        Stockholders’ Agreement to require that Stockholders must have held vested
        shares for a minimum of six-months from the last day of the quarter during
        which
        such shares vested in order to receive the put right price formula for vested
        shares to ensure that stockholders are exposed to the risks and rewards of
        true
        equity ownership. As
        a
        result, the Company modified its accounting treatment, and as of September
        30,
        2006 will treat these stock options as equity-classified
        awards.




The
      value
      of the options did not change due to the modification to the Stockholder’s
      Agreement, and no additional compensation expense was recorded.





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
      $0.02 million and $0.08 million was recognized for the three month and nine
      months ended September 30, 2006. The implementation of SFAS No. 123(R) did
      not
      have any impact on cash flows during the first nine months of 2006.





Prior
      to
      the modifications, the fair value of each option was 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
              September
                30, 2006
            
            As
                of
              January
                1, 2006Weighted
                average fair value of options granted
            
            $
            1.01
            
            $
            3.47Weighted
                average assumptions used:Expected
                volatility
            
            
            30%
            
            
            30%Expected
                term (in years)
            
            
            5
            
            
            5Risk-free
                interest rate
            
            
            4.59%
            
            
            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
      $6.00 per share at December 31, 2005 and September 30, 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 nine month periods ended October 1, 2005,
      the
      Company presented pro forma net income of approximately $11.3 million and $16.5
      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 nine months ended
      September 30, 2006 is presented below:




Stock
                Options
            
            Weighted-Average
                Exercise
              Price
            
            Weighted-Average
                Remaining ContractualTerm
                (Years)Balance
                at January 1, 2006
            
            
            134,594
            
            $
            10.00
            
            
            7.71Granted
            
            
            29,300
            
            $
            10.00
            
            
            9.65Forfeited
                or expired
            
            
            (5,900
            )
            $
            10.00
            
            
            -Balance
                at September 30, 2006
            
            
            157,994
            
            $
            10.00
            
            
            8.08





As
      of
      September 30, 2006, no options have vested. At September 30, 2006, the Company
      had approximately $0.1 million of total unrecognized compensation expense that
      will be recognized over the weighted average period of 3.08 years.





15


*Other
      Share-Based compensation*








Upon
      completion of the acquisitions 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 phantom common stock units in Ply Gem Investment Holdings, Inc., which
      were
      governed by the Ply Gem Prime Investment Holdings, Inc. Phantom Stock Plan.
      As
      described above, in connection with the Alenco Acquisition, Ply Gem Prime
      Holdings, Inc. assumed Ply Gem Investment Holdings, Inc.’s obligations under the
      Phantom Plan, and each outstanding phantom unit of Ply Gem Investment Holdings,
      Inc. was converted on a 1:1 basis into a phantom unit of Ply Gem Prime Holdings,
      Inc. (References to the “Phantom Plan” in this section refer to the predecessor
      and amended versions of such plan.)





Under
      the
      Phantom Plan (until it, and the units outstanding thereunder, were subsequently
      amended, as described below), each participant’s interest in the plan was
      recorded in a bookkeeping account, and each account was deemed invested in
      Ply
      Gem Prime Holdings, Inc.’s stock. No stock was initially issued under the
      Phantom Plan, but, upon liquidation and payment of a participant’s account under
      the Phantom Plan, the value of the account generally was to 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 Phantom Plan were governed by the Ply Gem Prime Holdings, Inc.’s
      Stockholders’ Agreement (and the predecessor agreement for Ply Gem Investment
      Holdings, Inc.), which gave the participant put rights in certain circumstances
      which allowed the participant to put the stock back to Ply Gem Prime Holdings,
      Inc. at a price determined using predefined formulas contained in the
      Stockholders’ Agreement and the Phantom Plan. The Stockholders’ Agreement and
      the Phantom Plan contained two separate put right price formulas that were
      used
      to determine the participants’ account balances. The determination of which put
      right price formula was applicable to each of the participants’ phantom common
      stock awards was based upon the participant’s reaching certain vesting
      requirements described in the Stockholders’ Agreement. Based on the above, the
      Company accounted for these awards of phantom common shares under the modified
      prospective transition method of SFAS No. 123(R) as liability-classified awards.





On
      September 25, 2006, the Company amended the Phantom Plan, so that each award
      under the Phantom plan was converted into a cash-denominated account earning
      interest through a fixed date. Phantom common shares valued at approximately
      $1.7 million were paid out, and approximately $1.2 million of common stock
      was purchased by the holders of the phantom common shares. Approximately $1.7
      million was recognized as compensation expense during the third quarter of
      2006
      as a result of the pay out of Phantom common shares, and approximatley $0.9
      million was recognized as compensation expense during the third quarter of
      2006
      as a result of the pay out of Phantom preferred shares.





At
      December 31, 2005 these awards were not recorded as a liability on the balance
      sheet, due to the fact that the repurchase price under the put right formula
      was
      less than $0.





A
      summary
      of changes in phantom common stock units outstanding during the quarter ended
      September 30, 2006 is presented below:


Phantom
                Common
              Stock
                UnitsBalance
                at January 1, 2006
            
            
            179,915Repurchased
            
            
            (13,590
            )Converted
                to cash account
            
            
            (166,325
            )Balance
                at September 30, 2006
            
            
            -





16


Upon
      completion of each of the Ply Gem Acquisition, MW Acquisition and Alenco
      Acquisition, 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. (As described above, investments in connection with the Ply Gem
      Acquisition and the MW Acquisition were in Ply Gem Investment Holdings, Inc.
      common stock, which stock was later converted into Ply Gem Prime Holdings,
      Inc.
      common stock in connection with the Alenco Acquisition.) 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 Ply Gem
      Prime Holdings, Inc. at a price that is determined using defined formulas
      contained within the Stockholders’ Agreement. The Stockholders’ Agreement
      contains two separate put right price formulas. The determination of which
      put
      right price formula will be applicable to each of the participant’s common stock
      shares is based upon the participants reaching certain vesting requirements
      which are described in the Stockholders’ Agreement. The common shares generally
      vest at a rate of 20% per year of service, but may vest earlier if certain
      events occur. Based on the above, the Company has accounted for these awards
      of
      common shares under the modified transition method of SFAS No. 123(R) as
      liability-classified awards.





On
      September 29, 2006 the Company amended the put right section of its
      Stockholders’ Agreement to require that Stockholders must have held vested
      shares for a minimum of six-months from the last day of the quarter during
      which
      such shares vested in order to receive the put right price formula for vested
      shares to ensure that stockholders are exposed to the risks and rewards of
      true
      equity ownership. As a result, the Company modified its accounting treatment,
      and as of September 30, 2006, will treat these as equity classified awards.
      On
      September 29, 2006, the repurchase price under the put right formula was less
      than $0. As such, no compensation cost will be recognized for these
      shares.





At
      December 31, 2005 these awards were not recorded as a liability on the balance
      sheet, due to the fact that the repurchase price under the put right formula
      was
      less than $0.





Common
                Stock
              Shares
                Owned by
              ManagementBalance
                at January 1, 2006
            
            
            426,904Shares
                issued
            
            
            360,810Shares
                issued after Phantom plan change
            
            
            118,804Shares
                repurchased
            
            
            (28,710
            )Balance
                at September 30, 2006
            
            
            877,808







**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
      Sarver, PA facility 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 were recorded during the second quarter of 2006 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 .








17


**11.
      SEGMENT INFORMATION**





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





The
      Company has two reportable segments: 1) siding, fencing, 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**
            
            **Nine
                months ended**September
                30, 2006
            
            October
                1, 2005
            
            September
                30, 2006
            
            October
                1, 2005**Net
                Sales**Siding,
                Fencing, Railing and Decking
            
            $
            110,055
            
            $
            104,928
            
            $
            339,261
            
            $
            293,956Windows
                and Doors
            
            
            147,003
            
            
            120,587
            
            
            422,219
            
            
            333,597$
            257,058
            
            $
            225,515
            
            $
            761,480
            
            $
            627,553**Operating
                earnings**Siding,
                Fencing, Railing and Decking
            
            $
            15,615
            
            $
            16,358
            
            $
            45,372
            
            $
            34,859Windows
                and Doors
            
            
            16,361
            
            
            15,815
            
            
            37,348
            
            
            36,838Unallocated
            
            
            (4,630
            )
            
            (763
            )
            
            (7,091
            )
            
            (2,472
            )$
            27,346
            
            $
            31,410
            
            $
            75,629
            
            $
            69,225**As
                of**
            
            
            **As
                of****September
                30, 2006**
            
            
            **December
                31, 2005****Total
                Assets**Siding,
                Fencing, Railing and Decking
            
            $
            476,809
            
            $
            468,679Windows
                and Doors
            
            
            693,545
            
            
            534,828Unallocated
            
            
            67,879
            
            
            46,491$
            1,238,233
            
            $
            1,049,998











**12.**  **SUBSEQUENT
      EVENTS**




On
      October 31, 2006, Ply Gem completed the AHE Acquisition in accordance with
      a
      stock purchase agreement entered into among Ply Gem, Alcoa Securities
      Corporation and Alcoa Inc. Pursuant to the Stock Purchase Agreement, Ply Gem
      purchased all of the issued and outstanding shares of common stock of AHE so
      that, immediately following the completion of such purchase, AHE became wholly
      owned by Ply Gem. The purchase price paid by Ply Gem was approximately $305.0
      million of cash. In accordance with the General Advisory Agreement with
      Caxton-Iseman, the Company paid a transaction fee to an affiliate of
      Caxton-Iseman of $6.1 million in October 2006.





18


**13.
      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 September 30, 2006 and for the three month and nine month
      periods ended September 30, 2006 and October 1, 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 September 30, 2006**Guarantor
            
            Issuer
            
            
            
            Non-Ply
                Gem
            
            Ply
                Gem
            
            Guarantor
            
            GuarantorHoldings,
                Inc.
            
            Industries,
                Inc.
            
            Subsidiaries
            
            Subsidiary
            
            Eliminations
            
            Consolidated(Amounts
                in thousands)Net
                Sales
            
            $
            -
            
            $
            -
            
            $
            238,443
            
            $
            18,615
            
            $
            -
            
            $
            257,058Costs
                and Expenses:Cost
                of products sold
            
            
            -
            
            
            -
            
            
            183,847
            
            
            12,524
            
            
            -
            
            
            196,371Selling,
                general andadministrative
                expense
            
            
            -
            
            
            4,630
            
            
            22,826
            
            
            2,975
            
            
            -
            
            
            30,431Intercompany
                administrativecharges
            
            
            -
            
            
            (2,384
            )
            
            2,384
            
            
            -
            
            
            -
            
            
            -Amortization
                of intangible assets
            
            
            -
            
            
            -
            
            
            2,910
            
            
            -
            
            
            -
            
            
            2,910Total
                Costs and Expenses
            
            
            -
            
            
            2,246
            
            
            211,967
            
            
            15,499
            
            
            -
            
            
            229,712Operating
                earnings
            
            
            -
            
            
            (2,246
            )
            
            26,476
            
            
            3,116
            
            
            -
            
            
            27,346Foreign
                currency loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (79
            )
            
            -
            
            
            (79
            )Intercompany
                interest
            
            
            -
            
            
            15,899
            
            
            (15,688
            )
            
            (211
            )
            
            -
            
            
            -Interest
                expense
            
            
            -
            
            
            (16,478
            )
            
            -
            
            
            (507
            )
            
            -
            
            
            (16,985
            )Investment
                income
            
            
            -
            
            
            272
            
            
            56
            
            
            45
            
            
            -
            
            
            373Income
                before equity insubsidiaries'
                income
            
            
            -
            
            
            (2,553
            )
            
            10,844
            
            
            2,364
            
            
            -
            
            
            10,655Equity
                in subsidiaries' income
            
            
            6,532
            
            
            8,064
            
            
            -
            
            
            -
            
            
            (14,596
            )
            
            -Income
                before provisionfor
                income taxes
            
            
            6,532
            
            
            5,511
            
            
            10,844
            
            
            2,364
            
            
            (14,596
            )
            
            10,655Provision
                for income taxes
            
            
            -
            
            
            (1,021
            )
            
            4,341
            
            
            803
            
            
            -
            
            
            4,123Net
                income
            
            $
            6,532
            
            $
            6,532
            
            $
            6,503
            
            $
            1,561
            
            $
            (14,596
            )
            $
            6,532





19








**PLY
                GEM HOLDINGS, INC. AND SUBSIDIARIES****CONDENSED
                CONSOLIDATING STATEMENT OF OPERATIONS****For
                the three months ended October 1, 2005**Guarantor
            
            Issuer
            
            
            
            Non-Ply
                Gem
            
            Ply
                Gem
            
            Guarantor
            
            GuarantorHoldings,
                Inc.
            
            Industries,
                Inc.
            
            Subsidiaries
            
            Subsidiary
            
            Eliminations
            
            Consolidated(Amounts
                in thousands)Net
                Sales
            
            $
            -
            
            $
            -
            
            $
            207,778
            
            $
            17,737
            
            $
            -
            
            $
            225,515Costs
                and Expenses:Cost
                of products sold
            
            
            -
            
            
            -
            
            
            158,663
            
            
            11,809
            
            
            -
            
            
            170,472Selling,
                general andadministrative
                expense
            
            
            -
            
            
            1,548
            
            
            16,918
            
            
            2,728
            
            
            -
            
            
            21,194Intercompany
                administrativecharges
            
            
            -
            
            
            9,214
            
            
            (9,214
            )
            
            -
            
            
            -
            
            
            -Amortization
                of intangible assets
            
            
            -
            
            
            -
            
            
            2,439
            
            
            -
            
            
            -
            
            
            2,439Total
                Costs and Expenses
            
            
            -
            
            
            10,762
            
            
            168,806
            
            
            14,537
            
            
            -
            
            
            194,105Operating
                earnings
            
            
            -
            
            
            (10,762
            )
            
            38,972
            
            
            3,200
            
            
            -
            
            
            31,410Foreign
                currency gain
            
            
            -
            
            
            -
            
            
            -
            
            
            1,282
            
            
            -
            
            
            1,282Intercompany
                interest
            
            
            -
            
            
            36,354
            
            
            (36,090
            )
            
            (264
            )
            
            -
            
            
            -Interest
                expense
            
            
            -
            
            
            (14,039
            )
            
            (42
            )
            
            (401
            )
            
            -
            
            
            (14,482
            )Investment
                income
            
            
            -
            
            
            96
            
            
            133
            
            
            15
            
            
            -
            
            
            244Income
                before equity insubsidiaries'
                income
            
            
            -
            
            
            11,649
            
            
            2,973
            
            
            3,832
            
            
            -
            
            
            18,454Equity
                in subsidiaries' income
            
            
            11,271
            
            
            4,282
            
            
            -
            
            
            -
            
            
            (15,553
            )
            
            -Income
                before provisionfor
                income taxes
            
            
            11,271
            
            
            15,931
            
            
            2,973
            
            
            3,832
            
            
            (15,553
            )
            
            18,454Provision
                for income taxes
            
            
            -
            
            
            4,660
            
            
            1,221
            
            
            1,302
            
            
            -
            
            
            7,183Net
                income
            
            $
            11,271
            
            $
            11,271
            
            $
            1,752
            
            $
            2,530
            
            $
            (15,553
            )
            $
            11,271














20








**PLY
                GEM HOLDINGS, INC. AND SUBSIDIARIES****CONDENSED
                CONSOLIDATING STATEMENT OF OPERATIONS****For
                the nine months ended September 30, 2006**Guarantor
            
            Issuer
            
            
            
            Non-Ply
                Gem
            
            Ply
                Gem
            
            Guarantor
            
            GuarantorHoldings,
                Inc.
            
            Industries,
                Inc.
            
            Subsidiaries
            
            Subsidiary
            
            Eliminations
            
            Consolidated(Amounts
                in thousands)Net
                Sales
            
            $
            -
            
            $
            -
            
            $
            711,900
            
            $
            49,580
            
            $
            -
            
            $
            761,480Costs
                and Expenses:Cost
                of products sold
            
            
            -
            
            
            -
            
            
            554,465
            
            
            34,205
            
            
            -
            
            
            588,670Selling,
                general andadministrative
                expense
            
            
            -
            
            
            7,091
            
            
            72,640
            
            
            9,016
            
            
            -
            
            
            88,747Intercompany
                administrativecharges
            
            
            -
            
            
            (7,117
            )
            
            7,117
            
            
            -
            
            
            -
            
            
            -Amortization
                of intangible assets
            
            
            -
            
            
            -
            
            
            8,434
            
            
            -
            
            
            -
            
            
            8,434Total
                Costs and Expenses
            
            
            -
            
            
            (26
            )
            
            642,656
            
            
            43,221
            
            
            -
            
            
            685,851Operating
                earnings
            
            
            -
            
            
            26
            
            
            69,244
            
            
            6,359
            
            
            -
            
            
            75,629Foreign
                currency gain
            
            
            -
            
            
            -
            
            
            -
            
            
            1,014
            
            
            -
            
            
            1,014Intercompany
                interest
            
            
            -
            
            
            45,892
            
            
            (45,260
            )
            
            (632
            )
            
            -
            
            
            -Interest
                expense
            
            
            -
            
            
            (48,122
            )
            
            -
            
            
            (1,387
            )
            
            -
            
            
            (49,509
            )Investment
                income
            
            
            -
            
            
            473
            
            
            202
            
            
            111
            
            
            -
            
            
            786Other
                expense
            
            
            -
            
            
            (2,497
            )
            
            -
            
            
            -
            
            
            -
            
            
            (2,497
            )Income
                (loss) before equity insubsidiaries'
                income
            
            
            -
            
            
            (4,228
            )
            
            24,186
            
            
            5,465
            
            
            -
            
            
            25,423Equity
                in subsidiaries' income
            
            
            15,494
            
            
            18,117
            
            
            -
            
            
            -
            
            
            (33,611
            )
            
            -Income
                before income taxesand
                cumulative effect of accounting change
            
            
            15,494
            
            
            13,889
            
            
            24,186
            
            
            5,465
            
            
            (33,611
            )
            
            25,423Provision
                (benefit) for income taxes
            
            
            -
            
            
            (1,691
            )
            
            9,676
            
            
            1,858
            
            
            -
            
            
            9,843Income
                before cumulativeeffect
                of accounting change
            
            
            15,494
            
            
            15,580
            
            
            14,510
            
            
            3,607
            
            
            (33,611
            )
            
            15,580Cumulative
                effect of accounting change
            
            
            -
            
            
            (86
            )
            
            -
            
            
            -
            
            
            -
            
            
            (86
            )Net
                income
            
            $
            15,494
            
            $
            15,494
            
            $
            14,510
            
            $
            3,607
            
            $
            (33,611
            )
            $
            15,494








21








**PLY
                GEM HOLDINGS, INC. AND SUBSIDIARIES****CONDENSED
                CONSOLIDATING STATEMENT OF OPERATIONS****For
                the nine months ended October 1, 2005**Guarantor
            
            Issuer
            
            
            
            Non-Ply
                Gem
            
            Ply
                Gem
            
            Guarantor
            
            GuarantorHoldings,
                Inc.
            
            Industries,
                Inc.
            
            Subsidiaries
            
            Subsidiary
            
            Eliminations
            
            Consolidated(Amounts
                in thousands)Net
                Sales
            
            $
            -
            
            $
            -
            
            $
            584,146
            
            $
            43,407
            
            $
            -
            
            $
            627,553Costs
                and Expenses:Cost
                of products sold
            
            
            -
            
            
            -
            
            
            453,274
            
            
            29,806
            
            
            -
            
            
            483,080Selling,
                general andadministrative
                expense
            
            
            -
            
            
            4,441
            
            
            55,926
            
            
            7,561
            
            
            -
            
            
            67,928Intercompany
                administrativecharges
            
            
            -
            
            
            (5,844
            )
            
            5,844
            
            
            -
            
            
            -
            
            
            -Amortization
                of intangible assets
            
            
            -
            
            
            -
            
            
            7,320
            
            
            -
            
            
            -
            
            
            7,320Total
                Costs and Expenses
            
            
            -
            
            
            (1,403
            )
            
            522,364
            
            
            37,367
            
            
            -
            
            
            558,328Operating
                earnings
            
            
            -
            
            
            1,403
            
            
            61,782
            
            
            6,040
            
            
            -
            
            
            69,225Foreign
                currency gain
            
            
            -
            
            
            -
            
            
            -
            
            
            745
            
            
            -
            
            
            745Intercompany
                interest
            
            
            -
            
            
            36,851
            
            
            (36,090
            )
            
            (761
            )
            
            -
            
            
            -Interest
                expense
            
            
            -
            
            
            (41,099
            )
            
            (999
            )
            
            (1,059
            )
            
            -
            
            
            (43,157
            )Investment
                income
            
            
            -
            
            
            185
            
            
            251
            
            
            31
            
            
            -
            
            
            467Income
                (loss) before equity insubsidiaries'
                income
            
            
            -
            
            
            (2,660
            )
            
            24,944
            
            
            4,996
            
            
            -
            
            
            27,280Equity
                in subsidiaries' income
            
            
            16,524
            
            
            18,120
            
            
            -
            
            
            -
            
            
            (34,644
            )
            
            -Income
                (loss) before provision (benefit)for
                income taxes
            
            
            16,524
            
            
            15,460
            
            
            24,944
            
            
            4,996
            
            
            (34,644
            )
            
            27,280Provision
                (benefit) for income taxes
            
            
            -
            
            
            (1,064
            )
            
            10,122
            
            
            1,698
            
            
            -
            
            
            10,756Net
                income
            
            $
            16,524
            
            $
            16,524
            
            $
            14,822
            
            $
            3,298
            
            $
            (34,644
            )
            $
            16,524


22


**PLY
                  GEM HOLDINGS, INC. AND SUBSIDIARIES****CONDENSED
                  CONSOLIDATING BALANCE SHEET****As
                  of September 30, 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
              
              $
              -
              
              $
              31,447
              
              $
              7,655
              
              $
              6,435
              
              $
              -
              
              $
              45,537Accounts
                  receivable, net
              
              
              -
              
              
              -
              
              
              93,884
              
              
              9,258
              
              
              -
              
              
              103,142Inventories:Raw
                  materials
              
              
              -
              
              
              -
              
              
              38,113
              
              
              3,723
              
              
              -
              
              
              41,836Work
                  in process
              
              
              -
              
              
              -
              
              
              5,709
              
              
              1,309
              
              
              -
              
              
              7,018Finished
                  goods
              
              
              -
              
              
              -
              
              
              18,448
              
              
              2,044
              
              
              -
              
              
              20,492Total
                  inventory
              
              
              -
              
              
              -
              
              
              62,270
              
              
              7,076
              
              
              -
              
              
              69,346Prepaid
                  expenses and othercurrent
                  assets
              
              
              -
              
              
              2,965
              
              
              7,487
              
              
              501
              
              
              -
              
              
              10,953Deferred
                  income taxes
              
              
              -
              
              
              -
              
              
              14,919
              
              
              -
              
              
              -
              
              
              14,919Total
                  current assets
              
              
              -
              
              
              34,412
              
              
              186,215
              
              
              23,270
              
              
              -
              
              
              243,897Investments
                  in subsidiaries
              
              
              237,493
              
              
              161,655
              
              
              -
              
              
              -
              
              
              (399,148
              )
              
              -**Property
                  and Equipment, at cost:**Land
              
              
              -
              
              
              -
              
              
              1,220
              
              
              157
              
              
              -
              
              
              1,377Buildings
                  and improvements
              
              
              -
              
              
              106
              
              
              13,137
              
              
              741
              
              
              -
              
              
              13,984Machinery
                  and equipment
              
              
              -
              
              
              49
              
              
              135,462
              
              
              4,582
              
              
              -
              
              
              140,093-
              
              
              
              
              
              155
              
              
              149,819
              
              
              5,480
              
              
              -
              
              
              155,454Less
                  accumulated depreciation
              
              
              -
              
              
              (75
              )
              
              (38,825
              )
              
              (1,279
              )
              
              -
              
              
              (40,179
              )Total
                  property and equipment,net
              
              
              -
              
              
              80
              
              
              110,994
              
              
              4,201
              
              
              -
              
              
              115,275**Other
                  Assets:**Goodwill
              
              
              -
              
              
              -
              
              
              629,341
              
              
              42,131
              
              
              -
              
              
              671,472Intangible
                  assets, net
              
              
              -
              
              
              -
              
              
              172,626
              
              
              -
              
              
              -
              
              
              172,626Intercompany
                  note receivable
              
              
              -
              
              
              771,345
              
              
              -
              
              
              -
              
              
              (771,345
              )
              
              -Other
              
              
              -
              
              
              34,751
              
              
              212
              
              
              -
              
              
              -
              
              
              34,963Total
                  other assets
              
              
              -
              
              
              806,096
              
              
              802,179
              
              
              42,131
              
              
              (771,345
              )
              
              879,061$
              237,493
              
              $
              1,002,243
              
              $
              1,099,388
              
              $
              69,602
              
              $
              (1,170,493
              )
              $
              1,238,233**LIABILITIES
                  AND STOCKHOLDER'S EQUITY****Current
                  Liabilities:**Current
                  maturities of long-termdebt
              
              $
              -
              
              $
              3,750
              
              $
              -
              
              $
              250
              
              $
              -
              
              $
              4,000Accounts
                  payable
              
              
              -
              
              
              52
              
              
              50,758
              
              
              4,844
              
              
              -
              
              
              55,654Accrued
                  expenses and taxes
              
              
              -
              
              
              15,054
              
              
              58,269
              
              
              3,350
              
              
              -
              
              
              76,673Total
                  current liabilities
              
              
              -
              
              
              18,856
              
              
              109,027
              
              
              8,444
              
              
              -
              
              
              136,327Deferred
                  income taxes
              
              
              -
              
              
              -
              
              
              69,363
              
              
              2,578
              
              
              -
              
              
              71,941Intercompany
                  note payable
              
              
              -
              
              
              -
              
              
              761,999
              
              
              9,346
              
              
              (771,345
              )
              
              -Other
                  long term liabilities
              
              
              -
              
              
              16,277
              
              
              20,963
              
              
              990
              
              
              -
              
              
              38,230Long-term
                  debt, less currentmaturities
              
              
              -
              
              
              729,617
              
              
              -
              
              
              24,625
              
              
              -
              
              
              754,242**Stockholder's
                  Equity:**Preferred
                  stock
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Common
                  stock
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Additional
                  paid-in-capital
              
              
              180,919
              
              
              180,919
              
              
              96,609
              
              
              6,047
              
              
              (283,575
              )
              
              180,919Retained
                  earnings
              
              
              53,401
              
              
              53,401
              
              
              42,884
              
              
              12,943
              
              
              (109,228
              )
              
              53,401Accumulated
                  othercomprehensive
                  income (loss)
              
              
              3,173
              
              
              3,173
              
              
              (1,457
              )
              
              4,629
              
              
              (6,345
              )
              
              3,173$
              237,493
              
              $
              1,002,243
              
              $
              1,099,388
              
              $
              69,602
              
              $
              (1,170,493
              )
              $
              1,238,233













23


**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






24




**PLY
                GEM HOLDINGS, INC. AND SUBSIDIARIES****CONSOLIDATING
                STATEMENT OF CASH FLOWS****For
                the nine months ended September 30, 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
            
            $
            15,494
            
            $
            15,494
            
            $
            14,510
            
            $
            3,607
            
            $
            (33,611
            )
            $
            15,494**Adjustments
                to reconcile net****income
                to cash provided by****operating
                activities:**Depreciation
                and amortizationexpense
            
            
            -
            
            
            31
            
            
            22,265
            
            
            427
            
            
            -
            
            
            22,723Fair
                value premium on purchased
            
            
            -
            
            
            -
            
            
            304
            
            
            -
            
            
            -
            
            
            304inventoryNon-cash
                interest expense, net
            
            
            -
            
            
            3,982
            
            
            -
            
            
            -
            
            
            -
            
            
            3,982Gain
                on foreign currency transactions
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,014
            )
            
            -
            
            
            (1,014
            )Loss
                on sale of asset
            
            
            -
            
            
            -
            
            
            572
            
            
            -
            
            
            -
            
            
            572Other
                non-cash items
            
            
            -
            
            
            1,094
            
            
            1,388
            
            
            -
            
            
            -
            
            
            2,482Deferred
                income taxes
            
            
            -
            
            
            -
            
            
            (584
            )
            
            1,252
            
            
            -
            
            
            668Equity
                in subsidiaries' net income
            
            
            (15,494
            )
            
            (18,117
            )
            
            -
            
            
            -
            
            
            33,611
            
            
            -**Changes
                in operating assets and****liabilities:**Accounts
                receivable, net
            
            
            -
            
            
            -
            
            
            (19,603
            )
            
            (2,280
            )
            
            -
            
            
            (21,883
            )Inventories
            
            
            -
            
            
            -
            
            
            (6,488
            )
            
            (547
            )
            
            -
            
            
            (7,035
            )Prepaid
                expenses and othercurrent
                assets
            
            
            -
            
            
            (1,431
            )
            
            5,229
            
            
            (111
            )
            
            -
            
            
            3,687Accounts
                payable
            
            
            -
            
            
            (97
            )
            
            5,782
            
            
            1,301
            
            
            -
            
            
            6,986Accrued
                expenses and taxes
            
            
            -
            
            
            (6,480
            )
            
            11,480
            
            
            1,332
            
            
            -
            
            
            6,332Other
            
            
            -
            
            
            -
            
            
            (3
            )
            
            (365
            )
            
            -
            
            
            (368
            )**Net
                cash provided by****operating
                activities**
            
            
            -
            
            
            (5,524
            )
            
            34,852
            
            
            3,602
            
            
            -
            
            
            32,930**Cash
                flows from investing activities:**Capital
                expenditures
            
            
            -
            
            
            -
            
            
            (13,492
            )
            
            (1,295
            )
            
            -
            
            
            (14,787
            )Proceeds
                from sale of building
            
            
            -
            
            
            -
            
            
            4,474
            
            
            -
            
            
            -
            
            
            4,474Acquisitions,
                net of cash acquired
            
            
            -
            
            
            (120,754
            )
            
            -
            
            
            -
            
            
            -
            
            
            (120,754
            )Other
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -**Net
                cash used in investing****activities**
            
            
            -
            
            
            (120,754
            )
            
            (9,018
            )
            
            (1,295
            )
            
            -
            
            
            (131,067
            )**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
            
            
            -
            
            
            27,309
            
            
            (27,309
            )
            
            -
            
            
            -
            
            
            -Payments
                on long-term debt
            
            
            -
            
            
            (1,874
            )
            
            -
            
            
            (126
            )
            
            -
            
            
            (2,000
            )Payment
                on revolver borrowings
            
            
            -
            
            
            (15,000
            )
            
            -
            
            
            -
            
            
            -
            
            
            (15,000
            )Debt
                issuance costs
            
            
            -
            
            
            (2,249
            )
            
            -
            
            
            -
            
            
            -
            
            
            (2,249
            )Equity
                contribution
            
            
            -
            
            
            2,718
            
            
            -
            
            
            -
            
            
            -
            
            
            2,718**Net
                cash provided by****financing
                activities**
            
            
            -
            
            
            148,224
            
            
            (27,309
            )
            
            362
            
            
            -
            
            
            121,277Impact
                of exchange rate movementon
                cash
            
            
            -
            
            
            -
            
            
            -
            
            
            224
            
            
            -
            
            
            224Net
                increase (decrease) in cashand
                cash equivalents
            
            
            -
            
            
            21,946
            
            
            (1,475
            )
            
            2,893
            
            
            -
            
            
            23,364Cash
                and cash equivalents at thebeginning
                of the period
            
            
            -
            
            
            9,501
            
            
            9,130
            
            
            3,542
            
            
            -
            
            
            22,173Cash
                and cash equivalents at the endof
                the period
            
            $
            -
            
            $
            31,447
            
            $
            7,655
            
            $
            6,435
            
            $
            -
            
            $
            45,537








25


**PLY
                GEM HOLDINGS, INC. AND SUBSIDIARIES****CONSOLIDATING
                STATEMENT OF CASH FLOWS****For
                the nine months ended October 1, 2005**Guarantor
            
            Issuer
            
            
            
            Non-Ply
                Gem
            
            Ply
                Gem
            
            Guarantor
            
            GuarantorHoldings,
                Inc.
            
            Industries,
                Inc.
            
            Subsidiaries
            
            Subsidiary
            
            Eliminations
            
            Consolidated(Amounts
                in thousands)**Cash
                flows from operating****activities:**Net
                income
            
            $
            16,524
            
            $
            16,524
            
            $
            14,822
            
            $
            3,298
            
            $
            (34,644
            )
            $
            16,524**Adjustments
                to reconcile net****income
                (loss) to cash provided by****(used
                in) operating activities:**Depreciation
                and amortizationexpense
            
            
            -
            
            
            19
            
            
            19,113
            
            
            364
            
            
            -
            
            
            19,496Non-cash
                interest expense, net
            
            
            -
            
            
            3,669
            
            
            -
            
            
            -
            
            
            -
            
            
            3,669Gain
                on foreign currency transactions
            
            
            -
            
            
            -
            
            
            -
            
            
            (745
            )
            
            -
            
            
            (745
            )Deferred
                income taxes
            
            
            -
            
            
            13,707
            
            
            (6,268
            )
            
            789
            
            
            -
            
            
            8,228Equity
                in subsidiaries' net income
            
            
            (16,524
            )
            
            (18,120
            )
            
            -
            
            
            -
            
            
            34,644
            
            
            -**Changes
                in operating assets and****liabilities:**Accounts
                receivable, net
            
            
            -
            
            
            -
            
            
            (29,039
            )
            
            (3,232
            )
            
            -
            
            
            (32,271
            )Inventories
            
            
            -
            
            
            -
            
            
            2,240
            
            
            (684
            )
            
            -
            
            
            1,556Prepaid
                expenses and othercurrent
                assets
            
            
            -
            
            
            (2,117
            )
            
            (584
            )
            
            169
            
            
            -
            
            
            (2,532
            )Accounts
                payable
            
            
            -
            
            
            -
            
            
            15,335
            
            
            1,893
            
            
            -
            
            
            17,228Accrued
                expenses and taxes
            
            
            -
            
            
            (7,695
            )
            
            (784
            )
            
            (2,037
            )
            
            -
            
            
            (10,516
            )Other
            
            
            -
            
            
            14
            
            
            (1
            )
            
            22
            
            
            -
            
            
            35**Net
                cash provided by (used in)****operating
                activities**
            
            
            -
            
            
            6,001
            
            
            14,834
            
            
            (163
            )
            
            -
            
            
            20,672**Cash
                flows used in investing****activities:**Capital
                expenditures
            
            
            -
            
            
            (7
            )
            
            (7,143
            )
            
            (441
            )
            
            -
            
            
            (7,591
            )Acquisitions,
                net of cash acquired
            
            
            -
            
            
            (409
            )
            
            -
            
            
            789
            
            
            -
            
            
            380**Net
                cash provided by (used in)****investing
                activities**
            
            
            -
            
            
            (416
            )
            
            (7,143
            )
            
            348
            
            
            -
            
            
            (7,211
            )**Cash
                flows provided by (used in)****financing
                activities:**Proceeds
                from long-term debt
            
            
            -
            
            
            35,500
            
            
            -
            
            
            -
            
            
            -
            
            
            35,500Proceeds
                from intercompanyinvestment,
                net
            
            
            -
            
            
            (2,400
            )
            
            -
            
            
            2,400
            
            
            -
            
            
            -Payments
                on long-term debt
            
            
            -
            
            
            (23,181
            )
            
            (7,000
            )
            
            (200
            )
            
            -
            
            
            (30,381
            )Return
                of equity contribution
            
            
            -
            
            
            261
            
            
            -
            
            
            -
            
            
            -
            
            
            261**Net
                cash provided by (used in)****financing
                activities**
            
            
            -
            
            
            10,180
            
            
            (7,000
            )
            
            2,200
            
            
            -
            
            
            5,380Impact
                of exchange rate movementon
                cash
            
            
            -
            
            
            -
            
            
            -
            
            
            199
            
            
            -
            
            
            199Net
                increase (decrease) in cashand
                cash equivalents
            
            
            -
            
            
            15,765
            
            
            691
            
            
            2,584
            
            
            -
            
            
            19,040Cash
                and cash equivalents at thebeginning
                of the period
            
            
            -
            
            
            1,923
            
            
            3,483
            
            
            1,388
            
            
            -
            
            
            6,794Cash
                and cash equivalents at the endof
                the period
            
            $
            -
            
            $
            17,688
            
            $
            4,174
            
            $
            3,972
            
            $
            -
            
            $
            25,834











26


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





The
      information contained in this discussion and in the unaudited Condensed
      Consolidated Financial Statements and Accompanying Notes presented in this
      Form
      10-Q should be read in conjunction with information set forth in Ply Gem
      Holdings, Inc.’s Annual Report on Form 10-K. Certain statements in this
“Management’s Discussion and Analysis of Financial Condition and Results of
      Operations” are “forward-looking statements.” See “Special Note Regarding
      Forward-Looking Statements.” As used in this Quarterly Report on Form 10-Q, the
“Company”, “we”, “us”, and “our” refer to Ply Gem Holdings, Inc. and its
      subsidiaries, except where the context otherwise requires or as otherwise
      indicated.





***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.





On
      October 31, 2006, Ply Gem completed the AHE Acquisition in accordance with
      a
      stock purchase agreement entered into among Ply Gem, Alcoa Securities
      Corporation and Alcoa Inc. Pursuant to the Stock Purchase Agreement, Ply Gem
      purchased all of the issued and outstanding shares of common stock of AHE so
      that, immediately following the completion of such purchase, AHE became wholly
      owned by Ply Gem.








27


***Financial
      statement presentation***





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





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





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





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





*Comparability.* The data
      presented for the periods ended September 30, 2006 includes the addition of
      Alenco for the period February 25, 2006 through September 30, 2006. As a result,
      the 2006 period will not be directly comparable to the 2005 period. In addition,
      because of the AHE Acquisition during the fourth quarter of 2006, future periods
      will not be comparable to the periods in 2005 or 2006 periods prior to the
      AHE
      Acquisition.





***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 September 30, 2006 would result in a $0.7 million and $0.7 million
      impact upon SG&A expense and cost of products sold, respectively.
      Additionally, we have included in the discussion that follows our estimation
      methodology for both accounts receivable and inventories. While all significant
      policies are important to our combined and consolidated financial statements,
      some of these policies may be viewed as being critical. Our critical accounting
      policies include:





28


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





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





*Inventories.* Inventories in the accompanying consolidated and combined balance sheets are
      valued at the lower of cost or market. At September 30, 2006, and December
      31,
      2005 approximately
      $11.6 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 each of September 30, 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 September 30, 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.




29







***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
            
            Nine
                months endedSeptember
                30, 2006
            
            October
                1, 2005
            
            September
                30, 2006
            
            October
                1, 2005**Net
                Sales**Siding,
                Fencing, Railing and Decking
            
            $
            110,055
            
            $
            104,928
            
            $
            339,261
            
            $
            293,956Windows
                and Doors
            
            
            147,003
            
            
            120,587
            
            
            422,219
            
            
            333,597**Operating
                earnings**Siding,
                Fencing, Railing and Decking
            
            
            15,615
            
            
            16,358
            
            
            45,372
            
            
            34,859Windows
                and Doors
            
            
            16,361
            
            
            15,815
            
            
            37,348
            
            
            36,838Unallocated
            
            
            (4,630
            )
            
            (763
            )
            
            (7,091
            )
            
            (2,472
            )**Foreign
                currency gain (loss)**Windows
                and Doors
            
            
            (79
            )
            
            1,282
            
            
            1,014
            
            
            745**Interest
                expense, net**Siding,
                Fencing, Railing and Decking
            
            
            34
            
            
            98
            
            
            135
            
            
            (344
            )Windows
                and Doors
            
            
            (440
            )
            
            (384
            )
            
            (1,209
            )
            
            (1,432
            )Unallocated
            
            
            (16,206
            )
            
            (13,952
            )
            
            (47,649
            )
            
            (40,914
            )**Other
                expense**Unallocated
            
            
            -
            
            
            -
            
            
            (2,497
            )
            
            -**Income
                tax expense**Unallocated
            
            
            (4,123
            )
            
            (7,183
            )
            
            (9,843
            )
            
            (10,756
            )**Net
                income before cumulative effect****of
                accounting change**
            
            
            6,532
            
            
            11,271
            
            
            15,580
            
            
            16,524**Cumulative
                effect of accounting change**
            
            
            -
            
            
            -
            
            
            (86
            )
            
            -**Net
                income**
            
            $
            6,532
            
            $
            11,271
            
            $
            15,494
            
            $
            16,524


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




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




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








30


**Siding,
      Fencing, Railing and Decking Segment**




**For
                  the three months ended**(dollars
                  in thousands)
              
              September
                  30, 2006
              
              October
                  1, 2005(unaudited)
              
              
              
              (unaudited)**Statement
                  of operations data:**Net
                  Sales
              
              $
              110,055
              
              
              100.0
              %
              $
              104,928
              
              
              100.0
              %Cost
                  of products sold
              
              
              84,933
              
              
              77.2
              %
              
              80,866
              
              
              77.1
              %Gross
                  Profit
              
              
              25,122
              
              
              22.8
              %
              
              24,062
              
              
              22.9
              %S,G&A
                  expense
              
              
              8,702
              
              
              7.9
              %
              
              6,900
              
              
              6.6
              %Amortization
                  of intangible assets
              
              
              805
              
              
              0.7
              %
              
              804
              
              
              0.8
              %Operating
                  earnings
              
              $
              15,615
              
              
              14.2
              %
              $
              16,358
              
              
              15.6
              %







*Net
      Sales*





Net
      sales
      for the three months ended September 30, 2006 increased compared to the same
      period in 2005 by approximately $5.1 million, or 5%. The
      increase in net sales was driven by higher selling prices that were increased
      in
      response to industry wide increases in raw material and freight costs. Unit
      volumes were down slightly due to market wide declines in single family housing
      starts which negatively impacted the new construction sector of the market,
      but
      were largely offset by our vinyl siding market share gains for the third quarter
      of 2006 as compared to the third quarter of 2005.





*C* *ost
      of Products Sold*





Cost
      of
      products sold for
      the
      three months ended September 30, 2006 increased over the same period in 2005
      by
      approximately $4.1 million, or 5%. The increase in cost of products sold was
      primarily due to 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 September 30, 2006 increased
      by approximately $1.8 million, or 26%, from the same period in 2005. The
      increase in SG&A expenses over the same period in 2005 was primarily driven
      by higher management incentive compensation expense in
      2006.





**For
                the nine months ended**(dollars
                in thousands)
            
            September
                30, 2006
            
            October
                1, 2005(unaudited)
            
            
            
            (unaudited)**Statement
                of operations data:**Net
                Sales
            
            $
            339,261
            
            
            100.0
            %
            $
            293,956
            
            
            100.0
            %Cost
                of products sold
            
            
            264,118
            
            
            77.9
            %
            
            231,936
            
            
            78.9
            %Gross
                Profit
            
            
            75,143
            
            
            22.1
            %
            
            62,020
            
            
            21.1
            %S,G&A
                expense
            
            
            27,355
            
            
            8.1
            %
            
            24,745
            
            
            8.4
            %Amortization
                of intangible assets
            
            
            2,416
            
            
            0.7
            %
            
            2,416
            
            
            0.8
            %Operating
                earnings
            
            $
            45,372
            
            
            13.4
            %
            $
            34,859
            
            
            11.9
            %





31


*Net
      Sales*





Net
      sales
      for the nine months ended September 30, 2006 increased compared to the same
      period in 2005 by approximately $45.3 million, or 15%. 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 partially offset by industry
      wide market declines resulting from lower single family housing starts which
      negatively impacted the new construction sector of the market. As a result,
      the
      Company’s unit volume growth of vinyl siding sales outperformed the industry
      during the first nine months of 2006 and our market share of the vinyl siding
      industry increased for the first nine months of 2006 as compared to the first
      nine months of 2005.





*C* *ost
      of Products Sold*





Cost
      of
      products sold for
      the
      nine months ended September 30, 2006 increased over the same period in 2005
      by
      approximately $32.2 million, or 14%. 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
      nine
      months ended September 30, 2006 increased
      by approximately $2.6 million, or 11%, 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 and higher
      management incentive compensation expense in 2006.











**Windows
      and Doors Segment**





**For
                the three months ended**(dollars
                in thousands)
            
            September
                30, 2006
            
            October
                1, 2005(unaudited)
            
            
            
            (unaudited)**Statement
                of operations data:**Net
                Sales
            
            $
            147,003
            
            
            100.0
            %
            $
            120,587
            
            
            100.0
            %Cost
                of products sold
            
            
            111,438
            
            
            75.8
            %
            
            89,606
            
            
            74.3
            %Gross
                Profit
            
            
            35,565
            
            
            24.2
            %
            
            30,981
            
            
            25.7
            %S,G&A
                expense
            
            
            17,099
            
            
            11.6
            %
            
            13,531
            
            
            11.2
            %Amortization
                of intangible assets
            
            
            2,105
            
            
            1.4
            %
            
            1,635
            
            
            1.4
            %Operating
                earnings
            
            $
            16,361
            
            
            11.1
            %
            $
            15,815
            
            
            13.1
            %Currency
                transaction gain/(loss)
            
            
            (79
            )
            
            -0.1
            %
            
            1,282
            
            
            1.1
            %





*Net
      Sales*





Net
      sales
      for the three months ended September 30, 2006 increased over the same period
      in
      2005 by approximately $26.4 million, or 22%. The increase in net sales was
      driven by the sales of Alenco, which was purchased in February of 2006 and
      contributed approximately $37.2 million of sales for the three months ended
      September 30, 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 were more than offset by lower demand for our new construction
      windows due to market wide declines in single family housing starts and lower
      demand for our repair and replacement window products that resulted from our
      inability to convert new customers during 2005. This was 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 2006, to other more efficient products
      that we produce at our other window manufacturing facilities.





32


*Cost
      of Products Sold*





Cost
      of
      products sold for
      the
      three months ended September 30, 2006 increased
      by approximately $21.8 million, or 24%, over the same period in 2005. The
      increase in cost of products sold was driven by higher sales volume from the
      additional sales volume from Alenco. Although market wide increases in raw
      material and freight costs increased our cost of products sold, they were
      partially 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
      three
      months ended September 30, 2006 increased
      by approximately $3.6 million, or 26%, over the same period in 2005. The
      increase in SG&A expense was driven by the addition of Alenco.





*Amortization
      of intangible assets*





Amortization
      expense for the three months ended September 30, 2006 increased by approximately
      $0.5 million due to the addition of Alenco operations during March 2006.








**For
                the nine months ended**(dollars
                in thousands)
            
            September
                30, 2006
            
            October
                1, 2005(unaudited)
            
            
            
            (unaudited)**Statement
                of operations data:**Net
                Sales
            
            $
            422,219
            
            
            100.0
            %
            $
            333,597
            
            
            100.0
            %Cost
                of products sold
            
            
            324,552
            
            
            76.9
            %
            
            251,144
            
            
            75.3
            %Gross
                Profit
            
            
            97,667
            
            
            23.1
            %
            
            82,453
            
            
            24.7
            %S,G&A
                expense
            
            
            54,301
            
            
            12.9
            %
            
            40,711
            
            
            12.2
            %Amortization
                of intangible assets
            
            
            6,018
            
            
            1.4
            %
            
            4,904
            
            
            1.5
            %Operating
                earnings
            
            $
            37,348
            
            
            8.8
            %
            $
            36,838
            
            
            11.0
            %Currency
                transaction gain/(loss)
            
            
            1,014
            
            
            0.2
            %
            
            745
            
            
            0.2
            %








*Net
      Sales*





Net
      sales
      for the nine months ended September 30, 2006 increased over the same period
      in
      2005 by approximately $88.6 million, or 27%. The increase in net sales was
      primarily driven by sales of Alenco, which contributed $90.9 million in sales
      during the first nine months of 2006. The increase in net sales was also driven
      by higher selling prices which were increased to offset market wide increases
      in
      raw material and freight costs. The favorable impact on net sales from higher
      selling prices were offset by market wide declines in single family housing
      starts and lower demand for our repair and replacement window products that
      resulted from our inability to convert new customers during 2005. This was
      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 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
      nine months ended September 30, 2006 increased
      by approximately $73.4 million, or 29%, over the same period in 2005. The
      increase in cost of products sold was primarily driven by higher sales volume
      from the additional sales volume from Alenco. Although market wide increases
      in
      raw material and freight costs increased our cost of products sold, they were
      partially 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.





33


*Selling,
      general and administrative expense*





SG&A
      expense for the
      nine
      months ended September 30, 2006 increased
      by approximately $13.6 million, or 33%, over the same period in 2005. The
      increase in SG&A expense was driven by the addition of Alenco, 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 nine months ended September 30, 2006 increased by approximately
      $1.1 million due to the addition of Alenco operations during March 2006.








**Unallocated
      Operating Earnings, Interest, and Provision for Income Taxes**





**For
                the three months ended**(dollars
                in thousands)
            
            September
                30, 2006
            
            October
                1, 2005(unaudited)
            
            (unaudited)**Statement
                of operations data:**Operating
                earnings (loss)
            
            $
            (4,630
            )
            $
            (763
            )Interest
                expense
            
            
            (16,478
            )
            
            (14,048
            )Investment
                income
            
            
            272
            
            
            96Income
                tax provision
            
            
            (4,123
            )
            
            (7,183
            )








*Operating
      earnings (loss)* Unallocated operating loss for the three months ended September 30, 2006
      increased by approximately $3.9 million over the same period in 2005. The
      increase was driven by approximately $3.0 million of deferred compensation
      expense recorded in the third quarter of 2006, primarily due to the modification
      to the phantom stock plan. Other increases were due to higher benefit costs
      and
      professional fees during the 2006 period.





*Interest
      expense* Interest
      expense for the three months ended September 30, 2006 increased by approximately
      $2.4 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.





*Income
      taxes* The
      income tax provision for the three months ended September 30, 2006 decreased
      approximately $3.1 million over the same period in 2005, primarily as a result
      of the lower pre-tax income for the 2006 period versus the 2005
      period.











**For
                the nine months ended**(dollars
                in thousands)
            
            September
                30, 2006
            
            October
                1, 2005(unaudited)
            
            (unaudited)**Statement
                of operations data:**Operating
                earnings (loss)
            
            $
            (7,091
            )
            $
            (2,472
            )Interest
                expense
            
            
            (48,122
            )
            
            (41,099
            )Investment
                income
            
            
            473
            
            
            185Other
                expense
            
            
            (2,497
            )
            
            -Income
                tax provision
            
            
            (9,843
            )
            
            (10,756
            )Cumulative
                effect of accounting change
            
            
            (86
            )
            
            -





*Operating
      earnings (loss)* Unallocated operating loss for the nine months ended September 30, 2006
      increased by approximately $4.6 million over the same period in 2005. The
      increase was driven by approximately $2.9 million of deferred compensation
      expense, primarily due to the modification to the phantom stock plan. Other
      increases were due to higher benefit costs and professional fees during the
      2006
      period.





*Interest
        expense* Interest
        expense for the nine months ended September 30, 2006 increased by approximately
        $7.0 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 nine months of 2006 were
      third-party charges associated with business combination financing
      costs.





*Income
      taxes* The
      income tax provision for the nine months ended September 30, 2006 decreased
      approximately $0.9 million over the same period in 2005, primarily as a result
      of the lower pre-tax income for the 2006 period versus the 2005
      period.





34


**Liquidity
      and Capital Resources**




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





Net
      cash
      provided by operating activities for the first nine months of 2006 and 2005
      was
      approximately $32.9 million and $20.7 million, respectively. The increase in
      net
      cash provided by operating activities for the 2006 period compared to the 2005
      period was primarily driven by increases in non-cash items that reduced net
      income which include depreciation and amortization expense of approximately
      $3.2
      million, losses on the sale of assets of approximately $0.6 million, other
      non-cash items of approximately $2.5 million, and certain changes in working
      capital.





Net
      cash
      used in investing activities for the first nine months of 2006 and 2005 was
      approximately $131.1 million and $7.2 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 nine
      months of 2006 and 2005 were approximately $14.8 million and $7.6 million,
      respectively.





Net
      cash
      provided by financing activities for the first nine months of 2006 and 2005
      was
      approximately $121.3 million and $5.4 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, including $2.7 million of equity contributions.




In
        connection with the Alenco Acquisition, on February 24, 2006, the Company
        entered into an amendment to its senior credit facilities.  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.
 
 In
        connection with the AHE Acquisition, on October 31, 2006, the Company entered
        into a further amendment to its senior credit facilities (as amended, the
“First
        Lien Credit Facilities”), whereby the Company borrowed an additional $187.0
        million in U.S. term loans (the “Incremental First Lien Term Loan Facility”).
        Also in connection with the AHE Acquisition, on October 31, 2006, the Company
        entered into a Second Lien Credit Agreement (the “Second Lien Credit Facility”)
        whereby the Company borrowed $105.0 million in term loans. The Company used
        the
        proceeds of the Incremental First Lien Term Loan Facility and the Second
        Lien
        Credit Facility and cash from operations to fund the AHE Acquisition and
        to pay
        transaction costs and expenses related thereto.
 
 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 portion of our First Lien
        Credit
        Facilities. As of September 30, 2006, we had $758.2 million of indebtedness
        and
        $67.6 million of availability under the revolving portion of our First Lien
        Credit Facilities.
 
 35
 The
        Company’s First Lien Credit Facilities with a syndicate of financial
        institutions and institutional lenders provide for senior secured financing
        of
        up to $655.0 million, consisting of $585.0 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 three tranches,
        consisting of: i) a $375.0 million tranche under which Ply Gem
        Industries, Inc. is the borrower, ii) a $187.0 million tranche under which
        Ply
        Gem Industries, Inc. is the borrower, and iii) a $25.0 million tranche
        under which our Canadian subsidiary, CWD Windows and Doors, Inc., is the
        borrower. As of November 1, 2006, the balances of the three tranches were
        approximately $373.1 million, $187.0 million and $24.9 million, respectively.
        The Company’s Second Lien Credit Facility with a syndicate of financial
        institutions and institutional lenders provides for a senior secured term
        loan
        of $105.0 million. 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.
 
 The
        borrowings under the revolving portion of the First Lien Credit Facilities
        will
        be available until its maturity to fund our working capital requirements,
        capital expenditures and other general corporate needs. The revolving portion
        of
        the First Lien Credit Facilities will mature in February 2009 and has no
        scheduled amortization or commitment reductions. The term loan portions of
        the
        First Lien Credit Facilities will mature in August 2011 and have quarterly
        scheduled amortizations of approximately $1.5 million and a final payment
        of
        $558.6 million on the maturity date. The Second Lien Credit Facility has
        no
        scheduled amortization, and the entire balance will be payable in November
        2011.
 
 Under
        the
        terms of our credit facilities, we are permitted to use the excess cash flow
        and/or a portion of the revolving credit portion of the First Lien Credit
        Facilties to repurchase up to $40.0 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 $40.0 million aggregate
        principal amount of the 9% Senior Subordinated Notes in market transactions,
        privately negotiated sales or other transactions. As of September 30, 2006,
        we
        had not yet purchased any of our Senior Subordinated Notes.
 
 The
        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 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 credit facilities require
        Ply
        Gem Industries, Inc. to comply with certain financial ratios. Indebtedness
        under
        the 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, borrowings
        under the credit facilities are guaranteed by Ply Gem Holdings, Inc. and
        secured
        by its assets (including its equity interests). Borrowings under the credit
        facilities (except for the $25.0 million tranche under which our Canadian
        subsidiary, CWD Windows and Doors, Inc., is the borrower) are also 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.
        The
        $25.0 million tranche under which CWD Windows and Doors, Inc. is the borrower
        is
        also guaranteed and secured by the equity interests and substantially al
        of the
        assets of CWD Windows and Doors, Inc.’s current and future (if any) Canadian
        subsidiaries.
 
 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 nine months of the year and we anticipate the need to borrow funds
        under
        the revolving portion of our First Lien Credit Facilities to support this
        requirement. However, we anticipate that the funds generated by operations
        and
        funds available under our First Lien Credit Facilities will be adequate to
        finance our ongoing operational cash flow needs, capital expenditures (as
        described above), debt service obligations, management incentive expenses,
        fees
        payable under the General Advisory Agreement with a Caxton-Iseman party,
        dated
        February 12, 2004 (the “General Advisory Agreement”), and other contractual
        obligations for the foreseeable future.








**Inflation;
      Seasonality**





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





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


36


**Recent
      Accounting Pronouncements**




In
      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.





In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. SFAS
      No. 157 defines fair value, establishes a framework for measuring fair value
      in
      generally accepted accounting principles, and expands disclosures about fair
      value measurements. This statement addresses how to calculate fair value
      measurements required or permitted under other accounting pronouncements.
      Accordingly, this statement does not require any new fair value measurements.
      However, for some entities, the application of this statement will change
      current practice. SFAS No. 157 is effective for the Company beginning January
      1,
      2008. The Company is currently evaluating the impact of this
      standard.





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





In
      September 2006, the Securities and Exchange Commission issued Staff Accounting
      Bulletin No. 108 “Considering the Effects of Prior Year Misstatements when
      Quantifying Misstatements in Current Year Financial Statements,” (“SAB 108”).
      SAB 108 provides interpretive guidance on how the effects of the carryover
      or
      reversal of prior year misstatements should be considered in quantifying a
      current year misstatement. The SEC staff believes that companies should quantify
      errors using both a balance sheet and an income statement approach and evaluate
      whether either approach results in quantifying a misstatement that, when all
      relevant quantitative and qualitative factors are considered, is material.
      SAB
      108 is effective for our December 31, 2007 financial statements, and the Company
      does not expect the adoption of SAB 108 to have a material effect on its
      financial statements.







**Special
      Note Regarding Forward-Looking Statements**






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




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




·
            restrictions
                under the indenture governing the notes and our senior credit
                facilities;




·
            the
                competitive nature of our industry;




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




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




·
            changes
                in our relationships with our significant
                customers.






Other
      factors that could cause actual results to differ from those implied by the
      forward-looking statements contained in this Quarterly Report are set forth
      in
      our 2005 Annual Report on Form 10-K. We undertake no obligation to update the
      forward-looking statements in this filing.







37





**Item
      3.  QUANTITATIVE AND
      QUALITATIVE DISCLOSURES ABOUT MARKET RISK**







Our
      principal interest rate exposure relates to the term loans outstanding under
      our
      new senior credit facilities. We have approximately $398.0 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 $373.1 million
      tranche under which Ply Gem Industries, Inc. is the borrower, and a $24.9
      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 September 30, 2006, the net impact of foreign currency changes to the
      Company’s results of operations was a loss of $0.1 million. The impact of
      foreign currency changes related to translation resulted in an increase in
      stockholder’s equity of approximately $1.0 million for the nine months ended
      September 30, 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
      nine months ended September 30, 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
      September 30, 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 September 30, 2006, that have materially affected,
      or are reasonably likely to materially affect, our internal controls over
      financial reporting.















38


**PART
      II - OTHER INFORMATION**








**Item
      1A. RISK FACTORS**





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





Our
      performance is dependent to a significant extent upon the levels of home repair
      and remodeling and new home construction spending, all of which are affected
      by
      such factors as interest rates, inflation, consumer confidence and unemployment.
      Current market forecasts indicate that single family housing starts for the
      new
      construction market will decline in the fourth quarter of 2006 and in 2007.
      If
      these market forecasts are correct, our net sales and net income may be
      adversely affected.








**Item
      6.**   **EXHIBITS**





***(a)***  ***Exhibits***





Exhibit
      No.   Description
      of Exhibit




*
                  10.1
              Retirement
                  and Consulting Agreement with Lee Meyer dated as of October 13,
                  2006.*
                  10.2
              Employment
                  Agreement with Gary Robinette, dated as of August 14,
                  2006.*10.3
              Amendment
                  to Ply Gem Prime Holdings Phantom Stock Plan, dated as of September
                  25,
                  2006.*10.4
              Phantom
                  Incentive Unit Award Agreement Amendment letter to John Wayne,
                  dated as of
                  September 25, 2006.*10.5
              Phantom
                  Incentive Unit Award Agreement Amendment letter to Lynn Morstad,
                  dated as
                  of September 25, 2006.*10.6
              Phantom
                  Incentive Unit Award Agreement Amendment letter to Michael Haley,
                  dated as
                  of September 25, 2006.*10.7
              Phantom
                  Incentive Unit Award Agreement Amendment letter to Shawn Poe, dated
                  as of
                  September 25, 2006.*10.8
              Phantom
                  Incentive Unit Award Agreement Amendment letter to Lee Meyer, dated
                  as of
                  September 25, 2006.*10.9
              Phantom
                  Incentive Unit Award Agreement Amendment letter to Mark Montgomery,
                  dated
                  as of September 25, 2006.*10.10
              Special
                  2006 Cash Bonus Award letter to John Wayne, dated as of September
                  25,
                  2006.*10.11
              Special
                  2006 Cash Bonus Award letter to Lynn Morstad, dated as of September
                  25,
                  2006.*10.12
              Special
                  2006 Cash Bonus Award letter to Michael Haley, dated as of September
                  25,
                  2006.*10.13
              Special
                  2006 Cash Bonus Award letter to Shawn Poe, dated as of September
                  25,
                  2006.*10.14
              Special
                  2006 Cash Bonus Award letter to Lee Meyer, dated as of September
                  25,
                  2006.*10.15
              Special
                  2006 Cash Bonus Award letter to Mark Montgomery, dated as of September
                  25,
                  2006.*
                  31.1
              Certification
                  by President and Chief Executive Officer pursuant to Rule 13a-14(a)
                  of the
                  Securities Exchange Act of 1934**
                  31.2
              Certification
                  by Vice President and Chief Financial Officer pursuant to Rule
                  13a-14(a)
                  of the Securities Exchange Act of 1934*


*
      Filed
      herewith.


39


**SIGNATURES**





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





PLY
      GEM
      HOLDINGS, INC.


(Registrant)








Date:
      November 13, 2006




By:
      /s/ Gary E. Robinette


Gary
      E.
      Robinette


President
      and Chief Executive Officer








Date: November
      13, 2006





By:  /s/
      Shawn K. Poe


Shawn
      K.
      Poe


Vice
      President, Chief Financial Officer,


Treasurer
      and Secretary






40