PLY GEM HOLDINGS INC (Form: 10-Q, Received: 11/13/2006 16:16:20)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2006

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

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to _____________.

Commission File Number: 333-114041

PLY GEM HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

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

185 Platte Clay Way

Kearney, Missouri 64060

Registrant's telephone number, including area code: 800-800-2244

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

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

Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X] ࿠

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

As of November 13, 2006, there were 100 shares of common stock, $0.01 par value, outstanding.

* The registrant is not required to file this Quarterly Report on Form 10-Q pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. The filing is required, however, pursuant to the terms of the indenture governing Ply Gem Industries, Inc.’s 9% senior subordinated notes due 2012.

PLY GEM HOLDINGS, INC. AND SUBSIDIARIES

FORM 10-Q

QUARTERLY PERIOD ENDED SEPTEMBER 30, 2006

CONTENTS

PART I - FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements

	Condensed Consolidated Statements of Operations -
	Three months ended September 30, 2006 and October 1, 2005	2

	Condensed Consolidated Statements of Operations -
	Nine months ended September 30, 2006 and October 1, 2005	3

	Condensed Consolidated Balance Sheets -
	September 30, 2006 and December 31, 2005	4

	Condensed Consolidated Statements of Cash Flows -
	Nine months ended September 30, 2006 and October 1, 2005	5

	Notes to Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition
	And Results of Operations	27

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	38

Item 4.	Controls and Procedures	38


	PART II - OTHER INFORMATION

Item 1A.	Risk Factors	39

Item 6.	Exhibits	39

	Signatures	40

PART I - FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

PLY GEM HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	For the three months ended
	September 30,			October 1,
	2006			2005
	(Amounts in thousands)

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

See accompanying notes to condensed consolidated financial statements.

PLY GEM HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	For the nine months ended
	September 30,			October 1,
	2006			2005
	(Amounts in thousands)

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

See accompanying notes to condensed consolidated financial statements .

PLY GEM HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	September 30,			December 31,
	2006			2005
	(Amounts in thousands, except
	share amounts)

ASSETS
Current Assets:
Cash and cash equivalents	$	45,537		$	22,173
Accounts receivable, less allowances of $7,435 and $8,320, respectively		103,142			70,357
Inventories:
Raw materials		41,836			31,415
Work in process		7,018			5,080
Finished goods		20,492			18,723
Total inventory		69,346			55,218
Prepaid expenses and other current assets		10,953			9,427
Deferred income taxes		14,919			13,330
Total current assets		243,897			170,505
Property and Equipment, at cost:
Land		1,377			2,020
Buildings and improvements		13,984			15,568
Machinery and equipment		140,093			119,225
Total property and equipment		155,454			136,813
Less accumulated depreciation		(40,179	)		(27,085	)
Total property and equipment, net		115,275			109,728
Other Assets:
Goodwill		671,472			578,992
Intangible assets, less accumulated amortization of $23,942 and $15,506,
respectively		172,626			152,894
Other		34,963			37,879
Total other assets		879,061			769,765
	$	1,238,233		$	1,049,998

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt	$	4,000		$	1,692
Accounts payable		55,654			42,342
Accrued expenses and taxes		76,673			64,019
Total current liabilities		136,327			108,053
Deferred income taxes		71,941			58,184
Other long term liabilities		38,230			32,471
Long-term debt, less current maturities		754,242			635,776
Stockholders' Equity:
Preferred stock $0.01 par, 100 shares authorized, none issued and outstanding		-			-
Common stock $0.01 par, 100 shares authorized, issued and outstanding		-			-
Additional paid-in-capital		180,919			175,461
Retained earnings		53,401			37,907
Accumulated other comprehensive income		3,173			2,146
Total stockholders' equity		237,493			215,514
	$	1,238,233		$	1,049,998

See accompanying notes to condensed consolidated financial statements.

PLY GEM HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	For the nine months ended
	September 30,			October 1,
	2006			2005
	(Amounts in thousands)
Cash flows from operating activities:
Net Income	$	15,494		$	16,524
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization expense		22,723			19,496
Fair value premium on purchased inventory		304			-
Non-cash interest expense, net		3,982			3,669
(Gain) loss on foreign currency transactions		(1,014	)		(745	)
Loss on sale of building		572			-
Other non-cash items		2,482			-
Deferred income taxes		668			8,228
Changes in operating assets and
liabilities, net of effects from acquisitions:
Accounts receivable, net		(21,883	)		(32,271	)
Inventories		(7,035	)		1,556
Prepaid expenses and other current assets		3,687			(2,532	)
Accounts payable		6,986			17,228
Accrued expenses and taxes		6,332			(10,516	)
Other		(368	)		35
Net cash provided by operating activities		32,930			20,672
Cash flows from investing activities:
Capital expenditures		(14,787	)		(7,591	)
Proceeds from sale of building		4,474			-
Acquisition of business, net of cash acquired		(120,754	)		380
Other		-			-
Net cash used in investing activities		(131,067	)		(7,211	)
Cash flows from financing activities:
Proceeds from long-term debt		122,808			-
Proceeds from revolver borrowings		15,000			35,500
Payments on long-term debt		(2,000	)		(8,881	)
Payments on revolver borrowings		(15,000	)		(21,500	)
Debt issuance costs		(2,249	)		-
Equity contribution		2,718			261
Net cash provided by financing activities		121,277			5,380
Impact of exchange rate movements on cash		224			199

Net increase in cash and cash equivalents		23,364			19,040

Cash and cash equivalents at the beginning of the period		22,173			6,794

Cash and cash equivalents at the end of the period	$	45,537		$	25,834

See accompanying notes to condensed consolidated financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Ply Gem Holdings, Inc. (referred to herein as “Ply Gem”, the “Company”, “we”, “us”, or “our”) have been prepared in accordance with U.S. generally accepted accounting principles as described in the consolidated financial statements and related notes included in our 2005 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 27, 2006. These statements do not include all of the information and footnotes required by U.S. generally accepted accounting principles and should be read in conjunction with our 2005 Annual Report on Form 10-K. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the period from January 1, 2006 through September 30, 2006 are not necessarily indicative of the results that may be expected for the year ended December 31, 2006.

The condensed consolidated balance sheet at December 31, 2005 has been derived from the audited consolidated financial statements of Ply Gem Holdings, Inc. at that date but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.

The Company’s fiscal quarters are based on periods ending on the last Saturday of the last week in the quarter. Therefore the financial results of certain fiscal quarters will not be exactly comparable to the prior and subsequent fiscal quarters.

On February 24, 2006, Ply Gem completed the purchase of AWC Holding Company (“AWC”, and together with its subsidiaries, “Alenco”) (the “Alenco Acquisition”) in accordance with a securities purchase agreement entered into among Ply Gem, all of the direct and indirect stockholders, warrant holders and stock option holders of AWC and FNL Management Corp., an Ohio corporation, as their representative (the “Securities Purchase Agreement”). Pursuant to the Securities Purchase Agreement, Ply Gem purchased all of the issued and outstanding shares of common stock, warrants to purchase shares of common stock and options to purchase common stock of AWC (other than certain shares of common stock of AWC held by certain members of the senior management of Alenco (the “Rollover Shares”) that were contributed separately to Ply Gem Prime Holdings, Inc., the new parent company of Ply Gem Investment Holdings, Inc., in exchange for shares of capital stock of Ply Gem Prime Holdings, Inc.). Immediately following the completion of the Alenco Acquisition, AWC became a wholly owned subsidiary of Ply Gem.

On February 24, 2006 in connection with the Alenco Acquisition, a new holding company, Ply Gem Prime Holdings, Inc., was formed pursuant to a merger involving Ply Gem Investment Holdings, Inc. As a result, Ply Gem Prime Holdings, Inc. became the sole shareholder of Ply Gem Investment Holdings, Inc., each outstanding share of capital stock of Ply Gem Investment Holdings, Inc. was converted into a share of a corresponding class of shares of the capital stock of Ply Gem Prime Holdings, Inc. and Ply Gem Prime Holdings, Inc. assumed Ply Gem Investment Holdings, Inc.’s obligations under the Ply Gem Investment Holdings 2004 Stock Option Plan and the Ply Gem Investment Holdings Phantom Stock Plan. In connection therewith, each outstanding stock option and phantom unit of Ply Gem Investment Holdings, Inc. was converted on a 1:1 basis into a stock option and phantom unit of Ply Gem Prime Holdings, Inc. On September 25, 2006, Ply Gem Prime Holdings, Inc. amended the Phantom Plan and awards thereunder in order to structure the awards and the Phantom Plan in a manner intended to comply with recently enacted rules governing nonqualified deferred compensation arrangements.

The accompanying financial statements include the consolidated results of operations for the Company for the three month and nine month periods ended September 30, 2006 and October 1, 2005, and consolidated financial position for the Company as of September 30, 2006 and December 31, 2005. The accompanying financial statements include the results of operations of Alenco for the period after the acquisition date of February 24, 2006.

Ply Gem is a diversified manufacturer of residential and commercial building products, which are sold primarily in the United States and Canada, and include a wide variety of products for the residential and commercial construction, the do-it-yourself and the professional remodeling and renovation markets. The demand for our products is seasonal, particularly in the Northeast and Midwest regions of the United States and Western Canada where inclement weather during the winter months usually reduces the level of building and remodeling activity in both the home repair and remodeling and new home construction sectors. Our sales are usually lower during the first and fourth quarters.

Since our building products are intended for exterior use, our sales and operating earnings tend to be lower during periods of inclement weather. Weather conditions in the first quarter of each calendar year historically result in that quarter producing significantly less sales revenue than in any other period of the year. As a result, we have historically had lower profits or losses in the first quarter, and reduced profits in the fourth quarter of each calendar year due to the weather. Our results of operations for individual quarters in the future may be impacted by adverse weather conditions. Since a portion of our manufacturing overhead and operating expenses are relatively fixed throughout the year, operating income and net earnings tend to be lower in quarters with lower sales levels. In addition, the demand for cash to fund our working capital is greater from late in the fourth quarter through the first quarter.

Principles of Consolidation

The consolidated financial statements include the accounts of Ply Gem Holdings, Inc. and its subsidiaries, all of which are wholly owned. All intercompany accounts and transactions have been eliminated.

Accounting Policies and Use of Estimates

The preparation of these consolidated financial statements in conformity with generally accepted accounting principles in the United States involves estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of income and expense during the reporting periods. Certain of the Company’s accounting policies require the application of judgment in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. The Company periodically evaluates the judgments and estimates used in their critical accounting policies to ensure that such judgments and estimates are reasonable for their interim and year-end reporting requirements. These judgments are based on the Company’s historical experience, current trends and information available from other sources, as appropriate. If different conditions result from those assumptions used in the Company’s judgments, the results could be materially different from the Company’s estimates.

Inventories

Inventories in the accompanying consolidated balance sheets are valued at the lower of cost or market. At September 30, 2006 and December 31, 2005, approximately $11.6 million and $9.8 million of total inventories, respectively, were valued on the last-in, first-out method (“LIFO”). Under the first-in, first-out method (“FIFO”) of accounting, such inventories would have been approximately $2.8 million higher at each of September 30, 2006 and at December 31, 2005. All other inventories were valued under the FIFO method. The Company records provisions, as appropriate, to write-down obsolete and excess inventory to estimated net realizable value. The process for evaluating obsolete and excess inventory often requires the Company to make subjective judgments and estimates concerning future sales levels, quantities and prices at which such inventory will be able to be sold in the normal course of business. Accelerating the disposal process or incorrect estimates of future sales potential may cause the actual results to differ from the estimates at the time such inventory is disposed or sold .

Related Party Transactions

The Company has entered into two advisory agreements with an affiliate of Caxton-Iseman Capital or related parties, or the “Caxton-Iseman Party”, which we refer to as the “Debt Financing Advisory Agreement” and the “General Advisory Agreement”. Under the General Advisory Agreement, the Company expensed management fees to the Caxton-Iseman Party of approximately $0.7 million and $0.8 million for the three month periods ended September 30, 2006 and October 1, 2005, respectively, and approximately $1.9 million and $1.8 million for the nine month periods ended September 30, 2006 and October 1, 2005, respectively. In connection with the Alenco Acquisition, pursuant to the General Advisory Agreement, in March 2006 the Company paid the Caxton-Iseman Party a transaction fee equal to 2% of the purchase price of AWC Holding Company ($2.4 million). Approximately $2.0 million of the fee was included in the AWC purchase price and approximately $0.4 million related to financing services was expensed.

Foreign Currency

The Company’s Canadian subsidiary utilizes the Canadian dollar as its functional currency. For reporting purposes, the Company translates the assets and liabilities of its foreign entity at the exchange rates in effect at the end of the reporting periods. Net sales and expenses are translated using average exchange rates in effect during the periods. Gains and losses from foreign currency translation are credited or charged to accumulated other comprehensive income in the accompanying consolidated balance sheets. A gain or loss resulting from fluctuations in the exchange rate may be recognized due to debt, denominated in US dollars, recorded by the Company’s Canadian subsidiary.

For the nine month periods ending September 30, 2006 and October 1, 2005, the Company recorded a gain from foreign currency transactions of approximately $1.0 million and $0.7 million, respectively. As of September 30, 2006, and December 31, 2005 accumulated other comprehensive income included a currency translation adjustment of approximately $4.6 million and $3.6 million, respectively.

Concentration of Credit Risk

T he accounts receivable balance related to one customer of our siding, fencing, railing and decking segment was approximately $18.0 million and $6.3 million at September 30, 2006 and December 31, 2005, respectively. This customer accounted for approximately 17.7% of net sales for the nine month period ended September 30, 2006 and approximately 18.9% of net sales for the year ended December 31, 2005.

Fair Value of Financial Instruments

The carrying value of the Company’s senior subordinated notes was approximately $360.2 million and $360.3 million at September 30, 3006 and December 31, 2005, respectively. The fair value of the Company’s senior subordinated notes at September 30, 2006 and December 31, 2005 was estimated to be approximately $286.2 million and $319.5 million, respectively, based on available market information. The carrying value of the Company’s other financial instruments approximates their fair value.

New Accounting Pronouncements

In June 2006, the FASB issued Financial Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109” (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, Accounting for Income Taxes . The interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 is effective for the fiscal year ending December 31, 2007. The Company is currently evaluating the effect FIN 48 will have on its consolidated financial statements.

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

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

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

2.	PURCHASE ACCOUNTING

On February 24, 2006, Ply Gem completed the Alenco Acquisition. The Company accounted for the transaction as a purchase in accordance with the provisions of SFAS No. 141, which results in a new valuation for the assets and liabilities of Alenco based upon fair values as of the date of the purchase. Alenco is a leading regional manufacturer of aluminum and vinyl windows and doors for the new home construction market in the fast-growing Southern regions of the United States. The addition of Alenco will expand the Company’s geographical reach into the southern regions and expands our window products offering with aluminum.

The purchase price, including approximately $6.0 million of value attributed to Ply Gem Prime Holdings, Inc. common stock issued to replace AWC Holding Company employee’s forfeited AWC Holding Company stock, was allocated to the assets and liabilities based on their fair values. The following is a preliminary allocation of the purchase price.

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

Management is also assessing certain liabilities assumed in the transaction and tax-related assets and liabilities.

Expenses of approximately $2.5 million were recognized as ‘other expense’ during the first nine months of 2006 for third-party charges associated with acquisition financing costs.

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

	Nine months Ended September 30, 2006		Nine months Ended October 1, 2005
	(Amounts in thousands)

Net sales	$	782,743	$	729,577
Net income		16,421		19,163

	Three months Ended October 1, 2005
	(Amounts in thousands)

Net sales	$	260,741
Net income		12,039

3.	INTANGIBLE ASSETS AND GOODWILL

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

	Average Amortization Period (in Years)		Cost		Accumulated Amortization			Net Carrying Value
			(Amounts in thousands)
As of September 30, 2006:
Patents		13	$	12,000	$	(2,416	)	$	9,584
Trademarks/Tradenames		15		32, 145		(4,858	)		27,287
Customer relationships		14		119,923		(16,668	)		103,255
Total intangible assets			$	164,068	$	(23,942	)	$	140,126

Intangible with indefinite lives:
Trademarks			$	32,500	$	--		$	32,500

As of December 31, 2005:
Patents		13	$	12,000	$	(1,738	)	$	10,262
Trademarks/Tradenames		15		25,900		(3,301	)		22,599
Customer relationships		14		98,000		(10,467	)		87,533
Total intangible assets			$	135,900	$	(15,506	)	$	120,394

Intangible with indefinite lives:
Trademarks			$	32,500	$	--		$	32,500

Amortization expense for the nine month periods ended September 30, 2006 and October 1, 2005 was approximately $8.4 million and $7.3 million, respectively. Amortization expense for the remainder of 2006, and for the five succeeding fiscal years is estimated to be approximately $2.9 million, $11.6 million, $11.6 million, $11.6 million, $11.6 million, and $11.5 million, respectively. Due to the Sarver facility closure, intangible asset impairments of approximately $0.8 million were recognized in the second quarter of 2006 as Selling, general and administrative expense.

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

4.	COMPREHENSIVE INCOME

Comprehensive income is comprised of the following:

	Three Months Ended					Nine Months Ended
	September 30, 2006			October 1, 2005		September 30, 2006		October 1, 2005
	(Amounts in thousands)

Net income	$	6,532		$	11,271	$	15,494	$	16,524
Foreign currency translation adjustment		(34	)		1,587		1,027		1,261

Comprehensive income	$	6,498		$	12,858	$	16,521	$	17,785

5.	LONG-TERM DEBT

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

	September 30, 2006		December 31, 2005
	(Amounts in thousands)

Senior term loan facility	$	398,000	$	277,192
Senior subordinated notes		360,242		360,276
		758,242		637,468
Less current maturities		4,000		1,692
	$	754,242	$	635,776

The Company’s senior credit facility with a syndicate of financial institutions and institutional lenders provides for senior secured financing of up to $470.0 million, consisting of $400.0 million of term loan facilities maturing in August 2011 and a $70.0 million revolving loan facility, including a letter of credit subfacility, maturing in February 2009. The term loan facility was drawn in full in and has two tranches, originally consisting of: 1) a $375.0 million tranche under which Ply Gem Industries, Inc. is the borrower, and 2) a $25.0 million tranche under which our Canadian subsidiary, CWD Windows and Doors, Inc., is the borrower. As of September 30, 2006 the balances of the two tranches are approximately $373.1 million and $24.9 million, respectively.

During the first quarter of 2006 the Company borrowed $15.0 million under the revolving credit facility and repaid approximately $1.8 million. During the second quarter of 2006 the Company repaid the remaining $13.2 million. The interest rates applicable to loans under our senior credit facilities are, at our option, equal to either a base rate plus an applicable interest margin, or an adjusted LIBOR rate plus an applicable interest margin, as defined in the senior credit facility agreement. Our rates at September 30, 2006 ranged from 7.6% to 7.7%.

Our senior credit facilities require scheduled quarterly principal payments on the term loan facilities of $1.0 million each quarter through March 2011 and a payment of $380.0 million on the maturity date, allocated pro rata between the two tranches.

The indebtedness of the U.S. borrower (Ply Gem Industries, Inc.) under our senior credit facilities is guaranteed by Ply Gem Holdings, Inc., and all of our existing and future direct and indirect subsidiaries, subject to exceptions for foreign subsidiary guarantees of the U.S. borrower’s obligations to the extent such guarantees are prohibited by applicable law or would result in materially adverse tax consequences and other exceptions. The indebtedness of the Canadian borrower under our senior credit facilities is guaranteed by Ply Gem Holdings, Inc., the U.S. borrower and all of the Canadian borrower’s future direct and indirect subsidiaries and is effectively guaranteed by all subsidiaries guaranteeing the U.S. borrower’s obligations under our senior credit facilities. All indebtedness under our senior credit facilities is secured, subject to certain exceptions, by a perfected first priority pledge of all of our equity interests and those of our direct and indirect subsidiaries, and, subject to certain exceptions, perfected first priority security interests in, and mortgages on, all tangible and intangible assets; provided that all tangible and intangible assets of the Canadian borrower and its subsidiaries are pledged to secure debt only of the Canadian borrower.

Our senior credit facilities require that we comply on a quarterly basis with certain financial covenants, including a minimum interest coverage ratio test, a maximum leverage ratio test and a maximum capital expenditures level. Our covenants also restrict the payment of dividends, with certain exceptions, without the lenders consent in writing. The Company is also required at each year end to calculate and submit within 90 days a payment of excess cash, as defined in the Company’s credit agreement. This payment will reduce the outstanding balance on the Company’s term loans.

Ply Gem Industries, Inc. has issued $360.0 million aggregate principal amount of our 9% senior subordinated notes due 2012, which are guaranteed by Ply Gem Holdings Inc. and the domestic subsidiaries of Ply Gem Industries, Inc.

Ply Gem Holdings, Inc. is a holding company and has no operations. Under the terms of the indenture governing the senior subordinated notes, there are restrictions on the ability of Ply Gem Industries, Inc. to dividend or distribute cash or property to Ply Gem Holdings, Inc.

The table that follows is a summary of maturities of all of the Company’s long-term debt obligations due in each twelve month period after September 30, 2006: (Amounts in thousands)

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

As of September 30, 2006, the Company had $67.6 million of availability under our revolving credit facility. Approximately $2.4 million of letters of credit have been issued under our senior credit facility. Further, approximately $3.2 million of letters of credit have been issued apart from the senior credit facility to secure certain environmental obligations.

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

6.	PENSION PLANS

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

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

	For the nine months ended September 30, 2006			For the nine months ended October 1, 2005
	(Amounts in thousands)

Service cost	$	247		$	253
Interest cost		1,406			1,440
Expected return on plan assets		(1,374	)		(1,241	)

Net periodic expense	$	279		$	452

7.	COMMITMENTS AND CONTINGENCIES

Nortek, the former parent of Ply Gem Industries, Inc., has agreed to indemnify the Company for certain liabilities. In the event Nortek is unable to satisfy amounts due under these indemnifications, the Company would be liable. The Company believes that Nortek has the financial capacity to honor its indemnification obligations and therefore does not anticipate incurring any losses related to liabilities indemnified by Nortek. A receivable related to this indemnification has been recorded in other long-term assets in the approximate amount of $9.0 million as of September 30, 2006.

The Company has indemnified third parties in certain transactions involving dispositions of former subsidiaries. As of September 30, 2006 and December 31, 2005, the Company has recorded liabilities included in Accrued expenses and Other long term liabilities in relation to these indemnifications of approximately $9.0 million and $9.1 million, respectively, consisting of the following:

	(Amounts in thousands)
	September 30, 2006		December 31, 2005
Product claim liabilities	$	3,795	$	3,801
Long-term lease liabilities		208		231
Multiemployer pension plan withdrawal liability		3,902		4,028
Other		1,046		1,054
	$	8,951	$	9,114

The Company sells a number of products and offers a number of warranties. The specific terms and conditions of these warranties vary depending on the product sold and country in which the product is sold. The Company estimates the costs that may be incurred under their warranties and records a liability for such costs at the time of sale, which is recorded in Accrued expenses and Other long term liabilities. Factors that affect the Company’s warranty liabilities include the number of units sold, historical and anticipated rates of warranty claims, cost per claim and new product introduction. The Company periodically assesses the adequacy of the recorded warranty claims and adjusts the amounts as necessary. As of September 30, 2006, warranty liabilities of approximately $4.7 million have been recorded in current liabilities and approximately $7.5 million have been recorded in long term liabilities.

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

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

The Company is subject to other contingencies, including legal proceedings and claims arising out of its businesses that cover a wide range of matters, including, among others, environmental matters, contract and employment claims, product liability, warranty and modification, adjustment or replacement of component parts of units sold, which may include product recalls. Product liability, environmental and other legal proceedings also include matters with respect to businesses previously owned. The Company has used various substances in their products and manufacturing operations, which have been or may be deemed to be hazardous or dangerous, and the extent of its potential liability, if any, under environmental, product liability and workers’ compensation statutes, rules, regulations and case law is unclear. Further, due to the lack of adequate information and the potential impact of present regulations and any future regulations, there are certain circumstances in which no range of potential exposure may be reasonably estimated. It is impossible to ascertain the ultimate legal and financial liability with respect to contingent liabilities, including lawsuits, and therefore no such estimate has been made.

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

Accrued expenses and taxes consist of the following at September 30, 2006 and December 31, 2005:

	September 30, 2006		December 31, 2005
	(Amounts in thousands)

Insurance	$	6,720	$	4,660
Employee compensation and benefits		18,642		11,727
Sales and marketing		18,668		16,061
Product warranty		4,658		4,331
Short-term product claim liability		2,321		2,321
Interest		6,943		16,576
Federal t axes		4,611		285
Other taxes		3,306		1,911
Other, net		10,804		6,147
	$	76,673	$	64,019

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

	September 30, 2006		December 31, 2005
	(Amounts in thousands)

Insurance	$	3,474	$	1,731
Pension liabilities		13,244		14,974
Product warranty		7,504		6,459
Long-term product claim liability		1,474		1,480
Employee compensation		4,256		-
Contingent tax liability		6,646		6,646
Other		1,632		1,181
	$	38,230	$	32,471

9. STOCK-BASED COMPENSATION

Stock Option Plan

On February 12, 2004, Ply Gem Investment Holdings, Inc.’s Board of Directors adopted the Ply Gem Investment Holdings, Inc. 2004 Stock Option Plan (the “Plan”) allowing for grants of options to purchase up to 148,050 shares of Ply Gem Investment Holdings, Inc.’s common stock under nonqualified stock options or incentive stock options and on November 30, 2004, increased the grants allowed under the plan up to 184,065 shares. On February 24, 2006 in connection with the Alenco Acquisition, a new holding company, Ply Gem Prime Holdings, Inc., was formed pursuant to a merger involving Ply Gem Investment Holdings, Inc. As a result, Ply Gem Prime Holdings, Inc. became the sole shareholder of Ply Gem Investment Holdings, Inc., each outstanding share of capital stock of Ply Gem Investment Holdings, Inc. was converted into a share of a corresponding class of shares of the capital stock of Ply Gem Prime Holdings, Inc. and Ply Gem Prime Holdings, Inc. assumed Ply Gem Investment Holdings, Inc.’s obligations under the Ply Gem Investment Holdings 2004 Stock Option Plan and the Ply Gem Investment Holdings Phantom Stock Plan. In connection therewith, each outstanding stock option and phantom unit of Ply Gem Investment Holdings, Inc. was converted on a 1:1 basis into a stock option and phantom unit of Ply Gem Prime Holdings, Inc. Employees, directors and consultants of Ply Gem Prime Holdings, Inc. or any of its majority-owned subsidiaries are eligible for options, as specified in the Plan. Ply Gem Prime Holdings, Inc.’s Board of Directors may, among other things, select recipients of options grants, determine whether options will be nonqualified or incentive stock options, set the number of shares that may be purchased pursuant to option exercise, and determine other terms and conditions of options. The exercise price of an option must be at least the estimated fair market value of a share of common stock as of the grant date. Options generally vest over five years from the date of grant, unless specified otherwise in any individual option agreement. Generally, options will expire on the tenth anniversary of the grant date or in connection with termination of employment. The Board of Directors has the discretion to accelerate the vesting and exercisability of outstanding options.

Effective January 1, 2006 the Company adopted the fair value recognition provisions of Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 123(R), “Share-Based Payments.” The Company elected the modified prospective transition method as permitted by SFAS No. 123(R) and, accordingly, prior periods were not restated to reflect the impact of SFAS No. 123(R). In accordance with SFAS No. 123(R), the Company considered these options to be liability-classified awards based on the fact that the employee has the ability to put shares back to the company in certain circumstances, thus avoiding exposure to the risk and rewards of ownership for a reasonable period of time. On September 29, 2006 the Company amended the put right section of its Stockholders’ Agreement to require that Stockholders must have held vested shares for a minimum of six-months from the last day of the quarter during which such shares vested in order to receive the put right price formula for vested shares to ensure that stockholders are exposed to the risks and rewards of true equity ownership. As a result, the Company modified its accounting treatment, and as of September 30, 2006 will treat these stock options as equity-classified awards.

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

As a result of adopting SFAS No. 123(R), a cumulative effect of accounting change for approximately $0.09 million (net of a tax benefit of approximately $0.06 million) was recognized during the first quarter of 2006. Due to the decrease in the value of the options, a reduction of compensation expense of approximately $0.02 million and $0.08 million was recognized for the three month and nine months ended September 30, 2006. The implementation of SFAS No. 123(R) did not have any impact on cash flows during the first nine months of 2006.

Prior to the modifications, the fair value of each option was estimated on the date of grant and updated each reporting period using the Black-Scholes option pricing method. The assumptions used in the model are outlined in the following table:

	As of September 30, 2006		As of January 1, 2006
Weighted average fair value of options granted	$	1.01	$	3.47
Weighted average assumptions used:
Expected volatility		30%		30%
Expected term (in years)		5		5
Risk-free interest rate		4.59%		4.35%
Expected dividend yield		0%		0%

Due to the fact that Ply Gem Prime Holding Inc.’s shares are not publicly traded, a third-party valuation specialist was retained to assist in the determination of the fair value of the shares, which was determined to be $10.00 per share and $6.00 per share at December 31, 2005 and September 30, 2006, respectively. The Company estimated its expected volatility through the review of several market indicators, including peer companies.

Before adopting FASB 123(R), the Company accounted for employee options in accordance with APB 25. No stock-based employee compensation cost was reflected in the Statement of Operations, as all options granted under the plan had an exercise price at least equal to the fair value of the underlying common stock on the date of grant. For the three and nine month periods ended October 1, 2005, the Company presented pro forma net income of approximately $11.3 million and $16.5 million, respectively, as if the Company had applied the fair value recognition provisions of SFAS No. 123.

A summary of changes in stock options outstanding during the nine months ended September 30, 2006 is presented below:

	Stock Options			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (Years)

Balance at January 1, 2006		134,594		$	10.00		7.71
Granted		29,300		$	10.00		9.65
Forfeited or expired		(5,900	)	$	10.00		-
Balance at September 30, 2006		157,994		$	10.00		8.08

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

Other Share-Based compensation

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

Under the Phantom Plan (until it, and the units outstanding thereunder, were subsequently amended, as described below), each participant’s interest in the plan was recorded in a bookkeeping account, and each account was deemed invested in Ply Gem Prime Holdings, Inc.’s stock. No stock was initially issued under the Phantom Plan, but, upon liquidation and payment of a participant’s account under the Phantom Plan, the value of the account generally was to be paid to the participant either in shares of Ply Gem Prime Holdings, Inc.’s stock having a fair value equal to the account balance or in cash, at the discretion of Ply Gem Prime Holdings, Inc.

Certain terms of the Phantom Plan were governed by the Ply Gem Prime Holdings, Inc.’s Stockholders’ Agreement (and the predecessor agreement for Ply Gem Investment Holdings, Inc.), which gave the participant put rights in certain circumstances which allowed the participant to put the stock back to Ply Gem Prime Holdings, Inc. at a price determined using predefined formulas contained in the Stockholders’ Agreement and the Phantom Plan. The Stockholders’ Agreement and the Phantom Plan contained two separate put right price formulas that were used to determine the participants’ account balances. The determination of which put right price formula was applicable to each of the participants’ phantom common stock awards was based upon the participant’s reaching certain vesting requirements described in the Stockholders’ Agreement. Based on the above, the Company accounted for these awards of phantom common shares under the modified prospective transition method of SFAS No. 123(R) as liability-classified awards.

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

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

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

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

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

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

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

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

10. RESTRUCTURING

During the second quarter of 2006, the Company announced the restructuring of it’s subsidiary, Napco Window Systems, Inc., which included the closure of the production facility located in Sarver, PA. The closure of the Sarver facility is expected to reduce costs and increase operating efficiencies by increasing capacity utilization. Most of the production of the Sarver, PA facility is expected to be absorbed by other locations, primarily the Toledo, OH facility.

Restructuring costs included termination benefits and asset impairments. Termination benefits of approximately $0.2 million are comprised of severance-related payments for all employees terminated in connection with the plant closure. Asset impairments of approximately $0.8 million were recognized for intangible assets consisting of tradenames and customer relationships. Losses of approximately $0.6 million were incurred for inventory and equipment write-downs. The restructuring costs, impairment, and losses from asset write-downs totaling approximately $1.6 million were recorded during the second quarter of 2006 in Selling, general and administrative expense in the Windows and Doors segment.

The Company entered into an agreement to sell the land and building at the Sarver, PA location, and finalized the sale during the third quarter of 2006. The carrying value of the land and building prior to the sale and write-down was approximately $4.6 million. In accordance with SFAS No. 144 (Accounting for the impairment or disposal of long-lived assets), the assets have been written-down to the fair market value less costs to sell. As a result, the Company has recognized a loss of approximately $0.6 million in Selling, general and administrative expense in the Windows and Doors segment .

11. SEGMENT INFORMATION

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

The Company has two reportable segments: 1) siding, fencing, railing, and decking and 2) windows and doors.

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

Following is a summary of the Company’s segment information.

	Three months ended						Nine months ended
	September 30, 2006			October 1, 2005			September 30, 2006			October 1, 2005
Net Sales
Siding, Fencing, Railing and Decking	$	110,055		$	104,928		$	339,261		$	293,956
Windows and Doors		147,003			120,587			422,219			333,597
	$	257,058		$	225,515		$	761,480		$	627,553
Operating earnings
Siding, Fencing, Railing and Decking	$	15,615		$	16,358		$	45,372		$	34,859
Windows and Doors		16,361			15,815			37,348			36,838
Unallocated		(4,630	)		(763	)		(7,091	)		(2,472	)
	$	27,346		$	31,410		$	75,629		$	69,225


		As of			As of
		September 30, 2006			December 31, 2005
Total Assets
Siding, Fencing, Railing and Decking	$	476,809		$	468,679
Windows and Doors		693,545			534,828
Unallocated		67,879			46,491
	$	1,238,233		$	1,049,998

12. SUBSEQUENT EVENTS

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

13. GUARANTOR / NON-GUARANTOR FINANCIAL INFORMATION

The senior subordinated notes due in 2012 are secured by full and unconditional guarantees on a joint and several basis from certain of the Company’s 100% owned subsidiaries. Accordingly, the following guarantor and non-guarantor information is presented as of September 30, 2006 and for the three month and nine month periods ended September 30, 2006 and October 1, 2005. The non-guarantor information presented represents our Canadian subsidiary.

PLY GEM HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the three months ended September 30, 2006

	Guarantor		Issuer						Non-
	Ply Gem		Ply Gem			Guarantor			Guarantor
	Holdings, Inc.		Industries, Inc.			Subsidiaries			Subsidiary			Eliminations			Consolidated
	(Amounts in thousands)

Net Sales	$	-	$	-		$	238,443		$	18,615		$	-		$	257,058
Costs and Expenses:
Cost of products sold		-		-			183,847			12,524			-			196,371
Selling, general and
administrative expense		-		4,630			22,826			2,975			-			30,431
Intercompany administrative
charges		-		(2,384	)		2,384			-			-			-
Amortization of intangible assets		-		-			2,910			-			-			2,910
Total Costs and Expenses		-		2,246			211,967			15,499			-			229,712
Operating earnings		-		(2,246	)		26,476			3,116			-			27,346
Foreign currency loss		-		-			-			(79	)		-			(79	)
Intercompany interest		-		15,899			(15,688	)		(211	)		-			-
Interest expense		-		(16,478	)		-			(507	)		-			(16,985	)
Investment income		-		272			56			45			-			373
Income before equity in
subsidiaries' income		-		(2,553	)		10,844			2,364			-			10,655
Equity in subsidiaries' income		6,532		8,064			-			-			(14,596	)		-
Income before provision
for income taxes		6,532		5,511			10,844			2,364			(14,596	)		10,655
Provision for income taxes		-		(1,021	)		4,341			803			-			4,123
Net income	$	6,532	$	6,532		$	6,503		$	1,561		$	(14,596	)	$	6,532

PLY GEM HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the three months ended October 1, 2005

	Guarantor		Issuer						Non-
	Ply Gem		Ply Gem			Guarantor			Guarantor
	Holdings, Inc.		Industries, Inc.			Subsidiaries			Subsidiary			Eliminations			Consolidated
	(Amounts in thousands)

Net Sales	$	-	$	-		$	207,778		$	17,737		$	-		$	225,515
Costs and Expenses:
Cost of products sold		-		-			158,663			11,809			-			170,472
Selling, general and
administrative expense		-		1,548			16,918			2,728			-			21,194
Intercompany administrative
charges		-		9,214			(9,214	)		-			-			-
Amortization of intangible assets		-		-			2,439			-			-			2,439
Total Costs and Expenses		-		10,762			168,806			14,537			-			194,105
Operating earnings		-		(10,762	)		38,972			3,200			-			31,410
Foreign currency gain		-		-			-			1,282			-			1,282
Intercompany interest		-		36,354			(36,090	)		(264	)		-			-
Interest expense		-		(14,039	)		(42	)		(401	)		-			(14,482	)
Investment income		-		96			133			15			-			244
Income before equity in
subsidiaries' income		-		11,649			2,973			3,832			-			18,454
Equity in subsidiaries' income		11,271		4,282			-			-			(15,553	)		-

Income before provision
for income taxes		11,271		15,931			2,973			3,832			(15,553	)		18,454
Provision for income taxes		-		4,660			1,221			1,302			-			7,183
Net income	$	11,271	$	11,271		$	1,752		$	2,530		$	(15,553	)	$	11,271

PLY GEM HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the nine months ended September 30, 2006

	Guarantor		Issuer						Non-
	Ply Gem		Ply Gem			Guarantor			Guarantor
	Holdings, Inc.		Industries, Inc.			Subsidiaries			Subsidiary			Eliminations			Consolidated
	(Amounts in thousands)

Net Sales	$	-	$	-		$	711,900		$	49,580		$	-		$	761,480
Costs and Expenses:
Cost of products sold		-		-			554,465			34,205			-			588,670
Selling, general and
administrative expense		-		7,091			72,640			9,016			-			88,747
Intercompany administrative
charges		-		(7,117	)		7,117			-			-			-
Amortization of intangible assets		-		-			8,434			-			-			8,434
Total Costs and Expenses		-		(26	)		642,656			43,221			-			685,851
Operating earnings		-		26			69,244			6,359			-			75,629
Foreign currency gain		-		-			-			1,014			-			1,014
Intercompany interest		-		45,892			(45,260	)		(632	)		-			-
Interest expense		-		(48,122	)		-			(1,387	)		-			(49,509	)
Investment income		-		473			202			111			-			786
Other expense		-		(2,497	)		-			-			-			(2,497	)
Income (loss) before equity in
subsidiaries' income		-		(4,228	)		24,186			5,465			-			25,423
Equity in subsidiaries' income		15,494		18,117			-			-			(33,611	)		-

Income before income taxes
and cumulative effect of accounting change		15,494		13,889			24,186			5,465			(33,611	)		25,423
Provision (benefit) for income taxes		-		(1,691	)		9,676			1,858			-			9,843
Income before cumulative
effect of accounting change		15,494		15,580			14,510			3,607			(33,611	)		15,580
Cumulative effect of accounting change		-		(86	)		-			-			-			(86	)
Net income	$	15,494	$	15,494		$	14,510		$	3,607		$	(33,611	)	$	15,494

PLY GEM HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the nine months ended October 1, 2005

	Guarantor		Issuer						Non-
	Ply Gem		Ply Gem			Guarantor			Guarantor
	Holdings, Inc.		Industries, Inc.			Subsidiaries			Subsidiary			Eliminations			Consolidated
	(Amounts in thousands)

Net Sales	$	-	$	-		$	584,146		$	43,407		$	-		$	627,553
Costs and Expenses:
Cost of products sold		-		-			453,274			29,806			-			483,080
Selling, general and
administrative expense		-		4,441			55,926			7,561			-			67,928
Intercompany administrative
charges		-		(5,844	)		5,844			-			-			-
Amortization of intangible assets		-		-			7,320			-			-			7,320
Total Costs and Expenses		-		(1,403	)		522,364			37,367			-			558,328
Operating earnings		-		1,403			61,782			6,040			-			69,225
Foreign currency gain		-		-			-			745			-			745
Intercompany interest		-		36,851			(36,090	)		(761	)		-			-
Interest expense		-		(41,099	)		(999	)		(1,059	)		-			(43,157	)
Investment income		-		185			251			31			-			467
Income (loss) before equity in
subsidiaries' income		-		(2,660	)		24,944			4,996			-			27,280
Equity in subsidiaries' income		16,524		18,120			-			-			(34,644	)		-

Income (loss) before provision (benefit)
for income taxes		16,524		15,460			24,944			4,996			(34,644	)		27,280
Provision (benefit) for income taxes		-		(1,064	)		10,122			1,698			-			10,756
Net income	$	16,524	$	16,524		$	14,822		$	3,298		$	(34,644	)	$	16,524

PLY GEM HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
As of September 30, 2006

	Guarantor		Issuer						Non-
	Ply Gem		Ply Gem			Guarantor			Guarantor
	Holdings, Inc.		Industries, Inc.			Subsidiaries			Subsidiary			Eliminations			Consolidated
	(Amounts in thousands)
ASSETS
Current Assets:
Cash and cash equivalents	$	-	$	31,447		$	7,655		$	6,435		$	-		$	45,537
Accounts receivable, net		-		-			93,884			9,258			-			103,142
Inventories:
Raw materials		-		-			38,113			3,723			-			41,836
Work in process		-		-			5,709			1,309			-			7,018
Finished goods		-		-			18,448			2,044			-			20,492
Total inventory		-		-			62,270			7,076			-			69,346
Prepaid expenses and other
current assets		-		2,965			7,487			501			-			10,953
Deferred income taxes		-		-			14,919			-			-			14,919
Total current assets		-		34,412			186,215			23,270			-			243,897
Investments in subsidiaries		237,493		161,655			-			-			(399,148	)		-
Property and Equipment, at cost:
Land		-		-			1,220			157			-			1,377
Buildings and improvements		-		106			13,137			741			-			13,984
Machinery and equipment		-		49			135,462			4,582			-			140,093
-				155			149,819			5,480			-			155,454
Less accumulated depreciation		-		(75	)		(38,825	)		(1,279	)		-			(40,179	)
Total property and equipment,
net		-		80			110,994			4,201			-			115,275
Other Assets:
Goodwill		-		-			629,341			42,131			-			671,472
Intangible assets, net		-		-			172,626			-			-			172,626
Intercompany note receivable		-		771,345			-			-			(771,345	)		-
Other		-		34,751			212			-			-			34,963
Total other assets		-		806,096			802,179			42,131			(771,345	)		879,061
	$	237,493	$	1,002,243		$	1,099,388		$	69,602		$	(1,170,493	)	$	1,238,233

LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Current maturities of long-term
debt	$	-	$	3,750		$	-		$	250		$	-		$	4,000
Accounts payable		-		52			50,758			4,844			-			55,654
Accrued expenses and taxes		-		15,054			58,269			3,350			-			76,673
Total current liabilities		-		18,856			109,027			8,444			-			136,327
Deferred income taxes		-		-			69,363			2,578			-			71,941
Intercompany note payable		-		-			761,999			9,346			(771,345	)		-
Other long term liabilities		-		16,277			20,963			990			-			38,230
Long-term debt, less current
maturities		-		729,617			-			24,625			-			754,242
Stockholder's Equity:
Preferred stock		-		-			-			-			-			-
Common stock		-		-			-			-			-			-
Additional paid-in-capital		180,919		180,919			96,609			6,047			(283,575	)		180,919
Retained earnings		53,401		53,401			42,884			12,943			(109,228	)		53,401
Accumulated other
comprehensive income (loss)		3,173		3,173			(1,457	)		4,629			(6,345	)		3,173
	$	237,493	$	1,002,243		$	1,099,388		$	69,602		$	(1,170,493	)	$	1,238,233

PLY GEM HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2005

	Guarantor		Issuer						Non-
	Ply Gem		Ply Gem			Guarantor			Guarantor
	Holdings, Inc.		Industries, Inc.			Subsidiaries			Subsidiary			Eliminations			Consolidated
	(Amounts in thousands)
ASSETS
Current Assets:
Cash and cash equivalents	$	-	$	9,501		$	9,130		$	3,542		$	-		$	22,173
Accounts receivable, net		-		-			63,714			6,643			-			70,357
Inventories:
Raw materials		-		-			27,821			3,594			-			31,415
Work in process		-		-			4,249			831			-			5,080
Finished goods		-		-			16,891			1,832			-			18,723
Total inventory		-		-			48,961			6,257			-			55,218
Prepaid expenses and other
current assets		-		1,372			7,699			356			-			9,427
Deferred income taxes		-		-			13,330			-			-			13,330
Total current assets		-		10,873			142,834			16,798			-			170,505
Investments in subsidiaries		215,514		164,946			-			-			(380,460	)		-
Property and Equipment, at cost:
Land		-		-			1,870			150			-			2,020
Buildings and improvements		-		106			14,815			647			-			15,568
Machinery and equipment		-		49			115,932			3,244			-			119,225
-				155			132,617			4,041			-			136,813
Less accumulated depreciation		-		(44	)		(26,192	)		(849	)		-			(27,085	)
Total property and equipment,
net		-		111			106,425			3,192			-			109,728
Other Assets:
Goodwill		-		-			538,588			40,404			-			578,992
Intangible assets, net		-		-			152,894			-			-			152,894
Intercompany note receivable		-		650,346			-			-			(650,346	)		-
Other		-		37,774			105			-			-			37,879
Total other assets		-		688,120			691,587			40,404			(650,346	)		769,765
	$	215,514	$	864,050		$	940,846		$	60,394		$	(1,030,806	)	$	1,049,998

LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Current maturities of long-term
debt	$	-	$	1,443		$	-		$	249		$	-		$	1,692
Accounts payable		-		149			38,825			3,368			-			42,342
Accrued expenses and taxes		-		21,477			39,667			2,875			-			64,019
Total current liabilities		-		23,069			78,492			6,492			-			108,053
Deferred income taxes		-		-			56,947			1,237			-			58,184
Intercompany note payable		-		-			641,000			9,346			(650,346	)		-
Other long term liabilities		-		12,855			18,664			952			-			32,471
Long-term debt, less current
maturities		-		611,512			-			24,264			-			635,776
Stockholder's Equity:
Preferred stock		-		-			-			-			-			-
Common stock		-		-			-			-			-			-
Additional paid-in-capital		175,461		175,461			103,161			5,637			(284,259	)		175,461
Intercompany dividends		-		1,100			-			(1,100	)		-			-
Retained earnings		37,907		37,907			44,039			9,964			(91,910	)		37,907
Accumulated other
comprehensive income (loss)		2,146		2,146			(1,457	)		3,602			(4,291	)		2,146
	$	215,514	$	864,050		$	940,846		$	60,394		$	(1,030,806	)	$	1,049,998

PLY GEM HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
For the nine months ended September 30, 2006

	Guarantor			Issuer						Non-
	Ply Gem			Ply Gem			Guarantor			Guarantor
	Holdings, Inc.			Industries, Inc.			Subsidiaries			Subsidiary			Eliminations			Consolidated
	(Amounts in thousands)
Cash flows from operating activities:
Net income	$	15,494		$	15,494		$	14,510		$	3,607		$	(33,611	)	$	15,494
Adjustments to reconcile net
income to cash provided by
operating activities:
Depreciation and amortization
expense		-			31			22,265			427			-			22,723
Fair value premium on purchased		-			-			304			-			-			304
inventory
Non-cash interest expense, net		-			3,982			-			-			-			3,982
Gain on foreign currency transactions		-			-			-			(1,014	)		-			(1,014	)
Loss on sale of asset		-			-			572			-			-			572
Other non-cash items		-			1,094			1,388			-			-			2,482
Deferred income taxes		-			-			(584	)		1,252			-			668
Equity in subsidiaries' net income		(15,494	)		(18,117	)		-			-			33,611			-
Changes in operating assets and
liabilities:
Accounts receivable, net		-			-			(19,603	)		(2,280	)		-			(21,883	)
Inventories		-			-			(6,488	)		(547	)		-			(7,035	)
Prepaid expenses and other
current assets		-			(1,431	)		5,229			(111	)		-			3,687
Accounts payable		-			(97	)		5,782			1,301			-			6,986
Accrued expenses and taxes		-			(6,480	)		11,480			1,332			-			6,332
Other		-			-			(3	)		(365	)		-			(368	)
Net cash provided by
operating activities		-			(5,524	)		34,852			3,602			-			32,930
Cash flows from investing activities:
Capital expenditures		-			-			(13,492	)		(1,295	)		-			(14,787	)
Proceeds from sale of building		-			-			4,474			-			-			4,474
Acquisitions, net of cash acquired		-			(120,754	)		-			-			-			(120,754	)
Other		-			-			-			-			-			-
Net cash used in investing
activities		-			(120,754	)		(9,018	)		(1,295	)		-			(131,067	)
Cash flows from financing activities:
Proceeds from long-term debt		-			122,320			-			488			-			122,808
Proceeds from revolver borrowings		-			15,000			-			-			-			15,000
Proceeds from intercompany
investment, net		-			27,309			(27,309	)		-			-			-
Payments on long-term debt		-			(1,874	)		-			(126	)		-			(2,000	)
Payment on revolver borrowings		-			(15,000	)		-			-			-			(15,000	)
Debt issuance costs		-			(2,249	)		-			-			-			(2,249	)
Equity contribution		-			2,718			-			-			-			2,718
Net cash provided by
financing activities		-			148,224			(27,309	)		362			-			121,277
Impact of exchange rate movement
on cash		-			-			-			224			-			224
Net increase (decrease) in cash
and cash equivalents		-			21,946			(1,475	)		2,893			-			23,364
Cash and cash equivalents at the
beginning of the period		-			9,501			9,130			3,542			-			22,173
Cash and cash equivalents at the end
of the period	$	-		$	31,447		$	7,655		$	6,435		$	-		$	45,537

PLY GEM HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
For the nine months ended October 1, 2005

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

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

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

General

We are a leading manufacturer of residential exterior building products in North America. We offer a comprehensive product line of vinyl siding and skirting, vinyl windows and doors , aluminum windows , and vinyl and composite fencing, railing and decking that serves both the home repair and remodeling and new home construction sectors in all 50 states and Western Canada. We also manufacture vinyl and aluminum soffit and siding accessories, aluminum trim coil, wood windows and steel and fiberglass doors, enabling us to bundle complementary and color-matched products and accessories with our core vinyl products. We have two reportable segments: (i) siding, fencing, railing and decking, and (ii) windows and doors.

On February 24, 2006 in connection with the Alenco Acquisition a new holding company, Ply Gem Prime Holdings, Inc., was formed pursuant to a merger involving Ply Gem Investment Holdings, Inc. As a result, Ply Gem Prime Holdings, Inc. became the sole shareholder of Ply Gem Investment Holdings, Inc., each outstanding share of capital stock of Ply Gem Investment Holdings, Inc. was converted into a share of a corresponding class of shares of the capital stock of Ply Gem Prime Holdings, Inc. and Ply Gem Prime Holdings, Inc. assumed Ply Gem Investment Holdings, Inc.’s obligations under the Ply Gem Investment Holdings 2004 Stock Option Plan and the Ply Gem Investment Holdings Phantom Stock Plan. In connection therewith, each outstanding stock option and phantom unit of Ply Gem Investment Holdings, Inc. was converted on a 1:1 basis into a stock option and phantom unit of Ply Gem Prime Holdings, Inc.

We are a holding company with no operations or assets of our own other than the capital stock of our subsidiaries. The terms of Ply Gem Industries’ credit facility place restrictions on its ability to pay dividends and otherwise transfer assets to us. Further, the terms of the indenture governing Ply Gem Industries' 9% senior subordinated notes due 2012 place restrictions on the ability of Ply Gem Industries and our other subsidiaries to pay dividends and otherwise transfer assets to us.

Financial statement presentation

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

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

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

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

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

Impact of commodity pricing

Our principal raw materials, PVC resin and aluminum, have historically been subject to rapid price changes. We have in the past been able to substantially pass on significant cost increases through price increases to our customers. Our results of operations for individual quarters can and have been impacted by a delay between the time of PVC resin and aluminum cost increases and decreases and related price changes that we implement in our products.

Impact of weather

Critical Accounting Policies

The following discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. Certain of our accounting policies require the application of judgments in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. We periodically evaluate the judgments and estimates used for our critical accounting policies to ensure that such judgments and estimates are reasonable for our interim and year-end reporting requirements. These judgments and estimates are based upon our historical experience, current trends and information available from other sources, as appropriate. If different conditions result than those assumptions used in our judgments, the results could be materially different from our estimates. Management believes that the two areas where different assumptions could result in materially different reported results are accounts receivable related to estimation of allowances for doubtful accounts and inventories in estimating reserves for obsolete and excess inventory. Although we believe the likelihood of a material difference in either of these two areas is very low based upon our historical experience, a 10% change in our allowance for doubtful accounts and our inventory reserve estimates at September 30, 2006 would result in a $0.7 million and $0.7 million impact upon SG&A expense and cost of products sold, respectively. Additionally, we have included in the discussion that follows our estimation methodology for both accounts receivable and inventories. While all significant policies are important to our combined and consolidated financial statements, some of these policies may be viewed as being critical. Our critical accounting policies include:

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

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

Inventories. Inventories in the accompanying consolidated and combined balance sheets are valued at the lower of cost or market. At September 30, 2006, and December 31, 2005 approximately $11.6 million and $9.8 million of total inventories, respectively , were valued on the last-in, first-out method, or “LIFO.” Under the first-in, first-out method, or “FIFO,” of accounting, such inventories would have been approximately $2.8 million higher at each of September 30, 2006 and December 31, 2005. All other inventories were valued under the FIFO method. We record provisions, as appropriate, to write-down obsolete and excess inventory to estimated net realizable value. The process for evaluating obsolete and excess inventory often requires subjective judgments and estimates concerning future sales levels, quantities and prices at which such inventory will be sold in the normal course of business. Accelerating the disposal process or incorrect estimates of future sales potential may cause the actual results to differ from the estimates at the time such inventory is disposed or sold.

Asset Impairment. In accordance with SFAS No. 144, we evaluate the realizability of certain long-lived assets, which primarily consist of property and equipment and purchased intangible assets subject to amortization, based on expectations of non-discounted future cash flows for each subsidiary having a material amount of long-lived assets. If circumstances indicate a potential impairment, and if the sum of the expected non-discounted future cash flow is less than the carrying amount of all assets including SFAS No. 144 long-lived assets, we would recognize an impairment loss.

Goodwill and Indefinite Lived Intangibles Impairment . In accordance with SFAS No. 142, we perform annual tests for goodwill and indefinite lived intangibles impairment. We assess goodwill and indefinite lived intangibles which are not subject to amortization for impairment during the fourth quarter of each year and also at any other date when events or changes in circumstances indicate that the carrying value of these assets may exceed their fair value. Based upon our most recent analysis and the fact that no adverse events have been identified, we believe that no impairment of goodwill or indefinite lived intangibles existed at September 30, 2006 or December 31, 2005.

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

Income Taxes. We account for deferred income taxes using the liability method in accordance with SFAS No. 109 “Accounting for Income Taxes,” or “SFAS No. 109,” which requires that the deferred tax consequences of temporary differences between the amounts recorded in our financial statements and the amount included in our federal and state income tax returns be recognized in the balance sheet. The amount recorded in our financial statements reflects estimates of final amounts due to timing of completion and filing of actual income tax returns. Estimates are required with respect to, among other things, the appropriate state income tax rates to use in the various states that we and our subsidiaries are required to file, the potential utilization of operating and capital loss carry-forwards for both federal and state income tax purposes and valuation allowances required, if any, for tax assets that may not be realized in the future. We establish reserves when, despite our belief that our tax return positions are fully supportable, certain positions could be challenged, and the positions may not be fully sustained. During 2005, the Company established reserves relating to net operating losses acquired in the MW Acquisition and transaction costs associated with the Ply Gem and MW Acquisitions. If the benefits for which a reserve has been provided are subsequently recognized, they will reduce goodwill resulting from the application of the purchase method of accounting for these transactions. We have executed a tax sharing agreement with Ply Gem Holdings, Inc. and Ply Gem Investment Holdings, Inc. pursuant to which tax liabilities for each respective party are computed on a stand-alone basis. Our U.S. subsidiaries file unitary, combined and separate state income tax returns. CWD Windows and Doors files separate Canadian income tax returns.

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

Results of Operations

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

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

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

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

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

Siding, Fencing, Railing and Decking Segment

	For the three months ended
(dollars in thousands)	September 30, 2006				October 1, 2005
	(unaudited)				(unaudited)

Statement of operations data:
Net Sales	$	110,055	100.0	%	$	104,928	100.0	%
Cost of products sold		84,933	77.2	%		80,866	77.1	%
Gross Profit		25,122	22.8	%		24,062	22.9	%
S,G&A expense		8,702	7.9	%		6,900	6.6	%
Amortization of intangible assets		805	0.7	%		804	0.8	%
Operating earnings	$	15,615	14.2	%	$	16,358	15.6	%

Net Sales

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

C ost of Products Sold

Cost of products sold for the three months ended September 30, 2006 increased over the same period in 2005 by approximately $4.1 million, or 5%. The increase in cost of products sold was primarily due to market-wide increases in raw material costs, specifically PVC resin and aluminum, and higher freight expense related to carrier fuel costs. The market wide increase in raw material and freight costs were fully offset by selling price increases and material strategic sourcing and other cost savings initiatives that management implemented during the past twelve months.

Selling, general and administrative expense

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

	For the nine months ended
(dollars in thousands)	September 30, 2006				October 1, 2005
	(unaudited)				(unaudited)

Statement of operations data:
Net Sales	$	339,261	100.0	%	$	293,956	100.0	%
Cost of products sold		264,118	77.9	%		231,936	78.9	%
Gross Profit		75,143	22.1	%		62,020	21.1	%
S,G&A expense		27,355	8.1	%		24,745	8.4	%
Amortization of intangible assets		2,416	0.7	%		2,416	0.8	%
Operating earnings	$	45,372	13.4	%	$	34,859	11.9	%

Net Sales

Net sales for the nine months ended September 30, 2006 increased compared to the same period in 2005 by approximately $45.3 million, or 15%. The increase in net sales was driven by increased unit volume sold, as well as higher selling prices that were increased in response to industry wide increases in raw material and freight costs. The increase in units sold was driven by growth with new vinyl siding customers that were obtained during 2005 partially offset by industry wide market declines resulting from lower single family housing starts which negatively impacted the new construction sector of the market. As a result, the Company’s unit volume growth of vinyl siding sales outperformed the industry during the first nine months of 2006 and our market share of the vinyl siding industry increased for the first nine months of 2006 as compared to the first nine months of 2005.

C ost of Products Sold

Cost of products sold for the nine months ended September 30, 2006 increased over the same period in 2005 by approximately $32.2 million, or 14%. The increase in cost of products sold was primarily due to increased sales volume and market wide increases in raw material costs, specifically PVC resin and aluminum, and higher freight expense related to carrier fuel costs. The market wide increase in raw material and freight costs were fully offset by selling price increases and material strategic sourcing and other cost savings initiatives that management implemented during the past twelve months.

Selling, general and administrative expense

SG&A expense for the nine months ended September 30, 2006 increased by approximately $2.6 million, or 11%, from the same period in 2005. The increase in SG&A expenses was primarily driven by higher selling and marketing expenses related to the increase in net sales and higher management incentive compensation expense in 2006.

Windows and Doors Segment

	For the three months ended
(dollars in thousands)	September 30, 2006					October 1, 2005
	(unaudited)					(unaudited)

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

Net Sales

Net sales for the three months ended September 30, 2006 increased over the same period in 2005 by approximately $26.4 million, or 22%. The increase in net sales was driven by the sales of Alenco, which was purchased in February of 2006 and contributed approximately $37.2 million of sales for the three months ended September 30, 2006. In addition, net sales were favorably impacted by higher selling prices that were increased in response to industry wide increases in raw material and freight costs. The favorable impact on net sales from higher selling prices were more than offset by lower demand for our new construction windows due to market wide declines in single family housing starts and lower demand for our repair and replacement window products that resulted from our inability to convert new customers during 2005. This was due to operational difficulties that we incurred in introducing our new repair and remodeling window product lines. Sales were also reduced by our transition of customers from an unprofitable mechanical window product that was produced at our Sarver, PA facility, which was closed in June 2006, to other more efficient products that we produce at our other window manufacturing facilities.

Cost of Products Sold

Cost of products sold for the three months ended September 30, 2006 increased by approximately $21.8 million, or 24%, over the same period in 2005. The increase in cost of products sold was driven by higher sales volume from the additional sales volume from Alenco. Although market wide increases in raw material and freight costs increased our cost of products sold, they were partially offset by price increases and material cost synergies and savings in our new construction window and door products. In our repair and remodeling window and door products, raw material costs exceeded prior year costs primarily due to increases in PVC lineal costs during our transition from external sourcing to producing lineals within our MW lineal production facility. This transition will continue through the remainder of 2006.

Selling, general and administrative expense

SG&A expense for the three months ended September 30, 2006 increased by approximately $3.6 million, or 26%, over the same period in 2005. The increase in SG&A expense was driven by the addition of Alenco.

Amortization of intangible assets

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

	For the nine months ended
(dollars in thousands)	September 30, 2006				October 1, 2005
	(unaudited)				(unaudited)

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

Net Sales

Net sales for the nine months ended September 30, 2006 increased over the same period in 2005 by approximately $88.6 million, or 27%. The increase in net sales was primarily driven by sales of Alenco, which contributed $90.9 million in sales during the first nine months of 2006. The increase in net sales was also driven by higher selling prices which were increased to offset market wide increases in raw material and freight costs. The favorable impact on net sales from higher selling prices were offset by market wide declines in single family housing starts and lower demand for our repair and replacement window products that resulted from our inability to convert new customers during 2005. This was due to operational difficulties that we incurred in introducing our new repair and remodeling window product lines. Sales were also reduced by our transition of customers from an unprofitable mechanical window product that was produced at our Sarver, PA facility, which was closed in June 2006, to other more efficient products that we produce at our other window manufacturing facilities.

Cost of Products Sold

Cost of products sold for the nine months ended September 30, 2006 increased by approximately $73.4 million, or 29%, over the same period in 2005. The increase in cost of products sold was primarily driven by higher sales volume from the additional sales volume from Alenco. Although market wide increases in raw material and freight costs increased our cost of products sold, they were partially offset by price increases and material cost synergies and savings in our new construction window and door products. In our repair and remodeling window and door products, raw material costs exceeded prior year costs primarily due to increases in PVC lineal costs during our transition from external sourcing to producing lineals within our MW lineal production facility. This transition will continue through the remainder of 2006.

Selling, general and administrative expense

SG&A expense for the nine months ended September 30, 2006 increased by approximately $13.6 million, or 33%, over the same period in 2005. The increase in SG&A expense was driven by the addition of Alenco, as well as, costs incurred in our repair and remodeling business related to changes in management and consulting costs incurred to improve business performance. SG&A costs for the 2006 period also include approximately $1.6 million of restructuring costs due to the closure of the Sarver, PA facility, and approximately $0.6 million due to the loss on the sale of the Sarver building.

Amortization of intangible assets

Amortization expense for the nine months ended September 30, 2006 increased by approximately $1.1 million due to the addition of Alenco operations during March 2006.

Unallocated Operating Earnings, Interest, and Provision for Income Taxes

	For the three months ended
(dollars in thousands)	September 30, 2006			October 1, 2005
	(unaudited)			(unaudited)

Statement of operations data:
Operating earnings (loss)	$	(4,630	)	$	(763	)
Interest expense		(16,478	)		(14,048	)
Investment income		272			96
Income tax provision		(4,123	)		(7,183	)

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

Interest expense Interest expense for the three months ended September 30, 2006 increased by approximately $2.4 million over the same period in 2005 as a result of increased borrowings due to the Alenco Acquisition in February 2006 and higher interest rates on our variable rate debt.

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

	For the nine months ended
(dollars in thousands)	September 30, 2006			October 1, 2005
	(unaudited)			(unaudited)

Statement of operations data:
Operating earnings (loss)	$	(7,091	)	$	(2,472	)
Interest expense		(48,122	)		(41,099	)
Investment income		473			185
Other expense		(2,497	)		-
Income tax provision		(9,843	)		(10,756	)
Cumulative effect of accounting change		(86	)		-

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

Interest expense Interest expense for the nine months ended September 30, 2006 increased by approximately $7.0 million over the same period in 2005 as a result of increased borrowings due to the Alenco Acquisition in February 2006 and higher interest rates on our variable rate debt.

Other expense Expenses recognized as ‘other expense’ during the first nine months of 2006 were third-party charges associated with business combination financing costs.

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

Liquidity and Capital Resources

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

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

Net cash used in investing activities for the first nine months of 2006 and 2005 was approximately $131.1 million and $7.2 million, respectively. The increased cash used in investing activities during the 2006 period was driven by the cash used to fund the Alenco Acquisition. Our capital expenditures for the first nine months of 2006 and 2005 were approximately $14.8 million and $7.6 million, respectively.

Net cash provided by financing activities for the first nine months of 2006 and 2005 was approximately $121.3 million and $5.4 million, respectively. The cash provided by financing activities for the 2006 period was driven by the cash provided from our new capital structure that resulted from the consummation of the Alenco Acquisition, including $2.7 million of equity contributions.

In connection with the Alenco Acquisition, on February 24, 2006, the Company entered into an amendment to its senior credit facilities. Under the terms of the amended agreement, the Company borrowed $375.0 million in U.S. term loans to refinance $252.7 million of outstanding U.S. Term loans, repay approximately $1.8 million in revolving credit loans and fund the Alenco Acquisition, which was completed on February 24, 2006. Additionally, under the terms of the amended agreement, the Company’s Canadian borrower borrowed $25.0 million to refinance approximately $24.5 million of outstanding Canadian term loans.

In connection with the AHE Acquisition, on October 31, 2006, the Company entered into a further amendment to its senior credit facilities (as amended, the “First Lien Credit Facilities”), whereby the Company borrowed an additional $187.0 million in U.S. term loans (the “Incremental First Lien Term Loan Facility”). Also in connection with the AHE Acquisition, on October 31, 2006, the Company entered into a Second Lien Credit Agreement (the “Second Lien Credit Facility”) whereby the Company borrowed $105.0 million in term loans. The Company used the proceeds of the Incremental First Lien Term Loan Facility and the Second Lien Credit Facility and cash from operations to fund the AHE Acquisition and to pay transaction costs and expenses related thereto.

We intend to fund our ongoing capital and working capital requirements, including our internal growth, through a combination of cash flows from operations and, if necessary, from borrowings under the revolving portion of our First Lien Credit Facilities. As of September 30, 2006, we had $758.2 million of indebtedness and $67.6 million of availability under the revolving portion of our First Lien Credit Facilities.

The Company’s First Lien Credit Facilities with a syndicate of financial institutions and institutional lenders provide for senior secured financing of up to $655.0 million, consisting of $585.0 million of term loan facilities maturing in August 2011 and a $70.0 million revolving loan facility, including a letter of credit subfacility, maturing in February 2009. The term loan facilities were originally drawn in full and have three tranches, consisting of: i) a $375.0 million tranche under which Ply Gem Industries, Inc. is the borrower, ii) a $187.0 million tranche under which Ply Gem Industries, Inc. is the borrower, and iii) a $25.0 million tranche under which our Canadian subsidiary, CWD Windows and Doors, Inc., is the borrower. As of November 1, 2006, the balances of the three tranches were approximately $373.1 million, $187.0 million and $24.9 million, respectively. The Company’s Second Lien Credit Facility with a syndicate of financial institutions and institutional lenders provides for a senior secured term loan of $105.0 million. Ply Gem Industries, Inc. issued $360.0 million aggregate principal amount of its 9% senior subordinated notes due 2012 (the “Senior Subordinated Notes”), which are guaranteed by Ply Gem Holdings Inc. and the domestic subsidiaries of Ply Gem Industries, Inc.

The borrowings under the revolving portion of the First Lien Credit Facilities will be available until its maturity to fund our working capital requirements, capital expenditures and other general corporate needs. The revolving portion of the First Lien Credit Facilities will mature in February 2009 and has no scheduled amortization or commitment reductions. The term loan portions of the First Lien Credit Facilities will mature in August 2011 and have quarterly scheduled amortizations of approximately $1.5 million and a final payment of $558.6 million on the maturity date. The Second Lien Credit Facility has no scheduled amortization, and the entire balance will be payable in November 2011.

Under the terms of our credit facilities, we are permitted to use the excess cash flow and/or a portion of the revolving credit portion of the First Lien Credit Facilties to repurchase up to $40.0 million aggregate principal amount of the Senior Subordinated Notes. Subject to market conditions, our capital needs and other factors, we may from time to time purchase up to $40.0 million aggregate principal amount of the 9% Senior Subordinated Notes in market transactions, privately negotiated sales or other transactions. As of September 30, 2006, we had not yet purchased any of our Senior Subordinated Notes.

The credit facilities and the indenture for the Senior Subordinated Notes impose certain restrictions on Ply Gem Industries, Inc., including restrictions on its ability to incur indebtedness, pay dividends, make investments, grant liens, sell assets and engage in certain other activities. The terms of the credit facilities and the Senior Subordinated Notes also significantly restrict the ability of Ply Gem Industries, Inc. to pay dividends and otherwise distribute assets to Ply Gem Holdings, Inc. In addition, the credit facilities require Ply Gem Industries, Inc. to comply with certain financial ratios. Indebtedness under the credit facilities is secured by substantially all of Ply Gem Industries Inc.’s assets, including its real and personal property, inventory, accounts receivable, intellectual property and other intangibles. In addition, borrowings under the credit facilities are guaranteed by Ply Gem Holdings, Inc. and secured by its assets (including its equity interests). Borrowings under the credit facilities (except for the $25.0 million tranche under which our Canadian subsidiary, CWD Windows and Doors, Inc., is the borrower) are also guaranteed and secured by the equity interests and substantially all of the assets of our current and, if any, future domestic subsidiaries, subject to exceptions. The $25.0 million tranche under which CWD Windows and Doors, Inc. is the borrower is also guaranteed and secured by the equity interests and substantially al of the assets of CWD Windows and Doors, Inc.’s current and future (if any) Canadian subsidiaries.

Because of the inherent seasonality in our business and the resulting working capital requirements, our liquidity position within a given year will fluctuate. The seasonal effect that creates greatest capital needs is experienced during the first nine months of the year and we anticipate the need to borrow funds under the revolving portion of our First Lien Credit Facilities to support this requirement. However, we anticipate that the funds generated by operations and funds available under our First Lien Credit Facilities will be adequate to finance our ongoing operational cash flow needs, capital expenditures (as described above), debt service obligations, management incentive expenses, fees payable under the General Advisory Agreement with a Caxton-Iseman party, dated February 12, 2004 (the “General Advisory Agreement”), and other contractual obligations for the foreseeable future.

Inflation; Seasonality

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

Recent Accounting Pronouncements

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

Special Note Regarding Forward-Looking Statements

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

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

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

·	the competitive nature of our industry;

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

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

·	changes in our relationships with our significant customers.

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

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our principal interest rate exposure relates to the term loans outstanding under our new senior credit facilities. We have approximately $398.0 million of term loans outstanding, bearing interest at a variable rate, based on an adjusted LIBOR rate plus an applicable interest margin or the base rate plus an applicable interest margin. Each quarter point increase or decrease in the interest rate on the term loans would change our interest expense by approximately $1.0 million per year. We also have a revolving credit facility which provides for borrowings of up to $70.0 million, which will also bear interest at variable rates in the same manner as the term loan facilities. Assuming the new revolving credit facility is fully drawn, each quarter point increase or decrease in the applicable interest rate would change our interest expense by approximately $0.2 million per year. In the future we may enter into interest rate swaps, involving exchange of floating for fixed rate interest payments, to reduce our exposure to interest rate volatility.

Our term loan facility has two tranches. Outstanding balances consist of a $373.1 million tranche under which Ply Gem Industries, Inc. is the borrower, and a $24.9 million tranche under which our Canadian subsidiary is the borrower.

Our results of operations are affected by fluctuations in the value of the U.S. dollar as compared to the value of the Canadian dollar. For the three months ended September 30, 2006, the net impact of foreign currency changes to the Company’s results of operations was a loss of $0.1 million. The impact of foreign currency changes related to translation resulted in an increase in stockholder’s equity of approximately $1.0 million for the nine months ended September 30, 2006. The revenue or expense reported by us as a result of currency fluctuations will be greater in times of U.S. dollar devaluation and less in times of U.S. dollar appreciation. We generally do not enter into derivative financial instruments to manage foreign currency exposure. For the nine months ended September 30, 2006, we did not have any significant outstanding foreign currency hedging contracts.

Item 4. CONTROLS AND PROCEDURES

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures as of September 30, 2006 were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission’s rules and forms. There have been no changes in our internal controls over financial reporting during the three-month period ended September 30, 2006, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II - OTHER INFORMATION

Item 1A. RISK FACTORS

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

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

Item 6. EXHIBITS

(a) Exhibits

Exhibit No. Description of Exhibit

* 10.1	Retirement and Consulting Agreement with Lee Meyer dated as of October 13, 2006.

* 10.2	Employment Agreement with Gary Robinette, dated as of August 14, 2006.

*10.3	Amendment to Ply Gem Prime Holdings Phantom Stock Plan, dated as of September 25, 2006.

*10.4	Phantom Incentive Unit Award Agreement Amendment letter to John Wayne, dated as of September 25, 2006.

*10.5	Phantom Incentive Unit Award Agreement Amendment letter to Lynn Morstad, dated as of September 25, 2006.

*10.6	Phantom Incentive Unit Award Agreement Amendment letter to Michael Haley, dated as of September 25, 2006.

*10.7	Phantom Incentive Unit Award Agreement Amendment letter to Shawn Poe, dated as of September 25, 2006.

*10.8	Phantom Incentive Unit Award Agreement Amendment letter to Lee Meyer, dated as of September 25, 2006.

*10.9	Phantom Incentive Unit Award Agreement Amendment letter to Mark Montgomery, dated as of September 25, 2006.

*10.10	Special 2006 Cash Bonus Award letter to John Wayne, dated as of September 25, 2006.

*10.11	Special 2006 Cash Bonus Award letter to Lynn Morstad, dated as of September 25, 2006.

*10.12	Special 2006 Cash Bonus Award letter to Michael Haley, dated as of September 25, 2006.

*10.13	Special 2006 Cash Bonus Award letter to Shawn Poe, dated as of September 25, 2006.

*10.14	Special 2006 Cash Bonus Award letter to Lee Meyer, dated as of September 25, 2006.

*10.15	Special 2006 Cash Bonus Award letter to Mark Montgomery, dated as of September 25, 2006.

* 31.1	Certification by President and Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934*

* 31.2	Certification by Vice President and Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934*

* Filed herewith.

SIGNATURES

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

PLY GEM HOLDINGS, INC.

(Registrant)

Date: November 13, 2006

By: /s/ Gary E. Robinette

Gary E. Robinette

President and Chief Executive Officer

Date: November 13, 2006

By: /s/ Shawn K. Poe

Shawn K. Poe

Vice President, Chief Financial Officer,

Treasurer and Secretary




	By:	/s/ Gary E. Robinette

		Name: Gary E. Robinette Title: President and Chief Executive Officer




	By:	/s/ Shawn K. Poe
		Name: Shawn K. Poe
		Title: Vice President, Chief Financial Officer, Treasurer and Secretary