UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





[X]        QUARTERLY
      REPORT PURSUANT TO SECTION 13 or
15(d)


OF THE
SECURITIES EXCHANGE ACT OF 1934





For
      the quarterly period ended October 3,
2009


or


[  ]        TRANSITION
      REPORT PURSUANT TO SECTION 13 or
15(d)


OF
      THE SECURITIES EXCHANGE ACT OF 1934





For
      the transition period from _____________ to
  _____________.





Commission
File Number:   333-114041





PLY
GEM HOLDINGS, INC.


(Exact
name of registrant as specified in its charter)





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


5020
Weston Parkway, Suite 400


Cary,
North Carolina 27513





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




Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.  Yes  ̈   No x*




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




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




Large accelerated filer    ̈                                                                 Accelerated
filer   ̈
 Non-accelerated filer  x                                                                
Smaller reporting company  ̈


(Do not check if a smaller reporting company)




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




As of
November 13, 2009, there were 100 shares of common stock, $0.01 par value,
outstanding.




* The
registrant is not required to file this Quarterly Report on Form 10-Q or other
reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934,
but has filed all reports during the preceding 12 months that would have been
required pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934.  The filing is required, however, pursuant to the terms of the
indenture governing Ply Gem Industries, Inc.’s 11.75% senior secured notes due
2013.








PLY
GEM HOLDINGS, INC. AND SUBSIDIARIES


FORM
10-Q


QUARTERLY
PERIOD ENDED OCTOBER 3, 2009





CONTENTS








PART
I – FINANCIAL INFORMATION







Item
      1.
              Condensed
      Consolidated Financial StatementsCondensed
      Consolidated Statements of Operations –Three months ended October 3, 2009 and September 27, 2008
              2Condensed
      Consolidated Statements of Operations –Nine months ended October 3, 2009 and September 27, 2008
              3Condensed
      Consolidated Balance Sheets –October 3, 2009 and December 31, 2008
              4Condensed
      Consolidated Statements of Cash Flows –Nine months ended October 3, 2009 and September 27, 2008
              5Notes
      to Condensed Consolidated Financial Statements
              6Item
      2.
              Management’s
      Discussion and Analysis of Financial ConditionAnd Results of Operations
              34Item
      3.
              Quantitative
      and Qualitative Disclosures about Market Risk
              48Item
      4.
              Controls
      and Procedures
              49PART
      II – OTHER INFORMATIONItem
      1A.
              Risk
      Factors
              50Item
      6.
              Exhibits
              50Signatures
              
              51





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 endedOctober
      3,
            
            
            September
      27,2009
            
            
            2008(Amounts
      in thousands)Net
      sales
            
            $
            293,469
            
            
            $
            342,825Costs
      and expenses:Cost
      of products sold
            
            
            216,091
            
            
            
            277,437Selling,
      general and administrative expenses
            
            
            33,482
            
            
            
            36,958Amortization
      of intangible assets
            
            
            4,916
            
            
            
            4,913Goodwill
      impairment
            
            
            -
            
            
            
            200,000Total
      costs and expenses
            
            
            254,489
            
            
            
            519,308Operating
      earnings (loss)
            
            
            38,980
            
            
            
            (176,483
            )Foreign
      currency gain (loss)
            
            
            242
            
            
            
            (60
            )Interest
      expense
            
            
            (32,609
            )
            
            
            (30,300
            )Interest
      income
            
            
            32
            
            
            
            176Income
      (loss) before benefit for income taxes
            
            
            6,645
            
            
            
            (206,667
            )Provision
      (benefit) for income taxes
            
            
            2,260
            
            
            
            (15,835
            )Net
      income (loss)
            
            $
            4,385
            
            
            $
            (190,832
            )














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 endedOctober
      3,
            
            
            September
      27,2009
            
            
            2008(Amounts
      in thousands)Net
      sales
            
            $
            736,796
            
            
            $
            940,478Costs
      and expenses:Cost
      of products sold
            
            
            583,613
            
            
            
            776,244Selling,
      general and administrative expenses
            
            
            110,452
            
            
            
            119,389Amortization
      of intangible assets
            
            
            14,734
            
            
            
            14,739Goodwill
      impairment
            
            
            -
            
            
            
            200,000Total
      costs and expenses
            
            
            708,799
            
            
            
            1,110,372Operating
      earnings (loss)
            
            
            27,997
            
            
            
            (169,894
            )Foreign
      currency gain (loss)
            
            
            84
            
            
            
            (555
            )Interest
      expense
            
            
            (99,489
            )
            
            
            (104,439
            )Interest
      income
            
            
            180
            
            
            
            486Loss
      before benefit for income taxes
            
            
            (71,228
            )
            
            
            (274,402
            )Benefit
      for income taxes
            
            
            (12,096
            )
            
            
            (42,235
            )Net
      loss
            
            $
            (59,132
            )
            
            $
            (232,167
            )

















See
accompanying notes to condensed consolidated financial statements.




3








PLY GEM HOLDINGS,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS


(UNAUDITED)





October
      3,
            
            
            December
      31,2009
            
            
            2008(Amounts
      in thousands, except share amounts)ASSETSCurrent
      Assets:Cash
      and cash equivalents
            
            $
            39,767
            
            
            $
            58,289Accounts
      receivable, less allowances of $6,195 and $6,405,
    respectively
            
            
            149,541
            
            
            
            90,527Inventories:Raw
      materials
            
            
            40,442
            
            
            
            53,060Work
      in process
            
            
            20,197
            
            
            
            28,085Finished
      goods
            
            
            34,549
            
            
            
            42,267Total
      inventory
            
            
            95,188
            
            
            
            123,412Prepaid
      expenses and other current assets
            
            
            21,811
            
            
            
            19,985Deferred
      income taxes
            
            
            -
            
            
            
            16,867Total
      current assets
            
            
            306,307
            
            
            
            309,080Property
      and Equipment, at cost:Land
            
            
            3,727
            
            
            
            3,709Buildings
      and improvements
            
            
            35,517
            
            
            
            35,206Machinery
      and equipment
            
            
            259,043
            
            
            
            253,290Total
      property and equipment
            
            
            298,287
            
            
            
            292,205Less
      accumulated depreciation
            
            
            (149,876
            )
            
            
            (122,194
            )Total
      property and equipment, net
            
            
            148,411
            
            
            
            170,011Other
      Assets:Intangible
      assets, less accumulated amortization of $79,222 and
    $64,488,respectively
            
            
            178,980
            
            
            
            193,604Goodwill
            
            
            392,532
            
            
            
            390,779Deferred
      income taxes
            
            
            2,686
            
            
            
            -Other
            
            
            37,529
            
            
            
            40,579Total
      other assets
            
            
            611,727
            
            
            
            624,962$
            1,066,445
            
            
            $
            1,104,053LIABILITIES
      AND STOCKHOLDER'S EQUITY (DEFICIT)Current
      Liabilities:Accounts
      payable
            
            $
            71,413
            
            
            $
            59,603Accrued
      expenses and taxes
            
            
            101,630
            
            
            
            76,304Total
      current liabilities
            
            
            173,043
            
            
            
            135,907Deferred
      income taxes
            
            
            2,739
            
            
            
            28,355Other
      long-term liabilities
            
            
            69,102
            
            
            
            68,233Long-term
      debt due to related parties
            
            
            234,707
            
            
            
            -Long-term
      debt
            
            
            885,236
            
            
            
            1,114,186Commitments
      and contingenciesStockholder's
      Equity (Deficit):Preferred
      stock $0.01 par, 100 shares authorized, none issued and
      outstanding
            
            
            -
            
            
            
            -Common
      stock $0.01 par, 100 shares authorized, issued and
    outstanding
            
            
            -
            
            
            
            -Additional
      paid-in-capital
            
            
            209,933
            
            
            
            209,908Accumulated
      deficit
            
            
            (506,125
            )
            
            
            (446,993
            )Accumulated
      other comprehensive loss, net of tax
            
            
            (2,190
            )
            
            
            (5,543
            )Total
      stockholder's deficit
            
            
            (298,382
            )
            
            
            (242,628
            )$
            1,066,445
            
            
            $
            1,104,053





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 endedOctober
      3,
            
            
            September
      27,2009
            
            
            2008(Amounts in thousands)Cash
      flows from operating activities:Net
      loss
            
            $
            (59,132
            )
            
            $
            (232,167
            )Adjustments
      to reconcile net loss to cashused
      in operating activities:Depreciation
      and amortization expense
            
            
            42,269
            
            
            
            47,235Non-cash
      interest expense, net
            
            
            6,368
            
            
            
            5,141Loss
      (gain) on foreign currency transactions
            
            
            (84
            )
            
            
            555Goodwill
      impairment
            
            
            -
            
            
            
            200,000(Gain)
      loss on sale of assets
            
            
            (6
            )
            
            
            844Write-off
      of debt financing costs
            
            
            -
            
            
            
            14,047Deferred
      income taxes
            
            
            (11,105
            )
            
            
            (45,319
            )Changes
      in operating assets and liabilities:Accounts
      receivable, net
            
            
            (57,798
            )
            
            
            (58,387
            )Inventories
            
            
            29,111
            
            
            
            (5,143
            )Prepaid
      expenses and other current assets
            
            
            (2,230
            )
            
            
            948Accounts
      payable
            
            
            11,304
            
            
            
            19,406Accrued
      expenses and taxes
            
            
            29,656
            
            
            
            5,617Cash
      payments on restructuring liabilities
            
            
            (5,274
            )
            
            
            (6,803
            )Other
            
            
            (201
            )
            
            
            66Net
      cash used in operating activities
            
            
            (17,122
            )
            
            
            (53,960
            )Cash
      flows from investing activities:Capital
      expenditures
            
            
            (5,546
            )
            
            
            (13,516
            )Proceeds
      from sale of assets
            
            
            78
            
            
            
            8,812Other
            
            
            (109
            )
            
            
            (127
            )Net
      cash used in investing activities
            
            
            (5,577
            )
            
            
            (4,831
            )Cash
      flows from financing activities:Proceeds
      from long-term debt
            
            
            -
            
            
            
            693,504Net
      revolver borrowings
            
            
            5,000
            
            
            
            -Payments
      on long-term debt
            
            
            -
            
            
            
            (677,910
            )Debt
      issuance costs paid
            
            
            (1,215
            )
            
            
            (26,025
            )Equity
      contributions
            
            
            -
            
            
            
            30,310Equity
      repurchases
            
            
            -
            
            
            
            (793
            )Net
      cash provided by financing activities
            
            
            3,785
            
            
            
            19,086Impact
      of exchange rate movements on cash
            
            
            392
            
            
            
            (215
            )Net
      decrease in cash and cash equivalents
            
            
            (18,522
            )
            
            
            (39,920
            )Cash
      and cash equivalents at the beginning of the period
            
            
            58,289
            
            
            
            52,053Cash
      and cash equivalents at the end of the period
            
            $
            39,767
            
            
            $
            12,133







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. and its subsidiaries (referred to herein as “Ply Gem Holdings”,
“Ply Gem”, the “Company”, “we”, “us”, or “our”) have been prepared in accordance
with U.S. generally accepted accounting principles as described in the
consolidated financial statements and related notes included in our 2008 Annual
Report on Form 10-K filed with the Securities and Exchange Commission on March
30, 2009.  These statements do not include all of the information and
footnotes required by U.S. generally accepted accounting principles and should
be read in conjunction with our 2008 Annual Report on Form 10-K.  In
management’s opinion, all normal and recurring adjustments considered necessary
for a fair presentation have been included.  Operating results for the
period from January 1, 2009 through October 3, 2009 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2009.





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





The
Company’s fiscal quarters are based on periods ending on the last Saturday of
the last week in the quarter.  Therefore, the financial results of
certain fiscal quarters will not be comparable to the prior and subsequent
fiscal quarters.  The accompanying financial statements include the
Company’s condensed consolidated statements of operations for the three month
and nine month periods ended October 3, 2009 and September 27, 2008, the
condensed consolidated statements of cash flows for the nine month periods ended
October 3, 2009 and September 27, 2008, and the condensed consolidated balance
sheets for the Company as of October 3, 2009 and December 31, 2008.





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




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







Principles
of Consolidation





The
condensed consolidated financial statements include the accounts of Ply Gem
Holdings and its subsidiaries, all of which are wholly owned.  All
intercompany accounts and transactions have been eliminated.  The
Company has evaluated all subsequent events through the date that these
condensed consolidated financial statements were issued.




6


Reclassifications




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





Accounting
Policies and Use of Estimates





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





Inventories





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





The
Company records provisions, as appropriate, to write-down obsolete and excess
inventory to estimated net realizable value.  The process for
evaluating obsolete and excess inventory often requires the Company to make
subjective judgments and estimates concerning future sales levels, quantities
and prices at which such inventory will be sold in the normal course of
business.  Accelerating the disposal process or incorrect estimates of
future sales may cause actual results to differ from estimates at the time such
inventory is disposed or sold.As of October
3, 2009, the Company had inventory purchase commitments of approximately $0.8
million.





Intangible Assets, Goodwill and other Long-lived
Assets





The
Company records impairment losses on long-lived assets including property, plant
and equipment and intangible assets when events and circumstances indicate that
the assets might be impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the carrying amounts.  The
Company evaluates impairment at the lowest level of identifiable cash flows
which are “U.S. Windows”, “Canadian Windows and Doors”, and
“Siding”.  This is one level below the segment reporting unit level of
“Windows and Doors” and “Siding, Fencing, and Stone”.  From an
economic standpoint, these levels represent the lowest level of reliable
information that is prepared and reviewed by executive management on a
consistent basis.  There were no indicators of impairment at October
3, 2009.  As of September 27, 2008 and December 31, 2008, the Company
determined that the historic decline in the U.S. housing market required a
re-evaluation of the Company’s forecasts.  The Company’s revised
forecasts reflected reduced undiscounted cash flow projections for the affected
asset groups, which were believed to be indicative of a significant adverse
change in the business climate that could affect the value of the long-lived
asset groups.  The Company tested for impairment using the “step one”
test for asset groups held and used, and determined that further impairment
testing of the fair value of the asset group (under “step two”) was not
necessary at September 27, 2008 and December 31, 2008 because the undiscounted
cash flows exceeded the carrying values of the long-lived assets of the
respective reporting units.


The
Company tests goodwill for impairment on an annual basis and between annual
tests in certain circumstances using a two-step process.  The first
step is to compare the fair value of the reporting unit (“Windows and Doors” and
“Siding, Fencing, and Stone”) to the carrying value of the reporting
unit.  If the carrying value exceeds the fair value, a second step
must be followed to calculate the impairment.  The second step
involves calculating the fair value of the individual assets and liabilities of
the reporting unit and calculating the implied fair value of the
goodwill.  See Note 3 to the condensed consolidated financial
statements for impairment calculations for the three and nine months ended
September 27, 2008.





7


Debt
Issuance Costs





Debt
issuance costs, composed of facility, agency, and certain legal fees associated
with acquiring new debt financing, are amortized over the contractual term of
the related agreement using the effective interest method.  Debt
issuance costs, net of accumulated amortization, were approximately $29.1
million and $32.5 million at October 3, 2009 and December 31, 2008,
respectively, and have been recorded in other long term assets in the
accompanying condensed consolidated balance sheets.




Foreign
Currency




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





For the
three month periods ended October 3, 2009 and September 27, 2008, the Company
recorded a gain from foreign currency transactions of approximately $0.2 million
and a loss from foreign currency transactions of approximately $0.1 million,
respectively. For the nine month periods ended October 3, 2009 and September 27,
2008, the Company recorded a gain from foreign currency transactions of
approximately $0.1 million and a loss from foreign currency transactions of
approximately $0.6 million, respectively.  As of October 3, 2009, and
December 31, 2008, accumulated other comprehensive income (loss) included a
currency translation adjustment of approximately $2.8 million and $(0.6)
million, respectively.




Concentration
of Credit Risk




The
accounts receivable balance related to one customer of the Siding, Fencing and
Stone segment was approximately $10.3 million and $5.8 million at October 3,
2009 and December 31, 2008, respectively.  This customer accounted for
approximately 9.9% of net sales for the nine month period ended October 3, 2009
and 10.2% of net sales for the nine months ended September 27,
2008.




Fair
Value Measurement




The
Company adopted the fair value accounting standard during the first quarter of
2008.  The accounting standard for fair value provides guidance for
measuring fair value and requires certain disclosures. This standard does not
require any new fair value measurements, but rather applies to all other
accounting pronouncements that require or permit fair value measurements. This
standard does not apply to measurements related to share-based payments,
nor does it apply to measurements related to inventory.





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


·
              Level 1:
      Observable inputs such as quoted prices (unadjusted) in active markets for
      identical assets or liabilities.
 ·
              Level 2:
      Inputs other than quoted prices that are observable for the asset or
      liability, either directly or indirectly. These include quoted prices for
      similar assets or liabilities in active markets and quoted prices for
      identical or similar assets or liabilities in markets that are not
      active.
 ·
              Level 3:
      Observable inputs that reflect the reporting entity’s own
      assumptions.


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





8








Quoted
      Prices
            
            
            Significant
      Otherin
      Active Markets
            
            
            
            
            Significantfor
      identical
            
            
            Observable
            
            
            UnobservableCarrying
            
            
            
            
            
            Assets
            
            
            Inputs
            
            
            InputsDescription
            
            Value
            
            
            Total
            
            
            (Level
      1)
            
            
            (Level
      2)
            
            
            (Level
      3)Assets:Money
      market funds
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -Liabilities:Senior
      Subordinated Notes-9%
            
            $
            360,000
            
            
            $
            198,000
            
            
            $
            198,000
            
            
            $
            -
            
            
            $
            -Senior
      Secured Notes-11.75%
            
            
            700,000
            
            
            
            621,250
            
            
            
            621,250
            
            
            
            -
            
            
            
            -As
      of October 3, 2009
            
            $
            1,060,000
            
            
            $
            819,250
            
            
            $
            819,250
            
            
            $
            -
            
            
            $
            -Assets:Money
      market funds
            
            $
            29,197
            
            
            $
            29,197
            
            
            $
            29,197
            
            
            $
            -
            
            
            $
            -Liabilities:Senior
      Subordinated Notes-9%
            
            $
            360,000
            
            
            $
            86,400
            
            
            $
            86,400
            
            
            $
            -
            
            
            $
            -Senior
      Secured Notes-11.75%
            
            
            700,000
            
            
            
            378,000
            
            
            
            378,000
            
            
            
            -
            
            
            
            -As
      of December 31, 2008
            
            $
            1,060,000
            
            
            $
            464,400
            
            
            $
            464,400
            
            
            $
            -
            
            
            $
            -





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





In
accordance with the fair value accounting standard, certain non-financial assets
and non-financial liabilities measured at fair value on a recurring basis
include reporting units measured at fair value in the first step of a goodwill
impairment test.  Certain non-financial assets and non-financial
liabilities measured at fair value on a non-recurring basis include
non-financial assets and non-financial liabilities measured at fair value in the
second step of a goodwill impairment test, as well as intangible assets and
other non-financial long-lived assets measured at fair value for impairment
assessment.





New
Accounting Pronouncements







In
December 2007, the Financial Accounting Standards Board (“FASB”) issued
authoritative guidance to affirm that the acquisition method of accounting
(previously referred to as the purchase method) be used for all business
combinations and for an acquirer to be identified for each business
combination.   This guidance requires an acquirer to recognize
the assets acquired, the liabilities assumed, contingent consideration and any
noncontrolling interest in the acquiree at the acquisition date to be measured
at their fair values as of that date.  It further requires that
acquisition-related costs be recognized separately from the acquisition and
expensed as incurred; that restructuring costs generally be expensed in periods
subsequent to the acquisition date; and that changes in accounting for deferred
tax asset valuation allowances and acquired income tax uncertainties after the
measurement period be recognized as a component of the provision for income
taxes. This guidance is effective for the Company’s fiscal year beginning
January 1, 2009, and is to be applied prospectively. The impact to the
Company will depend on future acquisition activity.





In
December 2008, the FASB issued authoritative guidance to require employers
to provide additional disclosures about plan assets of a defined benefit pension
or other post-retirement plan.  The objective of this guidance is to
provide users of financial statements with an understanding of how investment
allocation decisions are made, the major categories of plan assets held by the
plans, the inputs and valuation techniques used to measure the fair value of
plan assets, significant concentration of risk within the Company’s plan assets,
and for fair value measurements determined using significant unobservable inputs
a reconciliation of changes between the beginning and ending balances. This
guidance is effective for fiscal years ending after December 15, 2009. The
Company will adopt the new disclosure requirements in the 2009 annual reporting
period.





In
January 2009, the FASB issued authoritative guidance on disclosures about
derivative instruments and hedging activities.  This guidance required
qualitative disclosures about the objectives and strategies for using
derivatives, quantitative data about the fair value of and gains and losses on
derivative contracts, and details of credit-risk-related contingent features in
hedged positions. This guidance also requires enhanced disclosure regarding
derivative instruments in financial statements and how hedges affect an entity’s
financial position, financial performance and cash flows. The adoption of this
guidance did not have any impact on the Company’s condensed consolidated
financial statements.





9


In
April 2009, the FASB issued authoritative guidance on determining fair
value when the volume and level of activity for an asset or liability has
significantly decreased and identifying transactions that are not
orderly.  This guidance clarifies the methodology used to determine
fair value when there is no active market or where the price inputs being used
represent distressed sales. This guidance also reaffirms the objective of fair
value measurement, as stated in authoritative guidance for fair value
measurements, which is to reflect how much an asset would be sold for in an
orderly transaction. It also reaffirms the need to use judgment to determine if
a formerly active market has become inactive, as well as to determine fair
values when markets have become inactive. This guidance is effective for
financial statement purposes for interim and annual financial statements issued
for fiscal periods ended after June 15, 2009. The Company adopted the
provisions of this guidance effective April 2009 and the adoption did not
have a material impact on the Company’s condensed consolidated financial
statements.





In
April 2009, the FASB issued authoritative guidance for interim disclosures
about fair value of financial instruments, which requires fair value disclosures
for financial instruments that are not reflected in the condensed consolidated
balance sheets at fair value. Prior to the issuance of this guidance, the fair
values of those assets and liabilities were disclosed only once each year. This
guidance requires the Company to disclose this information on a quarterly basis
and provide quantitative and qualitative information about fair value estimates
for all financial instruments not measured in the condensed consolidated balance
sheets at fair value.  This guidance was effective in the quarter
ended July 4, 2009, and the adoption of these standards did not have a material
impact on the Company’s condensed consolidated financial
statements.





In April
2009, the FASB issued authoritative guidance on the determination of the useful
life of intangible assets.  This guidance amends the factors that
should be considered in developing the renewal or extension assumptions used to
determine the useful life of a recognized intangible asset.  This
guidance also requires expanded disclosure regarding the determination of
intangible asset useful lives. The Company adopted the provisions of this
guidance effective April 2009 and the adoption of this guidance did not have a
material impact on the Company’s condensed consolidated financial
statements.





In
May 2009, the FASB issued authoritative guidance regarding subsequent
events that provides guidance as to when an entity should recognize events or
transactions occurring after the balance sheet date in its financial statements
and the necessary disclosures related to these events.  This guidance
requires the disclosure of the date through which an entity has evaluated
subsequent events and the basis for that date, that is, whether that date
represents the date the financial statements were issued or were available to be
issued.  See “Principles of Consolidation” included in “Note 1
— Summary of Significant Accounting Policies” for the related disclosure.
The Company adopted the provisions of this guidance effective May 2009, and the
adoption of this guidance did not have a material impact on the Company’s
condensed consolidated financial statements.





In June
2009, the FASB issued authoritative guidance regarding accounting standards
codification and the hierarchy of the Generally Accepted Accounting Principles
(“GAAP”).  This guidance has become the source of authoritative U.S.
GAAP recognized by the FASB and applied by nongovernmental
entities.  This guidance was effective for financial statements issued
for interim and annual periods ending after September 15,
2009.  The Company adopted the provisions of this guidance during the
third quarter, and the adoption of this guidance did not have a material impact
on the Company’s condensed consolidated financial statements.




10














2.  BUSINESS
COMBINATIONS





United Stone Veneer
Acquisition





On
October 31, 2008, Ply Gem Industries, Inc. (“Ply Gem Industries”) a wholly-owned
subsidiary of the Company, completed the acquisition of substantially all of the
assets of United Stone Veneer, LLC (“USV”).  The Company accounted for
the transaction as a purchase.  USV manufactures stone veneer enabling
the Company to expand its building products offering across different areas and
capitalize on this product growth opportunity.  The condensed
consolidated financial statements include the operating results of USV for
periods after October 31, 2008.  As a result of the USV acquisition,
the Company changed the title of its “Siding, Fencing, and Railing” segment to
“Siding, Fencing, and Stone”.





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





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





The
goodwill is expected to be deductible for income tax purposes.





























3.  GOODWILL
IMPAIRMENT





The
Company records the excess of purchase price over the fair value of the net
assets of acquired companies as goodwill or other identifiable intangible
assets.  The Company performs an annual test for goodwill 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.  The Company has defined its reporting units
and performs the impairment testing of goodwill at the operating segment
level.  The Company has aggregated US Windows and CWD into a single
reporting unit since they have similar economic
characteristics.  Thus, the Company has two reporting units- (Siding,
Fencing, and Stone) and (Windows and Doors.)  Separate valuations are
performed for each of these reporting units in order to test for
impairment.   During the year ended December 31, 2008, the
Company acquired USV on October 31, 2008, which was included within the Siding,
Fencing, and Stone reporting unit.





The
Company uses the two-step method to determine goodwill impairment.  If
the carrying amount of a reporting unit exceeds its fair value (Step One), the
Company measures the possible goodwill impairment based upon a hypothetical
allocation of the fair value estimate of the reporting unit to all of the
underlying assets and liabilities of the reporting unit, including previously
unrecognized intangible assets (Step Two).  The excess of the
reporting unit’s fair value over the amounts assigned to its assets and
liabilities is the implied fair value of goodwill.  An impairment loss
is recognized to the extent that a reporting unit’s recorded goodwill exceeds
the implied fair value of goodwill.








11





To
determine the fair value of its reporting units, the Company equally considers
both the income and market valuation methodologies.  The income
valuation methodology uses the fair value of the cash flows that the reporting
unit can be expected to generate in the future. This method requires management
to project revenues, operating expenses, working capital investment, capital
spending and cash flows for the reporting unit over a multi-year period as well
as determine the weighted average cost of capital to be used as the discount
rate.  The Company also utilizes the market valuation method to
estimate the fair value of the reporting units by utilizing comparable public
company multiples.  These comparable public company multiples are then
applied to the reporting unit’s financial performance.  The market
approach is more volatile as an indicator of fair value as compared to the
income approach as internal forecasts and projections have historically been
more stable.  Since each approach has its merits, the Company equally
weights the approaches to balance the internal and external factors affecting
the Company’s fair value.  This weighting is consistent with previous
years.





The
Company’s fair value estimates of its reporting units and goodwill are sensitive
to a number of assumptions including discount rates, cash flow projections,
operating margins, and comparable market multiples.  In order to
accurately forecast future cash flows, the Company estimated single family
housing starts and the growth rate for the repair and remodeling market through
2013.  These assumptions modeled the information published by the
National Association of Home Builders (“NAHB”).  The Company estimated
housing starts growing from current levels to approximately 1,100,000 in 2013
(terminal growth year) and the repair and remodeling growth rate at
approximately 3.0% for 2013.  The sales growth and operating earnings
increases coincided with the growth in these two key assumptions.  The
Company utilized its weighted average cost of capital and its long-term growth
rate to derive the appropriate capitalization rate used in the terminal value
calculation.  The Company utilized these fair value estimate
assumptions during the impairment reviews conducted in the quarter ended
September 27, 2008.





The
Company determined that the depressed residential housing and remodeling market
was a triggering event during the third quarter of 2008 with housing starts
declining to a historical low in August 2008 which caused U.S. Windows to lower
their forecasted cash flow projections.  As a result of the interim
impairment test, the Company concluded that the Windows and Doors reporting unit
failed Step One of the impairment test comparing carrying value and fair
value.  The Siding, Fencing, and Stone fair value exceeded its
carrying value by approximately 20% as of September 27, 2008.  The
Step Two Windows and Doors impairment test results indicated that an estimated
impairment of approximately $200.0 million existed at September 27,
2008.  This impairment was recognized within the Windows and Doors
segment in the third quarter of 2008.





The
Company performed the following sensitivity analysis on the reporting unit Step
One fair values as of September 27, 2008.





(amounts in
thousands)


Estimated
      Windows and Doors reporting unit fair value decrease in the event of a 10%
      increase in the weighting of the market multiples method
            
            $
            (15,800
            )Estimated
      Siding, Fencing, and Stone reporting unit fair value decrease in the event
      of a 10% increase in the weighting of the market multiples
      method
            
            
            (500
            )





A summary
of the key assumptions utilized in the goodwill impairment analysis at September
27, 2008 as it relates to the Step One fair values and the sensitivities for
these assumptions follows:





Windows and Doors
            
            
            Siding, Fencing, and StoneIncome
      approach:Estimated
      housing starts in 2013
            
            
            1,100,000
            
            
            
            1,100,000Terminal
      growth rate
            
            
            3.5
            %
            
            
            3.0
            %Discount
      rates
            
            
            14.0
            %
            
            
            14.0
            %Market
      approach:Market
      multiples
            
            
            11.0
            
            
            
            9.0Control
      premiums
            
            
            20
            %
            
            
            10
            %(amounts
      in thousands)
            
            Windows and Doors
            
            
            Siding, Fencing, and StoneEstimated
      fair value decrease in the event of a 1%decrease
      in the terminal year growth rate
            
            $
            26,629
            
            
            $
            38,064Estimated
      fair value decrease in the event of a 1%increase
      in the discount rate
            
            
            43,331
            
            
            
            64,261Estimated
      fair value decrease in the event of a 1 basispoint
      decrease in market multiples
            
            
            27,472
            
            
            
            89,813Estimated
      fair value decrease in the event of a 1%decrease
      in the control premium
            
            
            2,518
            
            
            
            7,348








After
considering these sensitivities, the Company concluded there is no assurance
that: 1) valuation multiples will not decline further , 2) discount rates will
not increase, or 3) the earnings, book values or projected earnings and cash
flows of the Company’s reporting units will not decline. The Company will
continue to analyze changes to these assumptions in future periods. The Company
will continue to evaluate goodwill during future periods and further declines in
the residential housing and remodeling markets could result in additional
goodwill impairments.





12


The
reporting unit goodwill balances were as follows as of October 3, 2009 and
December 31, 2008:





(Amounts
      in thousands)October
      3, 2009
            
            
            December
      31, 2008Windows
      and Doors
            
            $
            72,425
            
            
            $
            70,683Siding,
      Fencing and Stone
            
            
            320,107
            
            
            
            320,096$
            392,532
            
            
            $
            390,779





The
increase in goodwill during the nine months ended October 3, 2009 was due to
currency translation adjustments of approximately $1.1 million and purchase
price adjustments of approximately $0.6 million.























4.  INTANGIBLE
ASSETS





The
following table presents the components of intangible assets as of October 3,
2009 and December 31, 2008:




AverageAmortizationPeriod
            
            
            
            
            
            Accumulated
            
            
            Net
      Carrying(in Years)
            
            
            Cost
            
            
            Amortization
            
            
            Value(Amounts
      in thousands)As
      of October 3, 2009Patents
            
            
            14
            
            
            $
            12,770
            
            
            $
            (5,241
            )
            
            $
            7,529Trademarks/tradenames
            
            
            15
            
            
            
            85,644
            
            
            
            (20,000
            )
            
            
            65,644Customer
      relationships
            
            
            13
            
            
            
            158,158
            
            
            
            (53,150
            )
            
            
            105,008Other
            
            
            4
            
            
            
            1,630
            
            
            
            (831
            )
            
            
            799Total
      intangible assets
            
            
            
            
            
            $
            258,202
            
            
            $
            (79,222
            )
            
            $
            178,980As
      of December 31, 2008Patents
            
            
            14
            
            
            $
            12,770
            
            
            $
            (4,533
            )
            
            $
            8,237Trademarks/tradenames
            
            
            15
            
            
            
            85,644
            
            
            
            (15,578
            )
            
            
            70,066Customer
      relationships
            
            
            13
            
            
            
            158,158
            
            
            
            (43,850
            )
            
            
            114,308Other
            
            
            4
            
            
            
            1,520
            
            
            
            (527
            )
            
            
            993Total
      intangible assets
            
            
            
            
            
            $
            258,092
            
            
            $
            (64,488
            )
            
            $
            193,604










Amortization
expense for the remainder of 2009 and for fiscal years 2010, 2011, 2012, and
2013 is estimated to be approximately $4.9 million, $19.6 million, $19.2
million, $19.1 million, and $19.1 million, respectively.




















13











5.  COMPREHENSIVE
INCOME (LOSS)





Comprehensive
income (loss) is comprised of the following:





Three Months Ended
            
            
            Nine Months EndedOctober
      3,
              2009
            
            
            September
      27, 2008
            
            
            October
      3,
              2009
            
            
            September
      27,2008(Amounts
      in thousands)Net
      income (loss)
            
            $
            4,385
            
            
            $
            (190,832
            )
            
            $
            (59,132
            )
            
            $
            (232,167
            )Foreign
      currency translation adjustment
            
            
            2,154
            
            
            
            (1,296
            )
            
            
            3,352
            
            
            
            (1,875
            )Comprehensive
      income (loss)
            
            $
            6,539
            
            
            $
            (192,128
            )
            
            $
            (55,780
            )
            
            $
            (234,042
            )


























6.  LONG-TERM
DEBT





Long-term
debt in the accompanying condensed consolidated balance sheets at October 3,
2009 and December 31, 2008 consists of the following:





October 3, 2009
            
            
            December 31, 2008(Amounts
      in thousands)Senior
      secured asset based revolving credit facility
            
            $
            65,000
            
            
            $
            60,0009%
      Senior subordinated notes due 2012, including
              unamortized
      premium of $115 and $146
            
            
            360,115
            
            
            
            360,14611.75%
      Senior secured notes due 2013, net of
              unamortized
      discount of $5,172 and $5,960
            
            
            694,828
            
            
            
            694,040$
            1,119,943
            
            
            $
            1,114,186Less:9%
      Senior subordinated notes due to related parties,including unamortized premium of $75
            
            
            234,707
            
            
            
            -$
            885,236
            
            
            $
            1,114,186









11.75% Senior Secured Notes
due 2013





On June
9, 2008, Ply Gem Industries issued $700.0 million of 11.75% senior secured notes
due 2013 (the “Senior Secured Notes”) at an approximate 1.0% discount, yielding
proceeds of approximately $693.5 million.  Ply Gem Industries used the
proceeds to repay all of the outstanding indebtedness under the existing senior
secured credit facility of approximately $676.2 million of term loan borrowings
and approximately $15.0 million of revolver borrowings.  The Senior
Secured Notes will mature on June 15, 2013 and bear interest at the rate of
11.75% per annum.  Interest will be paid semi-annually on June 15 and
December 15 of each year.  On October 23, 2009, Ply Gem Industries
issued an additional $25.0 million of its Senior Secured Notes in a private
placement transaction.  The net proceeds will be utilized for general
corporate purposes.





14








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





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





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





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





Senior Secured Asset Based
Revolving Credit Facility due 2013





Concurrently
with the Senior Secured Notes offering on June 9, 2008, Ply Gem Industries, the
Company and the subsidiaries of Ply Gem Industries entered into a new senior
secured asset-based revolving credit facility (the “ABL
Facility”).  The ABL Facility provided for revolving credit financing
of up to $150.0 million, subject to borrowing base availability, with a maturity
of five years (June 2013) including sub-facilities for letters of credit,
swingline loans, and borrowings in Canadian dollars and United States dollars by
CWD.  On July 16, 2009, the Company amended the ABL facility,
increasing the available commitments to $175.0 million, and on October 9, 2009,
the Company further amended the ABL facility to among other things, allow for
the issuance of the additional $25.0 million of Senior Secured
Notes.





The ABL
Facility will mature on October 15, 2011 if Ply Gem Industries’ Senior
Subordinated Notes are not refinanced by such date.  The Company may
need to refinance, extend the maturity or otherwise amend the ABL
facility.  The Company’s ability to refinance the ABL facility and/or
Senior Subordinated Notes is dependent, among other things, on business
conditions and our financial performance.  In addition, the ABL
Facility provides that the revolving commitments may be increased to $200.0
million, subject to certain terms and conditions.  The Company had
borrowings of $65.0 million outstanding under the ABL Facility as of October 3,
2009.





As of
October 3, 2009, Ply Gem Industries had approximately $102.9 million of
contractual availability and approximately $76.5 million of borrowing base
availability under the ABL Facility, reflecting $65.0 million of borrowings
outstanding and approximately $7.1 million of letters of credit
issued.





The
interest rates applicable to loans under the ABL Facility are, at the Company’s
option, equal to either a base rate plus an applicable interest margin, or an
adjusted LIBOR rate plus an applicable interest margin, as defined in the ABL
Facility credit agreement.  As of October 3, 2009, the Company’s
interest rate on the ABL Facility was approximately 6.0%.  The ABL
Facility contains a requirement to maintain a fixed charge coverage ratio of
1.1:1.0 if the Company’s borrowings under the ABL Facility exceed certain
levels.


15


In July
2009, the Company amended the ABL Facility to increase the available commitments
by $25.0 million from $150.0 million to $175.0 million, and change both the
availability threshold for certain cash dominion events and compliance with the
fixed charge and other covenants from 15% of revolving credit commitments to 15%
of the lower of the revolving credit commitments or the borrowing base but not
less than $20.0 million. The Company must maintain excess availability of at
least $20.0 million to avoid being subject to the fixed charge covenant
ratio.  As a condition to this availability increase, the applicable
margins payable on the loans were increased and made subject to certain
minimums.  In October 2009, the Company amended the ABL Facility to
allow for the issuance of the additional $25.0 million Senior Secured Notes and
to permit certain refinancing transactions with respect to the Senior
Subordinated Notes (as defined below).  The October amendment also
permits Ply Gem Industries to issue equity securities to Ply Gem Holdings, its
parent.  The October 2009 amendment does not affect the $175.0 million
availability amount or the applicable interest rate margins under the ABL
Facility.





All
obligations under the ABL Facility, and the guarantees of those obligations, are
secured, subject to certain exceptions, by substantially all of the assets of
Ply Gem Industries and the Guarantors, including a first-priority security
interest in personal property consisting of accounts receivable, inventory,
cash, deposit accounts, and certain related assets and proceeds of the foregoing
and a second-priority security interest in, and mortgages on, substantially all
of Ply Gem Industries’ material owned real property and equipment and all assets
that secure the Senior Secured Notes on a first-priority basis.  In
addition to being secured by the collateral securing the obligations of Ply Gem
Industries under the domestic collateral package, the obligations of CWD, which
is a borrower under the Canadian sub-facility under the ABL Facility, are also
secured by a first-priority security interest in substantially all of the assets
of such Canadian subsidiary, plus additional mortgages in Canada, and a pledge
by Ply Gem Industries of the remaining 35% of the equity interests of CWD
pledged only to secure the Canadian sub-facility.





9.00% Senior Subordinated
Notes due 2012





Concurrently
with the acquisition of Ply Gem Industries on February 12, 2004, Ply Gem
Industries issued $225.0 million aggregate principal amount of its senior
subordinated notes due 2012 (the “Senior Subordinated Notes”), which are
guaranteed by Ply Gem Holdings and the domestic subsidiaries of Ply Gem
Industries.  Subsequently, in August 2004, in connection with the MW
acquisition, Ply Gem Industries issued an additional $135.0 million of Senior
Subordinated Notes, which are guaranteed by Ply Gem Holdings and the domestic
subsidiaries of Ply Gem Industries, including MWM Holding, Inc. and its
subsidiaries.  Ply Gem Industries pays interest semi-annually on
February 15 and August 15 of each year.  See Note 14 for related party
transaction related to the Senior Subordinated Notes.





On March
24, 2009, after receipt of the requisite consents, Ply Gem Industries entered
into a Fifth Supplemental Indenture (the “Fifth Supplemental Indenture”) among
Ply Gem Industries, the Company, the other guarantors party thereto and U.S.
Bank National Association, as trustee, containing the amendments to the
indenture.  The Fifth Supplemental Indenture eliminated substantially
all of the restrictive covenants of the indenture governing the Senior
Subordinated Notes, including, among other things, the limitation on
indebtedness, the change of control put provisions, the limitation on restricted
payments, the limitation on liens, the limitation on asset sales, the limitation
on transactions with affiliates, the limitation on dividends and other
restrictions affecting restricted subsidiaries, the limitation on layering
indebtedness and the limitation on the issuance or sale of equity interests in
restricted subsidiaries.  The Fifth Supplemental Indenture also
eliminated certain events of default in the indenture governing the Senior
Subordinated Notes.  The amendments contained in the Fifth
Supplemental Indenture became operative upon completion of the purchase of a
specified amount of the Senior Subordinated Notes by certain affiliates of the
Company’s controlling stockholder.  In connection with this debt
modification, the Company incurred third-party fees of approximately $2.5
million during the nine months ended October 3, 2009 which has been recorded
within interest expense in the condensed consolidated statement of
operations.





Senior Term Loan
Facility





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





16





As a
result of the debt amendment that occurred on May 23, 2008 and the issuance of
Senior Secured Notes on June 9, 2008, the Company evaluated its financing costs
and expensed approximately $27.6 million of fees in the nine month period ended
September 27, 2008 which has been recorded within interest expense on the
condensed consolidated statement of operations.  The Company deferred
costs of approximately $26.6 million in conjunction with this transaction which
have been recorded within other long-term assets in the condensed consolidated
balance sheets.























7.  PENSION
PLANS





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




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





For
      the three
              months
      ended
              October 3, 2009
            
            
            For
      the three
              months
      ended
              September 27, 2008(Amounts
      in thousands)Service
      cost
            
            $
            44
            
            
            $
            48Interest
      cost
            
            
            500
            
            
            
            506Expected
      return on plan assets
            
            
            (366
            )
            
            
            (550
            )Amortization
      of loss
            
            
            125
            
            
            
            -Net
      periodic expense
            
            $
            303
            
            
            $
            4














For
      the nine
                months
      ended
                October 3, 2009
              
              
              For
      the nine
                months
      ended
                September 27, 2008(Amounts
      in thousands)Service
      cost
              
              $
              132
              
              
              $
              145Interest
      cost
              
              
              1,500
              
              
              
              1,517Expected
      return on plan assets
              
              
              (1,098
              )
              
              
              (1,651
              )Amortization
      of loss
              
              
              377
              
              
              
              -Net
      periodic expense
              
              $
              911
              
              
              $
              11





17








8.  COMMITMENTS
AND CONTINGENCIES







In
connection with the acquisition of Ply Gem Industries from Nortek, Inc.
(“Nortek”) in February 2004, Nortek agreed to indemnify the Company for
certain liabilities as set forth in the stock purchase agreement governing the
Ply Gem acquisition.  In the event Nortek is unable to satisfy amounts
due under these indemnifications, the Company would be liable.  The
Company believes that Nortek has the financial capacity and intent to honor its
indemnification obligations and therefore does not anticipate incurring any
losses related to liabilities indemnified by Nortek under the stock purchase
agreement.  A receivable related to this indemnification has been
recorded in other long-term assets in the approximate amount of $7.6 million and
$7.8 million at October 3, 2009 and December 31, 2008,
respectively.  The Company has indemnified third parties in certain
transactions involving dispositions of former subsidiaries.  As of
October 3, 2009 and December 31, 2008, the Company has recorded liabilities in
relation to these indemnifications of approximately $2.5 million and $2.7
million, respectively, in current liabilities and $5.1 million and $5.1 million,
respectively, in long-term liabilities, consisting of the
following:





October 3,
      2009
            
            
            December 31, 2008(Amounts
      in thousands)Product
      claim liabilities
            
            $
            3,725
            
            
            $
            3,718Multi-employer
      pension plan withdrawal liability
            
            
            3,342
            
            
            
            3,492Other
            
            
            577
            
            
            
            584$
            7,644
            
            
            $
            7,794





The
Company sells a number of products and offers a number of warranties on these
products.  The specific terms and conditions of these warranties vary
depending on the product sold and the country in which the product is
sold.  The Company estimates the costs expected to be incurred under
its warranties and records a liability for such costs at the time of sale, which
is recorded in both accrued expenses and other long-term liabilities in the
accompanying condensed consolidated balance sheets.  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 October 3, 2009 and December 31, 2008, warranty
liabilities of approximately $11.1 million and $12.1 million, respectively, have
been recorded in current liabilities and approximately $32.9 million and $33.6
million, respectively, have been recorded in long-term liabilities.





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


For
      the three
              months
      ended
              October 3, 2009
            
            
            For
      the three
              months
      ended
              September 27,
      2008(Amounts
      in thousands)Balance,
      beginning of period
            
            $
            44,204
            
            
            $
            48,793Warranty
      expense during period
            
            
            3,459
            
            
            
            2,510Settlements
      made during period
            
            
            (3,688
            )
            
            
            (4,715
            )Balance,
      end of period
            
            $
            43,975
            
            
            $
            46,588








18








For
      the nine
              months
      ended
              October 3, 2009
            
            
            For
      the nine
              months
      ended
              September 27,
      2008(Amounts
      in thousands)Balance,
      beginning of period
            
            $
            45,653
            
            
            $
            49,899Warranty
      expense during period
            
            
            9,986
            
            
            
            9,136Settlements
      made during period
            
            
            (11,664
            )
            
            
            (13,091
            )Liability
      assumed with Pacific Windows acquisition
            
            
            -
            
            
            
            644Balance,
      end of period
            
            $
            43,975
            
            
            $
            46,588








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.  Also, it is not possible to ascertain the ultimate legal
and financial liability with respect to contingent liabilities, including
lawsuits, and therefore no such estimate has been made.  However, the
Company is not aware of any contingencies for which a material loss is
reasonably possible.








































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





Accrued
expenses and taxes consist of the following at October 3, 2009 and December 31,
2008:




October 3, 2009
            
            
            December 31,2008(Amounts
      in thousands)Insurance
            
            $
            5,181
            
            
            $
            5,169Employee
      compensation and benefits
            
            
            6,361
            
            
            
            6,705Sales
      and marketing
            
            
            24,121
            
            
            
            18,023Product
      warranty
            
            
            11,101
            
            
            
            12,069Short-term
      product claim liability
            
            
            2,075
            
            
            
            2,321Accrued
      freight
            
            
            1,954
            
            
            
            748Interest
            
            
            30,206
            
            
            
            17,238Accrued
      severance
            
            
            234
            
            
            
            471Accrued
      pension
            
            
            1,810
            
            
            
            1,810Accrued
      deferred compensation
            
            
            2,081
            
            
            
            1,886Accrued
      taxes
            
            
            2,730
            
            
            
            1,188Other
            
            
            13,776
            
            
            
            8,676$
            101,630
            
            
            $
            76,304







19


Other
long-term liabilities consist of the following at October 3, 2009 and December
31, 2008:




October 3, 2009
            
            
            December 31, 2008(Amounts
      in thousands)Insurance
            
            $
            3,449
            
            
            $
            3,697Pension
      liabilities
            
            
            10,817
            
            
            
            10,744Multi-employer
      pension withdrawal liability
            
            
            3,342
            
            
            
            3,492Product
      warranty
            
            
            32,874
            
            
            
            33,584Long-term
      product claim liability
            
            
            1,649
            
            
            
            1,396Long-term
      deferred compensation
            
            
            1,711
            
            
            
            3,416Liabilities
      for tax uncertainties
            
            
            10,128
            
            
            
            7,806Other
            
            
            5,132
            
            
            
            4,098$
            69,102
            
            
            $
            68,233

















10.   RESTRUCTURING







In
September 2008, the Company commenced its plan to move certain metal production
from its Valencia, Pennsylvania facility to its Sidney, Ohio
facility.  The Valencia facility remained open on a reduced production
schedule, primarily performing contract coating for third
parties.  Total costs to move this production were approximately $2.0
million consisting of termination benefits, contract termination costs and other
restructuring costs of approximately $0.7 million, $0.1 million and $1.2
million, respectively.





In
November 2008, the Company announced the closure of its Hammonton, New Jersey
and Phoenix, Arizona window and door manufacturing facilities.  During
December 2008, production began to shift to other locations and production
ceased at Hammonton and Phoenix during 2009.  By shifting production
to other facilities within the Company, the closures reduced costs and increased
operating efficiencies.  Total costs are expected to be approximately
$5.4 million, including approximately $0.9 million for personnel-related costs
and approximately $4.5 million in other facilities-related costs, which include
approximately $4.1 million in lease costs.





On April
2, 2009, the Company announced that it would consolidate production across
several of its manufacturing facilities improving the Company’s overall
operating efficiency.  The Company’s plans include shifting the
majority of the production from its Kearney, Missouri facility to its other
three vinyl siding manufacturing facilities.  The Company plans to
continue to operate the Kearney facility on a limited basis until the housing
market recovers.  The Company also plans to close its Tupelo,
Mississippi window and door manufacturing facility.  In addition, the
Company will consolidate certain of the vinyl lineal production to its Rocky
Mount, Virginia facility and realign production of its west coast window and
door facilities at Sacramento, California and Auburn, Washington to better serve
customers and improve overall operating efficiency. In connection with the April
2, 2009 announcement, the Company expects to incur pre-tax exit and
restructuring costs, all of which will be cash charges, of approximately $2.3
million, including approximately $1.1 million for personnel-related costs,
approximately $0.5 million for contract termination costs, and approximately
$0.7 million in other facilities-related costs.








20


The
following table summarizes the Company’s restructuring activity for the nine
months ended October 3, 2009:








(amounts
      in thousands)
            
            Accrued
      as of
            
            
            Adjustments
            
            
            Cash
      payments
            
            
            Expensed
            
            
            Accrued
      as ofDecember 31, 2008
            
            
            during 2009
            
            
            during 2009
            
            
            during 2009
            
            
            October 3, 2009Valencia, PASeverance
      costs
            
            $
            243
            
            
            $
            -
            
            
            $
            (362
            )
            
            $
            119
            
            
            $
            -Equipment
      removal and other
            
            
            -
            
            
            
            -
            
            
            
            (889
            )
            
            
            889
            
            
            
            -$
            243
            
            
            $
            -
            
            
            $
            (1,251
            )
            
            $
            1,008
            
            
            $
            -Hammonton, NJSeverance
      costs
            
            $
            217
            
            
            $
            (36
            )
            
            $
            (872
            )
            
            $
            691
            
            
            $
            -Other
      termination benefits
            
            
            -
            
            
            
            136
            
            
            
            (136
            )
            
            
            -
            
            
            
            -Contract
      terminations
            
            
            -
            
            
            
            312
            
            
            
            (577
            )
            
            
            2,515
            
            
            
            2,250Equipment
      removal and other
            
            
            -
            
            
            
            -
            
            
            
            (191
            )
            
            
            191
            
            
            
            -$
            217
            
            
            $
            412
            
            
            $
            (1,776
            )
            
            $
            3,397
            
            
            $
            2,250Phoenix, AZSeverance
      costs
            
            $
            11
            
            
            $
            -
            
            
            $
            (44
            )
            
            $
            33
            
            
            $
            -Other
      termination benefits
            
            
            -
            
            
            
            16
            
            
            
            (16
            )
            
            
            -
            
            
            
            -Contract
      terminations
            
            
            -
            
            
            
            -
            
            
            
            (490
            )
            
            
            1,423
            
            
            
            933Equipment
      removal and other
            
            
            -
            
            
            
            -
            
            
            
            (184
            )
            
            
            184
            
            
            
            -$
            11
            
            
            $
            16
            
            
            $
            (734
            )
            
            $
            1,640
            
            
            $
            933Kearney, MOSeverance
      costs
            
            $
            -
            
            
            $
            -
            
            
            $
            (612
            )
            
            $
            651
            
            
            $
            39Equipment
      removal and other
            
            
            -
            
            
            
            -
            
            
            
            (610
            )
            
            
            610
            
            
            
            -$
            -
            
            
            $
            -
            
            
            $
            (1,222
            )
            
            $
            1,261
            
            
            $
            39Tupelo, MSSeverance
      costs
            
            $
            -
            
            
            $
            -
            
            
            $
            (145
            )
            
            $
            145
            
            
            $
            -Contract
      terminations
            
            
            -
            
            
            
            -
            
            
            
            (31
            )
            
            
            140
            
            
            
            109Equipment
      removal and other
            
            
            -
            
            
            
            -
            
            
            
            (43
            )
            
            
            43
            
            
            
            -$
            -
            
            
            $
            -
            
            
            $
            (219
            )
            
            $
            328
            
            
            $
            109Auburn, WASeverance
      costs
            
            $
            -
            
            
            $
            -
            
            
            $
            (44
            )
            
            $
            239
            
            
            $
            195Contract
      terminations
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Equipment
      removal and other
            
            
            -
            
            
            
            -
            
            
            
            (28
            )
            
            
            18
            
            
            
            (10
            )$
            -
            
            
            $
            -
            
            
            $
            (72
            )
            
            $
            257
            
            
            $
            185








For the
three and nine month periods ended October 3, 2009, the Company incurred costs
of approximately $0.9 million and $7.9 million, respectively.  For the
three months ended October 3, 2009, approximately $0.6 million was recorded in
selling, general and administrative expenses in the Siding, Fencing and Stone
segment and approximately $0.3 million was recorded primarily in selling,
general and administrative expenses in the Windows and Doors
segment.  For the nine months ended October 3, 2009, approximately
$2.3 million was recorded in selling, general and administrative expenses in the
Siding, Fencing and Stone segment and approximately $5.6 million was recorded
primarily in selling, general and administrative expenses in the Windows and
Doors segment.











21





11.   INCOME
TAXES






The
Company utilizes the asset and liability method of accounting for income taxes
which requires that deferred tax assets and liabilities be recorded to reflect
the future tax consequences of temporary differences between the book and tax
basis of various assets and liabilities.  Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled.  The effect of changes in tax rates on deferred
tax assets and liabilities is recognized as income or expense in the period in
which the rate change occurs.  A valuation allowance is established to
offset any deferred tax assets if, based upon the available evidence, it is more
likely than not that some or all of the deferred tax assets will not be
realized.




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




Income
taxes for the interim periods have been included in the accompanying condensed
consolidated financial statements on the basis of an estimated annual effective
tax rate. In addition to the amount of tax resulting from applying the estimated
annual effective tax rate to pre-tax income (loss), the Company includes certain
items treated as discrete events to arrive at an estimated overall tax
amount.  As of October 3, 2009, the Company’s estimated effective
income tax rate for the full year was approximately 17.8%, which varied from the
statutory rate primarily due to state tax expense, an increase in the valuation
allowance, and the tax benefit associated with cancellation of debt
income.  As of October 3, 2009, a full valuation allowance has been
provided against certain deferred tax assets as it is presently deemed more
likely than not that the benefit of such net tax assets will not be utilized.
Due to recent cumulative losses accumulated by the Company, management did not
rely upon projections of future taxable income in assessing the recoverability
of deferred tax assets.  At December 31, 2008, the Company was in a
net deferred tax liability position and had sufficient taxable income from
reversing taxable temporary differences to realize the federal deferred tax
assets.  The Company scheduled out the reversing temporary differences
associated with their deferred tax assets and deferred tax liabilities to
conclude that a full valuation allowance was not necessary at December 31,
2008.  The Company currently has book goodwill of approximately $13.4
million that is not amortized and results in a deferred tax liability of
approximately $2.2 million at October 3, 2009.  Therefore, the
reversal of deferred tax liabilities related to this goodwill is not considered
a source of future taxable income in assessing the realization of its deferred
tax assets.  The Company continues to evaluate the realizability of
its net deferred tax assets and its estimates are subject to
change.  During the three and nine months ended October 3, 2009, the
Company’s valuation allowance increased by approximately $9.2 million and $26.4
million, respectively.  As of September 27, 2008, the Company’s
estimated effective tax rate for the full year was 37.8%.




Affiliates
of the Company’s controlling stockholder have purchased approximately $234.7
million of the Senior Subordinated Notes as of October 3,
2009.  The Company determined that approximately $115.1 million would
be considered cancellation of indebtedness (“COD”) income as the acquiring party
was deemed a related party for tax purposes.  In connection with this
transaction, the Company was able to reduce certain tax attributes
including net operating losses ("NOLs") and tax basis in certain
assets in lieu of recognizing approximately $115.1 million of COD income for
income tax purposes during the nine months ended October 3, 2009.  For
the three months ended October 3, 2009, the Company was able to reduce certain
tax attributes including NOLs and tax basis in certain assets in lieu of
recognizing $19.3 million of COD income for tax purposes. The Company is in
the process of determining the COD amount for the additional Senior Subordinated
Notes purchased by affiliates of the Company’s stockholder subsequent to October
3, 2009.  The impact of this transaction will be recognized during the
fourth quarter.




On
February 17, 2009, President Obama signed into law the American Recovery and Reinvestment
Act of 2009 (the “Act”).  Among its provisions, the Act permits
certain taxpayers to elect to defer the taxation of COD income arising from
certain repurchases, exchanges or modifications of their outstanding debt that
occur during 2009 and 2010.  The COD income can be deferred for five
years and then included in taxable income ratably over the next five
years.  The Company does not believe it will have any federal cash
income tax expense associated with the COD income.




During
2009, the Company filed an amended federal income tax return for the year ended
December 31, 2005 in order to adjust its net operating loss
limitations.  The Company recorded the resulting income tax benefit as
an income tax receivable of approximately $4.1 million as of October 3, 2009,
which has been recorded in prepaid expenses and other current assets in the
accompanying condensed consolidated balance sheet as of October 3,
2009.







22







Despite
our belief that our tax return positions are consistent with applicable tax
laws, the Company believes that certain positions could be challenged by taxing
authorities.  Our tax reserves reflect the difference between the tax
benefit claimed on tax returns and the amount recognized in the financial
statements. These reserves have been established based on management’s
assessment as to potential exposure attributable to permanent differences and
interest applicable to both permanent and temporary differences.  The
tax reserves are reviewed periodically and adjusted in light of changing facts
and circumstances, such as progress of tax audits, lapse of applicable statutes
of limitations and changes in tax law.  During the three and nine
months ended October 3, 2009, the Company increased the tax contingency reserve
by $0.1 million and $2.3 million, respectively, predominantly for state income
tax items.  During the next twelve months, it is reasonably possible
the Company may reverse approximately $6.0 million of tax contingency reserves
primarily related to additional federal and state taxes that have expiring
statutes of limitations.  The Company’s federal income tax return for
the tax year ended December 31, 2008 is currently under examination by the
Internal Revenue Service as well as the 2005 amended net operating loss
limitation.














































12.  STOCK-BASED
COMPENSATION





Stock Option
Plan





A
rollforward of stock options outstanding during the nine months ended October 3,
2009 is as follows:





Stock Options
            
            
            Weighted-Average
      Exercise
              Price
            
            
            Weighted-Average
      Remaining Contractual Term
      (Years)Balance
      at January 1, 2009
            
            
            314,694
            
            
            $
            48.79
            
            
            
            7.83Granted
            
            
            -
            
            
            
            -
            
            
            
            -Forfeited
      or expired
            
            
            (6,900
            )
            
            $
            44.20
            
            
            
            -Balance
      at October 3, 2009
            
            
            307,794
            
            
            $
            48.89
            
            
            
            6.98





As of
October 3, 2009, 105,094 options have vested.  At October 3, 2009, the
Company had approximately $0.1 million of total unrecognized compensation
expense that will be recognized over a weighted average period of 2.1
years.





Other Share-Based
Compensation





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





23





A
rollforward of Ply Gem Prime Holdings, Inc.’s common stock shares during the
nine months ended October 3, 2009 is as follows.


Common
      Stock
              Shares
      Owned by
              ManagementBalance
      at January 1, 2009
            
            
            642,895Shares
      issued
            
            
            -Shares
      repurchased
            
            
            -Balance
      at October 3, 2009
            
            
            642,895





























13.  SEGMENT
INFORMATION





The
Company’s operating segments are components of the business for which separate
financial information is available and are evaluated regularly by management in
deciding how to allocate resources and in assessing
performance.  Operating segments meeting certain aggregation criteria
are combined into one reportable segment for disclosure purposes.





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





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





The
following is a summary of the Company’s segment information:





Three
      months ended
            
            
            Nine
      months endedOctober 3, 2009
            
            
            September 27, 2008
            
            
            October 3, 2009
            
            
            September 27, 2008(Amounts
      in thousands)
            
            
            (Amounts
      in thousands)Net
      SalesSiding,
      Fencing, and Stone
            
            $
            182,166
            
            
            $
            216,446
            
            
            $
            456,239
            
            
            $
            572,756Windows
      and Doors
            
            
            111,303
            
            
            
            126,379
            
            
            
            280,557
            
            
            
            367,722$
            293,469
            
            
            $
            342,825
            
            
            $
            736,796
            
            
            $
            940,478Operating
      Earnings (loss)Siding,
      Fencing, and Stone
            
            $
            39,721
            
            
            $
            27,146
            
            
            $
            59,956
            
            
            $
            44,952Windows
      and Doors
            
            
            3,010
            
            
            
            (201,171
            )
            
            
            (21,671
            )
            
            
            (207,519
            )Unallocated
            
            
            (3,751
            )
            
            
            (2,458
            )
            
            
            (10,288
            )
            
            
            (7,327
            )$
            38,980
            
            
            $
            (176,483
            )
            
            $
            27,997
            
            
            $
            (169,894
            )As
      of
            
            
            As
      ofOctober 3, 2009
            
            
            December 31, 2008Total
      assetsSiding,
      Fencing, and Stone
            
            $
            645,032
            
            
            $
            655,183Windows
      and Doors
            
            
            346,843
            
            
            
            357,471Unallocated
            
            
            74,570
            
            
            
            91,399$
            1,066,445
            
            
            $
            1,104,053




















24







14.  RELATED
PARTY TRANSACTIONS





The
Company has entered into two advisory agreements with an affiliate of CI Capital
Partners LLC, formerly Caxton-Iseman Capital, LLC (the “Caxton-Iseman Party”),
which we refer to as the “Debt Financing Advisory Agreement” and the “General
Advisory Agreement”.  The Caxton-Iseman Party provides the Company
with acquisition and financial advisory services as the Board of Directors shall
reasonably request.  Under the General Advisory Agreement, the Company
expensed management fees to the Caxton-Iseman Party of approximately $0.4
million and $0.8 million within selling, general, and administrative expenses
for the three month periods ended October 3, 2009 and September 27, 2008,
respectively, and approximately $1.8 million and $1.6 million within selling,
general, and administrative expenses for the nine month periods ended October 3,
2009 and September 27, 2008, respectively.





As of
October 3, 2009, certain affiliates of the Company's controlling
stockholder have acquired approximately $234.7 million of the outstanding Senior
Subordinated Notes. Subsequent to October 3, 2009, these affiliates had
acquired an additional $46.7 million of the outstanding Senior Subordinated
Notes bringing the total owned by related parties to approximately $281.4
million including an unamortized premium of approximately $0.1 million. In
the future, the Company and its affiliates may consider conducting exchange or
tender offers for its indebtedness or purchasing or otherwise acquiring its
indebtedness.









































25








15.  GUARANTOR
/ NON-GUARANTOR FINANCIAL INFORMATION















PLY
      GEM HOLDINGS, INC. AND SUBSIDIARIESCONDENSED
      CONSOLIDATING STATEMENTS OF OPERATIONSFor
      the three months ended October 3, 2009Guarantor
            
            
            Issuer
            
            
            
            
            
            Non-Ply
      Gem
            
            
            Ply
      Gem
            
            
            Guarantor
            
            
            Guarantor
            
            
            ConsolidatingHoldings, Inc.
            
            
            Industries, Inc.
            
            
            Subsidiaries
            
            
            Subsidiary
            
            
            Adjustments
            
            
            Consolidated(Amounts
      in thousands)Net
      sales
            
            $
            -
            
            
            $
            -
            
            
            $
            272,504
            
            
            $
            20,965
            
            
            $
            -
            
            
            $
            293,469Costs
      and expenses:Cost
      of products sold
            
            
            -
            
            
            
            -
            
            
            
            202,346
            
            
            
            13,745
            
            
            
            -
            
            
            
            216,091Selling,
      general andadministrative
      expenses
            
            
            -
            
            
            
            3,742
            
            
            
            26,662
            
            
            
            3,078
            
            
            
            -
            
            
            
            33,482Intercompany
      administrativecharges
            
            
            -
            
            
            
            -
            
            
            
            2,730
            
            
            
            -
            
            
            
            (2,730
            )
            
            
            -Amortization
      of intangible assets
            
            
            -
            
            
            
            9
            
            
            
            4,907
            
            
            
            -
            
            
            
            -
            
            
            
            4,916Total
      costs and expenses
            
            
            -
            
            
            
            3,751
            
            
            
            236,645
            
            
            
            16,823
            
            
            
            (2,730
            )
            
            
            254,489Operating
      earnings (loss)
            
            
            -
            
            
            
            (3,751
            )
            
            
            35,859
            
            
            
            4,142
            
            
            
            2,730
            
            
            
            38,980Foreign
      currency gain
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            242
            
            
            
            -
            
            
            
            242Intercompany
      interest
            
            
            -
            
            
            
            30,210
            
            
            
            (29,842
            )
            
            
            (368
            )
            
            
            -
            
            
            
            -Interest
      expense
            
            
            -
            
            
            
            (32,543
            )
            
            
            (66
            )
            
            
            -
            
            
            
            -
            
            
            
            (32,609
            )Interest
      income
            
            
            -
            
            
            
            12
            
            
            
            20
            
            
            
            -
            
            
            
            -
            
            
            
            32Intercompany
      administrative income
            
            
            -
            
            
            
            2,730
            
            
            
            -
            
            
            
            -
            
            
            
            (2,730
            )
            
            
            -Income
      (loss) before equity insubsidiaries'
      income
            
            
            -
            
            
            
            (3,342
            )
            
            
            5,971
            
            
            
            4,016
            
            
            
            -
            
            
            
            6,645Equity
      in subsidiaries' income
            
            
            4,385
            
            
            
            6,590
            
            
            
            -
            
            
            
            -
            
            
            
            (10,975
            )
            
            
            -Income
      before provision (benefit)for
      income taxes
            
            
            4,385
            
            
            
            3,248
            
            
            
            5,971
            
            
            
            4,016
            
            
            
            (10,975
            )
            
            
            6,645Provision
      (benefit) for income taxes
            
            
            -
            
            
            
            (1,137
            )
            
            
            2,158
            
            
            
            1,239
            
            
            
            -
            
            
            
            2,260Net
      income
            
            $
            4,385
            
            
            $
            4,385
            
            
            $
            3,813
            
            
            $
            2,777
            
            
            $
            (10,975
            )
            
            $
            4,385Other
      comprehensive income:Foreign
      currency translation adjustments
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            2,154
            
            
            
            -
            
            
            
            2,154Total
      comprehensive income
            
            $
            4,385
            
            
            $
            4,385
            
            
            $
            3,813
            
            
            $
            4,931
            
            
            $
            (10,975
            )
            
            $
            6,539







26











PLY
      GEM HOLDINGS, INC. AND SUBSIDIARIESCONDENSED
      CONSOLIDATING STATEMENTS OF OPERATIONSFor
      the three months ended September 27, 2008Guarantor
            
            
            Issuer
            
            
            
            
            
            Non-Ply
      Gem
            
            
            Ply
      Gem
            
            
            Guarantor
            
            
            Guarantor
            
            
            ConsolidatingHoldings, Inc.
            
            
            Industries, Inc.
            
            
            Subsidiaries
            
            
            Subsidiary
            
            
            Adjustments
            
            
            Consolidated(Amounts
      in thousands)Net
      sales
            
            $
            -
            
            
            $
            -
            
            
            $
            319,721
            
            
            $
            23,104
            
            
            $
            -
            
            
            $
            342,825Costs
      and expenses:Cost
      of products sold
            
            
            -
            
            
            
            -
            
            
            
            262,433
            
            
            
            15,004
            
            
            
            -
            
            
            
            277,437Selling,
      general andadministrative
      expenses
            
            
            -
            
            
            
            2,458
            
            
            
            30,843
            
            
            
            3,657
            
            
            
            -
            
            
            
            36,958Intercompany
      administrativecharges
            
            
            -
            
            
            
            -
            
            
            
            3,202
            
            
            
            -
            
            
            
            (3,202
            )
            
            
            -Amortization
      of intangible assets
            
            
            -
            
            
            
            -
            
            
            
            4,913
            
            
            
            -
            
            
            
            -
            
            
            
            4,913Goodwill
      impairment
            
            
            -
            
            
            
            -
            
            
            
            178,107
            
            
            
            21,893
            
            
            
            -
            
            
            
            200,000Total
      costs and expenses
            
            
            -
            
            
            
            2,458
            
            
            
            479,498
            
            
            
            40,554
            
            
            
            (3,202
            )
            
            
            519,308Operating
      loss
            
            
            -
            
            
            
            (2,458
            )
            
            
            (159,777
            )
            
            
            (17,450
            )
            
            
            3,202
            
            
            
            (176,483
            )Foreign
      currency loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (60
            )
            
            
            -
            
            
            
            (60
            )Intercompany
      interest
            
            
            -
            
            
            
            30,379
            
            
            
            (29,841
            )
            
            
            (538
            )
            
            
            -
            
            
            
            -Interest
      expense
            
            
            -
            
            
            
            (30,278
            )
            
            
            (29
            )
            
            
            7
            
            
            
            -
            
            
            
            (30,300
            )Interest
      income
            
            
            -
            
            
            
            85
            
            
            
            74
            
            
            
            17
            
            
            
            -
            
            
            
            176Intercompany
      administrative income
            
            
            -
            
            
            
            3,202
            
            
            
            -
            
            
            
            -
            
            
            
            (3,202
            )
            
            
            -Income
      (loss) before equity insubsidiaries'
      income (loss)
            
            
            -
            
            
            
            930
            
            
            
            (189,573
            )
            
            
            (18,024
            )
            
            
            -
            
            
            
            (206,667
            )Equity
      in subsidiaries' income (loss)
            
            
            (190,832
            )
            
            
            (191,722
            )
            
            
            -
            
            
            
            -
            
            
            
            382,554
            
            
            
            -Income
      (loss) before income taxprovision
      (benefit)
            
            
            (190,832
            )
            
            
            (190,792
            )
            
            
            (189,573
            )
            
            
            (18,024
            )
            
            
            382,554
            
            
            
            (206,667
            )Provision
      (benefit) for income taxes
            
            
            -
            
            
            
            40
            
            
            
            (11,939
            )
            
            
            (3,936
            )
            
            
            -
            
            
            
            (15,835
            )Net
      loss
            
            $
            (190,832
            )
            
            $
            (190,832
            )
            
            $
            (177,634
            )
            
            $
            (14,088
            )
            
            $
            382,554
            
            
            $
            (190,832
            )Other
      comprehensive loss:Foreign
      currency translation adjustments
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (1,296
            )
            
            
            -
            
            
            
            (1,296
            )Total
      comprehensive loss
            
            $
            (190,832
            )
            
            $
            (190,832
            )
            
            $
            (177,634
            )
            
            $
            (15,384
            )
            
            $
            382,554
            
            
            $
            (192,128
            )










27











PLY
      GEM HOLDINGS, INC. AND SUBSIDIARIESCONDENSED
      CONSOLIDATING STATEMENTS OF OPERATIONSFor
      the nine months ended October 3, 2009Guarantor
            
            
            Issuer
            
            
            
            
            
            Non-Ply
      Gem
            
            
            Ply
      Gem
            
            
            Guarantor
            
            
            Guarantor
            
            
            ConsolidatingHoldings, Inc.
            
            
            Industries, Inc.
            
            
            Subsidiaries
            
            
            Subsidiary
            
            
            Adjustments
            
            
            Consolidated(Amounts
      in thousands)Net
      sales
            
            $
            -
            
            
            $
            -
            
            
            $
            691,917
            
            
            $
            44,879
            
            
            $
            -
            
            
            $
            736,796Costs
      and expenses:Cost
      of products sold
            
            
            -
            
            
            
            -
            
            
            
            552,436
            
            
            
            31,177
            
            
            
            -
            
            
            
            583,613Selling,
      general andadministrative
      expenses
            
            
            -
            
            
            
            10,276
            
            
            
            91,727
            
            
            
            8,449
            
            
            
            -
            
            
            
            110,452Intercompany
      administrativecharges
            
            
            -
            
            
            
            -
            
            
            
            6,928
            
            
            
            -
            
            
            
            (6,928
            )
            
            
            -Amortization
      of intangible assets
            
            
            -
            
            
            
            12
            
            
            
            14,722
            
            
            
            -
            
            
            
            -
            
            
            
            14,734Total
      costs and expenses
            
            
            -
            
            
            
            10,288
            
            
            
            665,813
            
            
            
            39,626
            
            
            
            (6,928
            )
            
            
            708,799Operating
      earnings (loss)
            
            
            -
            
            
            
            (10,288
            )
            
            
            26,104
            
            
            
            5,253
            
            
            
            6,928
            
            
            
            27,997Foreign
      currency gain
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            84
            
            
            
            -
            
            
            
            84Intercompany
      interest
            
            
            -
            
            
            
            90,833
            
            
            
            (89,526
            )
            
            
            (1,307
            )
            
            
            -
            
            
            
            -Interest
      expense
            
            
            -
            
            
            
            (99,353
            )
            
            
            (136
            )
            
            
            -
            
            
            
            -
            
            
            
            (99,489
            )Interest
      income
            
            
            -
            
            
            
            30
            
            
            
            148
            
            
            
            2
            
            
            
            -
            
            
            
            180Intercompany
      administrative income
            
            
            -
            
            
            
            6,928
            
            
            
            -
            
            
            
            -
            
            
            
            (6,928
            )
            
            
            -Income
      (loss) before equity insubsidiaries'
      income (loss)
            
            
            -
            
            
            
            (11,850
            )
            
            
            (63,410
            )
            
            
            4,032
            
            
            
            -
            
            
            
            (71,228
            )Equity
      in subsidiaries' income (loss)
            
            
            (59,132
            )
            
            
            (49,294
            )
            
            
            -
            
            
            
            -
            
            
            
            108,426
            
            
            
            -Income
      (loss) before provision(benefit)
      for income taxes
            
            
            (59,132
            )
            
            
            (61,144
            )
            
            
            (63,410
            )
            
            
            4,032
            
            
            
            108,426
            
            
            
            (71,228
            )Provision
      (benefit) for income taxes
            
            
            -
            
            
            
            (2,012
            )
            
            
            (11,327
            )
            
            
            1,243
            
            
            
            -
            
            
            
            (12,096
            )Net
      income (loss)
            
            $
            (59,132
            )
            
            $
            (59,132
            )
            
            $
            (52,083
            )
            
            $
            2,789
            
            
            $
            108,426
            
            
            $
            (59,132
            )Other
      comprehensive income (loss):Foreign
      currency translation adjustments
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            3,352
            
            
            
            -
            
            
            
            3,352Total
      comprehensive income (loss)
            
            $
            (59,132
            )
            
            $
            (59,132
            )
            
            $
            (52,083
            )
            
            $
            6,141
            
            
            $
            108,426
            
            
            $
            (55,780
            )



















28














PLY
      GEM HOLDINGS, INC. AND SUBSIDIARIESCONDENSED
      CONSOLIDATING STATEMENTS OF OPERATIONSFor
      the nine months ended September 27, 2008Guarantor
            
            
            Issuer
            
            
            
            
            
            Non-Ply
      Gem
            
            
            Ply
      Gem
            
            
            Guarantor
            
            
            Guarantor
            
            
            ConsolidatingHoldings, Inc.
            
            
            Industries, Inc.
            
            
            Subsidiaries
            
            
            Subsidiary
            
            
            Adjustments
            
            
            Consolidated(Amounts
      in thousands)Net
      sales
            
            $
            -
            
            
            $
            -
            
            
            $
            875,775
            
            
            $
            64,703
            
            
            $
            -
            
            
            $
            940,478Costs
      and expenses:Cost
      of products sold
            
            
            -
            
            
            
            -
            
            
            
            733,205
            
            
            
            43,039
            
            
            
            -
            
            
            
            776,244Selling,
      general andadministrative
      expenses
            
            
            -
            
            
            
            7,327
            
            
            
            100,377
            
            
            
            11,685
            
            
            
            -
            
            
            
            119,389Intercompany
      administrativecharges
            
            
            -
            
            
            
            -
            
            
            
            8,765
            
            
            
            -
            
            
            
            (8,765
            )
            
            
            -Amortization
      of intangible assets
            
            
            -
            
            
            
            -
            
            
            
            14,739
            
            
            
            -
            
            
            
            -
            
            
            
            14,739Goodwill
      impairment
            
            
            -
            
            
            
            -
            
            
            
            178,107
            
            
            
            21,893
            
            
            
            -
            
            
            
            200,000Total
      costs and expenses
            
            
            -
            
            
            
            7,327
            
            
            
            1,035,193
            
            
            
            76,617
            
            
            
            (8,765
            )
            
            
            1,110,372Operating
      loss
            
            
            -
            
            
            
            (7,327
            )
            
            
            (159,418
            )
            
            
            (11,914
            )
            
            
            8,765
            
            
            
            (169,894
            )Foreign
      currency loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (555
            )
            
            
            -
            
            
            
            (555
            )Intercompany
      interest
            
            
            -
            
            
            
            70,888
            
            
            
            (70,232
            )
            
            
            (656
            )
            
            
            -
            
            
            
            -Interest
      expense
            
            
            -
            
            
            
            (103,790
            )
            
            
            -
            
            
            
            (649
            )
            
            
            -
            
            
            
            (104,439
            )Interest
      income
            
            
            -
            
            
            
            332
            
            
            
            80
            
            
            
            74
            
            
            
            -
            
            
            
            486Intercompany
      administrative income
            
            
            -
            
            
            
            8,765
            
            
            
            -
            
            
            
            -
            
            
            
            (8,765
            )
            
            
            -Loss
      before equity insubsidiaries'
      loss
            
            
            -
            
            
            
            (31,132
            )
            
            
            (229,570
            )
            
            
            (13,700
            )
            
            
            -
            
            
            
            (274,402
            )Equity
      in subsidiaries' loss
            
            
            (232,167
            )
            
            
            (213,488
            )
            
            
            -
            
            
            
            -
            
            
            
            445,655
            
            
            
            -Loss
      before income tax benefit
            
            
            (232,167
            )
            
            
            (244,620
            )
            
            
            (229,570
            )
            
            
            (13,700
            )
            
            
            445,655
            
            
            
            (274,402
            )Benefit
      for income taxes
            
            
            -
            
            
            
            (12,453
            )
            
            
            (27,272
            )
            
            
            (2,510
            )
            
            
            -
            
            
            
            (42,235
            )Net
      loss
            
            $
            (232,167
            )
            
            $
            (232,167
            )
            
            $
            (202,298
            )
            
            $
            (11,190
            )
            
            $
            445,655
            
            
            $
            (232,167
            )Other
      comprehensive loss:Foreign
      currency translation adjustments
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (1,875
            )
            
            
            -
            
            
            
            (1,875
            )Total
      comprehensive loss
            
            $
            (232,167
            )
            
            $
            (232,167
            )
            
            $
            (202,298
            )
            
            $
            (13,065
            )
            
            $
            445,655
            
            
            $
            (234,042
            )



















29








PLY
      GEM HOLDINGS, INC. AND SUBSIDIARIESCONDENSED
      CONSOLIDATING BALANCE SHEETAs
      of October 3, 2009Guarantor
            
            
            Issuer
            
            
            
            
            
            Non-Ply
      Gem
            
            
            Ply
      Gem
            
            
            Guarantor
            
            
            Guarantor
            
            
            ConsolidatingHoldings, Inc.
            
            
            Industries, Inc.
            
            
            Subsidiaries
            
            
            Subsidiary
            
            
            Adjustments
            
            
            Consolidated(Amounts
      in thousands)ASSETSCurrent
      Assets:Cash
      and cash equivalents
            
            $
            -
            
            
            $
            34,650
            
            
            $
            2,452
            
            
            $
            2,665
            
            
            $
            -
            
            
            $
            39,767Accounts
      receivable, net
            
            
            -
            
            
            
            -
            
            
            
            138,098
            
            
            
            11,443
            
            
            
            -
            
            
            
            149,541Inventories:Raw
      materials
            
            
            -
            
            
            
            -
            
            
            
            35,770
            
            
            
            4,672
            
            
            
            -
            
            
            
            40,442Work
      in process
            
            
            -
            
            
            
            -
            
            
            
            19,209
            
            
            
            988
            
            
            
            -
            
            
            
            20,197Finished
      goods
            
            
            -
            
            
            
            -
            
            
            
            32,166
            
            
            
            2,383
            
            
            
            -
            
            
            
            34,549Total
      inventory
            
            
            -
            
            
            
            -
            
            
            
            87,145
            
            
            
            8,043
            
            
            
            -
            
            
            
            95,188Prepaid
      expenses and othercurrent
      assets
            
            
            -
            
            
            
            2,319
            
            
            
            17,597
            
            
            
            1,895
            
            
            
            -
            
            
            
            21,811Total
      current assets
            
            
            -
            
            
            
            36,969
            
            
            
            245,292
            
            
            
            24,046
            
            
            
            -
            
            
            
            306,307Investments
      in subsidiaries
            
            
            (298,382
            )
            
            
            (303,978
            )
            
            
            -
            
            
            
            -
            
            
            
            602,360
            
            
            
            -Property
      and Equipment, at cost:Land
            
            
            -
            
            
            
            -
            
            
            
            3,565
            
            
            
            162
            
            
            
            -
            
            
            
            3,727Buildings
      and improvements
            
            
            -
            
            
            
            -
            
            
            
            34,568
            
            
            
            949
            
            
            
            -
            
            
            
            35,517Machinery
      and equipment
            
            
            -
            
            
            
            1,259
            
            
            
            251,192
            
            
            
            6,592
            
            
            
            -
            
            
            
            259,043-
            
            
            
            1,259
            
            
            
            289,325
            
            
            
            7,703
            
            
            
            -
            
            
            
            298,287Less
      accumulated depreciation
            
            
            -
            
            
            
            (384
            )
            
            
            (146,179
            )
            
            
            (3,313
            )
            
            
            -
            
            
            
            (149,876
            )Total
      property and equipment, net
            
            
            -
            
            
            
            875
            
            
            
            143,146
            
            
            
            4,390
            
            
            
            -
            
            
            
            148,411Other
      Assets:Intangible
      assets, net
            
            
            -
            
            
            
            -
            
            
            
            178,980
            
            
            
            -
            
            
            
            -
            
            
            
            178,980Goodwill
            
            
            -
            
            
            
            -
            
            
            
            382,472
            
            
            
            10,060
            
            
            
            -
            
            
            
            392,532Deferred
      income taxes
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            2,686
            
            
            
            -
            
            
            
            2,686Intercompany
      note receivable
            
            
            -
            
            
            
            1,101,260
            
            
            
            -
            
            
            
            -
            
            
            
            (1,101,260
            )
            
            
            -Other
            
            
            -
            
            
            
            36,726
            
            
            
            803
            
            
            
            -
            
            
            
            -
            
            
            
            37,529Total
      other assets
            
            
            -
            
            
            
            1,137,986
            
            
            
            562,255
            
            
            
            12,746
            
            
            
            (1,101,260
            )
            
            
            611,727$
            (298,382
            )
            
            $
            871,852
            
            
            $
            950,693
            
            
            $
            41,182
            
            
            $
            (498,900
            )
            
            $
            1,066,445LIABILITIES
      AND STOCKHOLDER'S EQUITY (DEFICIT)Current
      Liabilities:Accounts
      payable
            
            $
            -
            
            
            $
            797
            
            
            $
            65,947
            
            
            $
            4,669
            
            
            $
            -
            
            
            $
            71,413Accrued
      expenses and taxes
            
            
            -
            
            
            
            37,361
            
            
            
            60,736
            
            
            
            3,533
            
            
            
            -
            
            
            
            101,630Total
      current liabilities
            
            
            -
            
            
            
            38,158
            
            
            
            126,683
            
            
            
            8,202
            
            
            
            -
            
            
            
            173,043Deferred
      income taxes
            
            
            -
            
            
            
            -
            
            
            
            2,739
            
            
            
            -
            
            
            
            -
            
            
            
            2,739Intercompany
      note payable
            
            
            -
            
            
            
            -
            
            
            
            1,088,999
            
            
            
            12,261
            
            
            
            (1,101,260
            )
            
            
            -Other
      long-term liabilities
            
            
            -
            
            
            
            12,133
            
            
            
            55,945
            
            
            
            1,024
            
            
            
            -
            
            
            
            69,102Long-term
      debt due to related parties
            
            
            -
            
            
            
            234,707
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            234,707Long-term
      debt
            
            
            -
            
            
            
            885,236
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            885,236Commitments
      and contingenciesStockholder's
      Equity (Deficit):Preferred
      stock
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Common
      stock
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Additional
      paid-in-capital
            
            
            209,933
            
            
            
            209,933
            
            
            
            157,964
            
            
            
            5,318
            
            
            
            (373,215
            )
            
            
            209,933Retained
      earnings (accumulated deficit)
            
            
            (506,125
            )
            
            
            (506,125
            )
            
            
            (481,637
            )
            
            
            11,627
            
            
            
            976,135
            
            
            
            (506,125
            )Accumulated
      othercomprehensive
      income (loss)
            
            
            (2,190
            )
            
            
            (2,190
            )
            
            
            -
            
            
            
            2,750
            
            
            
            (560
            )
            
            
            (2,190
            )Total
      stockholder's equity (deficit)
            
            
            (298,382
            )
            
            
            (298,382
            )
            
            
            (323,673
            )
            
            
            19,695
            
            
            
            602,360
            
            
            
            (298,382
            )$
            (298,382
            )
            
            $
            871,852
            
            
            $
            950,693
            
            
            $
            41,182
            
            
            $
            (498,900
            )
            
            $
            1,066,445








30








PLY
      GEM HOLDINGS, INC. AND SUBSIDIARIESCONDENSED
      CONSOLIDATING BALANCE SHEETAs
      of December 31, 2008Guarantor
            
            
            Issuer
            
            
            
            
            
            Non-Ply
      Gem
            
            
            Ply
      Gem
            
            
            Guarantor
            
            
            Guarantor
            
            
            ConsolidatingHoldings, Inc.
            
            
            Industries, Inc.
            
            
            Subsidiaries
            
            
            Subsidiary
            
            
            Adjustments
            
            
            Consolidated(Amounts
      in thousands)ASSETSCurrent
      Assets:Cash
      and cash equivalents
            
            $
            -
            
            
            $
            46,181
            
            
            $
            4,490
            
            
            $
            7,618
            
            
            $
            -
            
            
            $
            58,289Accounts
      receivable, net
            
            
            -
            
            
            
            -
            
            
            
            83,537
            
            
            
            6,990
            
            
            
            -
            
            
            
            90,527Inventories:Raw
      materials
            
            
            -
            
            
            
            -
            
            
            
            49,448
            
            
            
            3,612
            
            
            
            -
            
            
            
            53,060Work
      in process
            
            
            -
            
            
            
            -
            
            
            
            27,137
            
            
            
            948
            
            
            
            -
            
            
            
            28,085Finished
      goods
            
            
            -
            
            
            
            -
            
            
            
            40,133
            
            
            
            2,134
            
            
            
            -
            
            
            
            42,267Total
      inventory
            
            
            -
            
            
            
            -
            
            
            
            116,718
            
            
            
            6,694
            
            
            
            -
            
            
            
            123,412Prepaid
      expenses and othercurrent
      assets
            
            
            -
            
            
            
            3,956
            
            
            
            15,559
            
            
            
            470
            
            
            
            -
            
            
            
            19,985Deferred
      income taxes
            
            
            -
            
            
            
            -
            
            
            
            13,924
            
            
            
            2,943
            
            
            
            -
            
            
            
            16,867Total
      current assets
            
            
            -
            
            
            
            50,137
            
            
            
            234,228
            
            
            
            24,715
            
            
            
            -
            
            
            
            309,080Investments
      in subsidiaries
            
            
            (242,628
            )
            
            
            (289,731
            )
            
            
            -
            
            
            
            -
            
            
            
            532,359
            
            
            
            -Property
      and Equipment, at cost:Land
            
            
            -
            
            
            
            -
            
            
            
            3,565
            
            
            
            144
            
            
            
            -
            
            
            
            3,709Buildings
      and improvements
            
            
            -
            
            
            
            -
            
            
            
            34,378
            
            
            
            828
            
            
            
            -
            
            
            
            35,206Machinery
      and equipment
            
            
            -
            
            
            
            1,246
            
            
            
            246,211
            
            
            
            5,833
            
            
            
            -
            
            
            
            253,290-
            
            
            
            1,246
            
            
            
            284,154
            
            
            
            6,805
            
            
            
            -
            
            
            
            292,205Less
      accumulated depreciation
            
            
            -
            
            
            
            (257
            )
            
            
            (119,426
            )
            
            
            (2,511
            )
            
            
            -
            
            
            
            (122,194
            )Total
      property and equipment, net
            
            
            -
            
            
            
            989
            
            
            
            164,728
            
            
            
            4,294
            
            
            
            -
            
            
            
            170,011Other
      Assets:Intangible
      assets, net
            
            
            -
            
            
            
            -
            
            
            
            193,604
            
            
            
            -
            
            
            
            -
            
            
            
            193,604Goodwill
            
            
            -
            
            
            
            -
            
            
            
            381,854
            
            
            
            8,925
            
            
            
            -
            
            
            
            390,779Intercompany
      note receivable
            
            
            -
            
            
            
            1,107,260
            
            
            
            -
            
            
            
            -
            
            
            
            (1,107,260
            )
            
            
            -Other
            
            
            -
            
            
            
            40,273
            
            
            
            306
            
            
            
            -
            
            
            
            -
            
            
            
            40,579Total
      other assets
            
            
            -
            
            
            
            1,147,533
            
            
            
            575,764
            
            
            
            8,925
            
            
            
            (1,107,260
            )
            
            
            624,962$
            (242,628
            )
            
            $
            908,928
            
            
            $
            974,720
            
            
            $
            37,934
            
            
            $
            (574,901
            )
            
            $
            1,104,053LIABILITIES
      AND STOCKHOLDER'S EQUITY (DEFICIT)Current
      Liabilities:Accounts
      payable
            
            $
            -
            
            
            $
            1,070
            
            
            $
            55,304
            
            
            $
            3,229
            
            
            $
            -
            
            
            $
            59,603Accrued
      expenses and taxes
            
            
            -
            
            
            
            24,600
            
            
            
            49,795
            
            
            
            1,909
            
            
            
            -
            
            
            
            76,304Total
      current liabilities
            
            
            -
            
            
            
            25,670
            
            
            
            105,099
            
            
            
            5,138
            
            
            
            -
            
            
            
            135,907Deferred
      income taxes
            
            
            -
            
            
            
            -
            
            
            
            28,355
            
            
            
            -
            
            
            
            -
            
            
            
            28,355Intercompany
      note payable
            
            
            -
            
            
            
            -
            
            
            
            1,088,999
            
            
            
            18,261
            
            
            
            (1,107,260
            )
            
            
            -Other
      long-term liabilities
            
            
            -
            
            
            
            11,700
            
            
            
            55,623
            
            
            
            910
            
            
            
            -
            
            
            
            68,233Long-term
      debt
            
            
            -
            
            
            
            1,114,186
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,114,186Commitments
      and contingenciesStockholder's
      Equity (Deficit):Preferred
      stock
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Common
      stock
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Additional
      paid-in-capital
            
            
            209,908
            
            
            
            209,908
            
            
            
            126,198
            
            
            
            5,389
            
            
            
            (341,495
            )
            
            
            209,908Retained
      earnings (accumulated deficit)
            
            
            (446,993
            )
            
            
            (446,993
            )
            
            
            (429,554
            )
            
            
            8,838
            
            
            
            867,709
            
            
            
            (446,993
            )Accumulated
      othercomprehensive
      income (loss)
            
            
            (5,543
            )
            
            
            (5,543
            )
            
            
            -
            
            
            
            (602
            )
            
            
            6,145
            
            
            
            (5,543
            )Total
      stockholder’s equity (deficit)
            
            
            (242,628
            )
            
            
            (242,628
            )
            
            
            (303,356
            )
            
            
            13,625
            
            
            
            532,359
            
            
            
            (242,628
            )$
            (242,628
            )
            
            $
            908,928
            
            
            $
            974,720
            
            
            $
            37,934
            
            
            $
            (574,901
            )
            
            $
            1,104,053














31








PLY
      GEM HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATING
      STATEMENT OF CASH FLOWSFor
      the nine months ended October 3, 2009Guarantor
            
            
            Issuer
            
            
            
            
            
            Non-Ply
      Gem
            
            
            Ply
      Gem
            
            
            Guarantor
            
            
            Guarantor
            
            
            ConsolidatingHoldings, Inc.
            
            
            Industries, Inc.
            
            
            Subsidiaries
            
            
            Subsidiary
            
            
            Adjustments
            
            
            Consolidated(Amounts
      in thousands)Cash
      flows from operatingactivities:Net
      income (loss)
            
            $
            (59,132
            )
            
            $
            (59,132
            )
            
            $
            (52,083
            )
            
            $
            2,789
            
            
            $
            108,426
            
            
            $
            (59,132
            )Adjustments
      to reconcile netincome
      (loss) to cash provided by(used
      in) operating activities:Depreciation
      and amortizationexpense
            
            
            -
            
            
            
            127
            
            
            
            41,620
            
            
            
            522
            
            
            
            -
            
            
            
            42,269Non-cash
      interest expense, net
            
            
            -
            
            
            
            6,368
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            6,368Gain
      on foreign currency transactions
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (84
            )
            
            
            -
            
            
            
            (84
            )Gain
      on sale of assets
            
            
            -
            
            
            
            -
            
            
            
            (6
            )
            
            
            -
            
            
            
            -
            
            
            
            (6
            )Deferred
      income taxes
            
            
            -
            
            
            
            -
            
            
            
            (11,611
            )
            
            
            506
            
            
            
            -
            
            
            
            (11,105
            )Equity
      in subsidiaries' loss
            
            
            59,132
            
            
            
            49,294
            
            
            
            -
            
            
            
            -
            
            
            
            (108,426
            )
            
            
            -Changes
      in operating assets andliabilities:Accounts
      receivable, net
            
            
            -
            
            
            
            -
            
            
            
            (54,561
            )
            
            
            (3,237
            )
            
            
            -
            
            
            
            (57,798
            )Inventories
            
            
            -
            
            
            
            -
            
            
            
            29,573
            
            
            
            (462
            )
            
            
            -
            
            
            
            29,111Prepaid
      expenses and othercurrent
      assets
            
            
            -
            
            
            
            1,636
            
            
            
            (2,485
            )
            
            
            (1,381
            )
            
            
            -
            
            
            
            (2,230
            )Accounts
      payable
            
            
            -
            
            
            
            (273
            )
            
            
            10,717
            
            
            
            860
            
            
            
            -
            
            
            
            11,304Accrued
      expenses and taxes
            
            
            -
            
            
            
            12,345
            
            
            
            10,025
            
            
            
            7,286
            
            
            
            -
            
            
            
            29,656Cash
      payments on restructuring liabilities
            
            
            -
            
            
            
            -
            
            
            
            (5,274
            )
            
            
            -
            
            
            
            -
            
            
            
            (5,274
            )Other
            
            
            -
            
            
            
            25
            
            
            
            (133
            )
            
            
            (93
            )
            
            
            -
            
            
            
            (201
            )Net
      cash provided by (used in)operating
      activities
            
            
            -
            
            
            
            10,390
            
            
            
            (34,218
            )
            
            
            6,706
            
            
            
            -
            
            
            
            (17,122
            )Cash
      flows from investingactivities:Capital
      expenditures
            
            
            -
            
            
            
            (12
            )
            
            
            (5,427
            )
            
            
            (107
            )
            
            
            -
            
            
            
            (5,546
            )Proceeds
      from sale of assets
            
            
            -
            
            
            
            -
            
            
            
            78
            
            
            
            -
            
            
            
            -
            
            
            
            78Other
            
            
            -
            
            
            
            -
            
            
            
            (109
            )
            
            
            -
            
            
            
            -
            
            
            
            (109
            )Net
      cash used ininvesting
      activities
            
            
            -
            
            
            
            (12
            )
            
            
            (5,458
            )
            
            
            (107
            )
            
            
            -
            
            
            
            (5,577
            )Cash
      flows from financingactivities:Net
      revolver borrowings
            
            
            -
            
            
            
            5,000
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            5,000Proceeds
      from intercompanyinvestment
            
            
            -
            
            
            
            (25,694
            )
            
            
            37,638
            
            
            
            (11,944
            )
            
            
            -
            
            
            
            -Debt
      issuance costs paid
            
            
            -
            
            
            
            (1,215
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (1,215
            )Net
      cash provided by (used in)financing
      activities
            
            
            -
            
            
            
            (21,909
            )
            
            
            37,638
            
            
            
            (11,944
            )
            
            
            -
            
            
            
            3,785Impact
      of exchange rate movementon
      cash
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            392
            
            
            
            -
            
            
            
            392Net
      decrease in cashand
      cash equivalents
            
            
            -
            
            
            
            (11,531
            )
            
            
            (2,038
            )
            
            
            (4,953
            )
            
            
            -
            
            
            
            (18,522
            )Cash
      and cash equivalents at thebeginning
      of the period
            
            
            -
            
            
            
            46,181
            
            
            
            4,490
            
            
            
            7,618
            
            
            
            -
            
            
            
            58,289Cash
      and cash equivalents at the endof
      the period
            
            $
            -
            
            
            $
            34,650
            
            
            $
            2,452
            
            
            $
            2,665
            
            
            $
            -
            
            
            $
            39,767

















32











PLY
      GEM HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATING
      STATEMENT OF CASH FLOWSFor
      the nine months ended September 27, 2008Guarantor
            
            
            Issuer
            
            
            
            
            
            Non-Ply
      Gem
            
            
            Ply
      Gem
            
            
            Guarantor
            
            
            Guarantor
            
            
            ConsolidatingHoldings, Inc.
            
            
            Industries, Inc.
            
            
            Subsidiaries
            
            
            Subsidiary
            
            
            Adjustments
            
            
            Consolidated(Amounts
      in thousands)Cash
      flows from operatingactivities:Net
      loss
            
            $
            (232,167
            )
            
            $
            (232,167
            )
            
            $
            (202,298
            )
            
            $
            (11,190
            )
            
            $
            445,655
            
            
            $
            (232,167
            )Adjustments
      to reconcile netloss
      to cash provided by(used
      in) operating activities:Depreciation
      and amortizationexpense
            
            
            -
            
            
            
            102
            
            
            
            46,535
            
            
            
            598
            
            
            
            -
            
            
            
            47,235Non-cash
      interest expense, net
            
            
            -
            
            
            
            5,141
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            5,141Goodwill
      impairment
            
            
            -
            
            
            
            -
            
            
            
            178,107
            
            
            
            21,893
            
            
            
            -
            
            
            
            200,000Loss
      on foreign currency transactions
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            555
            
            
            
            -
            
            
            
            555Loss
      on sale of assets
            
            
            -
            
            
            
            -
            
            
            
            844
            
            
            
            -
            
            
            
            -
            
            
            
            844Write-off
      debt financing costs
            
            
            -
            
            
            
            14,047
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            14,047Deferred
      income taxes
            
            
            -
            
            
            
            -
            
            
            
            (45,532
            )
            
            
            213
            
            
            
            -
            
            
            
            (45,319
            )Equity
      in subsidiaries' loss
            
            
            232,167
            
            
            
            213,488
            
            
            
            -
            
            
            
            -
            
            
            
            (445,655
            )
            
            
            -Changes
      in operating assets andliabilities:Accounts
      receivable, net
            
            
            -
            
            
            
            -
            
            
            
            (56,767
            )
            
            
            (1,620
            )
            
            
            -
            
            
            
            (58,387
            )Inventories
            
            
            -
            
            
            
            -
            
            
            
            (3,604
            )
            
            
            (1,539
            )
            
            
            -
            
            
            
            (5,143
            )Prepaid
      expenses and othercurrent
      assets
            
            
            -
            
            
            
            1,886
            
            
            
            (700
            )
            
            
            (238
            )
            
            
            -
            
            
            
            948Accounts
      payable
            
            
            -
            
            
            
            1,057
            
            
            
            17,930
            
            
            
            419
            
            
            
            -
            
            
            
            19,406Accrued
      expenses and taxes
            
            
            -
            
            
            
            14,200
            
            
            
            (691
            )
            
            
            (7,892
            )
            
            
            -
            
            
            
            5,617Cash
      payments on restructuring liabilities
            
            
            -
            
            
            
            -
            
            
            
            (6,803
            )
            
            
            -
            
            
            
            -
            
            
            
            (6,803
            )Other
            
            
            -
            
            
            
            -
            
            
            
            25
            
            
            
            41
            
            
            
            -
            
            
            
            66Net
      cash provided by (used in)operating
      activities
            
            
            -
            
            
            
            17,754
            
            
            
            (72,954
            )
            
            
            1,240
            
            
            
            -
            
            
            
            (53,960
            )Cash
      flows from investingactivities:Capital
      expenditures
            
            
            -
            
            
            
            (629
            )
            
            
            (11,908
            )
            
            
            (979
            )
            
            
            -
            
            
            
            (13,516
            )Proceeds
      from sale of assets
            
            
            -
            
            
            
            5,810
            
            
            
            3,002
            
            
            
            -
            
            
            
            -
            
            
            
            8,812Other
            
            
            -
            
            
            
            (127
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (127
            )Net
      cash provided by (used in)investing
      activities
            
            
            -
            
            
            
            5,054
            
            
            
            (8,906
            )
            
            
            (979
            )
            
            
            -
            
            
            
            (4,831
            )Cash
      flows from financingactivities:Proceeds
      from long-term debt
            
            
            -
            
            
            
            693,504
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            693,504Proceeds
      from intercompanyinvestment
            
            
            -
            
            
            
            (94,752
            )
            
            
            76,492
            
            
            
            18,260
            
            
            
            -
            
            
            
            -Payments
      on long-term debt
            
            
            -
            
            
            
            (657,347
            )
            
            
            -
            
            
            
            (20,563
            )
            
            
            -
            
            
            
            (677,910
            )Debt
      issuance costs paid
            
            
            -
            
            
            
            (26,025
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (26,025
            )Equity
      contributions
            
            
            -
            
            
            
            30,310
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            30,310Equity
      repurchases
            
            
            -
            
            
            
            (793
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (793
            )Net
      cash provided by (used in)financing
      activities
            
            
            -
            
            
            
            (55,103
            )
            
            
            76,492
            
            
            
            (2,303
            )
            
            
            -
            
            
            
            19,086Impact
      of exchange rate movementon
      cash
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (215
            )
            
            
            -
            
            
            
            (215
            )Net
      decrease in cashand
      cash equivalents
            
            
            -
            
            
            
            (32,295
            )
            
            
            (5,368
            )
            
            
            (2,257
            )
            
            
            -
            
            
            
            (39,920
            )Cash
      and cash equivalents at thebeginning
      of the period
            
            
            -
            
            
            
            40,446
            
            
            
            5,423
            
            
            
            6,184
            
            
            
            -
            
            
            
            52,053Cash
      and cash equivalents at the endof
      the period
            
            $
            -
            
            
            $
            8,151
            
            
            $
            55
            
            
            $
            3,927
            
            
            $
            -
            
            
            $
            12,133














33





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’ 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 and its subsidiaries, except where the context otherwise requires or as
otherwise indicated.





Overview





We are a
leading manufacturer of residential exterior building products in North
America.  We offer a comprehensive product line of vinyl siding and
skirting, vinyl windows and doors, vinyl and composite fencing and railing, and
stone veneer that serves both the home repair and remodeling and the new home
construction sectors in the United States and Western Canada.  Vinyl
building products have the leading share of sales by volume in siding and
windows, and a fast growing share of sales by volume in fencing in the United
States. We also manufacture vinyl and aluminum soffit and siding accessories,
aluminum trim coil, wood, vinyl, aluminum, and vinyl and aluminum clad windows,
and steel and fiberglass doors, enabling us to bundle complementary and
color-matched products and accessories with our core vinyl
products.   We believe our broad product offering and
geographically diverse manufacturing base allow us to better serve our customers
and provide us with a competitive advantage over other vinyl building products
suppliers.  We have two reportable segments: (i) Siding, Fencing, and
Stone, and (ii) Windows and Doors.


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





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





Financial
statement presentation





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





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





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





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





Comparability.   All
periods after the USV acquisition in October 2008 include the results of
operations of USV.  As a result, the three and nine month periods
ended October 3, 2009 will not be directly comparable to the three and nine
month periods ended September 27, 2008.








34





Impact
of weather





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





Critical
Accounting Policies





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








Results
of Operations





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





(Amounts
in thousands)


Three
      months ended
            
            
            Nine
      months endedOctober 3, 2009
            
            
            September 27, 2008
            
            
            October 3, 2009
            
            
            September 27, 2008(unaudited)
            
            
            (unaudited)
            
            
            (unaudited)
            
            
            (unaudited)Net
      SalesSiding,
      Fencing, and Stone
            
            $
            182,166
            
            
            $
            216,446
            
            
            $
            456,239
            
            
            $
            572,756Windows
      and Doors
            
            
            111,303
            
            
            
            126,379
            
            
            
            280,557
            
            
            
            367,722Operating
      earnings (loss)Siding,
      Fencing, and Stone
            
            
            39,721
            
            
            
            27,146
            
            
            
            59,956
            
            
            
            44,952Windows
      and Doors
            
            
            3,010
            
            
            
            (201,171
            )
            
            
            (21,671
            )
            
            
            (207,519
            )Unallocated
            
            
            (3,751
            )
            
            
            (2,458
            )
            
            
            (10,288
            )
            
            
            (7,327
            )Foreign
      currency gain (loss)Windows
      and Doors
            
            
            242
            
            
            
            (60
            )
            
            
            84
            
            
            
            (555
            )Interest
      expense, netSiding,
      Fencing, and Stone
            
            
            20
            
            
            
            43
            
            
            
            148
            
            
            
            72Windows
      and Doors
            
            
            (66
            )
            
            
            26
            
            
            
            (134
            )
            
            
            (567
            )Unallocated
            
            
            (32,531
            )
            
            
            (30,193
            )
            
            
            (99,323
            )
            
            
            (103,458
            )Income
      tax provision (benefit)Unallocated
            
            
            2,260
            
            
            
            (15,835
            )
            
            
            (12,096
            )
            
            
            (42,235
            )Net
      income (loss)
            
            $
            4,385
            
            
            $
            (190,832
            )
            
            $
            (59,132
            )
            
            $
            (232,167
            )















35







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







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










Siding,
Fencing and Stone Segment





For
      the three months ended(dollars
      in thousands)
            
            October 3, 2009
            
            
            September 27, 2008(unaudited)
            
            
            (unaudited)Statement of operations
    data:Net
      sales
            
            $
            182,166
            
            
            
            100
            %
            
            $
            216,446
            
            
            
            100
            %Cost
      of products sold
            
            
            126,265
            
            
            
            69.3
            %
            
            
            168,693
            
            
            
            77.9
            %Gross
      profit
            
            
            55,901
            
            
            
            30.7
            %
            
            
            47,753
            
            
            
            22.1
            %SG&A
      expense
            
            
            14,051
            
            
            
            7.7
            %
            
            
            18,470
            
            
            
            8.5
            %Amortization
      of intangible assets
            
            
            2,129
            
            
            
            1.2
            %
            
            
            2,137
            
            
            
            1.0
            %Operating
      earnings
            
            $
            39,721
            
            
            
            21.8
            %
            
            $
            27,146
            
            
            
            12.5
            %





Net
Sales





Net sales
for the three months ended October 3, 2009 decreased compared to the same period
in 2008 by approximately $34.3 million, or 15.8%. The decrease in net sales was
driven by industry wide market declines resulting from lower single family
housing starts, which negatively impacted the new construction sector and
overall softness in repair and remodeling expenditures.  These market
conditions negatively impacted demand for our products.  According to
the U.S. Census Bureau, third quarter 2009 single family housing starts are
estimated to show a decline of approximately 15.5% from actual levels achieved
in the third quarter of 2008.  Additionally, according to the National
Association of Home Builder’s (“NAHB”) October 2009 forecast, single family
housing starts are expected to decline in 2009 by 27.8% as compared to their
full year 2008 estimate.  In addition to lower unit volume shipments,
selling prices were generally lower in the third quarter of 2009 as compared to
the third quarter of 2008 due to market pressure that resulted from lower raw
material and freight costs.  The decrease in net sales that resulted
from industry wide market demand declines and lower selling prices were
partially offset by market share gains from sales to new customers and/or
expanded sales to existing customers from additional products or sales in new
geographical regions.  As a result of our market share gains, we
outperformed the vinyl siding industry. Our unit shipments of vinyl siding for
the third quarter of 2009 decreased by only 5.6% as compared to the U.S. vinyl
siding industry, as summarized by the Vinyl Siding Institute, which reported a
19.9% unit shipment decline for the third quarter of 2009 compared to the third
quarter of 2008. Additionally, our sales for the third quarter of 2009 include
sales contributed by United Stone Veneer which was acquired in October
2008.





Cost of Products
Sold





Cost of
products sold for the three months ended October 3, 2009 decreased compared to
the same period in 2008 by approximately $42.4 million, or 25.2%.  The
decrease in cost of products sold was primarily due to lower sales as discussed
above and decreased raw material costs, primarily PVC resin and aluminum, as
well as lower freight costs driven by lower oil costs. The Company estimates
that market cost of pipe grade PVC resin and aluminum declined by approximately
12.5% and 34.0% respectively in the third quarter of 2009 as compared to the
third quarter of 2008.  Gross profit percentage for the three months
ended October 3, 2009 increased from the same period in 2008 from 22.1% to
30.7%.  The improvement in gross profit percentage resulted from
decreased raw material and freight cost discussed above, partially offset by
lower selling prices. In addition, our gross profit percentage improved as a
result of management’s initiatives to reduce fixed expenses which included the
consolidation of the majority of the production from the Company’s vinyl siding
plant in Kearney, Missouri, into its other three remaining vinyl siding plants
and the consolidation of our metal accessory production from our Valencia,
Pennsylvania facility into our Sidney, Ohio facility which occurred during the
later part of 2008 and early 2009. The improvement in gross profit that resulted
from management’s initiatives was partially offset by initial costs that were
incurred with new customers that resulted from the buy-back, or lift-out, of our
competitor’s product on the initial stocking orders with our new customers which
was approximately $2.9 million for the third quarter of 2009 as compared to
approximately $0.3 million for the same period in 2008.





36




Selling, general and
administrative expenses





SG&A
expenses for the three months ended October 3, 2009 decreased by approximately
$4.4 million, or 23.9%, from the same period in 2008.  The decrease in
SG&A expense was due to lower administrative and other fixed expenses that
have been reduced in light of current market conditions. The Company incurred
restructuring and integration expense of approximately $0.6 million for the
third quarter of 2009 and approximately $0.8 million for the same period in
2008.





Amortization of intangible
assets





Amortization
expense for the three months ended October 3, 2009 was consistent with the same
period in 2008.





For
      the nine months ended(dollars
      in thousands)
            
            October 3, 2009
            
            
            September 27, 2008(unaudited)
            
            
            (unaudited)Statement of operations
    data:Net
      sales
            
            $
            456,239
            
            
            
            100
            %
            
            $
            572,756
            
            
            
            100
            %Cost
      of products sold
            
            
            340,548
            
            
            
            74.6
            %
            
            
            463,503
            
            
            
            80.9
            %Gross
      profit
            
            
            115,691
            
            
            
            25.4
            %
            
            
            109,253
            
            
            
            19.1
            %SG&A
      expense
            
            
            49,342
            
            
            
            10.8
            %
            
            
            57,890
            
            
            
            10.1
            %Amortization
      of intangible assets
            
            
            6,393
            
            
            
            1.4
            %
            
            
            6,411
            
            
            
            1.1
            %Operating
      earnings
            
            $
            59,956
            
            
            
            13.1
            %
            
            $
            44,952
            
            
            
            7.8
            %





Net
Sales





Net sales
for the nine months ended October 3, 2009 decreased compared to the same period
in 2008 by approximately $116.5 million, or 20.3%.  The decrease in
net sales was driven by industry wide market declines resulting from lower
single family housing starts, which negatively impacted the new construction
sector and overall softness in repair and remodeling
expenditures.  These market conditions negatively impacted demand for
our products.  According to the U.S. Census Bureau, single family
housing starts for the first nine months of 2009 are estimated to show a decline
of approximately 34.5% from actual levels achieved in the first nine months of
2008.  Additionally, according to the National Association of Home
Builder’s (“NAHB”) October 2009 forecast, single family housing starts are
expected to decline in 2009 by 27.8% as compared to their full year 2008
estimate.  In addition to lower unit volume shipments, selling prices
were generally lower in the first nine months of 2009 as compared to the first
nine months of 2008 due to market pressure that resulted from lower raw material
and freight costs.  The decrease in net sales that resulted from
industry wide market demand declines and lower selling prices were partially
offset by market share gains from sales to new customers and/or expanded sales
to existing customers from additional products or sales in new geographical
regions.  As a result of our market share gains, we outperformed the
vinyl siding industry. Our unit shipments of vinyl siding for the first nine
months of 2009 decreased by 16.0% as compared to the U.S. vinyl siding industry,
as summarized by the Vinyl Siding Institute, which reported a 26.1% unit
shipment decline for the nine months of 2009 as compared to the same period
in  2008.  Additionally, our sales for the first nine months
of 2009 include sales contributed by United Stone Veneer which was acquired in
October 2008.





Cost of Products
Sold





Cost of
products sold for the nine months ended October 3, 2009 decreased compared to
the same period in 2008 by approximately $123.0 million, or 26.5%. The decrease
in cost of products sold was primarily due to lower sales as discussed above and
decreased raw material costs, primarily PVC resin and aluminum, as well as lower
freight costs driven by lower oil costs. The Company estimates that market cost
of pipe grade PVC resin and aluminum declined by approximately 13.2% and 44.8%
respectively in the first nine months of 2009 as compared to the first nine
months of 2008.  Gross profit percentage for the nine months ended
October 3, 2009 increased from the same period in 2008 from 19.1% to
25.4%.  The improvement in gross profit percentage resulted from
decreased raw material and freight cost discussed above, partially offset by
lower selling prices.  In addition, our gross profit percentage
improved as a result of management’s initiatives to reduce fixed expenses which
included the closure of the vinyl siding plant in Denison, Texas, which ceased
production in February 2008 and the consolidation of the majority of the
production from the Company’s vinyl siding plant in Kearney, Missouri, into its
other three remaining vinyl siding plants and the consolidation of our metal
accessory production from our Valencia, Pennsylvania facility into our Sidney,
Ohio facility which occurred during the later part of 2008 and early 2009. The
improvement in gross profit that resulted from management’s initiatives was
partially offset by initial costs that were incurred with new customers that
resulted from the buy-back, or lift-out, of our competitor’s product on the
initial stocking orders with our new customers which was approximately $6.0
million for the first nine months of 2009 as compared to approximately $1.1
million for the same period in 2008.





37





Selling, general and
administrative expenses





SG&A
expenses for the nine months ended October 3, 2009 decreased by approximately
$8.5 million, or 14.8%, from the same period in 2008.  The decrease in
SG&A expense was due to lower administrative and other fixed expenses that
have been reduced in light of current market conditions, as well as lower
restructuring and integration expense. The Company incurred restructuring and
integration expense of approximately $2.7 million in the first nine months of
2009 and approximately $6.1 million for the same period in 2008.





Amortization of intangible
assets





Amortization
expense for the nine months ended October 3, 2009 was consistent with the same
period in 2008.











Windows
and Doors Segment





For
      the three months ended(dollars
      in thousands)
            
            October 3, 2009
            
            
            September 27, 2008(unaudited)
            
            
            (unaudited)Statement
      of operations data:Net
      sales
            
            $
            111,303
            
            
            
            100
            %
            
            $
            126,379
            
            
            
            100
            %Cost
      of products sold
            
            
            89,826
            
            
            
            80.7
            %
            
            
            108,744
            
            
            
            86.0
            %Gross
      profit
            
            
            21,477
            
            
            
            19.3
            %
            
            
            17,635
            
            
            
            14.0
            %Goodwill
      impairment
            
            
            -
            
            
            
            
            
            
            
            200,000
            
            
            
            158.3
            %SG&A
      expense
            
            
            15,689
            
            
            
            14.1
            %
            
            
            16,030
            
            
            
            12.7
            %Amortization
      of intangible assets
            
            
            2,778
            
            
            
            2.5
            %
            
            
            2,776
            
            
            
            2.2
            %Operating
      earnings (loss)
            
            $
            3,010
            
            
            
            2.7
            %
            
            $
            (201,171
            )
            
            
            -159.2
            %Currency
      transaction gain (loss)
            
            $
            242
            
            
            
            0.2
            %
            
            $
            (60
            )
            
            
            0.0
            %








Net
Sales





Net sales
for the three months ended October 3, 2009 decreased compared to the same period
in 2008 by approximately $15.1 million, or 11.9%.  The decrease in net
sales was due to lower demand for our window and door products due to lower
sales of our new construction window and door products which were negatively
impacted by market wide decreased demand that resulted from reductions in single
family housing starts in the U.S. as previously discussed.  In
addition, sales of our window and door products in western Canada were
negatively impacted by market wide decreased demand that resulted from
reductions in housing starts in Alberta, Canada which were estimated to be down
6.9% in the third quarter of 2009 as compared to the same period in 2008
according to the Canadian Mortgage and Housing Corporation
(“CMHC”).  The decrease in net sales that resulted from industry wide
market demand declines in both the U.S. and western Canadian markets were
partially offset by market share gains from sales to new customers and/or
expanded sales to existing customers from additional products or sales in new
geographical regions.  Our unit shipments of windows and doors in the
U.S. were down 8.6% for the third quarter of 2009 as compared to the same period
in 2008, while according to the U.S. Census Bureau, third quarter 2009 single
family housing starts are estimated to show a decline of approximately 15.5%
from actual levels achieved in the third quarter of 2008.  Our unit
shipments of windows and doors in western Canada were down 1.6% for the third
quarter of 2009 as compared to the same period in 2008, while according to the
CMHC, third quarter 2009 single family housing starts in Alberta, Canada are
estimated to show a decline of approximately 6.9% from actual levels achieved in
the third quarter of 2008.





38




Cost of Products
Sold





Cost of
products sold for the three months ended October 3, 2009 decreased compared to
the same period in 2008 by approximately $18.9 million, or 17.4%.  The
decrease in cost of products sold was primarily due to lower sales as discussed
above and decreased raw material costs, primarily PVC resin and aluminum, as
well as lower freight costs driven by lower oil costs as previously discussed
above. Gross profit percentage for the three months ended October 3, 2009
increased from the same period in 2008 from 14.0% to 19.3%.  The
improvement in gross profit percentage resulted from decreased raw material and
freight cost discussed above, partially offset by lower selling
prices.  In addition, our gross profit percentage improved as a result
of management’s initiatives to reduce fixed expenses which included the closure
of our Hammonton, New Jersey, Phoenix, Arizona and Tupelo, Mississippi window
plants during the first six months of 2009 and our realignment of production
within our three west coast window plants, including the consolidation of window
lineal production during 2009.  The improvement in gross profit that
resulted from management’s initiatives was partially offset by initial costs
that were incurred with new customers that resulted from the buy-back, or
lift-out, of our competitor’s product on the initial stocking orders with our
new customers which was approximately $0.4 million for the third quarter of 2009
as compared to approximately $0.1 million for the same period in
2008.





Goodwill
Impairment





As a
result of the depressed residential housing and remodeling markets, the Company
conducted an interim goodwill impairment test during the third quarter of 2008
and recorded an estimated $200.0 million impairment charge to operating
earnings.  This non-cash charge did not affect the Company’s cash
position, liquidity, debt covenants, or have any impact on
operations.  See “Note 3 – Goodwill Impairment” to the condensed
consolidated financial statements, for a detailed discussion on the 2008
goodwill impairment charge.  The Company will continue to evaluate
goodwill during future periods and further declines in the residential housing
and remodeling markets could result in additional goodwill
impairments.





Selling, general and
administrative expenses





SG&A
expenses for the three months ended October 3, 2009 decreased by approximately
$0.3 million, or 2.1%, from the same period in 2008. The decrease in SG&A
expense was due to lower administrative and other fixed expenses that have been
reduced in light of current market conditions. The Company incurred
restructuring and integration expense of approximately $0.4 million for the
third quarter of 2009 and approximately $0.3 million for the same period in
2008.








Amortization of intangible
assets





Amortization
expense for the three months ended October 3, 2009 was consistent with the same
period in 2008.








For
      the nine months ended(dollars
      in thousands)
            
            October 3, 2009
            
            
            September 27, 2008(unaudited)
            
            
            (unaudited)Statement of operations
    data:Net
      sales
            
            $
            280,557
            
            
            
            100
            %
            
            $
            367,722
            
            
            
            100
            %Cost
      of products sold
            
            
            243,065
            
            
            
            86.6
            %
            
            
            312,741
            
            
            
            85.0
            %Gross
      profit
            
            
            37,492
            
            
            
            13.4
            %
            
            
            54,981
            
            
            
            15.0
            %Goodwill
      impairment
            
            
            -
            
            
            
            
            
            
            
            200,000
            
            
            
            54.4
            %SG&A
      expense
            
            
            50,834
            
            
            
            18.1
            %
            
            
            54,172
            
            
            
            14.7
            %Amortization
      of intangible assets
            
            
            8,329
            
            
            
            3.0
            %
            
            
            8,328
            
            
            
            2.3
            %Operating
      loss
            
            $
            (21,671
            )
            
            
            -7.7
            %
            
            $
            (207,519
            )
            
            
            -56.4
            %Currency
      transaction gain (loss)
            
            $
            84
            
            
            
            0.0
            %
            
            $
            (555
            )
            
            
            -0.2
            %







Net
Sales





Net sales
for the nine months ended October 3, 2009 decreased compared to the same period
in 2008 by approximately $87.2 million, or 23.7%. The decrease in net sales was
due to lower demand for our window and door products due to lower sales of our
new construction window and door products which were negatively impacted by
market wide decreased demand that resulted from reductions in single family
housing starts in the U.S. as previously discussed.  In addition,
sales of our window and door products in western Canada were negatively impacted
by market wide decreased demand that resulted from reductions in single family
housing starts in Alberta, Canada which were estimated to be down 46.6% in the
first nine months of 2009 as compared to the same period in 2008 according to
the CMHC. The decrease in net sales that resulted from industry wide market
demand declines in both the U.S. and western Canadian markets were partially
offset by market share gains from sales to new customers and/or expanded sales
to existing customers from additional products or sales in new geographical
regions.  Our unit shipments of windows and doors in the U.S. were
down 18.7% for the first nine months of 2009 as compared to the same period in
2008, while according to the U.S. Census Bureau, single family housing starts
for the first nine months of 2009 are estimated to show a decline of
approximately 34.5% from actual levels achieved in the first nine months of
2008.  Our unit shipments of windows and doors in western Canada were
down 20.0% for the first nine months of 2009 as compared to the same period in
2008, while according to the CMHC, single family housing starts in Alberta,
Canada for the first nine months of 2009 are estimated to show a decline of
approximately 46.6% from actual levels achieved in the first nine months of
2008.





39


Cost of Products
Sold





Cost of
products sold for the nine months ended October 3, 2009 decreased compared to
the same period in 2008 by approximately $69.7 million, or 22.3%. The decrease
in cost of products sold was primarily due to lower sales as discussed above and
decreased raw material costs, primarily PVC resin and aluminum, as well as lower
freight costs driven by lower oil costs as previously discussed above. Gross
profit percentage for the nine months ended October 3, 2009 declined from the
same period in 2008 from 15.0% to 13.4%.  The decrease in gross profit
percentage resulted from lower sales as fixed manufacturing costs were not
reduced in direct proportion to lower sales. In response to lower market demand,
the Company closed its Hammonton, New Jersey, Phoenix, Arizona and Tupelo,
Mississippi window plants during the first nine months of 2009 and realigned
production within its three west coast window plants, including the
consolidation of window lineal production during 2009.  The closure of
the three window plants and realignment of window lineal production were
intended to lower operating costs and improve gross profit performance which has
been demonstrated in the improvement in our third quarter 2009 gross profit
percentage as compared to the same period in 2008.  Also impacting our
gross profit results for the nine months ended October 3, 2009 were the initial
costs that were incurred with new customers that resulted from the buy-back, or
lift-out, of our competitor’s product on the initial stocking orders with our
new customers which was approximately $0.8 million for the third quarter of 2009
as compared to approximately $0.4 million for the same period in
2008.





Goodwill
Impairment





As a
result of the depressed residential housing and remodeling markets, the Company
conducted an interim goodwill impairment test during the third quarter of 2008
and recorded an estimated $200.0 million impairment charge to operating
earnings.  This non-cash charge did not affect the Company’s cash
position, liquidity, debt covenants, or have any impact on
operations.  See “Note 3 – Goodwill Impairment” to the condensed
consolidated financial statements, for a detailed discussion on the 2008
goodwill impairment charge.  The Company will continue to evaluate
goodwill during future periods and further declines in the residential housing
and remodeling markets could result in additional goodwill
impairments.





Selling, general and
administrative expenses





SG&A
expenses for the nine months ended October 3, 2009 decreased by approximately
$3.3 million, or 6.2%, from the same period in 2008. The decrease in SG&A
expense was due to lower administrative and other fixed expenses that have been
reduced in light of current market conditions.  These SG&A expense
reductions were partially offset by higher restructuring and integration
expenses that were incurred of approximately $5.8 million in the first nine
months of 2009 and approximately $2.8 million for the same period in
2008.




Amortization of intangible
assets





Amortization
expense for the nine months ended October 3, 2009 was consistent with the same
period in 2008.











40







Unallocated
Operating Earnings, Interest, and Provision (Benefit) for Income
Taxes











For
      the three months ended(dollars
      in thousands)
            
            October 3, 2009
            
            
            September 27, 2008(unaudited)
            
            (unaudited)Statement of operations
    data:Operating
      loss
            
            $
            (3,751
            )
            
            $
            (2,458
            )Interest
      expense
            
            
            (32,543
            )
            
            
            (30,278
            )Interest
      income
            
            
            12
            
            
            
            85Provision
      (benefit) for income taxes
            
            $
            2,260
            
            
            $
            (15,835
            )





Operating
loss





Unallocated
losses include items which are not directly attributed to or allocated to either
of our reporting segments.  Such items include legal costs, corporate
payroll, and unallocated finance and accounting expenses.  The
unallocated operating loss for the three months ended October 3, 2009 increased
by approximately $1.3 million over the same period in 2008.  The
increase was driven by the expansion of the corporate office and centralization
of back office functions from the operating units to the corporate
office.  The operating loss for the three months ended October 3, 2009
includes approximately $9,000 of intangible asset amortization
expense.





Interest
expense





Interest
expense for the three months ended October 3, 2009 increased by approximately
$2.3 million over the same period in 2008.  The increase was primarily
due to interest on increased borrowings under the ABL Facility in 2009 as
compared to 2008.





Income
taxes




The
income tax expense for the three months ended October 3, 2009 increased by
approximately $18.1 million over the same period in 2008 due to the Company’s
favorable operating performance during the three months ended October 3, 2009 in
which the Company generated pre-tax income of approximately $6.6 million
compared to a $206.7 million pre-tax loss generated in the three months ended
September 27, 2008 which included a goodwill impairment charge of approximately
$200.0 million.
During the quarter ended October 3, 2009, the Company increased its
valuation allowance by approximately $9.2 million.




As of
October 3, 2009, the Company’s estimated effective income tax rate for the full
year was approximately 17.8% which varied from the statutory rate primarily due
to state tax expense, an increase in the valuation allowance, and the tax
benefit associated with cancellation of debt income.  As of October 3,
2009, a full valuation allowance has been provided against certain deferred tax
assets as it is presently deemed more likely than not that the benefit of such
net tax assets will not be utilized.  Due to recent cumulative losses
accumulated by the Company, management did not rely upon projections of future
taxable income in assessing the recoverability of deferred tax
assets.  At December 31, 2008, the Company was in a net deferred tax
liability position and had sufficient taxable income from reversing taxable
temporary differences to realize the federal deferred tax assets.  The
Company scheduled out the reversing temporary differences associated with their
deferred tax assets and deferred tax liabilities to conclude that a full
valuation allowance was not necessary at December 31, 2008.  The
Company currently has book goodwill of approximately $13.4 million that is not
amortized and results in a deferred tax liability of approximately $2.2
million at October 3, 2009.  Therefore, the reversal of deferred tax
liabilities related to this goodwill is not considered a source of future
taxable income in assessing the realization of its deferred tax
assets.  The Company continues to evaluate the realizability of its
net deferred tax assets and its estimates are subject to change.





41







Affiliates
of our controlling stockholder have purchased approximately $234.7
million of the Senior Subordinated Notes as of October 3,
2009.  The Company determined that approximately $115.1 million would
be considered cancellation of indebtedness (“COD”) income as the acquiring party
was deemed a related party for tax purposes.  In connection with this
transaction, the Company was able to reduce certain tax attributes
including net operating losses ("NOLs") and tax basis in assets in lieu of
recognizing approximately $19.3 million of COD income during the three months
ended October 3, 2009.




On
February 17, 2009, President Obama signed into law the American Recovery and Reinvestment
Act of 2009 (the “Act”).  Among its provisions, the Act permits
certain taxpayers to elect to defer the taxation of COD income arising from
certain repurchases, exchanges or modifications of their outstanding debt that
occur during 2009 and 2010.  The COD income can be deferred for five
years and then included in taxable income ratably over the next five
years.  The Company does not believe it will have any federal cash
income tax expense associated with the COD income.




During
the quarter ended September 27, 2008, the Company’s effective tax rate was 37.8%
which was consistent with the Company’s expectations for the full 2008 fiscal
year.





























For
      the nine months ended(dollars
      in thousands)
            
            October 3,
              2009
            
            
            September 27, 2008(unaudited)
            
            (unaudited)Statement of operations
    data:Operating
      loss
            
            $
            (10,288
            )
            
            $
            (7,327
            )Interest
      expense
            
            
            (99,353
            )
            
            
            (103,790
            )Interest
      income
            
            
            30
            
            
            
            332Benefit
      for income taxes
            
            $
            (12,096
            )
            
            $
            (42,235
            )





Operating
loss





Unallocated
losses include items which are not directly attributed to or allocated to either
of our reporting segments.  Such items include legal costs, corporate
payroll, and unallocated finance and accounting expenses.  The
unallocated operating loss for the nine months ended October 3, 2009 increased
by approximately $3.0 million over the same period in 2008.  The
increase was driven by the expansion of the corporate office and centralization
of back office functions from the operating units to the corporate
office.  The operating loss for the nine months ended October 3, 2009
includes approximately $12,000 of intangible asset amortization
expense.





Interest
expense





Interest
expense for the nine months ended October 3, 2009 decreased by approximately
$4.4 million over the same period in 2008.  The decrease was primarily
due to approximately $27.6 million of interest costs incurred in the second
quarter of 2008 related to the issuance of new debt (approximately $14.0 million
of deferred financing costs associated with previous debt, approximately $6.8
million for a prepayment premium and approximately $6.8 million of bank
amendment fees that were subsequently retired).  This decrease was
partially offset by interest of approximately $63.1 million on the Senior
Secured Notes in the nine months of 2009 as compared to approximately $25.4
million interest paid in the first nine months of 2008 after the issuance on
June 9, 2008 and the approximately $20.6 million of interest in 2008 on the
Company’s previous term loan which was repaid on June 9, 2008.  Also
offsetting the decrease is approximately $2.5 million of interest charges
related to the debt modification which occurred during 2009, and approximately
$3.6 million due to interest paid on increased borrowings under the ABL Facility
and higher amortization of deferred financing in 2009 as compared to 2008.





42




Income
taxes




The
income tax benefit for the nine months ended October 3, 2009 decreased by
approximately $30.1 million over the same period in 2008 due to the Company’s
favorable operating performance during the nine months ended October 3, 2009 in
which the Company generated a lower pre-tax loss of $71.2 million compared to a
pre-tax loss of $274.4 million generated in the nine months ended September 27,
2008 which included a goodwill impairment charge of approximately $200.0 million
and a write off of deferred financing costs of $27.6 million.  During
the nine months ended October 3, 2009, the Company increased its valuation
allowance by approximately $26.4 million.  As of October 3, 2009, the
Company’s estimated effective income tax rate for the full year was
approximately 17.8% which varied from the statutory rate primarily due to state
tax expense, an increase in the valuation allowance, and the tax benefit
associated with cancellation of debt income.  As of October 3, 2009, a
valuation allowance has been provided against certain deferred tax assets as it
is presently deemed more likely than not that the benefit of such net tax assets
will not be utilized.  Due to recent cumulative losses accumulated by
the Company, management did not rely upon projections of future taxable income
in assessing the recoverability of deferred tax assets.  At December
31, 2008, the Company was in a net deferred tax liability position and had
sufficient taxable income from reversing taxable temporary differences to
realize the federal deferred tax assets.  The Company scheduled out
the reversing temporary differences associated with their deferred tax assets
and deferred tax liabilities to conclude that a full valuation allowance was not
necessary at December 31, 2008.  The Company currently has book
goodwill of approximately $13.4 million that is not amortized and results in a
deferred tax liability of approximately $2.2 million at October 3,
2009.  Therefore, the reversal of deferred tax liabilities related to
this goodwill is not considered a source of future taxable income in assessing
the realization of its deferred tax assets.  The Company continues to
evaluate the realizability of its net deferred tax assets and its estimates are
subject to change.




Affiliates
of our controlling stockholder have purchased approximately $234.7 million of
the Senior Subordinated Notes as of October 3, 2009.  The Company
determined that approximately $115.1 million would be considered COD income as
the acquiring party was deemed a related party for tax purposes.  In
connection with this transaction, the Company was able to reduce certain
tax attributes including NOLs and tax basis in assets in lieu of recognizing
approximately $115.1 million of COD income during the nine months ended
October 3, 2009.




On
February 17, 2009, President Obama signed into law the American Recovery and Reinvestment
Act of 2009 (the “Act”).  Among its provisions, the Act permits
certain taxpayers to elect to defer the taxation of COD income arising from
certain repurchases, exchanges or modifications of their outstanding debt that
occur during 2009 and 2010.  The COD income can be deferred for five
years and then included in taxable income ratably over the next five
years.  The Company does not believe it will have any federal cash
income tax expense associated with the COD income.




During
the nine months ended October 3, 2009, the Company also filed an amended federal
income tax return for the year ended December 31, 2005 in order to adjust its
net operating loss limitations.  The Company recorded the resulting
income tax benefit as an income tax receivable of approximately $4.1 million as
of October 3, 2009, which has been recorded in prepaid expenses and other
current assets in the accompanying condensed consolidated balance sheets as of
October 3, 2009.








Liquidity
and Capital Resources





During
the nine months ended October 3, 2009, cash and cash equivalents decreased
approximately $18.5 million to $39.8 million as of October 3, 2009, reflecting
the challenging economic conditions currently affecting the housing industry and
our seasonal working capital needs.  Cash and cash equivalents
increased approximately $20.3 million during the third quarter of 2009
reflecting the Company’s financial performance.





Our
business is seasonal because inclement weather during the winter months reduces
the level of building and remodeling activity in both the home repair and
remodeling and new home construction sectors, especially in the Northeast and
Midwest regions of the United States and Western Canada.  As a result,
our liquidity typically increases during the second and third quarters as our
borrowing base increases under the ABL facility reaching a peak early in the
fourth quarter, and decreases late in the fourth quarter and throughout the
first quarter.





43




Our
primary cash needs are for working capital, capital expenditures and debt
service.  As of October 3, 2009, our annual interest charges for debt
service to related and nonrelated parties, including the ABL facility, are
estimated to be approximately $118.2 million.  We do not have any
scheduled debt maturities in 2009 or 2010.  The specific debt
instruments and their corresponding terms and due dates are described in the
following sections.  Our capital expenditures are estimated to be
approximately 1.4% to 1.6% of net sales on an annual basis.  As of
October 3, 2009, our purchase commitments for inventory are approximately $0.8
million.  We finance these cash requirements through internally
generated cash flow and funds borrowed under Ply Gem Industries’ ABL
Facility.





The
Company’s specific cash flow movement for the nine months ended October 3, 2009
is summarized below:





Cash used in operating
activities





Net cash
used in operating activities for the nine months ended October 3, 2009 was
approximately $17.1 million.  Net cash used in operating activities
for the nine months ended September 27, 2008 was approximately $54.0
million.  The decrease in cash used in operating activities for 2009
as compared to 2008 was primarily driven by positive working capital
changes.  Working capital favorability resulted predominantly from
lower inventory pricing due to lower commodity costs for PVC resin and
aluminum.  Therefore, cash expended for inventory purchases during the
nine months ended October 3, 2009 was less than the comparable period from the
previous year.





Cash provided by (used in)
investing activities





Net cash
used in investing activities for the nine months ended October 3, 2009 was
approximately $5.6 million.  Net cash used in investing activities for
the nine months ended September 27, 2008 was approximately $4.8
million.  The cash used in investing activities for the nine months
ended October 3, 2009 was primarily used for capital
expenditures.  The cash used in investing activities for the nine
months ended September 27, 2008 was predominantly from capital expenditures of
$13.5 million, partially offset by the sale of assets of approximately $8.8
million.  The decrease in capital expenditures during 2009 reflects
the difficult economic environment and management’s ability to effectively
manage expenditures during these economic conditions.





Cash provided by financing
activities





Net cash
provided by financing activities for the nine months ended October 3, 2009 was
approximately $3.8 million, primarily from revolver borrowings of $5.0 million
offset by debt issuance costs of approximately $1.2 million. Net cash provided
by financing activities for the nine months ended September 27, 2008 was
approximately $19.1 million and consisted of approximately $15.6 million of
proceeds from long-term debt, and a $30.0 million cash equity contribution that
the Company received from CI Capital Partners LLC partially offset by
approximately $26.0 million of debt issuance costs and approximately $0.5
million of repurchased net equity.





The
Company’s specific debt instruments and terms are described below:





11.75% Senior Secured Notes
due 2013





On June
9, 2008, Ply Gem Industries issued $700.0 million of its Senior Secured Notes,
which are fully and unconditionally guaranteed on a joint and several basis by
Ply Gem Holdings and all of the domestic subsidiaries of Ply Gem
Industries.  Ply Gem Industries used the proceeds to repay all of the
outstanding indebtedness under the existing senior secured credit facility of
approximately $691.2 million.  The Senior Secured Notes will mature on
June 15, 2013 and bear interest at the rate of 11.75% per
annum.  Interest is payable semi-annually on June 15 and December 15
of each year.  On October 23, 2009, Ply Gem Industries issued an
additional $25.0 million of its Senior Secured Notes in a private placement
transaction.  The net proceeds will be utilized for general corporate
purposes.





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





44





Senior Secured Asset-Based
Revolving Credit Facility due 2013





Concurrently
with the closing of the issuance of the Senior Secured Notes on June 9,
2008, the Company and its subsidiaries entered into the ABL Facility, which
initially provided for revolving credit financing of up to $135.0 million, and
was subsequently increased to $150.0 million as of August 14, 2008, subject to
borrowing base availability, with a maturity of five years (June 2013),
including sub-facilities for letters of credit, swingline loans and borrowings
in Canadian dollars and United States dollars by CWD.   On July
16, 2009, the Company amended the ABL Facility increasing the available
commitments to $175.0 million, and on October 9, 2009, the Company amended the
ABL Facility to, among other things, allow for the issuance of the additional
$25.0 million Senior Secured Notes.





The ABL
Facility will mature on October 15, 2011 if Ply Gem Industries’ Senior
Subordinated Notes are not refinanced by such date.  We may need to
refinance, extend the maturity or otherwise amend the ABL
facility.  Our ability to refinance the ABL facility and/or Senior
Subordinated Notes is dependent, among other things, on business conditions and
our financial performance.  In addition, the ABL Facility provided
that the revolving commitments may be further increased to $200.0 million,
subject to certain terms and conditions.





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





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





As of
October 3, 2009, Ply Gem Industries had approximately $102.9 million of
contractual availability and approximately $76.5 million of borrowing base
availability under the ABL Facility, reflecting $65.0 million of borrowings
outstanding and approximately $7.1 million of letters of credit.





The
interest rates applicable to loans under the ABL Facility are, at the Company’s
option, equal to a base rate plus an applicable interest margin, or an adjusted
LIBOR rate plus an applicable interest margin, as defined in the ABL Facility
credit agreement.  As of October 3, 2009, the Company’s interest rate
on the ABL Facility was approximately 6.0%.  The ABL Facility contains
a requirement to maintain a fixed charge coverage ratio of 1.1:1.0 if the
Company’s borrowings exceed certain levels.





In July
2009, the Company amended the ABL Facility increasing the available commitments
by $25.0 million from $150.0 million to $175.0 million, and changed both the
availability threshold for certain cash dominion events and compliance with the
fixed charge and other covenants from 15% of revolving credit commitments to 15%
of the lower of the revolving credit commitments or the borrowing base but not
less than $20.0 million. The Company must maintain excess availability of at
least $20.0 million to avoid being subject to the fixed charge coverage
ratio.  As a condition to this availability increase, the applicable
margins payable on the loans were increased and made subject to certain
minimums.  In October 2009, the Company amended the ABL Facility to
allow for the issuance of the additional $25.0 million Senior Secured Notes and
to permit certain refinancing transactions with respect to the Senior
Subordinated Notes.  The October 2009 amendment also permits Ply Gem
Industries to issue equity securities to Ply Gem Holdings, its
parent.  The October 2009 amendment does not affect the $175.0 million
availability amount or the applicable interest rate margins under the ABL
Facility.





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





45





9% Senior Subordinated Notes
due 2012





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





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




In the
future, the Company and its affiliates may consider conducting exchange or
tender offers for its indebtedness or purchasing or otherwise acquiring its
indebtedness.





Liquidity
requirements





We intend
to fund our ongoing capital and working capital requirements, including our
internal growth, through a combination of cash flows from operations and, if
necessary, from borrowings under our ABL Facility.  We believe that we
will continue to meet our liquidity requirements over the next 12 months. We
believe that our operating units are positive cash flow generating units and
will continue to sustain their operations without any significant liquidity
concerns.  The performance of these operating units is significantly
impacted by the performance of the housing industry, specifically single family
housing starts and the repair and remodeling markets.  Any unforeseen
or unanticipated downturn in these markets could have a negative impact on the
Company’s liquidity position.





In order
to meet these liquidity requirements as well as other anticipated liquidity
needs in the normal course of business, as of October 3, 2009 we had cash and
cash equivalents of approximately $39.8 million, $102.9 million of contractual
availability under the ABL Facility and approximately $76.5 million of borrowing
base availability.  Management currently anticipates that these
amounts, as well as expected cash flows from our operations and proceeds from
any debt financing should be sufficient to meet ongoing operational cash flow
needs, capital expenditures, debt service obligations, and other fees payable
under other contractual obligations for the foreseeable future.





46








Off
Balance Sheet Arrangements





The
Company has no off-balance sheet arrangements.





Contractual
Obligations





In
addition to the items listed in the Contractual Obligations table presented in
the Company’s Annual Report on Form 10-K, the Company has a potential obligation
related to certain tax issues of approximately $10.1 million, including interest
of approximately $1.4 million.  The timing of the potential tax
payments is unknown.





Inflation
/ Seasonality





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





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





Recent
Accounting Pronouncements





See “Note
1 – Summary of Significant Accounting Policies” to the condensed consolidated
financial statements, regarding the impact of certain recent accounting
pronouncements on our condensed consolidated financial statements.




Special
Note Regarding Forward-Looking Statements




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





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





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




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


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


·
            the
      competitive nature of our industry;


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


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


·
            changes
      in our relationships with our significant
  customers.






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




47







Item
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK




Interest
Rate Risk





Our
principal interest rate exposure relates to the loans outstanding under our ABL
Facility, which provided for borrowings of up to $175.0 million as of October 3,
2009, bearing interest at a variable rate, based on an adjusted LIBOR rate plus
an applicable interest margin or the base rate plus an applicable interest
margin.  Assuming the ABL Facility is fully drawn as of October 3,
2009, each quarter point increase or decrease in the interest rate would change
our interest expense by approximately $0.4 million per year.  In the
future, we may enter into interest rate swaps, involving exchange of floating
for fixed rate interest payments, to reduce our exposure to interest rate
volatility.





Foreign
Currency Risk





Our
results of operations are affected by fluctuations in the value of the U.S.
dollar as compared to the value of the Canadian dollar.  For the three
and nine month periods ended October 3, 2009, the net impact of foreign currency
changes to the Company’s results of operations was a gain of $0.2 million and
$0.1 million, respectively.  The impact of foreign currency changes
related to translation resulted in a decrease in stockholder’s (deficit) of
approximately $3.4 million for the nine months ended October 3,
2009.  The revenue or expense reported by us as a result of currency
fluctuations will be greater in times of U.S. dollar devaluation and less in
times of U.S. dollar appreciation. We generally do not enter into derivative
financial instruments to manage foreign currency exposure.  At October
3, 2009, we did not have any outstanding foreign currency hedging
contracts.





Commodity
pricing risk





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





Inflation





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





Consumer
and Commercial Credit





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














48










Item
4.     CONTROLS AND PROCEDURES







Evaluation
of Disclosure Controls and Procedures




Our
management maintains disclosure controls and procedures (as defined in Rule
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”)), that are designed to ensure that information required to
be disclosed in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission’s rules and forms, and that such
information is accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding the required disclosure.




Our
management is responsible for establishing and maintaining our disclosure
controls and procedures. Our Chief Executive Officer and Chief Financial Officer
participated with our management in evaluating the effectiveness of our
disclosure controls and procedures as of October 3, 2009.




As of
October 3, 2009, we did not maintain timely and effective controls to ensure the
accuracy of the provision for income taxes. Specifically, the requisite level of
skills and resources in accounting for income taxes was inadequate and the
Company’s procedures for preparing, analyzing, reconciling, and reviewing its
income tax provision and income tax balance sheet accounts did not provide
effective internal control. This control deficiency could result in a material
misstatement of our annual or interim consolidated financial statements that
would not be prevented or detected. Accordingly, management has determined that
this control deficiency constitutes a material weakness.  A material
weakness is a deficiency, or combination of deficiencies, in internal control
over financial reporting such that there is a reasonable possibility that a
material misstatement of our annual or interim financial statements will not be
prevented or detected on a timely basis.




In light
of the material weakness described above, we have performed additional analysis
and other post-closing procedures to ensure that our financial statements were
prepared in accordance with generally accepted accounting principles.
Accordingly, we believe that the financial statements included in this report
fairly present, in all material respects, our financial condition, results of
operations and cash flows for the periods presented.




Changes
in Internal Control over Financial Reporting




There
have been no changes in our internal control over financial reporting that
occurred during the period covered by this Quarterly Report on Form 10-Q that
have materially affected, or are likely to materially effect, our internal
control over financial reporting.




Management’s
Remediation Initiatives





As a
result of the material weakness, we continue to evaluate and make changes to
improve our internal control over financial reporting, including but not limited
to, the hiring of additional personnel having sufficient knowledge and
experience in tax to strengthen the controls around the tax provision or the
engagement of outside tax specialists to assist us with the preparation and
review of the income tax provision, as well as enhancing the review process
associated with the preparation of the income tax provision.





Management
has not yet implemented all of the measures described above and/or tested them.
We continue to evaluate our internal control over financial reporting and may
modify these measures or implement additional measures in the
future.





Subsequent
to October 3, 2009, we have increased the staffing levels within our tax
department in an effort to remediate the material weakness by December 31,
2009.





49










PART
II - OTHER INFORMATION








Item
1A.     RISK FACTORS







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





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











Item
6.          EXHIBITS





(a)      Exhibits








Exhibit
No.                                                                  Description of
Exhibits





*   4.1
            Second
      Amendment dated as of October 9, 2009, to the Credit Agreement dated as of
      June 9, 2008 and amended and restated as of July 16, 2009, among Ply Gem
      Holdings, Inc., Ply Gem Industries, Inc., CWD Windows and Doors, Inc., the
      other borrowers named therein, each lender from time to time party
      thereto, Credit Suisse, Cayman Islands Branch, as Administrative Agent,
      U.S. Swing Line Lender and U.S. L/C Issuer, General Electric Capital
      Corporation, as Collateral Agent, Credit Suisse, Toronto Branch, as
      Canadian Swing Line Lender and Canadian L/C Issuer, and the other agents
      party thereto.*  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.







50








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, 2009





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











Date:  November
13, 2009




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




51