S-1 1 y84707sv1.htm FORM S-1 sv1
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As filed with the Securities and Exchange Commission on May 28, 2010
Registration No. 333-      
 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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)
  (IRS Employer Identification No.)
 
5020 Weston Parkway, Suite 400
Cary, North Carolina 27513
(919) 677-3900
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
Shawn K. Poe
Chief Financial Officer
Ply Gem Holdings, Inc.
5020 Weston Parkway, Suite 400
Cary, North Carolina 27513
(919) 677-3900
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
 
     
John C. Kennedy, Esq.
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, New York 10019
(212) 373-3000
  Stephen L. Burns, Esq.
William J. Whelan III, Esq.
Cravath, Swaine & Moore LLP
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
(212) 474-1000
 
Approximate date of commencement of proposed sale to public: As soon as practicable after this Registration Statement becomes effective.
 
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box:  o
 
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:  o
 
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:  o
 
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer o Accelerated filer o Non-accelerated filer þ Smaller reporting company o
(Do not check if a smaller reporting company)
 
CALCULATION OF REGISTRATION FEE
 
             
      Proposed Maximum
     
Title of Each Class of
    Aggregate Offering
    Amount of
Securities to be Registered     Price(1)     Registration Fee
Common Stock, par value $0.01 per share
    $300,000,000     $21,390
             
 
(1) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) of the Securities Act of 1933.
 
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
 


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The information in this prospectus is not complete and may be changed. We and the selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
 
Subject to completion, dated May 28, 2010
 
Prospectus
     shares
 
(PLY GEM LOGO)
 
Ply Gem Holdings, Inc.
 
Common Stock
 
This is an initial public offering of Ply Gem Holdings, Inc. common stock.
 
Prior to this offering, there has been no public market for our common stock. The initial public offering price of the common stock is expected to be between $      and $      per share. We intend to apply for listing of our common stock on the New York Stock Exchange under the symbol ‘‘PGEM.”
 
We are selling           shares of common stock. The selling stockholders named in this prospectus have granted the underwriters an option to purchase a maximum of           additional shares of common stock to cover over-allotments. We will not receive any proceeds from the sale of the shares by the selling stockholders.
 
Investing in our common stock involves risks.  See “Risk factors” on page 12.
 
                         
 
          Underwriting
       
          Discounts and
    Proceeds to
 
    Price to Public     Commissions     Ply Gem Holdings, Inc.  
 
 
Per Share
  $                     $                     $                          
Total
  $       $       $    
 
 
 
Delivery of the shares of common stock will be made against payment in New York, New York on or about          , 2010.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
 
Joint Book-Running Managers
 
J.P. Morgan Goldman, Sachs & Co.
Credit Suisse UBS Investment Bank
 
Joint Lead Manager
 
Deutsche Bank Securities
 
          , 2010.


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(PLYGEM GRAPHIC COVER)


 

You should rely only on the information contained in this prospectus and any free writing prospectus we provide to you. Neither we nor the underwriters have authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. Neither we nor the underwriters are making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus or such other date stated in this prospectus.
 
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Until          , 2010 (25 days after the date of this prospectus), all dealers that buy, sell or trade our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.


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Market and industry data
 
Market data and other statistical information used throughout this prospectus are based on independent industry publications, government publications, reports by market research firms or other published independent sources. Some data are also based on good faith estimates by our management, which are derived from their review of internal surveys, as well as the independent sources listed above.


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Prospectus summary
 
This summary highlights material information about us and this offering, but does not contain all of the information that you should consider before investing in our common stock. You should read this entire prospectus carefully, including the “Risk factors” and our consolidated financial statements and the accompanying notes included elsewhere in this prospectus before investing. This prospectus includes forward-looking statements that involve risks and uncertainties. See “Cautionary note regarding forward-looking statements.”
 
Unless otherwise specified or the context requires otherwise, (i) the term “Ply Gem Holdings” refers to Ply Gem Holdings, Inc.; (ii) the term “Ply Gem Industries” refers to Ply Gem Industries, Inc., the principal operating subsidiary of Ply Gem Holdings; (iii) the terms “we,” “us,” or “our,” “Ply Gem” and the “Company” refer collectively to Ply Gem Holdings and its subsidiaries; and (iv) the term “Reorganization Transactions” refers to the transactions described in “Certain relationships and related party transactions—Reorganization transactions.” The use of these terms is not intended to imply that Ply Gem Holdings and Ply Gem Industries are not separate and distinct legal entities.
 
Except as the context otherwise requires, references to information being “pro forma” or “on a pro forma basis” means such information is presented after giving effect to the Reorganization Transactions, the entry into the tax receivable agreement described in “Certain relationships and related party transactions—Tax receivable agreement,” this offering and the estimated use of proceeds from this offering. See “Unaudited pro forma financial information.”
 
Our company
 
We are a leading manufacturer of residential exterior building products in North America, operating in two reportable segments: (i) Siding, Fencing, and Stone and (ii) Windows and Doors, which comprised approximately 60% and 40% of our sales, respectively, for the fiscal year ended December 31, 2009. These two segments produce a comprehensive product line of vinyl siding, designer accents and skirting, vinyl and composite fencing and railing, stone veneer and vinyl windows and doors used in both new construction and home repair and remodeling in the United States and Western Canada. Vinyl building products have the leading share of sales volume in siding and windows in the United States. We also manufacture vinyl and aluminum soffit and siding accessories, aluminum trim coil, wood windows, aluminum windows, vinyl and aluminum-clad windows and steel and fiberglass doors, enabling us to bundle complementary and color-matched products and accessories with our core products. We believe that our comprehensive product portfolio and geographically diverse, low cost manufacturing platform allow us to better serve our customers and provide us with a competitive advantage over other exterior building products suppliers. For the year ended December 31, 2009, we had net sales of $951.4 million, adjusted EBITDA of $116.2 million and net loss of $76.8 million. For the three months ended April 3, 2010, we had net sales of $204.2 million, adjusted EBITDA of $12.4 million and net income of $54.1 million as compared to net sales of $182.8 million, adjusted EBITDA of $(12.5) million and net loss of $55.5 million for the three months ended April 4, 2009.


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Our competitive strengths
 
We believe the following competitive strengths differentiate us from our competitors and are critical to our continued success:
 
•  Leading Manufacturer of Exterior Building Products. We believe we have established leading positions in many of our core product categories including: No. 1 in vinyl siding in the U.S.; No. 1 in aluminum accessories in the U.S.; No. 2 in vinyl and aluminum windows in the U.S.; and No. 2 in windows and doors in Western Canada. We achieved this success by developing a broad offering of high quality products and providing superior service to our customers. We are one of the few companies that operate a geographically diverse manufacturing platform capable of servicing our customers across the entire United States and Western Canada. The scale of our operations also positions us well as customers look to consolidate their supplier base. We believe our broad offering of leading products, geographically diverse manufacturing platform and long-term customer relationships make us the manufacturer of choice for our customers’ exterior building products needs.
 
•  Comprehensive Product Portfolio with Strong Brand Recognition. We offer a comprehensive portfolio of over twenty exterior building product categories covering a full range of price points. Our broad product line gives us a competitive advantage over other exterior building product suppliers who provide a narrower range of products by enabling us to provide our customers with a differentiated value proposition to meet their own customers’ needs. Our leading brands, such as Ply Gem®, Mastic® Home Exteriors, Variform®, Napco®, Georgia-Pacific (which we license) and Great Lakes® Window, are well recognized in the industry. Many of our customers actively support our brands and typically become closely tied to our brands through joint marketing and training, fostering long-term relationships under the common goal of delivering a quality product.
 
We believe a distinguishing factor in our customers’ selection of Ply Gem as a supplier is the innovation and quality for which our brands are known. As a result, our customers’ positive experience with one product or brand affords us the opportunity to cross-sell additional products and effectively introduce new products. Since 2007, we have successfully implemented a more unified brand strategy to expand our cross-selling opportunities between our siding and window product offerings. For instance, we recently consolidated certain window product offerings under the Ply Gem brand to offer a national window platform to our customers, which now represents the most comprehensive line of new construction and home repair and remodeling windows in the industry. With our extensive product line breadth, industry-leading brands and national platform, we believe we can provide our customers with a more cost-effective, single source from which to purchase their exterior building products.
 
•  Multi-Channel Distribution Network Servicing a Broad Customer Base. We have a multi-channel distribution network that serves both the new construction and home repair and remodel end markets through our broad customer base of specialty and wholesale distributors, retail home centers, lumberyards, remodeling dealers and builders. Our multi-channel distribution strategy has increased our sales and penetration within these end markets, while limiting our exposure to any one customer or channel such that our top ten customers only accounted for approximately 36.3% of our net sales in 2009. We believe our strategy enables us to minimize channel conflict, reduce our reliance on any one channel and reach the greatest number of end customers while providing us with the ability to increase our sales and to sustain our financial performance through economic fluctuations.


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•  Balanced Exposure to New Construction and Home Repair and Remodeling. Our products are used in new construction and home repair and remodeling, with our diversified product mix reducing our overall exposure to any single sector. We operate in two reportable segments: (i) Siding, Fencing, and Stone, which has been weighted towards home repair and remodeling, and (ii) Windows and Doors, which has historically focused on new construction. We have recently begun to expand our presence in the home repair and remodel window sector through the launch of a new series of repair and remodel window products, focusing on the unique requirements of this sector while leveraging our existing customer relationships. This is one of several new initiatives that have been well received by our customers and that complement our established product offerings by utilizing our national sales force to sell multiple products in our portfolio. We believe the diversity of our end markets and products provides us with a unique opportunity to capitalize on the overall housing market recovery.
 
•  Highly Efficient, Low Cost Operating Platform. Since mid-2006, we have closed or consolidated eight plants, generating savings of over $30 million annually, and reduced our workforce by approximately 50%. During this time, we also invested approximately $54 million in capital expenditures, including new product introductions and upgrades to equipment, facilities and technology, to continue improving our vertically integrated manufacturing platform. For example, our multi-plant window manufacturing platform allows us to service our customers with less than one week lead times across a broad geographic coverage area, providing us a competitive advantage with the ability to operate in just-in-time fashion. This capability provides a unique service proposition to our customers while allowing us to maintain minimal inventory levels in our window product offerings. In addition, as a result of our Polyvinyl Chloride Resin (PVC) purchasing scale (we are the third largest purchaser in North America), we are able to secure favorable prices, terms and input availability through various cycles.
 
Through our strong cost controls, vertically-integrated manufacturing platform, continued investment in technology and significant purchasing scale, we have improved efficiency and safety in our manufacturing facilities while reducing fixed costs to approximately 21% of our total cost structure, which provides significant operating leverage as the housing market recovers. Furthermore, our manufacturing facilities are among the safest in all of North America with three of them having received the highest federal and/or state Occupational Safety and Health Administration (“OSHA”) safety award and rating. We believe that we have one of the most efficient and safest operating platforms in the exterior building products industry, helping to drive our profitability.
 
•  Proven Track Record of Acquisition Integration and Cost Savings Realization. Our five acquisitions since early 2004 have enhanced our geographic diversity, expanded our product offerings and enabled us to enter new product categories. Most recently, our acquisition of United Stone Veneer (now branded Ply Gem Stone) in 2008 enabled us to enter the stone veneer product category, which is one of the fastest growing categories of exterior cladding products. We have maintained a disciplined focus on integrating new businesses, rather than operating them separately, and have created meaningful synergies as a result. Through facility and headcount rationalizations, strategic sourcing and other manufacturing improvements, we have permanently eliminated over $50 million in aggregate costs. We view our ability to identify, execute and integrate acquisitions as one of our core strengths and expect that this initial public offering will significantly improve our financial position and flexibility, enabling us to lead the continued consolidation of the exterior building products industry.


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•  Strong Management Team with Significant Ownership. We are led by a committed senior management team that has an average of over 20 years of relevant industry experience. Our current senior management, with financial and advisory support from affiliates of CI Capital Partners LLC, has successfully transformed Ply Gem from operating as a holding company with a broad set of brand offerings to an integrated business model under the Ply Gem brand, positioning our Company to grow profitably and rapidly as the market recovers. As of April 3, 2010, after giving effect to the Reorganization Transactions (assuming a public offering price of $      per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus)), members of our management team held common stock and stock awards representing approximately     % of the shares of our Company, which will decline to     % upon completion of this initial public offering.
 
Our business strategy
 
We are pursuing the following business and growth strategies:
 
•  Capture Growth Related to Housing Market Recovery. As a leading manufacturer of exterior building products, we intend to capitalize on the recovery in new construction and home repair and remodeling. The 2009 level of 441,000 single family housing starts was approximately 60% below the 50 year average, representing a significant opportunity for growth as activity returns to historical levels. Furthermore, we believe that the underinvestment in homes during the recent recession and the overall age of the U.S. housing stock will drive significant future spending for home repair and remodeling.
 
We expect current and new homeowners’ purchases to focus on including or replacing items that provide the highest return on investment, have positive energy efficiency attributes and provide potential cost savings. Our broad product offering addresses expected demand growth from all of these key trends, through our balanced exposure to the new construction and home repair and remodel end markets, diverse price points, the high recovery value for home improvements derived from our core product categories and the ability to provide products that qualify for many of the energy efficiency rebate and tax programs currently in effect or under consideration.
 
•  Continued Increase of Market Penetration. We intend to increase the market penetration of our siding, fencing and stone products and our window and door products by leveraging the breadth of our product offering and broad geographical footprint to serve customers across North America. Additionally, our continued investments in product innovation and quality, coupled with strong customer service, further enhance our ability to capture increased sales in each of our core product categories. For example, we believe that we have increased our penetration of the U.S. vinyl siding end market and that in 2009 we accounted for approximately 33% of total unit sales as compared to approximately 29% in 2008. In addition, we believe that we have increased our share of total unit sales of U.S. vinyl and aluminum windows for new construction from approximately 17% in 2008 to 24% in 2009. In 2010, we will be introducing a new line of vinyl windows under our Ply Gem brand as well as under our Mastic Home Exteriors brand, historically associated with vinyl siding products, that will be marketed and sold by our vinyl siding sales force, a first for Ply Gem. We believe that this demonstrates the substantial opportunity across our product categories to continue to cross-sell and bundle products, thereby increasing revenues from our existing channel partners and industry relationships. We expect to build upon the approximately $285 million in product


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share gains we achieved in 2008 and 2009, and as the market recovers from its current low levels we expect to further enhance our leading positions.
 
•  Expand Brand Coverage and Product Innovation. We will continue to increase the value of the Ply Gem brands by introducing new product categories for our customers and by developing innovative new products within our existing product categories. For example, we have developed a complete series of window products under the Ply Gem brand to target the higher margin home repair and remodeling window end market. Furthermore, our recent addition of stone veneer to our product offering in the Siding, Fencing, and Stone segment provides existing siding customers with access to the fastest growing category of exterior cladding products.
 
Our new products frequently receive industry awards, as evidenced by our Ply Gem Mira aluminum-clad wood window, which won the New Product of the Day award at the 2008 International Builder’s Show. In addition, our Cedar Discovery designer accent product and our Ovation vinyl siding product were both named one of the top 100 products by leading industry publications. The result of our commitment to product development and innovation has been demonstrated in the $85 million of incremental annualized sales that we recognized from new products introduced in 2008 and 2009.
 
•  Drive Operational Leverage and Further Improvements. While we reduced our production capacity during the past several years, we have retained the flexibility to increase our production as market conditions improve. This incremental capacity can be selectively restarted, providing us with the ability to match increasing customer demand levels as the housing market returns to historical levels of approximately one million or more single family housing starts without the need for significant capital investment. In our Windows and Doors segment, where we have historically focused on new construction, we believe that our new window products for home repair and remodeling will be able to drive increased volumes through these manufacturing facilities and enhance operating margins.
 
Over the past several years, we have significantly improved our manufacturing cost structure; however, there are opportunities for further improvements. We believe that the continued expansion of lean manufacturing and vertical integration in our manufacturing facilities, along with the further consolidation of purchases of key raw materials, supplies and services will continue to provide us with cost advantages compared to our competitors. In addition, the integration of our sales and marketing efforts across our product categories provides an ongoing opportunity to significantly improve our customer penetration and leverage the strength of our brands. Furthermore, we have centralized many back office functions into our corporate office in Cary, North Carolina and believe that additional opportunities remain. We believe all of these factors should drive continued growth in profitability while improving our cash flow and capital efficiency.
 
Building products end markets
 
Demand for exterior building products, including siding, fencing, stone, windows and doors, is primarily driven by the construction of new homes and the repair and remodeling of existing homes, which are affected by changes in national and local economic and demographic conditions, employment levels, availability of financing, interest rates, consumer confidence and other economic factors.


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New construction
 
New construction in the United States experienced strong growth from the early 1990s to 2006, with housing starts increasing at a compounded annual growth rate of 3.8%. However, from 2006 to 2009, single family housing starts declined 70% according to the National Association of Home Builders (“NAHB”). While the industry has experienced a period of severe correction and downturn, management believes that the long-term economic outlook for new construction in the United States is favorable and supported by an attractive interest rate environment and strong demographics, as new household formations and increasing immigration drives demand for starter homes. According to the Joint Center for Housing Studies of Harvard University, net new households between 2010 and 2020 are expected to be between 12.5 million units and 14.8 million units, with the low end of the range equal to net new housing units achieved between 1995 and 2005. Strong demographics and interest rates on home loans at historically low levels are stimulants for demand in the United States for new construction. According to the NAHB April 23, 2010 forecast, annual single family housing starts are expected to increase by 25.3% and 52.3% in 2010 and 2011, respectively. In addition, new construction in Canada is expected to benefit from similar demand stimulants as new construction in the United States, such as strong demographic trends and historically low interest rate levels. According to the Canadian Mortgage and Housing Corporation (“CMHC”), housing starts in Alberta, Canada are estimated to increase by approximately 18.5% and 19.4% in 2010 and 2011, respectively, demonstrating the recovery in new construction in Western Canada.
 
Home repair and remodeling
 
Since the early 1990s and through 2006, demand for home repair and remodeling products in the United States increased at a compounded annual growth rate of 4.3%, according to the U.S. Census Bureau, as a result of strong economic growth, low interest rates and favorable demographics. However, beginning in 2007 the ability for homeowners to finance repair and remodeling expenditures, such as replacement windows or vinyl siding, has been negatively impacted by a general tightening of lending requirements by financial institutions and the significant decrease in home values, which limited the amount of home equity against which homeowners could borrow. Management believes that expenditures for home repair and remodeling products are also affected by consumer confidence that declined during 2009 due to general economic conditions and increased unemployment levels. Although certain aspects of the federal stimulus plan enacted in early 2009, such as energy saving tax credits and Homestar, may encourage some consumers to make home improvements, including the replacement of older windows with newer more energy-efficient windows, management believes that these favorable measures could be offset during 2010 by the effects of high unemployment, limited availability of consumer financing and lower consumer confidence levels. However, management believes the long-term economic outlook of the demand for home repair and remodeling products in the United States is favorable and supported by the move towards more energy-efficient products, recent underinvestment in home maintenance and repair and aging housing stock.
 
Our principal stockholders
 
After giving effect to the Reorganization Transactions (assuming a public offering price of $      per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus)), affiliates of, and companies managed by, CI Capital Partners LLC (“CI Capital


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Partners”), including Caxton-Iseman (Ply Gem), L.P. and Caxton-Iseman (Ply Gem) II, L.P. (collectively, the “CI Partnerships”), will beneficially own approximately     % of our common stock. Upon completion of this offering, after giving effect to the Reorganization Transactions (assuming a public offering price of $      per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus)), the CI Partnerships are expected to beneficially own approximately     % of our outstanding common stock, or     % if the underwriters exercise their over-allotment option in full.
 
CI Capital Partners is a leading private equity investment firm specializing in leveraged buyouts of middle-market companies located primarily in North America. Since its inception, CI Capital Partners’ investment activities have been managed by Frederick Iseman and Steven Lefkowitz who have invested together for 17 years. CI Capital Partners’ senior investment professionals have 59 years of collective experience at CI Capital Partners.
 
Reorganization transactions
 
In connection with this offering, we will merge with our parent corporation and engage in a series of transactions that will convert the outstanding subordinated debt and preferred stock of our parent corporation into common equity and result in a single class of our common stock outstanding.
 
Currently, Ply Gem Prime Holdings, Inc. (“Ply Gem Prime”) owns 100% of our capital stock. Immediately prior to the closing of this offering, Ply Gem Prime will merge with and into Ply Gem Holdings, with Ply Gem Holdings being the surviving entity. In the reorganization merger, we will issue a total of           shares of our common stock, representing     % of our outstanding common stock after giving effect to this offering. In the reorganization merger, all of the preferred stock of Ply Gem Prime will be converted into a number of shares of our common stock based on the initial public offering price of our common stock and the liquidation value of and accrued and unpaid dividends on the preferred stock. The holders of common stock of Ply Gem Prime will receive an aggregate number of shares of our common stock equal to the difference between           and the number of shares of our common stock issued to the holders of preferred stock of Ply Gem Prime. Based on an assumed public offering price of $     per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus), in the reorganization merger, holders of preferred stock of Ply Gem Prime will receive an aggregate of          shares of our common stock and holders of common stock of Ply Gem Prime will receive an aggregate of          shares of our common stock.
 
Finally, in connection with the reorganization merger, options to purchase shares of common stock of Ply Gem Prime will be converted into options to purchase shares of our common stock with adjustments to the number of shares and per share exercise prices. See “Certain relationships and related party transactions — Reorganization transactions.
 
Corporate information
 
We were incorporated under the laws of the State of Delaware on January 23, 2004. Our principal executive offices are located at 5020 Weston Parkway, Suite 400, Cary, North Carolina 27513. Our telephone number is (919) 677-3900. Our website is www.plygem.com. Information contained on our website does not constitute a part of this prospectus.
 


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The offering
 
Common stock outstanding before this offering           shares.
 
Common stock offered by us           shares.
 
Common stock offered by the selling stockholders           shares if the underwriters exercise their over-allotment option in full.
 
Common stock to be outstanding immediately after this offering           shares.
 
Use of proceeds We estimate that the net proceeds to us from this offering will be $      million, after deducting the underwriting discount and estimated offering expenses payable by us. We intend to use the net proceeds to us (i) to redeem or repurchase a portion of our outstanding indebtedness and (ii) to pay transaction fees and other expenses.
 
We will not receive any proceeds from the sale of our common stock by the selling stockholders if the underwriters exercise their option to purchase additional shares from the selling stockholders.
 
See “Use of proceeds.”
 
NYSE symbol “PGEM.”
 
Risk factors You should read the “Risk factors” section of this prospectus for a discussion of factors that you should consider carefully before deciding to invest in our common stock.
 
The number of shares of our common stock outstanding after this offering excludes          shares that are subject to options granted pursuant to the Ply Gem Prime Holdings, Inc. 2004 Stock Option Plan (the “2004 Option Plan”) as of          , 2010 at a weighted average exercise price of $      per share and           shares reserved for issuance under our 2010 Equity Award Plan (and together with the 2004 Option Plan, the “Equity Plans”). See “Executive compensation.”
 
Unless we indicate otherwise, all information in this prospectus:
 
•  assumes that the underwriters do not exercise their option to purchase from the selling stockholders up to           shares of our common stock to cover over-allotments;
 
•  assumes a public offering price of $      per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus); and
 
•  gives effect to the Reorganization Transactions.


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Summary historical and pro forma consolidated financial data of Ply Gem Holdings, Inc.
 
The summary historical consolidated financial data presented below for each of the years in the three year period ended December 31, 2009 have been derived from, and should be read together with, our audited consolidated financial statements and the accompanying notes included elsewhere in this prospectus. The summary historical consolidated statement of operations data for the three month periods ended April 3, 2010 and April 4, 2009 and the balance sheet data as of April 3, 2010 have been derived from the Ply Gem Holdings unaudited condensed consolidated financial statements and the accompanying notes included elsewhere in this prospectus and have been prepared on the same basis as our audited financial statements. In the opinion of management, the Ply Gem Holdings unaudited condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation of the financial position and results of operations in these periods. The results of any interim period are not necessarily indicative of the results that can be expected for the full year or any future period.
 
The information set forth below should be read in conjunction with “Capitalization,” “Unaudited pro forma financial information,” “Selected historical consolidated financial data,” “Management’s discussion and analysis of financial condition and results of operations” and our consolidated financial statements and the accompanying notes included elsewhere in this prospectus.
 
                                         
 
    Three months
    Three months
                   
    ended
    ended
    Year ended December 31,  
(amounts in thousands (except per share data))   April 3, 2010     April 4, 2009     2009     2008     2007  
 
 
Statement of operations data:(1)
                                       
Net sales
  $ 204,205     $ 182,751     $ 951,374     $ 1,175,019     $ 1,363,546  
Costs and expenses:
                                       
Cost of products sold
    167,308       169,691       749,841       980,098       1,083,153  
Selling, general and administrative expenses
    33,806       40,962       141,772       155,388       155,963  
Amortization of intangible assets
    6,794       4,906       19,651       19,650       17,631  
Goodwill impairment
                      450,000        
Intangible asset impairment
                            4,150  
     
     
Total costs and expenses
    207,908       215,559       911,264       1,605,136       1,260,897  
     
     
Operating earnings (loss)
    (3,703 )     (32,808 )     40,110       (430,117 )     102,649  
Foreign currency gain (loss)
    104       (88 )     475       (911 )     3,961  
Interest expense(2)
    (34,007 )     (33,756 )     (135,514 )     (138,015 )     (99,698 )
Interest income
    53       65       211       617       1,704  
Gain on extinguishment of debt(2)
    98,187                          
     
     
Income (loss) before provision (benefit) for income taxes
    60,634       (66,587 )     (94,718 )     (568,426 )     8,616  
Provision (benefit) for income taxes
    6,532       (11,049 )     (17,966 )     (69,951 )     3,634  
     
     
Net income (loss)
  $ 54,102     $ (55,538 )   $ (76,752 )   $ (498,475 )   $ 4,982  
     
     
Basic and diluted earnings (loss) attributable to common stockholders per common share
  $ 541.02     $ (555.38 )   $ (767.52 )   $ (4,984.75 )   $ 49.82  
 
 


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    Three months
    Three months
                   
    ended
    ended
    Year ended December 31,  
(amounts in thousands (except per share data))   April 3, 2010     April 4, 2009     2009     2008     2007  
 
 
Other data:
                                       
Adjusted EBITDA(3)
  $ 12,357     $ (12,537 )   $ 116,215     $ 96,095     $ 176,016  
Capital expenditures
    3,029       2,446       7,807       16,569       20,017  
Depreciation and amortization
    15,454       13,896       56,271       61,765       54,067  
Annual single family housing starts(4)
    n/a       n/a       441       616       1,036  
Selected Statements of Cash Flows Data:
                                       
Net cash provided by (used in):
                                       
Operating activities
  $ (21,416 )   $ (48,716 )   $ (16,882 )   $ (58,865 )   $ 73,844  
Investing activities
    (3,028 )     (2,425 )     (7,835 )     (11,487 )     (56,407 )
Financing activities
    38,950       9,974       (17,528 )     78,233       (15,068 )
 
 
 
                 
 
    As of April 3, 2010  
Balance sheet data:   Actual     Pro Forma(5)  
 
 
Cash and cash equivalents
  $ 31,659     $             
Total assets
    1,011,301          
Total debt
    926,778          
Stockholder’s deficit
    (143,831 )        
 
 
 
(1) We adopted the recognition and disclosure requirements in 2007 and the measurement provisions in 2008 of Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans an amendment of FASB Statements No. 87, 88, 106, and 132(R) (now included in Accounting Standards Codification (ASC) 715, Compensation—Retirement Benefits). On January 1, 2007, we adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109 (now included in ASC 740, Income Taxes). In addition, we elected to change our method of accounting for a portion of our inventory in 2008 from the last-in, first out (LIFO) method to the first-in, first-out (FIFO) method.
 
(2) During the three months ended April 3, 2010, we separately classified a non-cash gain on extinguishment in connection with the redemption of our 9% Senior Subordinated Notes due 2012 (the “9% Senior Subordinated Notes). During the year ended December 31, 2008, we classified extinguishment losses arising from $14.0 million of non-cash deferred financing costs associated with previous term debt, $6.8 million for a prepayment premium and $6.8 million of bank amendment fees as interest expense.
 
(3) Adjusted EBITDA means net income (loss) plus interest expense (net of interest income), provision (benefit) for income taxes, depreciation and amortization, non-cash gain on extinguishment of debt, non-cash foreign currency gain/(loss), amortization of non-cash write-off of the portion of excess purchase price from acquisitions allocated to inventories, restructuring and integrations costs, customer inventory buybacks, impairment charges and management fees paid under our advisory agreement with an affiliate of the CI Partnerships. Other companies may define adjusted EBITDA differently and, as a result, our measure of adjusted EBITDA may not be directly comparable to adjusted EBITDA of other companies. Management believes that the presentation of adjusted EBITDA included in this prospectus provides useful information to investors regarding our results of operations because it assists both investors and management in analyzing and benchmarking the performance and value of our business. We have included adjusted EBITDA because it is a key financial measure used by management to (i) assess our ability to service our debt and/or incur debt and meet our capital expenditure requirements; (ii) internally measure our operating performance; and (iii) determine our incentive compensation programs. In addition, our $175.0 million senior secured asset-based revolving credit facility (the “ABL Facility”) has certain covenants that apply ratios utilizing this measure of adjusted EBITDA.
 
Despite the importance of this measure in analyzing our business, measuring and determining incentive compensation and evaluating our operating performance, as well as the use of adjusted EBITDA measures by securities analysts, lenders and others in their evaluation of companies, adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under U.S. generally accepted accounting principles (“U.S. GAAP”); nor is adjusted EBITDA intended to be a measure of liquidity or free cash flow for our discretionary use. Some of the limitations of adjusted EBITDA are:
 
• Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures;
 
• Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
 
• Adjusted EBITDA does not reflect the interest expense or the cash requirements to service interest or principal payments under our 11.75% senior secured notes due 2013 (the “Senior Secured Notes”), our 13.125% senior subordinated notes due 2014 (the “13.125% Senior Subordinated Notes”) or the ABL Facility;

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• Adjusted EBITDA does not reflect income tax payments we are required to make; and
 
• Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often will have to be replaced in the future, and adjusted EBITDA does not reflect any cash requirements for such replacements.
 
Adjusted EBITDA included in this prospectus should be considered in addition to, and not as a substitute for, net earnings in accordance with U.S. GAAP as a measure of performance in accordance with U.S. GAAP. You are cautioned not to place undue reliance on adjusted EBITDA.
 
The following table presents our calculation of adjusted EBITDA reconciled to net income (loss):
 
                                         
 
    Three months
    Three months
                   
    ended
    ended
    Year ended December 31,  
(amounts in thousands)   April 3, 2010     April 4, 2009     2009     2008     2007  
 
 
                                         
Net income (loss)
  $ 54,102     $ (55,538 )   $ (76,752 )   $ (498,475 )   $ 4,982  
                                         
Interest expense, net(2)
    33,954       33,691       135,303       137,398       97,994  
                                         
Provision (benefit) for income taxes
    6,532       (11,049 )     (17,966 )     (69,951 )     3,634  
                                         
Depreciation and amortization
    15,454       13,896       56,271       61,765       54,067  
                                         
Non-cash gain on extinguishment of debt(2)
    (98,187 )                        
                                         
(Gain)/loss on currency transaction
    (104 )     88       (475 )     911       (3,961 )
                                         
Non-cash charge of purchase price allocated to inventories
                      19       1,289  
                                         
Restructuring/integration expense
    106       3,994       8,992       10,859       10,356  
                                         
Customer inventory buyback
    252       1,685       8,345       1,890        
                                         
Goodwill impairment
                      450,000        
                                         
Intangible asset impairment
                            4,150  
                                         
Management fees(6)
    248       696       2,497       1,679       3,505  
     
     
                                         
Adjusted EBITDA
  $ 12,357     $ (12,537 )   $ 116,215     $ 96,095     $ 176,016  
 
 
 
(4) Single family housing starts data furnished by NAHB forecast (as of April 23, 2010).
 
(5) Gives effect to the Reorganization Transactions, the creation of liabilities in connection with entering into the tax receivable agreement described in “Certain relationships and related party transactions—Tax receivable agreement,” this offering and the application of the net proceeds from this offering as if such transactions took place on April 3, 2010. The summary pro forma financial data are based upon available information and certain assumptions as discussed in the notes to the unaudited financial information presented under “Unaudited pro forma financial information.” The summary pro forma financial data are for informational purposes only and do not purport to represent what our results of operations or financial position actually would have been if each such transaction had occurred on the dates specified above, nor does this data purport to represent the results of operations for any future period.
 
(6) After the completion of this offering, the advisory agreement with an affiliate of the CI Partnerships will be terminated and management fees will no longer be paid.


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Risk factors
 
Investing in our common stock involves substantial risks. In addition to the other information in this prospectus, you should carefully read and consider the risk factors set forth below before deciding to invest in our common stock. Any of the following risks could adversely affect our business, results of operations, financial condition and liquidity. The market price of our common stock could decline if one or more of these risks and uncertainties develop into actual events, causing you to lose all or part of your investment in our common stock. Certain statements in “Risk factors” are forward-looking statements. See “Cautionary note regarding forward-looking statements.”
 
Risks associated with our business
 
Downturns in the home repair and remodeling and new construction sectors or the economy and the availability of consumer credit could adversely impact our end users and 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 construction spending, which declined significantly in 2009 as compared to 2008 and are affected by such factors as interest rates, inflation, consumer confidence, unemployment and the availability of consumer credit.
 
Our performance is also dependent upon consumers having the ability to finance home repair and remodeling projects and/or the purchase of new homes. The ability of consumers to finance these purchases is affected by such factors as new and existing home prices, homeowners’ equity values, interest rates and home foreclosures, which in turn could result in a tightening of lending standards by financial institutions and reduce the ability of some consumers to finance home purchases or repair and remodeling expenditures. In fact, it is estimated that as of May 2010, 23% of all U.S. home mortgages were underwater, whereby the home’s worth is less than the amount owed by the homeowner on the mortgage. Recent trends, including declining home values, increased home foreclosures and tightening of credit standards by lending institutions, have negatively impacted the home repair and remodeling and the new construction sectors. If these credit market trends continue, our net sales and net income may be adversely affected.
 
We face competition from other exterior building products manufacturers and alternative building materials. If we are unable to compete successfully, we could lose customers and our sales could decline.
 
We compete with other national and regional manufacturers of exterior building products. Some of these companies are larger and have greater financial resources than we do. Accordingly, these competitors may be better equipped to withstand changes in conditions in the industries in which we operate and may have significantly greater operating and financial flexibility than we do. These competitors could take a greater share of sales and cause us to lose business from our customers. Additionally, our products face competition from alternative materials: wood, metal, fiber cement and masonry in siding, and wood in windows. An increase in competition from other exterior building products manufacturers and alternative building materials could cause us to lose our customers and lead to decreases in net sales.


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Changes in the costs and availability of raw materials, especially PVC resin and aluminum, can decrease our profit margin by increasing our costs.
 
Our principal raw materials, PVC resin and aluminum, have been subject to rapid price changes in the past. While we have historically been able to substantially pass on significant PVC resin and aluminum cost increases through price increases to our customers, our results of operations for individual quarters can be and have been hurt by a delay between the time of PVC resin and aluminum cost increases and price increases in our products. While we expect that any significant future PVC resin and aluminum cost increases will be offset in part or whole over time by price increases to our customers, we may not be able to pass on any future price increases.
 
Certain of our customers have been expanding and may continue to expand through consolidation and internal growth, which may increase their buying power, which could materially and adversely affect our revenues, results of operations and financial position.
 
Certain of our important customers are large companies with significant buying power. In addition, potential further consolidation in the distribution channels could enhance the ability of certain of our customers to seek more favorable terms, including pricing, for the products that they purchase from us. Accordingly, our ability to maintain or raise prices in the future may be limited, including during periods of raw material and other cost increases. If we are forced to reduce prices or to maintain prices during periods of increased costs, or if we lose customers because of pricing or other methods of competition, our revenues, operating results and financial position may be materially and adversely affected.
 
Because we depend on a core group of significant customers, our sales, cash flows from operations and results of operations may decline if our key customers reduce the amount of products that they purchase from us.
 
Our top ten customers accounted for approximately 36.3% of our net sales in the year ended December 31, 2009. Our largest customer, BlueLinx, distributes our vinyl siding and accessories through multiple channels within its building products distribution business, and accounted for approximately 8.6% of our net sales in the first quarter of 2010 and approximately 9.2% of our net sales in each of 2009 and 2008, respectively. We expect a small number of customers to continue to account for a substantial portion of our net sales for the foreseeable future.
 
The loss of, or a significant adverse change in our relationships with, BlueLinx or any other major customer could cause a material decrease in our net sales.
 
The loss of, or a reduction in orders from, any significant customers, losses arising from customers’ disputes regarding shipments, fees, merchandise condition or related matters, or our inability to collect accounts receivable from any major retail customer could cause a decrease in our net income and our cash flow. In addition, revenue from customers that have accounted for significant revenue in past periods, individually or as a group, may not continue, or if continued, may not reach or exceed historical levels in any period.


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Our business is seasonal and can be affected by inclement weather conditions that could affect the timing of the demand for our products and cause reduced profit margins when such conditions exist.
 
Markets for our products are seasonal and can be affected by inclement weather conditions. Historically, our business has experienced increased sales in the second and third quarters of the year due to increased construction during those periods. Because much of our overhead and operating expenses are spread ratably throughout the year, our operating profits tend to be lower in the first and fourth quarters. Inclement weather conditions can affect the timing of when our products are applied or installed, causing reduced profit margins when such conditions exist.
 
Increases in the cost of labor, union organizing activity and work stoppages at our facilities or the facilities of our suppliers could delay or impede our production, reduce sales of our products and increase our costs.
 
Our financial performance is affected by the availability of qualified personnel and the cost of labor. As of April 3, 2010, approximately 14.7% of our employees were represented by labor unions. We are subject to the risk that strikes or other types of conflicts with personnel may arise or that we may become a subject of union organizing activity. Furthermore, some of our direct and indirect suppliers have unionized work forces. Strikes, work stoppages or slowdowns experienced by these suppliers could result in slowdowns or closures of facilities where components of our products are manufactured. Any interruption in the production or delivery of our products could reduce sales of our products and increase our costs.
 
We may be subject to claims arising from the operations of our various businesses arising from periods prior to the dates we acquired them. Our ability to seek indemnification from the former owners of our subsidiaries may be limited, in which case, we would be liable for these claims.
 
We have acquired all of our subsidiaries, including Ply Gem Industries, MWM Holding, Inc. (“MWM Holding”), AWC Holding Company (“AWC,” and together with its subsidiaries, “Alenco”), Alcoa Home Exteriors, Inc. (“AHE”), Ply Gem Pacific Windows Corporation (“Pacific Windows”) and United Stone Veneer, LLC (now known as “Ply Gem Stone”), in the last several years. We may be subject to claims or liabilities arising from the ownership or operation of our subsidiaries for the periods prior to our acquisition of them, including environmental liabilities. These claims or liabilities could be significant. Our ability to seek indemnification from the former owners of our subsidiaries for these claims or liabilities is limited by various factors, including the specific limitations contained in the respective acquisition agreement and the financial ability of the former owners to satisfy such claims or liabilities. If we are unable to enforce our indemnification rights against the former owners or if the former owners are unable to satisfy their obligations for any reason, including because of their current financial position, we could be held liable for the costs or obligations associated with such claims or liabilities, which could adversely affect our operating performance.
 
We could face potential product liability claims relating to products we manufacture.
 
Our historical product liability claims have not been material and while management is not aware of any material product liability issues, we do face an inherent business risk of exposure to product liability claims in the event that the use of any of our products results in personal


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injury or property damage. In the event that any of our products proves to be defective, among other things, we may be responsible for damages related to any defective products and we may be required to recall or redesign such products. Because of the long useful life of our products, it is possible that latent defects might not appear for several years. Any insurance we maintain may not continue to be available on terms acceptable to us or such coverage may not be adequate for liabilities actually incurred. Further, any claim or product recall could result in adverse publicity against us, which could cause our sales to decline, or increase our costs.
 
We are dependent on certain key personnel, the loss of whom could materially affect our financial performance and prospects.
 
Our continued success depends to a large extent upon the continued services of our senior management and certain key employees. To encourage the retention of certain key executives, we have entered into various equity-based compensation agreements with our senior executives, including Messrs. Robinette, Poe, Wayne, Morstad, and Pigues, designed to encourage their retention. Each member of our senior management team has substantial experience and expertise in our industry and has made significant contributions to our growth and success. We do face the risk, however, that members of our senior management may not continue in their current positions and their loss of services could cause us to lose customers and reduce our net sales, lead to employee morale problems and/or the loss of key employees, or cause disruptions to our production. Also, we may be unable to find qualified individuals to replace any of the senior executive officers who leave our company.
 
Interruptions in deliveries of raw materials or finished goods could adversely affect our production and increase our costs, thereby decreasing our profitability.
 
Our dependency upon regular deliveries from particular suppliers means that interruptions or stoppages in such deliveries could adversely affect our operations until arrangements with alternate suppliers could be made. If any of our suppliers were unable to deliver materials to us for an extended period of time, as the result of financial difficulties, catastrophic events affecting their facilities or other factors beyond our control, or if we were unable to negotiate acceptable terms for the supply of materials with these or alternative suppliers, our business could suffer. We may not be able to find acceptable alternatives, and any such alternatives could result in increased costs for us. Even if acceptable alternatives were found, the process of locating and securing such alternatives might be disruptive to our business. Extended unavailability of a necessary raw material or finished good could cause us to cease manufacturing one or more of our products for a period of time.
 
Environmental requirements may impose significant costs and liabilities on us.
 
Our facilities are subject to numerous United States and Canadian federal, state, provincial and local laws and regulations relating to pollution and the protection of the environment, including those governing emissions to air, discharges to water, use, storage and transport of hazardous materials, storage, treatment and disposal of waste, remediation of contaminated sites and protection of worker health and safety. From time to time, our facilities are subject to investigation by governmental regulators. In addition, we have been identified as one of many potentially responsible parties for contamination present at certain offsite locations to which we or our predecessors are alleged to have sent hazardous materials for recycling or disposal. We may be held liable, or incur fines or penalties in connection with such requirements or liabilities


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for, among other things, releases of hazardous substances occurring on or emanating from current or formerly owned or operated properties or any associated offsite disposal location, or for newly-discovered contamination at any of our properties from activities conducted by previous occupants. The amount of such liability, fine or penalty may be material. Certain environmental laws impose strict, and under certain circumstances joint and several, liability for the cost of addressing releases of hazardous substances upon certain classes of persons, including site owners or operators and persons that disposed or arranged for the disposal of hazardous substances at contaminated sites.
 
Changes in environmental laws and regulations or in their enforcement, the discovery of previously unknown contamination or other liabilities relating to our properties and operations or the inability to enforce the indemnification obligations of the previous owners of our subsidiaries could result in significant environmental liabilities that could adversely impact our operating performance. In addition, we might incur significant capital and other costs to comply with increasingly stringent United States or Canadian environmental laws or enforcement policies that would decrease our cash flow.
 
Manufacturing or assembly realignments may result in a decrease in our short-term earnings, until the expected cost reductions are achieved, due to the costs of implementation.
 
We continually review our manufacturing and assembly operations and sourcing capabilities. Effects of periodic manufacturing realignments and cost savings programs could result in a decrease in our short-term earnings until the expected cost reductions are achieved. Such programs may include the consolidation and integration of facilities, functions, systems and procedures. Such actions may not be accomplished as quickly as anticipated and the expected cost reductions may not be achieved or sustained.
 
We rely on a variety of intellectual property rights. Any threat to, or impairment of, these rights could cause us to incur costs to defend these rights.
 
As a company that manufactures and markets branded products, we rely heavily on trademark and service mark protection to protect our brands. We have a significant number of issued patents and rely on copyright protection for certain of our technologies. These protections may not adequately safeguard our intellectual property and we may incur significant costs to defend our intellectual property rights, which may harm our operating results. There is a risk that third parties, including our current competitors, will infringe on our intellectual property rights, in which case we would have to defend these rights. There is also a risk that third parties, including our current competitors, will claim that our products infringe on their intellectual property rights. These third parties may bring infringement claims against us or our customers, which may harm our operating results.
 
Increases in fuel costs could cause our cost of products sold to increase and net income to decrease.
 
Increases in fuel costs can negatively impact our cost to deliver our products to our customers and thus increase our cost of products sold. If we are unable to increase the selling price of our products to our customers to cover any increases in fuel costs, net income may be adversely affected.


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Declines in our business conditions may result in an impairment of our tangible and intangible assets which could result in a material non-cash charge.
 
A decrease in our market capitalization, including a short-term decline in stock price, or a negative long-term performance outlook, could result in an impairment of our tangible and intangible assets which results when the carrying value of the our assets exceed their fair value. In 2007 our other intangible assets suffered an impairment and in 2008 our goodwill suffered an impairment. Additional impairment charges could occur in future periods.
 
The significant amount of our indebtedness may limit the cash flow available to invest in the ongoing needs of our business.
 
As of April 3, 2010, on an adjusted basis after giving effect to the Reorganization Transactions and this offering, we would have had approximately $      million of indebtedness outstanding, including $65.0 million of outstanding borrowings under the ABL Facility.
 
Our indebtedness could have important consequences. For example, it could:
 
•  require us to dedicate a substantial portion of our cash flow from operations to interest and principal payments on our indebtedness, reducing the availability of our cash flow for other purposes, such as capital expenditures, acquisitions and working capital;
 
•  limit our flexibility in planning for, or reacting to, changes in our business, the industry in which we operate and the general economy;
 
•  place us at a disadvantage compared to our competitors that have less debt;
 
•  expose us to fluctuations in the interest rate environment because the interest rates of our ABL Facility are at variable rates; and
 
•  limit our ability to borrow additional funds.
 
Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations, prospects and ability to satisfy our obligations under our indebtedness.
 
The terms of our debt covenants could limit how we conduct our business and our ability to raise additional funds.
 
The agreements that govern the terms of our debt, including the indentures that govern the Senior Secured Notes and the 13.125% Senior Subordinated Notes and the credit agreement that governs the ABL Facility, contain covenants that restrict our ability and the ability of our subsidiaries to:
 
•  incur and guarantee indebtedness or issue equity interests of restricted subsidiaries;
 
•  repay subordinated indebtedness prior to its stated maturity;
 
•  pay dividends or make other distributions on or redeem or repurchase our stock;
 
•  issue capital stock;
 
•  make certain investments or acquisitions;
 
•  create liens;


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•  sell certain assets or merge with or into other companies;
 
•  enter into certain transactions with stockholders and affiliates;
 
•  make capital expenditures; and
 
•  pay dividends, distributions or other payments from our subsidiaries.
 
These restrictions may affect our ability to grow our business and take advantage of market and business opportunities or to raise additional debt or equity capital.
 
In addition, under the ABL Facility, if our excess availability is less than the greater of (a) 15% of the lesser of (i) the commitments and (ii) the borrowing base and (b) $20 million, we will be required to satisfy and maintain a fixed charge coverage ratio not less than 1.1 to 1.0. Our ability to meet the required fixed charge coverage ratio can be affected by events beyond our control, and we cannot assure you that we will meet this ratio. A breach of any of these covenants under the ABL Facility or the indentures governing our Senior Secured Notes or our 13.125% Senior Subordinated Notes could result in a default under the ABL Facility or the indentures. An event of default under any of our debt agreements would permit some of our lenders to declare all amounts borrowed from them to be due and payable and, in some cases, proceed against the collateral securing such indebtedness.
 
Moreover, the ABL Facility provides the lenders considerable discretion to impose reserves or availability blocks, which could materially impair the amount of borrowings that would otherwise be available to us. There can be no assurance that the lenders under the ABL Facility will not impose such actions during the term of the ABL Facility and further, were they to do so, the resulting impact of this action could materially and adversely impair our liquidity.
 
We may be unable to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under such indebtedness, which may not be successful. We may also be unable to generate sufficient cash to make required capital expenditures.
 
Our ability to make scheduled payments on or to refinance our debt obligations and to make capital expenditures depends on our financial condition and operating performance, which is subject to prevailing economic and competitive conditions and to financial, business and other factors. We will not be able to control many of these factors, such as economic conditions in the industry in which we operate and competitive pressures. We cannot assure you that we will maintain a level of cash flows from operating activities sufficient to permit us to pay or refinance our indebtedness, including the Senior Secured Notes, the 13.125% Senior Subordinated Notes or our indebtedness under our ABL Facility, or make required capital expenditures. If our cash flows and capital resources are insufficient to fund our debt service obligations, we and our subsidiaries could face substantial liquidity problems and may be forced to reduce or delay capital expenditures, sell assets, seek additional capital or restructure or refinance our indebtedness.
 
In addition, if we do not have, or are unable to obtain, adequate funds to make all necessary capital expenditures when required, or if the amount of future capital expenditures are materially in excess of our anticipated or current expenditures, our product offerings may become dated, our productivity may decrease and the quality of our products may decline, which, in turn, could reduce our sales and profitability.


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Our income tax net operating loss carryovers may be limited and our results of operations may be adversely impacted.
 
We have substantial deferred tax assets related to net operating losses (“NOLs”) for United States federal and state income tax purposes, which are available to offset future taxable income. As a result, we project that the U.S. cash tax rate will be reduced from the federal statutory rate and state rate as a result of approximately $154.1 million of gross NOLs for federal purposes and $204.4 million of gross state NOLs. Our ability to utilize the NOLs may be limited as a result of certain events, such as insufficient future taxable income prior to expiration of the NOLs or annual limits imposed under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), or by state law, as a result of a change in control. A change in control is generally defined as a cumulative change of more than 50 percentage points in the ownership positions of certain stockholders during a rolling three year period. Changes in the ownership positions of certain stockholders could occur as the result of stock transactions by such stockholders and/or by the issuance of stock by us. Such limitations may cause us to pay income taxes earlier and in greater amounts than would be the case if the NOLs were not subject to such limitations. Should we determine that it is likely that our recorded NOL benefits are not realizable, we would be required to reduce the NOL tax benefits reflected on our consolidated financial statements to the net realizable amount by establishing a valuation reserve and recording a corresponding charge to earnings. Conversely, if we are required to reverse any portion of the accounting valuation against our U.S. deferred tax assets related to our NOLs, such reversal could have a positive effect on our financial condition and results of operations in the period in which it is recorded.
 
In addition, upon the closing of this offering, we intend to enter into a tax receivable agreement with an entity controlled by our current stockholders (the “Tax Receivable Entity”). This tax receivable agreement will generally provide for the payment by us to the Tax Receivable Entity of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that we actually realize in periods after this offering as a result of (i) NOL carryovers from prior periods (or portions thereof), (ii) deductible expenses attributable to the transactions related to this offering and (iii) deductions related to imputed interest deemed to be paid by us as a result of this tax receivable agreement. See “Certain relationships and related party transactions—Tax receivable agreement.
 
We will be required to pay an affiliate of our current stockholders for certain tax benefits we may claim, and the amounts we may pay could be significant.
 
The amount and timing of any payments under the tax receivable agreement will vary depending upon a number of factors, including the amount and timing of the taxable income we generate in the future and the tax rate then applicable, our use of NOL carryovers and the portion of our payments under the tax receivable agreement constituting imputed interest.
 
The payments we will be required to make under the tax receivable agreement could be substantial. We expect that, as a result of the amount of the NOL carryovers from prior periods (or portions thereof) and the deductible expenses attributable to the transactions related to this offering, assuming no material changes in the relevant tax law and that we earn sufficient taxable income to realize in full the potential tax benefit described above, future payments under the tax receivable agreement, in respect of the federal and state NOL carryovers, will be approximately $      million and will be paid within the next five years. These amounts reflect only the cash savings attributable to current tax attributes resulting from the NOL carryovers. It


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is possible that future transactions or events could increase or decrease the actual tax benefits realized and the corresponding tax receivable agreement payments from these tax attributes.
 
In addition, although we are not aware of any issue that would cause the U.S. Internal Revenue Service (“IRS”) to challenge the benefits arising under the tax receivable agreement, the Tax Receivable Entity will not reimburse us for any payments previously made if such benefits are subsequently disallowed, except that excess payments made to the Tax Receivable Entity will be netted against payments otherwise to be made, if any, after our determination of such excess. As a result, in such circumstances, we could make payments under the tax receivable agreement that are greater than our actual cash tax savings and may not be able to recoup those payments, which could adversely affect our liquidity.
 
Finally, because we are a holding company with no operations of our own, our ability to make payments under the tax receivable agreement is dependent on the ability of our subsidiaries to make distributions to us. The ABL Facility and the indentures governing our Senior Secured Notes and our 13.125% Senior Subordinated Notes restrict the ability of our subsidiaries to make distributions to us, which could affect our ability to make payments under the tax receivable agreement. To the extent that we are unable to make payments under the tax receivable agreement for any reason, such payments will be deferred and will accrue interest until paid, which could adversely affect our results of operations and could also affect our liquidity in periods in which such payments are made.
 
In addition, the tax receivable agreement provides that, upon certain mergers, asset sales, or other forms of business combinations or certain other changes of control, our or our successor’s obligations with respect to tax benefits would be based on certain assumptions, including that we or our successor would have sufficient taxable income to fully utilize the NOL carryovers covered by the tax receivable agreement. As a result, upon a change of control, we could be required to make payments under the tax receivable agreement that are greater than or less than the specified percentage of our actual cash tax savings.
 
Risks related to this offering and our common stock
 
We are controlled by the CI Partnerships whose interest in our business may be different than yours, and certain statutory provisions afforded to stockholders are not applicable to us.
 
After giving effect to the Reorganization Transactions and this offering, the CI Partnerships will own approximately     % of our outstanding common stock (or     % if the underwriters exercise their over-allotment in full) based on an assumed public offering price of $      per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus). Prior to the consummation of this offering, we will enter into an amended and restated stockholders agreement with the CI Partnerships and certain of our current and former members of management and their related parties. Under the stockholders agreement, the CI Partnerships will be initially entitled to nominate a majority of the members of our board of directors and all of the parties to the stockholders agreement have agreed to vote their shares of our common stock as directed by the CI Partnerships. See “Management—Board structure” and “Certain relationships and related party transactions—Stockholders agreement” for additional details on the composition of our board of directors and the rights of the CI Partnerships under the stockholders agreement.
 
Accordingly, the CI Partnerships will be able to exercise significant influence over our business policies and affairs. In addition, the CI Partnerships can control any action requiring the general


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approval of our stockholders, including the election of directors, the adoption of amendments to our certificate of incorporation and bylaws and the approval of mergers or sales of substantially all of our assets. The concentration of ownership and voting power of the CI Partnerships may also delay, defer or even prevent an acquisition by a third party or other change of control of our company and may make some transactions more difficult or impossible without the support of the CI Partnerships, even if such events are in the best interests of minority stockholders. The concentration of voting power among the CI Partnerships may have an adverse effect on the price of our common stock.
 
In addition, we have opted out of section 203 of the General Corporation Law of the State of Delaware, which we refer to as the “Delaware General Corporation Law,” which, subject to certain exceptions, prohibits a publicly held Delaware corporation from engaging in a business combination transaction with an interested stockholder for a period of three years after the interested stockholder became such unless the transaction fits within an applicable exemption, such as board approval of the business combination or the transaction which resulted in such stockholder becoming an interested stockholder. Therefore, after the lock-up period expires, the CI Partnerships are able to transfer control of our company to a third party by transferring their common stock, which would not require the approval of our board of directors or our other stockholders.
 
For additional information regarding the share ownership of, and our relationship with, the CI Partnerships, you should read the information under the headings “Principal and selling stockholders” and “Certain relationships and related party transactions.”
 
As a “controlled company” within the meaning of the NYSE’s corporate governance rules, we will qualify for, and intend to rely on, exemptions from certain NYSE corporate governance requirements. As a result, our stockholders may not have the same degree of protection as that afforded to stockholders of companies that are subject to all of the NYSE’s corporate governance requirements.
 
Following this offering, we will be a “controlled company” within the meaning of the NYSE’s corporate governance rules as a result of the ownership position and voting rights of the CI Partnerships upon completion of this offering. A “controlled company” is a company of which more than 50% of the voting power is held by an individual, group or another company. As a controlled company we may elect not to comply with certain NYSE corporate governance rules that would otherwise require our board of directors to have a majority of independent directors and our Compensation and Nominating and Governance Committees to be comprised entirely of independent directors. Accordingly, our stockholders will not have the same protection afforded to stockholders of companies that are subject to all of the NYSE corporate governance requirements and the ability of our independent directors to influence our business policies and affairs may be reduced. See “Management—Controlled company.”
 
Our directors who have relationships with the CI Partnerships may have conflicts of interest with respect to matters involving our Company.
 
Following this offering, three of our eight directors will be affiliated with the CI Partnerships. These persons will have fiduciary duties to both us and the CI Partnerships. As a result, they may have real or apparent conflicts of interest on matters affecting both us and the CI Partnerships, which in some circumstances may have interests adverse to ours. In addition, as a result of the CI Partnerships’ ownership interest, conflicts of interest could arise with respect to transactions


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involving business dealings between us and the CI Partnerships including potential acquisitions of businesses or properties, the issuance of additional securities, the payment of dividends by us and other matters.
 
In addition, our amended and restated certificate of incorporation will provide that the doctrine of “corporate opportunity” will not apply against the CI Partnerships, any of our directors who are employees of the CI Partnerships and any of their affiliates in a manner that would prohibit them from investing in competing businesses or doing business with our customers. To the extent they invest in such other businesses, the CI Partnerships may have differing interests than our other stockholders.
 
There has been no prior public market for our common stock and the trading price of our common stock may be adversely affected if an active trading market in our common stock does not develop. Our stock price may be volatile, and you may be unable to resell your shares at or above the offering price or at all.
 
Prior to this offering, there has been no public market for our common stock, and an active trading market may not develop or be sustained upon the completion of this offering. We cannot predict the extent to which investor interest will lead to the development of an active trading market in shares of our common stock or whether such a market will be sustained. The initial public offering price of the common stock offered in this prospectus was determined through our negotiations with the underwriters and may not be indicative of the market price of the common stock after this offering. The market price of our common stock after this offering will be subject to significant fluctuations in response to, among other factors, variations in our operating results and market conditions specific to our industry.
 
Future sales of shares of our common stock in the public market could cause our stock price to fall significantly even if our business is profitable.
 
Upon the completion of this offering, after giving effect to the Reorganization Transactions (assuming a public offering price of $      per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus)), we will have outstanding shares of common stock. Of these shares, the shares of common stock offered in this prospectus will be freely tradable without restriction in the public market, unless purchased by our affiliates. We expect that the remaining           shares of common stock will become available for resale in the public market as shown in the chart below. Our officers, directors and the holders of substantially all of our outstanding shares of common stock have signed lock-up agreements pursuant to which they have agreed not to sell, transfer or otherwise dispose of any of their shares for a period of 180 days following the date of this prospectus, subject to extension in the case of an earnings release or material news or a material event relating to us. The underwriters may, in their sole discretion and without notice, release all or any portion of the common stock subject to lock-up agreements. The underwriters are entitled to waive the underwriter lock-up provisions at their discretion prior to the expiration dates of such lock-up agreements.


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Immediately following the consummation of this offering, our shares of common stock will become available for resale in the public market as follows:
 
                 
Number of shares     Percentage     Date of availability for resale into the public market
 
              %     Upon the effectiveness of this prospectus
              %     180 days after the date of this prospectus, of which approximately are subject to holding period, volume and other restrictions under Rule 144
 
 
 
As restrictions on resale end, the market price of our common stock could drop significantly if the holders of these restricted shares sell them or are perceived by the market as intending to sell them. These factors could also make it more difficult for us to raise additional funds through future offerings of our common stock or other securities. Following this offering, we intend to file a registration statement under the Securities Act of 1933 (the “Securities Act”) registering shares of our common stock reserved for issuance under our Equity Plans, and we will enter into a registration rights agreement under which we will grant demand and piggyback registration rights to the CI Partnerships and certain members of management.
 
See “Shares available for future sale” for a more detailed description of the shares that will be available for future sale upon completion of this offering.
 
Because the initial public offering price per common share is substantially higher than our book value per common share, purchasers in this offering will immediately experience a substantial dilution in net tangible book value.
 
Purchasers of our common stock will experience immediate and substantial dilution in net tangible book value per share from the initial public offering price per share. After giving effect to the Reorganization Transactions, the sale of the           shares of common stock we have offered under this prospectus and after deducting underwriting discounts and commissions and estimated offering expenses payable by us, and the application of the net proceeds therefrom, our pro forma as adjusted net tangible book value as of          , 2010, would have been $      million, or $      per share of common stock. This represents an immediate dilution in pro forma as adjusted net tangible book value of $      per share to new investors purchasing shares of our common stock in this offering. See “Dilution” for a calculation of the dilution that purchasers will incur.
 
We do not intend to pay dividends in the foreseeable future, and, because we are a holding company, we may be unable to pay dividends.
 
For the foreseeable future, we intend to retain any earnings to finance our business, and we do not anticipate paying any cash dividends on our common stock. Any future determination to pay dividends will be at the discretion of our board of directors and will be dependent on then-existing conditions, including our financial condition and results of operations, capital requirements, contractual restrictions, business prospects and other factors that our board of directors considers relevant. Furthermore, because we are a holding company with no operations of our own, any dividend payments would depend on the cash flow of our subsidiaries. The ABL Facility and the indentures governing our Senior Secured Notes and our 13.125% Senior Subordinated Notes limit the amount of distributions our subsidiaries can make to us and the purposes for which distributions can be made. In addition, Delaware law may


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impose requirements that may restrict our ability to pay dividends to holders of our common stock. Accordingly, we may not be able to pay dividends even if our board of directors would otherwise deem it appropriate. See “Management’s discussion and analysis of financial condition and results of operations—Liquidity and capital resources” and “Description of capital stock—Capital stock—Common stock.” For the foregoing reasons, you will not be able to rely on dividends to receive a return on your investment.
 
Provisions in our charter and bylaws may delay or prevent our acquisition by a third party.
 
Our amended and restated certificate of incorporation and by-laws, which we intend to adopt prior to the completion of this offering, will contain several provisions that may make it more difficult or expensive for a third party to acquire control of us without the approval of our board of directors. These provisions also may delay, prevent or deter a merger, acquisition, tender offer, proxy contest or other transaction that might otherwise result in our stockholders receiving a premium over the market price for their common stock. The provisions include, among others:
 
•  provisions relating to creating a board of directors that is divided into three classes with staggered terms;
 
•  provisions relating to the number and election of directors, the appointment of directors upon an increase in the number of directors or vacancy and provisions permitting the removal of directors only for cause and with a 662/3% stockholder vote;
 
•  provisions requiring a 662/3% stockholder vote for the amendment of certain provisions of our certificate of incorporation and for the adoption, amendment or repeal of our by-laws;
 
•  provisions barring stockholders from calling a special meeting of stockholders or requiring one to be called;
 
•  elimination of the right of our stockholders to act by written consent;
 
•  provisions that set forth advance notice procedures for stockholders’ nominations of directors and proposals for consideration at meetings of stockholders; and
 
•  the ability of our board of directors to designate one or more series of preferred stock and issue shares of preferred stock without stockholder approval.
 
For more information, see “Description of capital stock.” The provisions of our amended and restated certificate of incorporation and by-laws and the ability of our board of directors to create and issue a new series of preferred stock or a stockholder rights plan could discourage potential takeover attempts and reduce the price that investors might be willing to pay for shares of our common stock in the future which could reduce the market price of our stock.
 
Failure to maintain effective internal controls over financial reporting could have an adverse effect on our business, operating results and stock price.
 
Maintaining effective internal control over financial reporting is necessary for us to produce reliable financial reports and is important in helping to prevent financial fraud. If we are unable to maintain adequate internal controls, our business and operating results could be harmed. The requirements of Section 404 of Sarbanes-Oxley and the related rules of the Securities and Exchange Commission (“SEC”), require, among other things, our management to assess annually


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the effectiveness of our internal control over financial reporting. In addition, our independent registered public accounting firm will be required to issue a report on our internal control over financial reporting beginning with our Annual Report on Form 10-K for the year ending December 31, 2010. As of and for the period ended April 4, 2009, management concluded that our disclosure controls and procedures were not effective and that we had a material weakness in internal control over financial reporting related to the accounting for income taxes. We believe that we remediated this deficiency as of December 31, 2009. In the future, we may identify deficiencies that we may be unable to remedy before the requisite deadline for those reports. Also, our auditors have not yet conducted an audit of our internal control over financial reporting. Any failure to remediate material weaknesses noted by us or our independent registered public accounting firm or to implement required new or improved controls or difficulties encountered in their implementation could cause us to fail to meet our reporting obligation or result in material misstatements in our financial statements. If our management or our independent registered public accounting firm were to conclude in their reports that our internal control over financial reporting was not effective, investors could lose confidence in our reported financial information, and the trading price of our common stock could decrease significantly. Failure to comply with Section 404 of Sarbanes-Oxley could potentially subject us to sanctions or investigations by the SEC, the Financial Industry Regulatory Authority or other regulatory authorities.


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Cautionary note regarding forward-looking statements
 
This prospectus contains “forward-looking statements.” These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue,” the negative of such terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially.
 
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. All written and oral forward-looking statements made in connection with this prospectus that are attributable to us or persons acting on our behalf are expressly qualified in their entirety by the “Risk factors” and other cautionary statements included in this prospectus. We are under no duty to update any of the forward-looking statements after the date of this prospectus to conform such statements to actual results or to changes in our expectations, except as required by federal securities laws.
 
There can be no assurance that other factors will not affect the accuracy of these forward-looking statements or that our actual results will not differ materially from the results anticipated in such forward-looking statements. While it is impossible to identify all such factors, factors which could cause actual results to differ materially from those estimated by us include, but are not limited to, the following:
 
•  downturns in the home repair and remodeling and new construction sectors or the economy and the availability of consumer credit;
 
•  competition from other exterior building products manufacturers and alternative building materials;
 
•  changes in the costs and availability of raw materials;
 
•  consolidation and further growth of our customers;
 
•  loss of, or a reduction in orders from, any of our significant customers;
 
•  inclement weather conditions;
 
•  increases in the cost of labor, union organizing activity and work stoppages at our facilities or the facilities of our suppliers;
 
•  claims arising from the operations of our various businesses prior to our acquisitions;
 
•  products liability claims relating to the products we manufacture;
 
•  loss of certain key personnel;
 
•  interruptions in deliveries of raw materials or finished goods;
 
•  environmental costs and liabilities;
 
•  manufacturing or assembly realignments;
 
•  threats to, or impairments of, our intellectual property rights;


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•  increases in fuel costs;
 
•  material non-cash impairment charges;
 
•  our significant amount of indebtedness;
 
•  covenants in the ABL Facility and the indentures governing the Senior Secured Notes and the 13.125% Senior Subordinated Notes;
 
•  limitations on our NOLs and payments under the tax receivable agreement to our current stockholders;
 
•  failure to generate sufficient cash to service all of our indebtedness and make capital expenditures;
 
•  control by the CI Partnerships;
 
•  compliance with certain corporate governance requirements;
 
•  certain of our directors relationships with the CI Partnerships;
 
•  lack of a prior public market for our common stock and volatility of our stock price;
 
•  future sales of our common stock in the public market;
 
•  substantial dilution in net tangible book value;
 
•  our dividend policy;
 
•  provisions in our charter and by-laws; and
 
•  failure to maintain internal controls over financial reporting.
 
These and other factors are more fully discussed in the “Risk factors” and “Management’s discussion and analysis of financial condition and results of operations” sections and elsewhere in this prospectus. These risks could cause actual results to differ materially from those implied by forward-looking statements in this prospectus.


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Use of proceeds
 
We estimate that the net proceeds to us from this offering will be $      million, after deducting the underwriting discount and estimated offering expenses payable by us. This estimate is based on an assumed offering price of $      per share (the midpoint of the estimated public offering price range set forth on the cover of this prospectus).
 
The following table sets forth the estimated sources and uses of funds in connection with this offering and the other transactions described below as if they had occurred on April 3, 2010. Actual amounts may vary. See also “Unaudited pro forma financial information.”
 
                     
 
Sources of funds (in millions)         Uses of funds (in millions)      
 
 
Common stock offered hereby, net of underwriting discount
  $                Redeem or repurchase existing debt(1)   $             
            Transaction fees and expenses(2)        
 
 
Total sources
  $         Total uses   $    
 
 
 
(1) We intend to use a portion of the proceeds from this offering to redeem or repurchase a portion of our Senior Secured Notes and our 13.125% Senior Subordinated Notes. The Senior Secured Notes bear interest at a rate of 11.75% per annum and mature on June 15, 2013. The 13.125% Senior Subordinated Notes bear interest at a rate of 13.125% per annum and mature on July 15, 2014. The 13.125% Senior Subordinated Notes were issued on January 11, 2010 and the proceeds from the issuance of such notes were used to redeem a portion of our 9% Senior Subordinated Notes and to pay related costs and expenses. For a description of the terms of the Senior Secured Notes and the 13.125% Senior Subordinated Notes, see “Management’s discussion and analysis of financial condition and results of operations—Liquidity and capital resources—11.75% Senior Secured Notes due 2013” and “—13.125% Senior Subordinated Notes due 2014.”
 
(2) This amount includes (i) $      million of estimated expenses associated with this offering and (ii) a termination fee equal to $      million payable to an affiliate of the CI Partnerships in connection with the termination of an advisory agreement.
 
A $1.00 increase (decrease) in the assumed public offering price of $      per share (the midpoint of the estimated public offering price range set forth on the cover of this prospectus) would increase (decrease) the amount of proceeds from this offering available to us by $      million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the underwriting discount and estimated offering expenses payable by us.
 
Prior to their final application, we may hold any net proceeds in cash or invest them in liquid short- and medium-term securities.
 
We will not receive any proceeds from the sale of our common stock by the selling stockholders if the underwriters exercise their option to purchase shares from the selling stockholders.
 
Dividend policy
 
We have not paid any dividends since January 1, 2008. For the foreseeable future, we intend to retain any earnings to finance our business. Any future determination to pay dividends will be at the discretion of our board of directors and will be dependent upon then-existing conditions, including our financial condition and results of operations, capital requirements, contractual restrictions (including restrictions contained in the ABL Facility and the indentures governing our Senior Secured Notes and our 13.125% Senior Subordinated Notes), business prospects and other factors that our board of directors considers relevant.


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Capitalization
 
The following table sets forth our cash and cash equivalents and capitalization as of April 3, 2010:
 
•  on an actual basis, and
 
•  on a pro forma basis, giving effect to the following transactions as if they occurred on April 3, 2010:
 
(i) the Reorganization Transactions;
 
(ii) the creation of liabilities in connection with entering into the tax receivable agreement;
 
(iii) the sale of           shares of our common stock in this offering at an assumed public offering price of $      per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus) after deducting the underwriting discount and estimated offering expenses payable by us; and
 
(iv) the application of the net proceeds of this offering as described in “Use of proceeds.”
 
You should read the following table in conjunction with “Unaudited pro forma financial information,” “Selected historical consolidated financial data,” “Management’s discussion and analysis of financial condition and results of operations” and our consolidated financial statements and the accompanying notes included elsewhere in this prospectus.
 
                 
 
    As of April 3, 2010  
(amounts in thousands)   Actual     Pro forma  
 
 
Cash and cash equivalents
  $ 31,659     $          
     
     
Short-term and long-term debt:
               
ABL Facility(1)
  $ 65,000     $    
11.75% Senior Secured Notes due 2013(2)
    725,000          
Unamortized discount on $700.0 million 11.75% Senior Secured Notes due 2013(2)
    (4,606 )        
Unamortized discount on $25.0 million 11.75% Senior Secured Notes due 2013 issued October 23, 2009(2)
    (4,526 )        
13.125% Senior Subordinated Notes due 2014(3)
    150,000          
Unamortized discount on $150.0 million 13.125% Senior Subordinated Notes due 2014(3)
    (4,090 )        
     
     
Total debt
    926,778          
     
     
Stockholder’s deficit:
               
Common stock
  $     $    
Additional paid-in capital
    324,174          
Accumulated deficit
    (469,643 )        
Accumulated other comprehensive income, net of tax
    1,638          
     
     
Total stockholder’s deficit
    (143,831 )        
     
     
Total capitalization
  $ 782,947     $    
 
 
 
(1) Borrowings under the ABL Facility are limited to the lesser of the borrowing base, as defined therein, or $175.0 million, after giving effect to an amendment to the ABL Facility on July 16, 2009. Borrowings may be used for general corporate purposes. As of April 3, 2010, we had approximately $103.3 million of contractual availability and approximately $63.5 million of borrowing base availability under the ABL Facility, reflecting $65.0 million of borrowings outstanding and approximately $6.7 million of letters of credit.
 
(2) The Senior Secured Notes have a face value of $725.0 million, but were offered at an original discount of $11.5 million.
 
(3) The 13.125% Senior Subordinated Notes have a face value of $150.0 million, but were offered at an original discount of $4.3 million.


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Dilution
 
If you invest in our common stock, you will be diluted to the extent the initial public offering price per share of our common stock exceeds the pro forma net tangible book value per share of our common stock immediately after this offering. Dilution results from the fact that the per share offering price of the common stock is substantially in excess of the book value per share attributable to the shares of common stock held by existing equity holders.
 
Our pro forma net tangible book value as of          , 2010 was approximately $      million, or $      per share of common stock. Pro forma net tangible book value per share represents the amount of our pro forma tangible net worth, or total tangible assets less total liabilities, divided by           shares of our common stock outstanding as of that date, after giving effect to the Reorganization Transactions and the creation of liabilities in connection with entering into the tax receivable agreement.
 
After giving effect to (i) the issuance and sale of           shares of our common stock sold by us in this offering and our receipt of approximately $      million in net proceeds from such sale, based on an assumed public offering price of $      per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus) after deducting the underwriting discount and estimated offering expenses payable by us and (ii) the application of such net proceeds as discussed under “Use of proceeds,” our pro forma as adjusted net tangible book value per share as of          , 2010 would have been approximately $      million, or $      per share. This amount represents an immediate increase in pro forma net tangible book value of $      to existing stockholders and an immediate dilution in pro forma net tangible book value of $      per share to new investors purchasing shares of our common stock in this offering. Dilution per share is determined by subtracting the pro forma net tangible book value per share as adjusted for this offering from the amount of cash paid by a new investor for a share of our common stock. Pro forma net tangible book value is not affected by the sale of shares of our common stock offered by the selling stockholders if the underwriters exercise their over-allotment option. The following table illustrates the per share dilution:
 
         
Assumed initial public offering price per share
  $        
Pro forma net tangible book value per share as of          , 2010 before giving effect to the tax receivable agreement
  $    
Effect of the tax receivable agreement
  $    
         
Pro forma net tangible book value per share before the change attributable to new investors
  $    
Increase in net tangible book value per share attributable to new investors
  $    
         
Pro forma as adjusted net tangible book value per share after this offering
  $    
         
Dilution per share to new investors
  $    
 
 
 
A $1.00 increase (decrease) in the assumed public offering price of $      per share (the midpoint of the estimated public offering price range set forth in the cover page of this prospectus) would increase (decrease) our pro forma as adjusted net tangible book value by $          , the pro forma as adjusted net tangible book value per share after this offering by $      and the dilution per share to new investors by $      , assuming the number of shares


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offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
 
The following table presents on the same pro forma basis as of          , 2010 the differences between the total consideration paid to us and the average price per share paid by existing stockholders and by new investors purchasing ordinary shares in this offering, before deducting the underwriting discount and estimated offering expenses payable by us (amounts in thousands, except percentages and per share data):
 
                                         
 
                            Average
 
    Shares purchased     Total consideration     price
 
Number   Number     Percent     Amount     Percent     per share  
 
 
Existing stockholders
            %     $             %     $        
New investors
                                       
     
     
Total
            100.0%     $         100.0%          
 
 
 
The foregoing tables do not include options to purchase an aggregate of           shares of common stock that are currently outstanding under our Equity Plans. See “Shares available for future sale—Options/equity awards.”


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Unaudited pro forma consolidated financial information
 
The historical financial information of Ply Gem Holdings for the year ended December 31, 2009 was derived from our audited consolidated financial statements and accompanying notes included elsewhere in this prospectus. The historical financial information of Ply Gem Holdings as of and for the three month period ended April 3, 2010 was derived from our unaudited condensed consolidated financial statements and accompanying notes included elsewhere in this prospectus. The historical financial information of Ply Gem Prime as of December 31, 2009, and for the year then ended, and as of April 3, 2010, and for the three months then ended, are unaudited. There are no historical operating results for Ply Gem Prime since it is a holding company with no independent operating assets or liabilities. For financial reporting purposes, the consolidated operating assets and liabilities of Ply Gem Prime were the same as Ply Gem Holdings as of December 31, 2009 and for all previous years since inception.
 
The Reorganization Transactions include the merger of Ply Gem Holdings with its parent company, Ply Gem Prime, which will ultimately result in the conversion of Ply Gem Prime’s common stock, preferred stock and long-term debt due to related parties into shares of Ply Gem Holdings’ common stock. See “Certain relationships and related party transactions—Reorganization transactions” for further details of the Reorganization Transactions. The pro forma consolidated financial information reflects the consolidation of Ply Gem Prime and Ply Gem Holdings and also gives effect to the Reorganization Transactions and certain transactions that will occur in connection with this offering.
 
The unaudited pro forma consolidated balance sheet data as of April 3, 2010 gives effect to the following transactions as if they occurred on April 3, 2010: (i) the Reorganization Transactions, (ii) the creation of liabilities in connection with entering into the tax receivable agreement; (iii) the sale of           shares of our common stock in this offering at an assumed initial public offering price of $      per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus) after deducting the underwriting discount and estimated offering expenses payable by us; (iv) the application of the net proceeds of this offering as described in “Use of proceeds;(v) the write-off of approximately $      million of debt issuance costs and the related tax benefit of approximately $      million attributable to the 13.125% Senior Subordinated Notes and the Senior Secured Notes redeemed and/or repurchased with the proceeds from this offering; (vi) a $      charge related to call premiums, if applicable, associated with the redemption and/or repurchase of the 13.125% Senior Subordinated Notes and the Senior Secured Notes; and (vii) the recognition of deferred compensation charges of approximately $      million, net of tax impact of $      million, in connection with the completion of this offering.
 
The unaudited pro forma consolidated statement of operations data for the three months ended April 3, 2010 and the year ended December 31, 2009 gives effect to the following transactions as if they occurred on January 1, 2009: (i) the Reorganization Transactions; (ii) the sale of shares of our common stock in this offering at an assumed initial public offering price of $      per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus) after deducting the underwriting discount and estimated offering expenses payable by us; and (iii) the application of the net proceeds of this offering to redeem and/or repurchase the Senior Secured Notes.
 
In connection with this offering and the related transactions, we will record the following one-time charges in our consolidated statement of operations at the time of the respective


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transactions: (i) the write-off of approximately $      million of unamortized debt issuance costs, $      million of debt discounts and $      million of call premiums, if applicable, net of tax impact of $      million, attributable to the redemption and/or repurchase of the 13.125% Senior Subordinated Notes and the Senior Secured Notes with a portion of the proceeds from this offering; and (ii) the recognition of deferred compensation charges of approximately $      million, net of tax impact of $      million, in connection with the completion of this offering. Because these charges are non-recurring in nature, we have not given effect to these transactions in the pro forma consolidated statements of operations. However, these items are reflected as pro forma adjustments to accumulated deficit in the consolidated balance sheet as of April 3, 2010.
 
The presentation of the unaudited pro forma consolidated financial information is prepared in conformity with Article 11 of Regulation S-X. The unaudited pro forma consolidated financial information has been prepared by our management and is based on our historical financial statements and the assumptions and adjustments described in the notes to the unaudited pro forma consolidated financial information below.
 
We based the pro forma adjustments on available information and on assumptions that we believe are reasonable under the circumstances. See “—Notes to unaudited pro forma consolidated financial information” for a discussion of assumptions made. The unaudited pro forma consolidated financial information is presented for informational purposes and is based on management’s estimates. The unaudited pro forma consolidated statements of operations do not purport to represent what our results of operations actually would have been if the transactions set forth above had occurred on the dates indicated or what our results of operations will be for future periods.


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Ply Gem Holdings, Inc.
 
Unaudited pro forma consolidated balance sheet
as of April 3, 2010
 
                                                         
 
    Historical     Reorganization
    Offering
       
    Ply Gem
    Ply Gem Prime
                pro forma
    pro forma
    Consolidated
 
(amounts in thousands (except per share data))   Holdings     Holdings     Eliminations     Consolidated     adjustments     adjustments     pro forma  
 
 
ASSETS
                                                       
Current Assets:
                                                       
Cash and cash equivalents
  $ 31,659     $     $     $ 31,659     $           $           $              
Accounts receivable
    114,960                   114,960                          
Inventories:
                                                       
Raw materials
    41,731                   41,731                          
Work in process
    25,597                   25,597                          
Finished goods
    42,117                   42,117                          
     
     
Total inventory
    109,445                   109,445                          
Prepaid expenses and other current assets
    21,913                   21,913                          
Deferred income taxes
                                    (a)        
     
     
Total current assets
    277,977                   277,977                          
Property and Equipment, at cost:
                                                       
Land
    3,739                   3,739                          
Buildings and improvements
    35,763                   35,763                          
Machinery and equipment
    264,537                   264,537                          
     
     
Total property and equipment
    304,039                   304,039                          
Less accumulated depreciation
    (167,789 )                 (167,789 )                        
     
     
Total property and equipment, net
    136,250                   136,250                          
Other Assets:
                                                       
Intangible assets, net
    167,270                   167,270                          
Goodwill
    393,281                   393,281                          
Deferred income taxes
    3,605                   3,605               (a)        
Investment in Ply Gem Holdings
          (143,831 )     143,831                                
Other
    32,918                   32,918               (b)        
     
     
Total other assets
    597,074       (143,831 )     143,831       597,074                          
     
     
    $ 1,011,301     $ (143,831 )   $ 143,831     $ 1,011,301     $                 $                 $              
     
     
                                                         
LIABILITIES AND STOCKHOLDER’S DEFICIT                                                        
Current Liabilities:
                                                       
Accounts payable
  $ 68,099     $     $     $ 68,099     $       $       $    
Accrued expenses and taxes
    92,231       1,532             93,763               (a),(c)        
     
     
Total current liabilities
    160,330       1,532             161,862                          
Deferred income taxes
    2,940                   2,940               (a)        
Other long-term liabilities
    65,084                   65,084               (c)        
Long-term debt due to related parties
          123,287             123,287       (e)                
Long-term debt
    926,778                   926,778               (d)        
Commitments and contingencies
                                                       
Stockholder’s Deficit:
                                                       
Preferred stock
          133,343             133,343       (e)                
Common stock
          44,312             44,312       (e)     (g)        
Additional paid-in-capital
    324,174       70,013       (324,174 )     70,013         (e)       (c),(g)        
Accumulated deficit
    (469,643 )     (517,956 )     469,643       (517,956 )     (e)     (f)        
Accumulated other comprehensive income
    1,638       1,638       (1,638 )     1,638                          
     
     
Total stockholder’s deficit
    (143,831 )     (268,650 )     143,831       (268,650 )                        
     
     
    $ 1,011,301     $ (143,831 )   $ 143,831     $ 1,011,301     $       $       $    
 
 
 
See accompanying notes to the unaudited pro forma financial information.


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Ply Gem Holdings, Inc.
 
Unaudited pro forma consolidated statement of operations
for the three months ended April 3, 2010
 
                                                         
 
    Historical                    
          Ply Gem
                Reorganization
    Offering
       
    Ply Gem
    Prime
                pro forma
    pro forma
    Consolidated
 
(amounts in thousands (except per share data))   Holdings     Holdings     Eliminations     Consolidated     adjustments     adjustments     pro forma  
 
 
Net sales
  $ 204,205     $     $ —       $ 204,205     $                          $                     $                    
Costs and expenses:
                                                       
Cost of products sold
    167,308             —         167,308                          
Selling, general and administrative expenses
    33,806       1,600       —         35,406                          
Amortization of intangible assets
    6,794             —         6,794                          
     
     
Total costs and expenses
    207,908       1,600       —         209,508                          
     
     
Operating loss
    (3,703 )     (1,600 )     —         (5,303 )                        
Foreign currency gain
    104             —         104                          
Interest expense
    (34,007 )     (3,007 )     9,848 (1)     (27,166 )                (2)        
Interest income
    53       9,848       (9,848 )(1)     53                          
Gain on extinguishment of debt
    98,187             —         98,187                          
     
     
Income before equity in subsidiary’s income
    60,634       5,241       —         65,875                          
Equity in subsidiary’s income
          54,102       (54,102 )                              
     
     
Income before provision for income taxes
    60,634       59,343       (54,102 )     65,875                          
Provision for income taxes
    6,532       1,532       —         8,064                  (3)        
     
     
Net income
  $ 54,102     $ 57,811     $ (54,102 )   $ 57,811     $       $       $    
     
     
Earnings per share:
                                                       
Basic earnings per share
                                                  $    
                                                         
Diluted earnings per share
                                                  $    
                                                         
Weighted average shares outstanding:
                                                       
Basic weighted average shares
                                                  $ (4)
                                                         
Diluted weighted average shares
                                                  $ (5)
 
 
 
See accompanying notes to the unaudited pro forma financial information.


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Ply Gem Holdings, Inc.
 
Unaudited pro forma consolidated statement of operations
for the year ended December 31, 2009
 
                                                 
 
    Historical     Offering
       
    Ply Gem
    Ply Gem Prime
                pro forma
    Consolidated
 
(amounts in thousands (except per share data))   Holdings     Holdings     Eliminations     Consolidated     adjustments     pro forma  
 
 
Net sales
  $ 951,374     $     $     $ 951,374     $                     $             
Costs and expenses:
                                               
Cost of products sold
    749,841                   749,841                  
Selling, general and administrative expenses
    141,772                   141,772                  
Amortization of intangible assets
    19,651                   19,651                  
Goodwill impairment
                                       
Intangible asset impairment
                                       
     
     
Total costs and expenses
    911,264                   911,264                  
     
     
Operating earnings
    40,110                   40,110                  
Foreign currency gain
    475                   475                  
Interest expense
    (135,514 )     (11,183 )           (146,697 )     (A)        
Interest income
    211                   211                  
     
     
Loss before equity in loss of subsidiary
    (94,718 )     (11,183 )           (105,901 )                
Equity in loss of subsidiary
          (76,752 )     76,752                        
     
     
Loss before benefit for income taxes
    (94,718 )     (87,935 )     76,752       (105,901 )                
Benefit for income taxes
    (17,966 )                 (17,966 )     (B)        
     
     
Net loss
  $ (76,752 )   $ (87,935 )   $ 76,752     $ (87,935 )   $                $             
     
     
Loss per share:
                                               
Basic and diluted loss per share
                                          $    
                                                 
Weighted average shares outstanding:
                                               
Basic and diluted weighted average shares
                                            (C)
                                                 
 
 
 
See accompanying notes to the unaudited pro forma financial information.


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Notes to unaudited pro forma consolidated
financial information
 
Pro forma adjustments
 
Balance sheet as of April 3, 2010
 
(a) Reflects the income tax benefit resulting from the write-off of debt issuance costs, debt discounts and call premiums, if applicable, paid in connection with debt repayment with the proceeds from this offering.
 
(b) Reflects the write-off of approximately $      million of debt issuance costs attributable to the outstanding 13.125% Senior Subordinated Notes and Senior Secured Notes redeemed and/or repurchased with the proceeds from this offering.
 
(c) Reflects adjustments to record a liability primarily related to our tax receivable agreement with the Tax Receivable Entity. Under this tax receivable agreement, we are required to pay the Tax Receivable Entity 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that we actually realize in periods after this offering as a result of (i) net operating loss carryovers from prior periods (or portions thereof), (ii) deductible expenses attributable to the transactions related to this offering and (iii) deductions related to imputed interest deemed to be paid by us as a result of this tax receivable agreement.
 
(d) Reflects the application of a portion of the proceeds from this offering, after deducting the underwriting discounts and commissions and estimated offering expenses, to redeem and/or repurchase a portion of the 13.125% Senior Subordinated Notes and the Senior Secured Notes.
 
(e) Reflects the Reorganization Transactions, including the conversion of preferred stock and long-term debt due to related parties of Ply Gem Prime into shares of common stock of Ply Gem Holdings and the exchange of common stock of Ply Gem Prime for common stock of Ply Gem Holdings.
 
(f) Reflects the recognition of a charge, net of the related income tax benefit, attributable to the following:
 
•  The write-off of approximately $      million of unamortized debt issuance costs, $      million of debt discounts and $      million of call premiums, if applicable, net of tax impact of $      million, attributable to the redemption and/or repurchase of the 13.125% Senior Subordinated Notes and the Senior Secured Notes with a portion of the proceeds from this offering; and
 
•  The recognition of deferred compensation charges of approximately $      million, net of tax impact of $      million, in connection with the completion of this offering.
 
(g) Reflects the offering of           shares of common stock in exchange for proceeds of $      million, a portion of which will be utilized to repurchase and/or redeem the 13.125% Senior Subordinated Notes and the Senior Secured Notes.
 
For the three months ended April 3, 2010
 
(1) During February 2010, the CI Partnerships contributed approximately $218.8 million aggregate principal amount of 9% Senior Subordinated Notes to Ply Gem Holdings in exchange


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for equity of Ply Gem Prime valued at approximately $114.9 million. Prior to this $218.8 million contribution to Ply Gem Holdings, the CI Partnerships initially transferred the notes to Ply Gem Prime, which then transferred the notes to Ply Gem Holdings and Ply Gem Holdings transferred such notes to Ply Gem Industries as a capital contribution and the 9% Senior Subordinated Notes were then cancelled. As a result of these debt transactions, Ply Gem Holdings paid interest to Ply Gem Prime of approximately $9.8 million. Ply Gem Prime recorded this amount as interest income and Ply Gem Holdings recorded this amount as interest expense. This adjustment reflects the elimination of this interest income and expense upon consolidation of these entities.
 
(2) Reflects the reduction of interest expense and amortization of debt issuance costs as a result of the redemption and/or repurchase of a portion of the 13.125% Senior Subordinated Notes and the Senior Secured Notes with a portion of the proceeds from this offering.
 
(3) Reflects the incremental provision for state and federal income taxes as a result of the pro forma adjustments.
 
(4) The pro forma basic weighted average common shares outstanding reflect the issuance of shares of common stock issued in connection with the following transactions as if such shares had been issued on January 1, 2010:
 
(i) The Reorganization Transactions;
 
(ii) The sale of           shares of our common stock in this offering at an assumed initial public offering price of $      per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus) after deducting the underwriting discount and estimated offering expenses payable by us; and
 
(iii) The application of the net proceeds of this offering as described in “Use of proceeds.”
 
         
 
    Three months
 
    ended April 3, 2010  
 
 
Reorganization Transactions
       
Shares of common stock issued in this offering
       
Pro forma basic weighted average shares outstanding
       
 
 
 
(5) The pro forma diluted weighted average common shares outstanding reflect the treasury stock effect of the outstanding stock options. In connection with the Reorganization Transactions, options to purchase shares of common stock of Ply Gem Prime will be converted into options to purchase shares of common stock of Ply Gem Holdings with adjustments to the number of shares and per share exercise prices.
 
     
    Three months
    ended April 3, 2010
 
Pro forma basic weighted average shares outstanding
   
Treasury stock effect of outstanding options
   
Pro forma diluted weighted average shares outstanding
   
 
 


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For the year ended December 31, 2009
 
(A) Reflects the reduction of interest expense and amortization of debt issuance costs as a result of the assumed redemption and/or repurchase of a portion of the Senior Secured Notes with a portion of the proceeds from this offering.
 
(B) Reflects the incremental provision for state and federal income taxes as a result of the pro forma adjustments.
 
(C) The pro forma basic and diluted weighted average common shares outstanding reflect the issuance of shares of common stock issued in connection with the following transactions as if the shares had been issued on January 1, 2009:
 
(i) The Reorganization Transactions;
 
(ii) The sale of           shares of our common stock in this offering at an assumed initial public offering price of $      per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus) after deducting the underwriting discount and estimated offering expenses payable by us; and
 
(iii) The application of the net proceeds of this offering as described in “Use of proceeds.”
 
     
    Year ended
    December 31, 2009
 
Reorganization Transactions
   
Shares of common stock issued in this offering
   
Pro forma basic and diluted weighted average shares outstanding
   
 
 


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Selected historical consolidated financial data
 
You should read the information set forth below in conjunction with “Capitalization,” “Unaudited pro forma financial information,” “Management’s discussion and analysis of financial condition and results of operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.
 
The selected data presented below under the captions “Selected Statements of Operations Data,” “Selected Statements of Cash Flows Data” and “Selected Balance Sheet Data” as of December 31, 2008 and 2007, and for each of the years in the three year period ending December 31, 2008, are derived from the consolidated financial statements of Ply Gem Holdings and subsidiaries, which financial statements have been audited by KPMG LLP, an independent registered public accounting firm. The consolidated financial statements as of December 31, 2008, and for each of the years in the two year period ended December 31, 2008, and the report thereon, are included elsewhere in the prospectus. The selected data should be read in conjunction with the consolidated financial statements for the two year period ended December 31, 2008, the related notes and the independent registered public accounting firm’s report, which refers to a change in the Company’s method of accounting for a portion of its inventory in 2008 from the last-in, first-out (LIFO) method to the first-in, first-out (FIFO) method, the Company’s adoption of the recognition and disclosure requirements in 2007 and the measurement provisions in 2008 of Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standard No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans an amendment of FASB Statements No. 87, 88, 106 and 132(R) (now included in the FASB Accounting Standards Codification (ASC) 715, Compensation Retirement Benefits), and the Company’s adoption of FASB Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109 (now included in FASB ASC Topic 740, Income Taxes).
 
The selected data presented below under the captions “Selected Statements of Operations Data,” “Selected Statements of Cash Flows Data” and “Selected Balance Sheet Data” as of and for the year ended December 31, 2009 are derived from the consolidated financial statements of Ply Gem Holdings and subsidiaries, which have been audited by Ernst & Young LLP, an independent registered public accounting firm. The data should be read in conjunction with the consolidated financial statements, related notes and other financial information included elsewhere in this prospectus.
 
The following selected historical consolidated financial data as of and for the three month periods ended April 3, 2010 and April 4, 2009 have been derived from, and should be read together with, the unaudited condensed consolidated financial statements of Ply Gem Holdings and subsidiaries included elsewhere in this prospectus. The unaudited condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation of the financial position and results of operations in these periods.


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The selected historical consolidated financial data set forth below is not necessarily indicative of the results of future operations. The results of any interim period are not necessarily indicative of the results that may be expected for the full year or any future period.
 
                                                         
 
    Three months
    Three months
                               
    ended
    ended
    Year ended December 31,  
(amounts in thousands (except per share data))   April 3, 2010     April 4, 2009     2009     2008     2007     2006     2005  
 
 
Selected Statements of Operations Data:(1)
                                                       
Net sales
  $ 204,205     $ 182,751     $ 951,374     $ 1,175,019     $ 1,363,546     $ 1,054,468     $ 838,868  
Costs and expenses:
                                                       
Cost of products sold
    167,308       169,691       749,841       980,098       1,083,153       829,518       645,976  
Selling, general and administrative expenses
    33,806       40,962       141,772       155,388       155,963       125,619       92,738  
Amortization of intangible assets
    6,794       4,906       19,651       19,650       17,631       11,942       9,761  
Goodwill impairment
                      450,000                    
Intangible asset impairment
                            4,150       782        
     
     
Total costs and expenses
    207,908       215,559       911,264       1,605,136       1,260,897       967,861       748,475  
     
     
Operating earnings (loss)
    (3,703 )     (32,808 )     40,110       (430,117 )     102,649       86,607       90,393  
Foreign currency gain (loss)
    104       (88 )     475       (911 )     3,961       77       1,010  
Interest expense(2)
    (34,007 )     (33,756 )     (135,514 )     (138,015 )     (99,698 )     (76,680 )     (57,657 )
Interest income
    53       65       211       617       1,704       1,205       730  
Gain on extinguishment of debt(2)
    98,187                                      
     
     
Income (loss) before provision (benefit) for income taxes and cumulative effect of accounting change
    60,634       (66,587 )     (94,718 )     (568,426 )     8,616       11,209       34,476  
Provision (benefit) for income taxes
    6,532       (11,049 )     (17,966 )     (69,951 )     3,634       4,147       13,259  
Income (loss) before cumulative effect of accounting change
    54,102       (55,538 )     (76,752 )     (498,475 )     4,982       7,062       21,217  
Cumulative effect of accounting change, net of income tax benefit of $57
                                  (86 )      
     
     
Net income (loss)
  $ 54,102     $ (55,538 )   $ (76,752 )   $ (498,475 )   $ 4,982     $ 6,976     $ 21,217  
     
     
Basic and diluted earnings (loss) attributable to common stockholders per common share
  $ 541.02     $ (555.38 )   $ (767.52 )   $ (4,984.75 )   $ 49.82     $ 69.76     $ 212.17  
Other Data:
                                                       
Adjusted EBITDA(3)
  $ 12,357     $ (12,537 )   $ 116,215     $ 96,095     $ 176,016     $ 130,052     $ 118,849  
Capital expenditures
    3,029       2,446       7,807       16,569       20,017       20,318       14,742  
Depreciation and amortization
    15,454       13,896       56,271       61,765       54,067       33,816       26,125  
Annual single family housing starts(4)
    n/a       n/a       441       616       1,036       1,474       1,719  
                                                         
Selected Statements of Cash Flows Data:
                                                       
Net cash provided by (used in):
                                                       
Operating activities
  $ (21,416 )   $ (48,716 )   $ (16,882 )   $ (58,865 )   $ 73,844     $ 53,425     $ 63,910  
Investing activities
    (3,028 )     (2,425 )     (7,835 )     (11,487 )     (56,407 )     (432,168 )     (14,362 )
Financing activities
    38,950       9,974       (17,528 )     78,233       (15,068 )     405,396       (34,334 )
Selected Balance Sheet Data (at period end):
                                                       
Cash and cash equivalents
  $ 31,659     $ 17,215     $ 17,063     $ 58,289     $ 52,053     $ 48,821     $ 22,173  
Total assets
    1,011,301       1,037,855       982,033       1,104,053       1,616,153       1,649,968       1,052,798  
Total debt
    926,778       1,124,433       1,100,397       1,114,186       1,031,223       1,042,894       635,776  
Stockholder’s equity (deficit)
    (143,831 )     (298,563 )     (313,482 )     (242,628 )     241,787       228,971       216,506  
 
 


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(1) We adopted the recognition and disclosure requirements in 2007 and the measurement provisions in 2008 of Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans an amendment of FASB Statements No. 87, 88, 106, and 132(R) (now included in Accounting Standards Codification (ASC) 715, Compensation—Retirement Benefits). On January 1, 2007, we adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109 (now included in ASC 740, Income Taxes). We adopted FASB Statement of Financial Accounting Standards No. 123(R) (revised 2004), Share-Based Payment (now included in ASC 718, Compensation—Stock Compensation and ASC 505, Equity) on January 1, 2006. In addition, we elected to change our method of accounting for a portion of our inventory in 2008 from the last-in, first-out (LIFO) method to the first-in, first-out (FIFO) method.
 
(2) During the three months ended April 3, 2010, we separately classified a non-cash gain on extinguishment in connection with the redemption of the 9% Senior Subordinated Notes. During the year ended December 31, 2008, we classified extinguishment losses arising from $14.0 million of non-cash deferred financing costs associated with previous term debt, $6.8 million for a prepayment premium and $6.8 million of bank amendment fees as interest expense.
 
(3) Adjusted EBITDA means net income (loss) plus interest expense (net of interest income), provision (benefit) for income taxes, depreciation and amortization, non-cash gain on extinguishment of debt, non-cash foreign currency gain/(loss), amortization of non-cash write-off of the portion of excess purchase price from acquisitions allocated to inventories, restructuring and 2006 phantom stock conversion costs, customer inventory buybacks, impairment charges, cumulative effect of accounting change and management fees paid under our advisory agreement with an affiliate of the CI Partnerships. Other companies may define adjusted EBITDA differently and, as a result, our measure of adjusted EBITDA may not be directly comparable to adjusted EBITDA of other companies. Management believes that the presentation of adjusted EBITDA included in this prospectus provides useful information to investors regarding our results of operations because it assists both investors and management in analyzing and benchmarking the performance and value of our business. We have included adjusted EBITDA because it is a key financial measure used by management to (i) assess our ability to service our debt and/or incur debt and meet our capital expenditure requirements; (ii) internally measure our operating performance; and (iii) determine our incentive compensation programs. In addition, our ABL Facility has certain covenants that apply ratios utilizing this measure of adjusted EBITDA.
 
Despite the importance of this measure in analyzing our business, measuring and determining incentive compensation and evaluating our operating performance, as well as the use of adjusted EBITDA measures by securities analysts, lenders and others in their evaluation of companies, adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under U.S. GAAP; nor is adjusted EBITDA intended to be a measure of liquidity or free cash flow for our discretionary use. Some of the limitations of adjusted EBITDA are:
 
• Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures;
 
• Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
 
• Adjusted EBITDA does not reflect the interest expense or the cash requirements to service interest or principal payments under our Senior Secured Notes, 13.125% Senior Subordinated Notes and ABL Facility;
 
• Adjusted EBITDA does not reflect income tax payments we are required to make; and
 
• Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often will have to be replaced in the future, and adjusted EBITDA does not reflect any cash requirements for such replacements.
 
Adjusted EBITDA included in this prospectus should be considered in addition to, and not as a substitute for, net earnings in accordance with U.S. GAAP as a measure of performance in accordance with U.S. GAAP. You are cautioned not to place undue reliance on adjusted EBITDA.


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The following table presents our calculation of adjusted EBITDA reconciled to net income (loss):
 
                                                         
 
    Three months
    Three months
                               
    ended
    ended
    Year ended December 31,  
(amounts in thousands)   April 3, 2010     April 4, 2009     2009     2008     2007     2006     2005  
 
 
Net income (loss)
  $ 54,102     $ (55,538 )   $ (76,752 )   $ (498,475 )   $ 4,982     $ 6,976     $ 21,217  
Interest expense, net(2)
    33,954       33,691       135,303       137,398       97,994       75,475       56,927  
Provision (benefit) for income taxes
    6,532       (11,049 )     (17,966 )     (69,951 )     3,634       4,147       13,259  
Depreciation and amortization
    15,454       13,896       56,271       61,765       54,067       33,816       26,125  
Non-cash gain on extinguishment of debt(2)
    (98,187 )                                    
(Gain)/loss on currency transaction
    (104 )     88       (475 )     911       (3,961 )     (77 )     (1,010 )
Non-cash charge of purchase price allocated to inventories
                      19       1,289       3,266        
Restructuring/2006 phantom stock conversion expense
    106       3,994       8,992       10,859       10,356       3,840        
Customer inventory buyback
    252       1,685       8,345       1,890                      
Goodwill impairment
                      450,000                    
Intangible asset impairment
                            4,150              
Cumulative effect of accounting change
                                  86        
Management fees(5)
    248       696       2,497       1,679       3,505       2,523       2,331  
     
     
Adjusted EBITDA
  $ 12,357     $ (12,537 )   $ 116,215     $ 96,095     $ 176,016     $ 130,052     $ 118,849  
 
 
 
(4) Single family housing starts data furnished by NAHB forecast (as of April 23, 2010).
 
(5) After the completion of this offering, the advisory agreement with an affiliate of the CI Partnerships will be terminated and management fees will no longer be paid.


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Management’s discussion and analysis of financial
condition and results of operations
 
You should read the following discussion and analysis of our consolidated financial condition and results of operations in conjunction with our historical financial statements and the related notes included elsewhere in this prospectus. The following discussion contains forward-looking statements that involve certain risks and uncertainties. Actual results and the timing of events may differ materially from those expressed or implied in such forward-looking statements due to a number of factors, including those set forth under “Risk factors” and elsewhere in this prospectus. This historical discussion and analysis of our consolidated financial condition and results of operations does not give effect to the Reorganization Transactions, the entry into the tax receivable agreement, this offering and the application of the net proceeds of this offering.
 
General
 
We are a leading manufacturer of residential exterior building products in North America, operating in two reportable segments: (i) Siding, Fencing, and Stone and (ii) Windows and Doors, which comprised approximately 60% and 40% of our sales, respectively, for the fiscal year ended December 31, 2009. These two segments produce a comprehensive product line of vinyl siding, designer accents and skirting, vinyl and composite fencing and railing, stone veneer and vinyl windows and doors used in both new construction and home repair and remodeling in the United States and Western Canada. Vinyl building products have the leading share of sales volume in siding and windows in the United States. We also manufacture vinyl and aluminum soffit and siding accessories, aluminum trim coil, wood windows, aluminum windows, vinyl and aluminum-clad windows and steel and fiberglass doors, enabling us to bundle complementary and color-matched products and accessories with our core products. We believe that our comprehensive product portfolio and geographically diverse, low cost manufacturing platform allow us to better serve our customers and provide us with a competitive advantage over other exterior building products suppliers.
 
Ply Gem Holdings was incorporated on January 23, 2004 by affiliates of CI Capital Partners for the purpose of acquiring Ply Gem Industries from Nortek, Inc. (“Nortek”). The Ply Gem acquisition was completed on February 12, 2004. Prior to the Ply Gem acquisition, our business was known as the Windows, Doors and Siding division of Nortek, where the business operated as a holding company with a broad set of brands. Since the Ply Gem acquisition, we have acquired five additional businesses to complement and expand our product portfolio and geographical diversity. After being recruited by our directors affiliated with CI Capital Partners, Gary E. Robinette, our President and Chief Executive Officer, joined Ply Gem in October 2006, and has employed the strategy of transitioning Ply Gem to an integrated and consolidated business model under the Ply Gem brand.
 
The following is a summary of Ply Gem’s acquisition history:
 
•  On August 27, 2004, Ply Gem acquired MWM Holding, a manufacturer of vinyl, wood, wood-clad, composite, impact and aluminum windows and patio doors under the name MW Windows & Doors.
 
•  On February 24, 2006, Alenco, a manufacturer of aluminum and vinyl windows and door products, was acquired by Ply Gem. This acquisition supported our national window strategy and today operates under common leadership with our other U.S. window businesses.


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•  On October 31, 2006, Ply Gem completed the acquisition of Alcoa Home Exteriors, Inc. (“AHE”), a leading manufacturer of vinyl siding, aluminum siding, injection molded shutters and vinyl, aluminum and injection molded accessories. As a result of the AHE acquisition, AHE became part of our Siding, Fencing, and Stone Segment and operates under common leadership with our existing siding business.
 
•  On September 30, 2007, Ply Gem completed the acquisition of CertainTeed Corporation’s vinyl window and patio door business, which we have named Ply Gem Pacific Windows, a leading manufacturer of premium vinyl windows and patio doors.
 
•  On October 31, 2008, Ply Gem acquired substantially all of the assets of Ply Gem Stone (formerly United Stone Veneer), a manufacturer of stone veneer products. As a result of the Ply Gem Stone acquisition, the Company modified the name of its “Siding, Fencing, and Railing” segment to “Siding, Fencing, and Stone” during 2008.
 
Prior to January 11, 2010, Ply Gem Holdings was a wholly-owned subsidiary of Ply Gem Investment Holdings, Inc. (“Ply Gem Investment Holdings”), which was a wholly-owned subsidiary of Ply Gem Prime. On January 11, 2010, Ply Gem Investment Holdings was merged with and into Ply Gem Prime, with Ply Gem Prime being the surviving corporation. As a result, Ply Gem Holdings is a wholly-owned subsidiary of Ply Gem Prime. Immediately prior to the closing of this offering, Ply Gem Prime will merge with and into Ply Gem Holdings, with Ply Gem Holdings being the surviving entity.
 
We are a holding company with no operations or assets of our own other than the capital stock of our subsidiaries. The terms of the ABL Facility and the indentures governing the Senior Secured Notes and the 13.125% Senior Subordinated Notes place restrictions on Ply Gem Industries and its subsidiaries’ ability to make certain payments and otherwise transfer assets to us. Further, the terms of the ABL Facility place restrictions on our ability to make certain dividend payments.
 
Financial statement presentation
 
Net sales. Net sales represent the fixed selling price of our products plus certain shipping charges less applicable provisions for discounts and allowances. Allowances include cash discounts, volume rebates and 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 (“SG&A expense”) includes all non-product related operating expenses, including selling, marketing, research and development costs, information technology, restructuring, and other general and administrative expenses.
 
Operating earnings (loss). Operating earnings (loss) represents net sales less cost of products sold, SG&A expense and amortization of intangible assets.
 
Comparability. All periods after the Pacific Windows acquisition in September 2007 include the results of operations of Pacific Windows. All periods after the Ply Gem Stone acquisition in October 2008 include the results of operations of Ply Gem Stone.


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Impact of commodity pricing
 
PVC resin and aluminum are major components in the production of our products and changes in PVC resin and aluminum prices have a direct impact on our cost of products sold. Historically, we have been able to pass on the price increases to our customers. The results of operations for individual quarters can be negatively impacted by a delay between the time of raw material cost increases and price increases that we implement in our products, or conversely can be positively impacted by a delay between the time of a raw material price decrease and competitive pricing moves that we implement accordingly.
 
Impact of weather
 
Since our building products are intended for exterior use, our sales and operating earnings tend to be lower during periods of inclement weather. Weather conditions in the first and fourth quarters of each calendar year historically result in those quarters producing significantly less sales revenue than in any other period of the year. As a result, we have historically had lower profits or losses in the first quarter, and reduced profits in the fourth quarter of each calendar year due to the weather. Our results of operations for individual quarters in the future may be impacted by adverse weather conditions.
 
Critical accounting policies
 
The following discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. 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 compared to our assumptions and judgments, the results could be materially different from our estimates. Management also believes that the five areas where different assumptions could result in materially different reported results are 1) goodwill and intangible asset impairment tests, 2) accounts receivable related to estimation of allowances for doubtful accounts, 3) inventories in estimating reserves for obsolete and excess inventory, 4) warranty reserves and 5) income taxes. Although we believe the likelihood of a material difference in these areas is low based upon our historical experience, a 10% change in our allowance for doubtful accounts, inventory reserve estimates, and warranty reserve at December 31, 2009 would result in an approximate $0.5 million, $0.7 million, and $4.3 million impact on expenses, 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 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 the selling price of the product and all shipping costs paid by the customer.


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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 SG&A 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 balance sheets are valued at the lower of cost or market. During the year ended December 31, 2008, we elected to conform our method of valuing our inventory to the FIFO method from the LIFO method since over 92% of our inventory used FIFO. We believe that the FIFO method is preferable because it provides a better measure of the current value of its inventory and provides a better matching of manufacturing costs with revenues. The change resulted in the application of a single costing method to all of our inventories. 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. We evaluate the realizability of certain long-lived assets, which primarily consist of property and equipment and intangible assets subject to amortization, based on expectations of undiscounted future cash flows for each asset group. If circumstances indicate a potential impairment, and if the sum of the expected undiscounted future cash flow is less than the carrying amount of all long-lived assets, we would recognize an impairment loss. A decrease in projected cash flows due to depressed residential housing construction and remodeling was determined to be a triggering event during 2009 and 2008. The impairment test results did not indicate that an impairment existed at December 31, 2009 or December 31, 2008. Refer to Note 1 to our audited consolidated financial statements included elsewhere in this prospectus for additional information regarding long-lived assets including the level of impairment testing, the material assumptions regarding these impairment calculations, and the sensitivities surrounding those assumptions.
 
Goodwill Impairment. We perform an annual test for goodwill impairment during the fourth quarter of each year and also at any other date when events or changes in circumstances indicate that the carrying value of these assets may exceed their fair value. We use the two-step method to determine goodwill impairment. If the carrying amount of a reporting unit exceeds its fair value (Step One Analysis), we measure the possible goodwill impairment based upon a hypothetical allocation of the fair value estimate of the reporting unit to all of the underlying assets and liabilities of the reporting unit, including previously unrecognized intangible assets


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(Step Two Analysis). The excess of the reporting unit’s fair value over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. An impairment loss is recognized to the extent that a reporting unit’s recorded goodwill exceeds the implied fair value of goodwill.
 
To evaluate goodwill impairment, we estimate the fair value of reporting units considering such factors as discounted cash flows and valuation multiples for comparable publicly traded companies. A significant reduction in projected sales and earnings which would lead to a reduction in future cash flows could indicate potential impairment. Depressed residential housing construction and remodeling was determined to be a triggering event during the third quarter of 2008. The test results indicated that an estimated impairment of approximately $200.0 million existed at September 27, 2008. This impairment was recognized within the Windows and Doors segment’s operating earnings in the third quarter of 2008.
 
Our annual goodwill impairment test performed during the fourth quarter of 2008 was affected by further housing market declines as well as significant decreases in market multiples. The test results indicated that an additional impairment of approximately $127.8 million existed in our Windows and Doors segment at December 31, 2008. In addition, an impairment of approximately $122.2 million was recognized in our Siding, Fencing, and Stone segment. These impairments were recognized in the respective segments in the fourth quarter of 2008. Our annual goodwill impairment test performed during the fourth quarter of 2009 indicated no impairment. The Windows and Doors and Siding, Fencing, and Stone reporting units exceeded their carrying values at December 31, 2009 by approximately 26% and 50%, respectively.
 
We performed the following sensitivity analysis on the reporting unit Step One fair values as of December 31, 2009, December 31, 2008, and September 27, 2008:
 
                         
 
    As of
    As of
    As of
 
    December 31,
    December 31,
    September 27,
 
(amounts in thousands)   2009     2008     2008  
 
 
Estimated Windows and Doors reporting unit fair value (decrease) increase in the event of a 10% increase in the weighting of the market multiples method
  $ 5,000     $ (5,900 )   $ (15,800 )
Estimated Siding, Fencing, and Stone reporting unit fair value (decrease) increase in the event of a 10% increase in the weighting of the market multiples method
    7,000       (1,200 )     2,900  
 
 


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A summary of the key assumptions utilized in the goodwill impairment analysis at December 31, 2009, December 31, 2008, and September 27, 2008, as it relates to the Step One fair values and the sensitivities for these assumptions follows:
 
                         
 
    Windows and Doors  
    As of
    As of
    As of
 
    December 31,
    December 31,
    September 27,
 
    2009     2008     2008  
 
 
Assumptions:
                       
Income approach:
                       
Estimated housing starts in terminal year
    1,100,000       850,000       1,100,000  
Terminal growth rate
    3.5%       3.5%       3.5%  
Discount rates
    19.0%       19.0%       14.0%  
Market approach:
                       
Control premiums
    20.0%       20.0%       20.0%  
Sensitivities:
                       
(amounts in thousands)
                       
Estimated fair value decrease in the event of a 1% decrease in the terminal year growth
  $ 11,565     $ 7,937     $ 26,629  
Estimated fair value decrease in the event of a 1% increase in the discount rate
    18,563       15,876       43,331  
Estimated fair value decrease in the event of a 1% decrease in the control premium
    2,699       1,545       2,518  
 
 
 
                         
 
    Siding, Fencing, and Stone  
    As of
    As of
    As of
 
    December 31,
    December 31,
    September 27,
 
    2009     2008     2008  
 
 
Assumptions:
                       
Income approach:
                       
Estimated housing starts in terminal year
    1,100,000       850,000       1,100,000  
Terminal growth rate
    3.0%       3.0%       3.0%  
Discount rates
    19.0%       18.0%       14.0%  
Market approach:
                       
Control premiums
    10.0%       10.0%       10.0%  
Sensitivities:
                       
(amounts in thousands)
                       
Estimated fair value decrease in the event of a 1% decrease in the terminal year growth
  $ 23,989     $ 18,330     $ 38,064  
Estimated fair value decrease in the event of a 1% increase in the discount rate
    45,248       35,659       64,261  
Estimated fair value decrease in the event of a 1% decrease in the control premium
    7,470       5,316       7,348  
 
 


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We provide no assurance that: 1) valuation multiples will not decline further, 2) discount rates will not increase or 3) the earnings, book values or projected earnings and cash flows of our reporting units will not decline. We will continue to analyze changes to these assumptions in future periods. We will continue to evaluate goodwill during future periods and further declines in residential housing construction and remodeling could result in additional goodwill impairments.
 
Income Taxes. We utilize the asset and liability method in accounting for income taxes, which requires that the deferred tax consequences of temporary differences between the amounts recorded in our financial statements and the amounts included in our federal and state income tax returns be recognized in the consolidated balance sheet. The amount recorded in our consolidated 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 used in the various states in which we and our subsidiaries are required to file, the potential utilization of operating and capital loss carryforwards 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. We have entered into a tax sharing agreement with Ply Gem Industries and Ply Gem Prime pursuant to which tax liabilities for each respective party are computed on a stand-alone basis. Our U.S. subsidiaries file unitary, combined federal income tax returns and separate state income tax returns. Ply Gem Canada, Inc. (“Ply Gem Canada”), formerly CWD Windows and Doors, Inc., files separate Canadian income tax returns.
 
At December 31, 2008, we were in a net deferred tax liability position and had sufficient taxable income from reversing taxable temporary differences to realize the federal deferred tax assets. We scheduled out the reversing temporary differences associated with their deferred tax assets and deferred tax liabilities to reach this conclusion. Due to recent cumulative losses accumulated by us, our management did not rely upon projections of future taxable income in assessing the recoverability of deferred tax assets. At December 31, 2009, we were in a full federal valuation allowance position as we were no longer in a net deferred liability tax position and continued to incur losses for income tax purposes. Refer to Note 12 to our audited consolidated financial statements included elsewhere in this prospectus for additional information regarding income taxes.
 
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 with the excess allocated to goodwill.


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Results of operations
 
The following table summarizes net sales and net income (loss) by segment and is derived from the accompanying consolidated statements of operations included in this report:
 
                                         
 
    For the three months ended                    
    April 3, 2010
    April 4, 2009
    Year ended December 31,  
(amounts in thousands)   (unaudited)     (unaudited)     2009     2008     2007  
 
 
Net Sales
                                       
Siding, Fencing, and Stone
  $ 117,668     $ 108,460     $ 577,390     $ 709,432     $ 828,124  
Windows and Doors
    86,537       74,291       373,984       465,587       535,422  
Operating earnings (loss)
                                       
Siding, Fencing, and Stone
    10,514       (7,517 )     77,756       (75,431 )     73,560  
Windows and Doors
    (10,756 )     (21,682 )     (23,504 )     (344,140 )     36,134  
Unallocated
    (3,461 )     (3,609 )     (14,142 )     (10,546 )     (7,045 )
Foreign currency gain (loss)
                                       
Windows and Doors
    104       (88 )     475       (911 )     3,961  
Interest expense, net
                                       
Siding, Fencing, and Stone
    (43 )     (55 )     (169 )     (125 )     (110 )
Windows and Doors
    46       (1 )     183       518       1,673  
Unallocated
    33,951       33,747       135,289       137,005       96,431  
Income tax benefit (expense)
                                       
Unallocated
    (6,532 )     11,049       17,966       69,951       (3,634 )
Gain on extinguishment of debt
    98,187                          
Net income (loss)
  $ 54,102     $ (55,538 )   $ (76,752 )   $ (498,475 )   $ 4,982  
 
 
 
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.
 
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 (loss). 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.


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Siding, Fencing, and Stone segment
 
                                                                                         
 
    For the three months ended     Year ended December 31,  
(amounts in thousands)   April 3, 2010 (unaudited)     April 4, 2009 (unaudited)     2009     2008     2007        
 
 
Statement of operations data:
                                                                                       
Net sales
  $ 117,668       100.0%     $ 108,460       100.0%     $ 577,390       100.0%     $ 709,432       100.0%     $ 828,124       100.0%          
Cost of products sold
    90,294       76.7%       95,475       88.0%       428,037       74.1%       578,850       81.6%       659,423       79.6%          
     
     
Gross profit
    27,374       23.3%       12,985       12.0%       149,353       25.9%       130,582       18.4%       168,701       20.4%          
SG&A expense
    14,729       12.5%       18,372       16.9%       63,072       10.9%       75,240       10.6%       86,068       10.4%          
Amortization of intangible assets
    2,131       1.8%       2,130       2.0%       8,525       1.5%       8,546       1.2%       9,073       1.1%          
Goodwill impairment
          0.0%             0.0%             0.0%       122,227       17.2%             0.0%          
     
     
Operating earnings (loss)
  $ 10,514       8.9%     $ (7,517 )     −6.9%     $ 77,756       13.5%     $ (75,431 )     −10.6%     $ 73,560       8.9%          
 
 
 
As a result of the Ply Gem Stone acquisition, we shortened the name of our “Siding, Fencing, Railing and Decking” segment to “Siding, Fencing, and Stone” during 2008. The Ply Gem Stone results were included within this segment from October 31, 2008 forward. The other operations within this segment remain unchanged.
 
Net sales
 
Net sales for the three months ended April 3, 2010 increased compared to the same period in 2009 by approximately $9.2 million, or 8.5%. The increase in net sales was driven by improved industry wide market conditions in new construction as single family housing starts increased favorably impacting demand for our products. According to the U.S. Census Bureau, fourth quarter 2009 and first quarter 2010 single family housing starts were estimated to increase by approximately 1.5% and 46.0% respectively from actual levels achieved in the fourth quarter of 2008 and the first quarter of 2009. The increase in net sales that resulted from improved market conditions in new construction were partially offset by overall market softness in repair and remodeling expenditures. According to the Joint Center for Housing Studies of Harvard University’s leading indicator of remodeling activity (LIRA) index, repair and remodeling activity declined in the first quarter of 2010 as compared to the first quarter of 2009.
 
Net sales for the year ended December 31, 2009 decreased from the year ended December 31, 2008 by approximately $132.0 million, or 18.6%. The decrease in net sales was driven by industry wide market declines resulting from lower single family housing starts, which negatively impacted the new construction sector and overall softness in repair and remodeling expenditures. These market conditions negatively impacted demand for our products. According to the NAHB, single family housing starts for 2009 were 441,000 units, which represents a decline of approximately 28.4% from 2008 levels of 616,000. In addition to lower unit volume shipments, selling prices were generally lower in 2009 as compared to 2008 due to market pressure that resulted from lower raw material and freight costs. The decrease in net sales that resulted from industry wide market demand declines and lower selling prices were partially offset by product share gains from sales to new customers and/or expanded sales to existing customers from additional products or sales in new geographical regions. As a result of our market share gains, we believe that we outperformed the vinyl siding industry. Our 2009 unit shipments of vinyl siding decreased by approximately 12% as compared to the U.S. vinyl siding industry, as summarized by the Vinyl Siding Institute, which reported a 23% unit shipment


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decline in 2009. As a result, we estimate that our share of U.S. vinyl siding units shipped increased from approximately 29% in 2008 to 33% for the year ended December 31, 2009. Additionally, our 2009 sales include sales contributed by Ply Gem Stone which was acquired in October 2008.
 
Net sales for the year ended December 31, 2008 decreased from the year ended December 31, 2007 by approximately $118.7 million or 14.3%. The decrease in net sales was driven by industry wide market declines resulting from lower single family housing starts, which negatively impacted the new construction sector and overall softness in repair and remodeling expenditures. These market conditions negatively impacted demand for our products. According to the NAHB, 2008 single family housing starts declined approximately 40.5% from actual levels achieved in 2007 with single family housing starts declining from 1,036,000 units in 2007 to 616,000 in 2008. The decrease in net sales that resulted from industry wide market demand declines was partially offset by price increases that we implemented in response to increasing raw materials and freight costs as discussed below in cost of products sold and sales from Ply Gem Stone.
 
Cost of products sold
 
Cost of products sold for the three months ended April 3, 2010 decreased compared to the same period in 2009 by approximately $5.2 million, or 5.4%. The decrease in cost of products sold was driven by lower material cost due to the termination of an aluminum supply agreement in early 2009, which resulted in abnormally high aluminum material cost charged to cost of products sold in the first quarter of 2009. The decrease in cost of products sold was partially offset by increased sales as discussed above. In addition, we incurred $1.3 million less expense associated with new customers that resulted from the buy-back, or lift-out, of our competitor’s product on initial stocking orders for the three months ended April 3, 2010 as compared to the same period in 2009. Gross profit percentage for the three months ended April 3, 2010 increased from the same period in 2009 from 12.0% to 23.3%. The improvement in gross profit percentage resulted from lower aluminum material cost and new customer buy-back expense as previously discussed. In addition, our gross profit percentage improved as a result of management’s initiatives to reduce fixed expenses, including the consolidation of the majority of the production from our vinyl siding plant in Kearney, Missouri into our other three remaining vinyl siding plants which was completed in the second quarter of 2009.
 
Cost of products sold for the year ended December 31, 2009 decreased from the year ended December 31, 2008 by approximately $150.8 million, or 26.1%. The decrease in cost of products sold was primarily due to lower sales as discussed above and decreased raw material costs, primarily PVC resin and aluminum, as well as lower freight costs driven by lower oil costs. We estimate that the 2009 full year average market cost of pipe grade PVC resin and aluminum declined by approximately 8.1% and 35.2% respectively as compared to 2008. Gross profit percentage increased from 18.4% in 2008 to 25.9% in 2009. The improvement in gross profit percentage resulted from decreased raw material and freight cost discussed above, partially offset by lower selling prices. In addition, our gross profit percentage improved as a result of management’s initiatives to reduce fixed expenses which included the closure of the vinyl siding plant in Denison, Texas, which ceased production in February 2008, the consolidation of the majority of the production from our vinyl siding plant in Kearney, Missouri into its other three remaining vinyl siding plants, and the consolidation of our metal accessory production from our Valencia, Pennsylvania facility into our Sidney, Ohio facility which occurred during the later part of 2008 and early 2009. The improvement in gross profit that resulted from management’s


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initiatives was partially offset by initial costs that were incurred with new customers that resulted from the buy-back, or lift-out, of our competitor’s product on the initial stocking orders with our new customers which totaled $7.4 million in 2009 as compared to $1.4 million in 2008.
 
Cost of products sold for the year ended December 31, 2008 decreased from the year ended December 31, 2007 by approximately $80.6 million or 12.2%. The decrease in cost of products sold was due to lower sales as discussed above, but was partially offset by higher raw material costs, primarily PVC resin and aluminum, as well as higher freight costs driven by higher oil costs. Gross profit percentage decreased from 20.4% in 2007 to 18.4% in 2008. The decrease in gross profit percentage was driven by lower unit sales volume and increased raw material and freight costs. During 2008, we implemented selling price increases in response to higher raw material costs and freight costs, however, our gross profit percentage was negatively impacted by the delay between the time of raw material and freight cost increases and the price increases that we implemented. We experienced market wide decreases in our raw material costs and freight costs during the later months of 2008, which resulted in corresponding decreases in our selling prices as a result of the lower raw material and freight costs. Additionally, in light of current market conditions for building products, we have adjusted the size of our workforce and reduced our fixed overhead structure, including reductions in certain fixed expenses related to the vinyl siding plants in Atlanta, Georgia and Denison, Texas, which ceased production in April of 2007 and February of 2008, respectively.
 
SG&A expense
 
SG&A expenses for the three months ended April 3, 2010 decreased compared to the same period in 2009 by approximately $3.6 million, or 19.8%. The decrease in SG&A expense was primarily caused by lower marketing expenses related to our brand conversion from Alcoa Home Exteriors to Mastic Home Exteriors during the first quarter of 2009. We reduced administrative and other fixed expenses in light of current market conditions and incurred lower restructuring and integration expense which totaled approximately $0.1 million for the first quarter of 2010 as compared to approximately $1.2 million for the same period in 2009.
 
SG&A expense for the year ended December 31, 2009 decreased from the year ended December 31, 2008 by approximately $12.2 million, or 16.2%. The decrease in SG&A expense was due to lower administrative and other fixed expenses that have been reduced in light of current market conditions, as well as, lower restructuring and integration expense. We incurred restructuring and integration expense of approximately $2.9 million in 2009 as compared to approximately $6.9 million in 2008.
 
SG&A expense for the year ended December 31, 2008 decreased from the year ended December 31, 2007 by approximately $10.8 million or 12.6%. The decrease in SG&A expenses was primarily due to lower selling and marketing costs and other fixed expenses that have been reduced in light of current market conditions for building products. In addition, SG&A expense for 2007 included certain expenses incurred to integrate the AHE acquisition into our Siding, Fencing, and Stone segment.
 
Amortization of intangible assets
 
Amortization expense for the three months ended April 3, 2010 was consistent with the same period in 2009.


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Amortization expense for the year ended December 31, 2009 was consistent with the year ended December 31, 2008. Amortization expense for the year ended December 31, 2008 decreased from the year ended December 31, 2007 by approximately $0.5 million.
 
Goodwill impairment
 
There were no impairment indicators which would trigger an interim impairment test during the quarter ended April 3, 2010 or April 4, 2009.
 
Our annual goodwill impairment test performed during the fourth quarter of 2009 indicated no impairment. During 2008, we conducted our annual goodwill impairment test. As a result of depressed residential housing construction and remodeling, we incurred a $122.2 million impairment charge to operating earnings during the fourth quarter of 2008 for our Siding, Fencing, and Stone operating segment. Our annual goodwill impairment test performed during the fourth quarter of 2007 indicated no impairment.
 
Windows and Doors segment
 
                                                                                 
 
    For the three months ended     Year ended December 31,  
(amounts in thousands)   April 3, 2010 (unaudited)     April 4, 2009 (unaudited)     2009     2008     2007  
 
 
Statement of operations data:
                                                                               
Net sales
  $ 86,537       100.0%     $ 74,291       100.0%     $ 373,984       100.0%     $ 465,587       100.0%     $ 535,422       100.0%  
Cost of products sold
    77,014       89.0%       74,216       99.9%       321,804       86.0%       401,248       86.2%       423,730       79.1%  
     
     
Gross profit
    9,523       11.0%       75       0.1%       52,180       14.0%       64,339       13.8%       111,692       20.9%  
SG&A expense
    15,625       18.1%       18,981       25.5%       64,579       17.3%       69,602       14.9%       62,850       11.7%  
Amortization of intangible assets
    4,654       5.4%       2,776       3.7%       11,105       3.0%       11,104       2.4%       8,558       1.6%  
Goodwill impairment
          0.0%             0.0%             0.0%       327,773       70.4%             0.0%  
Intangible impairment
          0.0%             0.0%             0.0%             0.0%       4,150       0.8%  
     
     
Operating earnings (loss)
    (10,756 )     −12.4%       (21,682 )     −29.2%       (23,504 )     −6.3%       (344,140 )     −73.9%       36,134       6.7%  
Currency transaction gain (loss)
  $ 104       0.1%     $ (88 )     −0.1%     $ 475       0.1%     $ (911 )     −0.2%     $ 3,961       0.7%  
 
 
 
Net sales
 
Net sales for the three months ended April 3, 2010 increased compared to the same period in 2009 by approximately $12.2 million, or 16.5%. The increase in net sales resulted from higher demand for our window and door products due to higher sales of our new construction window and door products resulting from U.S. single family housing starts increases as previously discussed. In addition, sales of our window and door products in Western Canada were favorably impacted by market wide increased demand that resulted from increased housing starts in Alberta, Canada. According to the CMHC, housing starts in Alberta, Canada were estimated to have increased by 126.9% in the first quarter of 2010 as compared to the same period in 2009. Our unit shipments of windows and doors in the United States increased 7.8% in the first three months of 2010 as compared to the same period in 2009, while our unit shipments of windows and doors in Western Canada increased by 48.9% in the first three months of 2010 as compared to the same period in 2009.


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Net sales for the year ended December 31, 2009 decreased compared to the same period in 2008 by approximately $91.6 million, or 19.7%. The decrease in net sales was due to lower demand for our window and door products due to lower sales of our new construction window and door products which were negatively impacted by market wide decreased demand that resulted from reductions in single family housing starts in the United States as previously discussed. In addition, sales of our window and door products in Western Canada were negatively impacted by market wide decreased demand that resulted from reductions in housing starts in Alberta, Canada which were estimated to show a decline of 30.1% in 2009 as compared to 2008 according to the CMHC. The decrease in net sales that resulted from industry wide market demand declines in both the U.S. and western Canadian markets were partially offset by product share gains from sales to new customers and/or expanded sales to existing customers from additional products or sales in new geographical regions. Our unit shipments of windows and doors in the United States were down 16.8% in 2009 as compared to 2008, while according to the NAHB, single family housing starts for 2009 were expected to show a decline of approximately 28.4% from actual levels achieved in 2008. Our unit shipments of windows and doors in Western Canada were down 15.8% in 2009 as compared to 2008.
 
Net sales for the year ended December 31, 2008 decreased from the year ended December 31, 2007 by approximately $69.8 million, or 13.0%. The decrease was due to lower sales of our new construction window products which were negatively impacted by market wide decreased demand that resulted from reductions in single family housing starts as discussed above, as well as lower demand for our repair and remodeling windows which declined due to a slowdown in the remodeling and replacement activity across the United States. The decrease in sales was partially offset by the sales from Pacific Windows which was acquired in September 2007 and price increases that were implemented in response to increasing raw material and freight costs as discussed below.
 
Cost of products sold
 
Cost of products sold for the three months ended April 3, 2010 increased compared to the same period in 2009 by approximately $2.8 million, or 3.8%. The increase in cost of products sold was due to increased sales as discussed above. Gross profit as a percentage of sales increased from 0.1% in 2009 to 11.0% in 2010. The improvement in gross profit percentage resulted from lower fixed manufacturing costs due to the closure of our Hammonton, New Jersey, Phoenix, Arizona and Tupelo, Mississippi window plants during 2009 and realigned production within our three west coast window plants, including the realignment of window lineal production during 2009. Also, impacting our gross profit were the initial costs that were incurred with new customers that resulted from the buy-back, or lift-out, of our competitor’s product on the initial stocking orders with our new customers which were $0.0 million in 2010 as compared to $0.2 million for 2009.
 
Cost of products sold for the year ended December 31, 2009 decreased compared to the same period in 2008 by approximately $79.4 million, or 19.8%. The decrease in cost of products sold was primarily due to lower sales as discussed above and decreased raw material costs, primarily PVC resin and aluminum, as well as lower freight costs driven by lower oil costs as previously discussed. Gross profit percentage increased from 13.8% in 2008 to 14.0% in 2009. The increase in gross profit percentage resulted from lower fixed manufacturing costs that were reduced in response to lower market demand and decreased raw material costs, primarily PVC resin, aluminum and glass, as well as lower freight costs driven in part by lower oil costs. The reduction in fixed manufacturing costs resulted from the closure of our Hammonton, New


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Jersey, Phoenix, Arizona and Tupelo, Mississippi window plants during 2009 and realigned production within our three west coast window plants, including the realignment of window lineal production during 2009. Also, impacting our gross profit results were the initial costs that were incurred with new customers that resulted from the buy-back, or lift-out, of our competitor’s product on the initial stocking orders with our new customers which totaled $1.0 million in 2009 as compared to $0.5 million for 2008.
 
Cost of products sold for the year ended December 31, 2008 decreased from the year ended December 31, 2007 by approximately $22.5 million, or 5.3%. The decrease in cost of products sold was due to lower sales as discussed above, but was partially offset by cost of products sold attributable to Pacific Windows, which was acquired in the fourth quarter of 2007 and by higher raw material costs, primarily PVC resin and aluminum, as well as higher freight costs driven by higher oil costs. Gross profit as a percentage of net sales decreased from 20.9% in 2007 to 13.8% in 2008. The decrease in gross profit percentage was driven by lower unit sales volume, increased raw material and freight costs which were not fully offset by selling price increases, as well as Pacific Windows which carried a lower gross profit margin than our other window and door products.
 
SG&A expense
 
SG&A expenses for the three months ended April 3, 2010 decreased compared to the same period in 2009 by approximately $3.4 million, or 17.7%. The decrease in SG&A expense was due to lower administrative and other fixed expenses that have been reduced in light of current market conditions. In addition, we incurred $2.7 million lower restructuring and integration expense for the first quarter of 2010 as compared to the same period in 2009.
 
SG&A expense for the year ended December 31, 2009 decreased from the year ended December 31, 2008 by approximately $5.0 million, or 7.2%. The decrease in SG&A expense was due to lower administrative and other fixed expenses that have been reduced in light of current market conditions. These SG&A expense reductions were partially offset by higher restructuring and integration expenses that were incurred in 2009 of approximately $5.6 million as compared to approximately $3.3 million in 2008.
 
SG&A expense for the year ended December 31, 2008 increased from the year ended December 31, 2007 by approximately $6.8 million, or 10.7%. The increase in SG&A was primarily due to the addition of Pacific Windows and reorganization expenses incurred to integrate our U.S. window companies into one operating group. The reorganization expenses are primarily comprised of fees paid to third party consultants assisting with the reorganization and integration of our U.S. window group, as well as severance costs related to positions that have been eliminated. We believe that the reorganization of our U.S. window group will allow us to better serve our customers and end users, while reducing future operating costs.
 
Amortization of intangible assets
 
Amortization expense for the three months ended April 3, 2010 increased compared to the same period in 2009 by approximately $1.9 million due to the change in the estimated lives of certain tradenames. During the quarter ended April 3, 2010, we decreased the life of certain trademarks to three years (applied prospectively) as a result of future marketing plans regarding the use of the trademarks.


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Amortization expense for the year ended December 31, 2009 was consistent with the amortization expense for the year ended December 31, 2008. Amortization expense for the year ended December 31, 2008 increased from the year ended December 31, 2007 by approximately $2.5 million, due to the reclassification of the tradenames intangible asset from an indefinite lived asset to a definite lived asset.
 
Goodwill impairment
 
There were no impairment indicators which would trigger an interim impairment test during the quarter ended April 3, 2010 or April 4, 2009.
 
Our annual goodwill impairment test performed during the fourth quarter of 2009 indicated no impairment. As a result of depressed residential housing construction and remodeling, we incurred a $127.8 million impairment charge to operating earnings during the fourth quarter of 2008 for our Windows and Doors operating segment. The $127.8 million impairment charge taken in the fourth quarter of 2008 was in addition to the estimated $200.0 million impairment charge to operating earnings taken in our fiscal third quarter of 2008 for our Windows and Doors operating segment. Our annual goodwill impairment test performed during the fourth quarter of 2007 indicated no impairment.
 
Intangible impairment
 
There were no impairment indicators which would trigger an interim impairment test during the quarter ended April 3, 2010 or April 4, 2009.
 
We evaluated the intangible assets as of December 31, 2009 and December 31, 2008 and determined that there was no impairment. We evaluated the intangible assets (tradenames) with indefinite lives for impairment as of November 30, 2007 and determined that there was an impairment. The impairment charge was primarily a result of a change in the assumption of long-term revenue growth related to the tradenames. As a result, we wrote down those assets by approximately $4.2 million for the year ended December 31, 2007.
 
Currency transaction gain (loss)
 
Currency transaction gain (loss) changed from a loss of approximately $88,000 for the three months ended April 4, 2009 to a gain of approximately $104,000 for the three months ended April 3, 2010.
 
Currency transaction gain (loss) changed from a loss of approximately $0.9 million for the year ended December 31, 2008 to a gain of approximately $0.5 million for the year ended December 31, 2009.
 
Currency transaction gain (loss) changed from a gain of approximately $4.0 million for the year ended December 31, 2007 to a loss of approximately $0.9 million for the year ended December 31, 2008.


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Unallocated operating earnings, interest, and provision for income taxes
 
                                         
 
    For the three
       
    months ended                    
    April 3,
    April 4,
                   
    2010
    2009
    Year ended December 31,  
(amounts in thousands)   (unaudited)     (unaudited)     2009     2008     2007  
 
 
Statement of operations data:
                                       
SG&A expense
  $ (3,452 )   $ (3,609 )   $ (14,121 )   $ (10,546 )   $ (7,045 )
Amortization of intangible assets
    (9 )           (21 )            
     
     
Operating loss
    (3,461 )     (3,609 )     (14,142 )     (10,546 )     (7,045 )
Interest expense
    (33,960 )     (33,756 )     (135,328 )     (137,395 )     (97,558 )
Interest income
    9       9       39       390       1,127  
Gain on extinguishment of debt
    98,187                          
Benefit (provision) for income taxes
  $ (6,532 )   $ 11,049     $ 17,966     $ 69,951     $ (3,634 )
 
 
 
SG&A expense
 
Unallocated SG&A expense include items which are not directly attributed to or allocated to either of our reporting segments. Such items include legal costs, corporate payroll, and unallocated finance and accounting expenses. The unallocated SG&A expense for the three months ended April 3, 2010 decreased by approximately $0.2 million compared to the same period in 2009 primarily due to lower professional fees.
 
The SG&A expense increase of approximately $3.6 million for the year ended December 31, 2009 as compared to December 31, 2008 was driven by the expansion of the corporate office and centralization of back office functions from the operating units to the corporate office including payroll, payables, credit (US Windows), cash application and billing.
 
The increase of approximately $3.5 million in expenses for the year ended December 31, 2008 as compared to the prior year was primarily due to higher salary and travel and entertainment expenses due to the addition of a corporate marketing department and one-time expenses related to the 2008 corporate office movement to Cary, North Carolina.
 
Amortization of intangible assets
 
The amortization expense for the for the three months ended April 3, 2010 was approximately $9,000 compared to no amortization expense for the three months ended April 4, 2009.
 
The amortization expense for the year ended December 31, 2009 was approximately $21,000. There was no amortization expense for the years ended December 31, 2008 and December 31, 2007.
 
Interest expense
 
Interest expense for the three months ended April 3, 2010 increased by approximately $0.2 million over the same period in 2009 due to interest of approximately $0.5 million on the additional


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$25.0 million of Senior Secured Notes issued in October 2009, interest of approximately $0.2 million due to the amortization of the bond discount associated with the additional $25.0 million of Senior Secured Notes, and an increase of approximately $0.5 million due to a higher interest rate on ABL borrowings, partially offset by approximately $1.0 million of financing costs expensed as interest in 2009.
 
Interest expense for the year ended December 31, 2009 decreased by approximately $2.1 million over the same period in 2008. The decrease was due to the following:
 
•  a decrease of approximately $27.6 million due to interest costs incurred in the second quarter of 2008 related to the issuance of new debt (approximately $14.0 million deferred financing costs associated with previous debt, approximately $6.8 million for a prepayment premium, and approximately $6.8 million of bank amendment fees that was subsequently retired);
 
•  an increase of approximately $16.6 million due to 2009 interest of approximately $37.2 million on the $700.0 million Senior Secured Notes issued on June 9, 2008, as compared to approximately $20.6 million of 2008 interest on our previous term loan which was repaid on June 9, 2008;
 
•  an increase of approximately $1.2 million due to interest paid on increased borrowings under the ABL Facility;
 
•  an increase of approximately $6.7 million of interest charges related to the various debt financing activities which occurred during 2009 involving third party fees; and
 
•  an increase of approximately $1.0 million due to higher amortization of deferred financing costs in 2009 as compared to 2008.
 
Interest expense for the year ended December 31, 2008 increased by approximately $39.8 million, or 40.8%, over the same period in 2007. The increase was due to the following:
 
•  an increase of approximately $46.2 million due to additional interest on the $700.0 million Senior Secured Notes issued on June 9, 2008;
 
•  an increase of approximately $27.6 million due to interest costs incurred in the second quarter of 2008 related to the issuance of new debt (approximately $14.0 million deferred financing costs associated with previous debt, approximately $6.8 million for a prepayment premium, and approximately $6.8 million of bank amendment fees that was subsequently retired);
 
•  an increase of approximately $1.8 million on ABL/revolver borrowings;
 
•  a decrease of approximately $34.6 million due to interest paid in 2007 on our previous term loan which was paid off effective June 9, 2008; and
 
•  a decrease of approximately $1.2 million resulting from the reclassification of 2007 third-party financing costs from other expense to interest expense.
 
Interest income
 
Interest income for the three months ended April 3, 2010 was consistent with the same period in 2009.


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Interest income for the year ended December 31, 2009 decreased from the year ended December 31, 2008 by approximately $0.4 million as a result of lower interest rates in 2009 as compared to 2008.
 
Interest income for the year ended December 31, 2008 decreased from the year ended December 31, 2007 by approximately $0.7 million as a result of lower interest rates in 2008 as compared to 2007.
 
Gain on extinguishment of debt
 
As a result of the redemption of $141.2 million aggregate principal amount of the 9% Senior Subordinated Notes on February 16, 2010, we recognized a loss on extinguishment of debt of approximately $2.2 million related predominantly to the write-off of unamortized debt issuance costs. As a result of the contribution of $218.8 million aggregate principal amount of the 9% Senior Subordinated Notes by the CI Partnerships in exchange for equity of Ply Gem Prime valued at approximately $114.9 million on February 12, 2010, we recognized a gain on extinguishment of debt of approximately $100.4 million including the write-off of unamortized debt issuance costs of approximately $3.5 million. The net $98.2 million gain on debt extinguishment was recorded within other income (expense) separately in the condensed consolidated statement of operations for the period ended April 3, 2010.
 
We recognized no gain on extinguishment of debt for the years ended December 31, 2009, December 31, 2008 and December 31, 2007.
 
Income taxes
 
The income tax provision for the three months ended April 3, 2010 increased by approximately $17.6 million over the same period in 2009. Our pre-tax income for the quarter ended April 3, 2010 included a $98.2 million gain on extinguishment of debt in which the majority of this gain was recognized during 2009 for income tax purposes. Our pre-tax loss for the quarter ended April 3, 2010 adjusting for the extinguishment gain was $37.6 million compared to a pre-tax loss of $66.6 million for the quarter ended April 4, 2009. Therefore, the reason for the increase in the tax provision relates to the favorable operating performance during the first quarter of 2010 in which pre-tax loss improved $29.0 million. The reason for an income tax expense despite the pre-tax loss relates to state income taxes as well as income taxes for Ply Gem Canada. For the quarter ended April 3, 2010, our estimated effective income tax rate for the full year was approximately 11.4%, which varied from the statutory rate primarily due to state tax expense, a decrease in the valuation allowance, and for cancellation of debt income offset by a repurchase premium and original issue discount. During the quarter ended April 4, 2009, our effective tax rate was 16.5% which was consistent with our expectation for the full 2009 fiscal year.
 
During February 2010, the CI Partnerships contributed approximately $218.8 million aggregate principal amount of 9% Senior Subordinated Notes to us in exchange for equity of Ply Gem Prime valued at approximately $114.9 million. Prior to this $218.8 million contribution to us, the CI Partnerships initially transferred the notes to Ply Gem Prime, our direct parent, which then transferred the notes to us and we transferred such notes to Ply Gem Industries as a capital contribution and the 9% Senior Subordinated Notes were then cancelled. As a result of these debt transactions, we recognized $35.3 million of additional cancellation of indebtedness income (“CODI”) for income tax purposes during the quarter ended April 3, 2010. During the quarter ended April 4, 2009, affiliates of the CI Partnerships purchased a majority of the


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9% Senior Subordinated Notes. We determined that approximately $95.7 million would be considered CODI for the quarter ended April 4, 2009 as the acquiring party was deemed a related party for income tax purposes.
 
On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (the “Act”). Among its provisions, the Act permits certain taxpayers to elect to defer the taxation of CODI arising from certain repurchases, exchanges or modifications of their outstanding debt that occur during 2009 and 2010. For debt acquired in 2009, the CODI can be deferred for five years and then included in taxable income ratably over the next five years. The CODI deferral and inclusion periods for debt acquired during 2010 would be four years. If this election is made by September 2010 for debt acquired in 2009 or September 2011 for debt acquired during 2010, we would be required to defer the deduction of all or a substantial portion of any “original issue discount” (“OID”) expenses as well as the CODI. These OID deductions also would be deferred until 2014 and we would be allowed to deduct these costs ratably over the same four or five-year period. We do not currently plan to defer the 2009 or 2010 CODI.
 
In addition to the $35.3 million of 2010 CODI income recognized for income tax purposes, we recognized a repurchase premium deduction of approximately $10.3 million and an OID deduction of approximately $17.8 million in conjunction with the debt transactions occurring during the quarter ended April 3, 2010. These deductions partially offset the CODI that was recognized for income tax purposes in the quarter ended April 3, 2010. The remaining $7.2 million of CODI was offset during the quarter ended April 3, 2010 by net operating losses.
 
Income tax benefit for the year ended December 31, 2009 decreased to approximately $17.9 million from a benefit of approximately $70.0 million for 2008. The decrease was caused by an increase in valuation allowances of approximately $42.0 million offset by the tax benefit of approximately $24.9 million associated with cancellation of debt income and improved operating performance compared to 2008. As of December 31, 2009, a full valuation allowance has been provided against certain deferred tax assets as it is presently deemed more likely than not that the benefit of such net tax assets will not be utililized. Due to recent cumulative losses accumulated by us, management did not rely upon projections of future taxable income in assessing the recoverability of deferred tax assets. Our effective tax rate for the year ended December 31, 2009 was approximately 18.9%. At December 31, 2008, we were in a net deferred tax liability position and had sufficient taxable income from reversing taxable temporary differences to realize the federal deferred tax assets. We scheduled out the reversing temporary differences associated with our deferred tax assets and deferred tax liabilities to conclude that a full valuation allowance was not necessary at December 31, 2008.
 
Income tax expense for the year ended December 31, 2008 changed from a tax provision of approximately $3.6 million for 2007 to a tax benefit of approximately $70.0 million, primarily as a result of a pre-tax loss incurred during 2008 caused primarily by the $450.0 million goodwill impairment and the $27.6 million in deferred financing cost expenses. Our effective tax rate for the year ended December 31, 2008 was 38.1% excluding the goodwill impairment charge.
 
Liquidity and capital resources
 
During the three months ended April 3, 2010, cash and cash equivalents increased approximately $14.6 million compared to $31.7 million as of April 3, 2010, reflecting increased borrowings on the ABL Facility due to our seasonal working capital needs. During the year


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ended December 31, 2009, cash and cash equivalents decreased approximately $41.2 million to $17.1 million as of December 31, 2009, reflecting the challenging economic conditions currently affecting the housing industry.
 
Our business is seasonal because inclement weather during the winter months reduces the level of building and remodeling activity in both the home repair and remodeling and the new home construction sectors, especially in the Northeast and Midwest regions of the United States and Western Canada. As a result, our liquidity typically increases during the second and third quarters as our borrowing base increases under the ABL Facility reaching a peak early in the fourth quarter, and decreases late in the fourth quarter and throughout the first quarter.
 
Our primary cash needs are for working capital, capital expenditures and debt service. As of April 3, 2010, our annual interest charges for debt service, including the ABL Facility, were estimated to be approximately $108.5 million. We do not have any scheduled debt maturities until 2013. On a pro forma basis, after giving effect to this offering and the application of net proceeds from this offering, our annual cash interest charges for debt service are estimated to be $      million. The specific debt instruments and their corresponding terms and due dates are described in the following sections. Our capital expenditures were estimated to be approximately 1.4% to 1.6% of net sales on an annual basis. As of April 3, 2010, our purchase commitments for inventory were approximately $65.0 million. We finance these cash requirements through internally generated cash flow and funds borrowed under the ABL Facility.
 
We intend to use the net proceeds to us from this offering (i) to redeem or repurchase a portion of our outstanding indebtedness and (ii) to pay transaction fees and other expenses. See “Use of Proceeds.” As of April 3, 2010, on an adjusted basis after giving effect to the Reorganization Transactions and this offering, we would have had approximately $      million of indebtedness outstanding, including $65.0 million of outstanding borrowings under our ABL Facility.
 
Our specific cash flow movement for the three months ended April 3, 2010 and the year ended December 31, 2009 are summarized below:
 
Cash provided by (used in) operating activities
 
Net cash used in operating activities for the three months ended April 3, 2010 was approximately $21.4 million. Net cash used in operating activities for the three months ended April 4, 2009 was approximately $48.7 million. The decrease in cash used in operating activities for the first quarter of 2010 as compared to the first quarter of 2009 was primarily caused by favorable working capital changes for accounts payable. Throughout the past twelve months, we have closely monitored our payment terms to maintain and improve liquidity especially during the fourth and first quarters when weather impacts our business.
 
Net cash used in operating activities for the year ended December 31, 2009 was approximately $16.9 million. Net cash used in operating activities for the year ended December 31, 2008 was approximately $58.9 million and net cash provided by operating activities for the year ended December 31, 2007 was approximately $73.8 million. The change in cash used in operating activities for 2009 as compared to 2008 was primarily driven by lower sales of approximately 19.0% for 2009. The sales decrease can be attributed to the 28.4% decrease in single family housing starts during 2009 as compared to 2008. With lower sales, receivables were lower throughout the year which contributed to less cash from operations. The lower sales levels were offset by a positive inventory change of approximately $26.4 million and favorable working


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capital changes for accounts payable and accrued expenses of approximately $31.6 million compared to 2008. The decrease in cash provided by operating activities for the year ended December 31, 2008 as compared to 2007 reflected the 40.5% decrease in single family housing starts which contributed to lower net income during the period.
 
Cash used in investing activities
 
Net cash used in investing activities for the three months ended April 3, 2010 was approximately $3.0 million. Net cash used in investing activities for the three months ended April 4, 2009 was approximately $2.4 million. The cash used in investing activities for both periods was primarily used for capital expenditures.
 
Net cash used in investing activities for the year ended December 31, 2009 was approximately $7.8 million. Net cash used in investing activities for the year ended December 31, 2008 was approximately $11.5 million and net cash used in investing activities for the year ended December 31, 2007 was approximately $56.4 million. The cash used in investing activities for the year ended December 31, 2009 was primarily used for capital expenditures. The cash used in investing activities for year ended December 31, 2008 was predominantly from capital expenditures of $16.6 million and the acquisition of Ply Gem Stone for approximately $3.6 million, partially offset by the sale of assets of approximately $8.8 million. The decrease in capital expenditures during 2009 reflects management’s ability to effectively manage expenditures during the current economic downturn. The cash used in investing activities for the year ended December 31, 2007 was primarily used to fund the acquisition of Pacific Windows and for capital expenditures.
 
Cash provided by (used in) financing activities
 
Net cash provided by financing activities for the three months ended April 3, 2010 was approximately $39.0 million, primarily from revolver borrowings of $40.0 million and proceeds from long-term debt of approximately $145.7 million, offset by the redemption of approximately $141.2 million principal amount of 9% Senior Subordinated Notes, and debt issuance costs of approximately $4.9 million. Net cash provided by financing activities for the three months ended April 4, 2009 was approximately $10.0 million and consisted primarily of proceeds from ABL borrowings.
 
Net cash used in financing activities for the year ended December 31, 2009 was approximately $17.5 million, primarily from net revolver payments of $35.0 million, proceeds from debt issuance of $20.0 million and debt issuance costs of approximately $2.5 million. Net cash provided by financing activities for the year ended December 31, 2008 was approximately $78.2 million and consisted of approximately $15.6 million of net proceeds from long-term debt, net revolver borrowings of approximately $60.0 million and a $30.0 million cash equity contribution that we received from CI Capital Partners, partially offset by approximately $26.6 million of debt issuance costs and approximately $0.8 million of repurchased net equity. The cash used in financing activities for the year ended December 31, 2007 was primarily used to pay down debt.


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Our specific debt instruments and terms are described below:
 
11.75% Senior Secured Notes due 2013
 
On June 9, 2008, Ply Gem Industries issued $700.0 million of the Senior Secured Notes at an approximate 1.0% discount, yielding proceeds of approximately $693.5 million. Ply Gem Industries used the proceeds to repay all of the outstanding indebtedness under the then existing senior secured credit facility of approximately $676.2 million of term loan borrowings and approximately $15.0 million of revolver borrowings. The Senior Secured Notes will mature on June 15, 2013 and bear interest at the rate of 11.75% per annum. Interest will be paid semi-annually on June 15 and December 15 of each year. On October 23, 2009, Ply Gem Industries issued an additional $25.0 million of its Senior Secured Notes in a private placement transaction. The net proceeds of $20.0 million were utilized for general corporate purposes. The additional $25.0 million of Senior Secured Notes has the same terms and covenants as the initial $700.0 million of Senior Secured Notes.
 
Prior to April 1, 2011, Ply Gem Industries may redeem up to 35% of the aggregate principal amount of the Senior Secured Notes with the net cash proceeds from certain equity offerings at a redemption price equal to 111.75% of the aggregate principal amount of the Senior Secured Notes, plus accrued and unpaid interest, if any, provided that at least 65% of the original aggregate principal amount of the Senior Secured Notes remains outstanding after the redemption. In addition, not more than once during any twelve-month period, Ply Gem Industries may redeem up to $70.0 million of the Senior Secured Notes at a redemption price equal to 103% of the aggregate amount of the Senior Secured Notes, plus accrued and unpaid interest, if any. At any time on or after April 1, 2011, Ply Gem Industries may redeem the Senior Secured Notes, in whole or in part, at declining redemption prices set forth in the indenture governing the Senior Secured Notes, plus, in each case, accrued and unpaid interest, if any, to the redemption date.
 
The Senior Secured Notes are fully and unconditionally guaranteed on a joint and several basis by Ply Gem Holdings and all of the domestic subsidiaries of Ply Gem Industries (the “Guarantors”). The indenture governing the Senior Secured Notes contains certain covenants that limit the ability of Ply Gem Industries and its subsidiaries to incur additional indebtedness, pay dividends or make other distributions or repurchase or redeem their stock, make loans and investments, sell assets, incur certain liens, enter into agreements restricting their ability to pay dividends, enter into transactions with affiliates, and consolidate, merge or sell Ply Gem Industries’ assets. On November 3, 2008, Ply Gem Industries completed its exchange offer with respect to the Senior Secured Notes by exchanging $700.0 million Senior Secured Notes, which were registered under the Securities Act, for $700.0 million of the issued and outstanding Senior Secured Notes. Upon completion of the exchange offer, all issued and outstanding Senior Secured Notes were registered under the Securities Act. However, the $25.0 million of Senior Secured Notes issued in October 2009 were not registered under the Securities Act and there is no contractual requirement to register these notes.
 
The Senior Secured Notes and the related guarantees are secured on a first-priority lien basis by substantially all of the assets (other than the assets securing our obligations under the ABL Facility, which consist primarily of accounts receivable and inventory) of Ply Gem Industries and the Guarantors and on a second-priority lien basis by the assets that secure the ABL Facility.


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In addition, our stock ownership in our subsidiaries collateralizes the Senior Secured Notes to the extent that such equity interests and other securities can secure the Senior Secured Notes without Rule 3-16 of Regulation S-X under the Securities Act requiring separate financial statements of such subsidiary to be filed with the SEC. As of December 31, 2009, no subsidiary’s stock has been excluded from the collateral arrangement due to the Rule 3-16 requirement.
 
Senior Secured Asset-Based Revolving Credit Facility due 2013
 
Concurrently with the Senior Secured Notes offering on June 9, 2008, Ply Gem Industries, Ply Gem Holdings and the subsidiaries of Ply Gem Industries entered into the ABL Facility. The ABL Facility initially provided for revolving credit financing of up to $150.0 million, subject to borrowing base availability, with a maturity of five years (June 2013) including sub-facilities for letters of credit, swingline loans, and borrowings in Canadian dollars and U.S. dollars by Ply Gem Canada.
 
The ABL Facility provides that the revolving commitments may be increased to $200.0 million, subject to certain terms and conditions. We had borrowings of $65.0 million and $25.0 million outstanding under the ABL Facility as of April 3, 2010 and December 31, 2009, respectively. As of April 3, 2010, Ply Gem Industries had approximately $103.3 million of contractual availability and approximately $63.5 million of borrowing base availability under the ABL Facility, reflecting $65.0 million of borrowings outstanding and approximately $6.7 million of letters of credit issued.
 
The interest rates applicable to loans under the ABL Facility 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 ABL Facility credit agreement. As of April 3, 2010, our interest rate on the ABL Facility was approximately 6.0%. The ABL Facility contains a requirement to maintain a fixed charge coverage ratio of 1.1:1.0 if our borrowings under the ABL Facility exceed certain levels. The fixed charge coverage was not applicable at any point during 2009 or the first quarter of 2010.
 
In July 2009, we amended the ABL Facility to increase the available commitments by $25.0 million from $150.0 million to $175.0 million, and change both the availability threshold for certain cash dominion events and compliance with the fixed charge coverage ratio and other covenants from 15% of revolving credit commitments to 15% of the lower of the revolving credit commitments or the borrowing base but not less than $20.0 million. We must maintain excess availability of at least $20.0 million to avoid being subject to the fixed charge coverage ratio. As a condition to this availability increase, the applicable margins payable on the loans were increased and made subject to certain minimums. In October 2009, we amended the ABL Facility to allow for the issuance of the additional $25.0 million Senior Secured Notes and to permit certain refinancing transactions with respect to our 9% Senior Subordinated Notes. The October amendment also permits Ply Gem Industries to issue equity securities to us, its parent. The October 2009 amendment did not affect the $175.0 million availability amount or the applicable interest rate margins under the ABL Facility.
 
All obligations under the ABL Facility, and the guarantees of those obligations, are secured, subject to certain exceptions, by substantially all of the assets of Ply Gem Industries and the Guarantors, including a first-priority security interest in personal property consisting of accounts receivable, inventory, cash, deposit accounts, and certain related assets and proceeds of the foregoing and a second-priority security interest in, and mortgages on, substantially all of Ply


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Gem Industries’ material owned real property and equipment and all assets that secure the Senior Secured Notes on a first-priority basis. In addition to being secured by the collateral securing the obligations of Ply Gem Industries under the domestic collateral package, the obligations of Ply Gem Canada, which is a borrower under the Canadian sub-facility under the ABL Facility, are also secured by a first-priority security interest in substantially all of the assets of such Canadian subsidiary, plus additional mortgages in Canada, and a pledge by Ply Gem Industries of the remaining 35% of the equity interests of Ply Gem Canada pledged only to secure the Canadian sub-facility.
 
9.00% Senior Subordinated Notes due 2012
 
Concurrently with the acquisition of Ply Gem Industries on February 12, 2004, Ply Gem Industries issued $225.0 million aggregate principal amount of its 9% Senior Subordinated Notes, which were guaranteed by the Guarantors. Subsequently, in August 2004, in connection with the MWM Holding acquisition, Ply Gem Industries issued an additional $135.0 million of 9% Senior Subordinated Notes, which were also guaranteed by the Guarantors, including MWM Holding and its subsidiaries. Ply Gem Industries paid interest semi-annually on February 15 and August 15 of each year. As of December 31, 2009, certain affiliates of the CI Partnerships owned approximately $281.4 million of the outstanding 9% Senior Subordinated Notes.
 
On November 19, 2009, Ply Gem Industries launched an exchange offer for certain of its 9% Senior Subordinated Notes which expired in accordance with its terms without any notes being accepted by it. In connection with this exchange offer, we incurred third party and bank fees of approximately $0.5 million during the year ended December 31, 2009 which has been recorded within interest expense in the consolidated statement of operations.
 
In connection with the issuance of $150.0 million of the 13.125% Senior Subordinated Notes on January 11, 2010, Ply Gem Industries redeemed approximately $141.2 million aggregate principal amount of the 9% Senior Subordinated Notes on February 16, 2010 at a redemption price of 100% of the principal amount thereof plus accrued interest. Approximately $218.8 million aggregate principal amount of the 9% Senior Subordinated Notes held by certain affiliates of the CI Partnerships were transferred to our indirect stockholders and ultimately to Ply Gem Prime. Such notes were then transferred to us and then to Ply Gem Industries as a capital contribution and cancelled on February 12, 2010. In connection with the redemption, we recognized a loss on extinguishment of debt of approximately $2.2 million and in connection with the capital contribution, we recognized a gain on extinguishment of debt of approximately $100.4 million. See ‘‘—Unallocated operating earnings, interest, and provision for income taxes—Gain on extinguishment of debt.” In connection with the transaction in which a majority of the 9% Senior Subordinated Notes were acquired by certain affiliates, we expensed approximately $6.1 million of third party fees which has been recorded within interest expense in the consolidated statement of operations for the year ended December 31, 2009.
 
13.125% Senior Subordinated Notes due 2014
 
On January 11, 2010, Ply Gem Industries issued $150.0 million of 13.125% Senior Subordinated Notes at an approximate 3.0% discount, yielding proceeds of approximately $145.7 million. Ply Gem Industries used the proceeds of the offering to redeem approximately $141.2 million aggregate principal amount of its 9% Senior Subordinated Notes due 2012 and to pay certain related costs and expenses. The 13.125% Senior Subordinated Notes will mature on July 15,


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2014 and bear interest at the rate of 13.125% per annum. Interest will be paid semi-annually on January 15 and July 15 of each year.
 
Prior to January 15, 2012, Ply Gem Industries may redeem up to 40% of the aggregate principal amount of the 13.125% Senior Subordinated Notes with the net cash proceeds from certain equity offerings at a redemption price equal to 113.125% of the aggregate principal amount of the 13.125% Senior Subordinated Notes, plus accrued and unpaid interest, if any, provided that at least 60% of the original aggregate principal amount of the 13.125% Senior Subordinated Notes remains outstanding after the redemption. On or after January 15, 2012, and prior to January 15, 2013, Ply Gem Industries may redeem up to 100% of the aggregate principal amount of the 13.125% Senior Subordinated Notes with the net cash proceeds from certain equity offerings at a redemption price equal to 103% of the aggregate principal amount of the 13.125% Senior Subordinated Notes, plus accrued and unpaid interest, if any. On or after January 15, 2013, Ply Gem Industries may redeem up to 100% of the aggregate principal amount of the 13.125% Senior Subordinated Notes with the net cash proceeds from certain equity offerings at a redemption price equal to 100% of the aggregate principal amount of the 13.125% Senior Subordinated Notes, plus accrued and unpaid interest, if any, to the redemption date.
 
The 13.125% Senior Subordinated Notes are unsecured and subordinated in right of payment to all of our existing and future debt, including the ABL Facility and the Senior Secured Notes. The 13.125% Senior Subordinated Notes are unconditionally guaranteed on a joint and several basis by the Guarantors (other than certain unrestricted subsidiaries) on a senior subordinated basis. The guarantees are general unsecured obligations and are subordinated in right of payment to all existing senior debt of the Guarantors, including their guarantees of the Senior Secured Notes and the ABL Facility.
 
The indenture governing the 13.125% Senior Subordinated Notes contains certain covenants that limit the ability of Ply Gem Industries and its subsidiaries to incur additional indebtedness, pay dividends or make other distributions or repurchases or redeem their stock, make loans and investments, sell assets, incur certain liens, enter into transactions with affiliates, and consolidated, merge or sell Ply Gem Industries’ assets.
 
Senior Term Loan Facility
 
Our senior facilities with a syndicate of financial institutions and institutional lenders provided for senior secured financing of up to approximately $762.1 million. On May 23, 2008, we entered into an amendment of the fifth amended and restated credit agreement which consisted of changes to certain debt covenant ratios. The amendment also increased the interest rate on the term loan and extended the maturity of the revolving credit facility from February 12, 2009 to August 12, 2010. On May 23, 2008, Ply Gem received from affiliates of CI Capital Partners a $30.0 million cash equity contribution as a condition to the credit facility amendment. On June 9, 2008, we used the proceeds from the Senior Secured Notes offering to pay off the obligations under the senior term loan facility.
 
As a result of the debt amendment that occurred on May 23, 2008 and the issuance of Senior Secured Notes on June 9, 2008, we evaluated our financing costs and expensed approximately $27.6 million of fees for the year ended December 31, 2008 which has been recorded within interest expense on the consolidated statement of operations. The $27.6 million was comprised of approximately $14.0 million of non-cash deferred financing costs associated with the previous


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term debt, approximately $6.8 million for a prepayment premium, and approximately $6.8 million of bank amendment fees that were subsequently retired. We deferred costs of approximately $26.6 million in conjunction with this transaction which have been recorded within other long-term assets in the consolidated balance sheets.
 
Liquidity Requirements
 
We intend to fund our ongoing capital and working capital requirements, including our internal growth, through a combination of cash flows from operations and, if necessary, from borrowings under our ABL Facility. We believe that we will continue to meet our liquidity requirements over the next 12 months. We believe that our operating units are positive cash flow generating units and will continue to sustain their operations without any significant liquidity concerns. The performance of these operating units is significantly impacted by the performance of the housing industry, specifically single family housing starts and home repair and remodeling activity. Any unforeseen or unanticipated downturn in the housing industry could have a negative impact on our liquidity position.
 
In order to meet these liquidity requirements as well as other anticipated liquidity needs in the normal course of business, as of April 3, 2010 we had cash and cash equivalents of approximately $31.7 million, $103.3 million of contractual availability under the ABL Facility and approximately $63.5 million of borrowing base availability, and as of December 31, 2009 we had cash and cash equivalents of approximately $17.1 million, $142.9 million of contractual availability under the ABL Facility and approximately $77.9 million of borrowing base availability. Management currently anticipates that these amounts, as well as expected cash flows from our operations and proceeds from any debt or equity financing should be sufficient to meet ongoing operational cash flow needs, capital expenditures, debt service obligations, and other fees payable under other contractual obligations for the foreseeable future.
 
Contractual obligations
 
The following table summarizes our contractual cash obligations under financing arrangements and lease commitments as of December 31, 2009, including interest amounts. Interest on the Senior Secured Notes and the 9% Senior Subordinated Notes is fixed at 11.75% and 9.0%, respectively. Interest on the ABL Facility is variable and has been presented at the current rate. Actual rates for future periods may differ from those presented here.
 
                                         
 
    Total
    Less than
                More than
 
(amounts in thousands)   amount     1 year     1 - 3 Years     3 - 5 Years     5 years  
 
 
Long-term debt(1)
  $ 1,110,000     $     $ 385,000     $ 725,000     $  
Interest payments(2)
    369,644       121,188       209,713       38,743        
Non-cancelable lease commitments(3)
    151,258       26,168       35,838       26,581       62,671  
Purchase obligations(4)
                             
Other long-term liabilities(5)
    13,100       1,310       2,620       2,620       6,550  
     
     
    $ 1,644,002     $ 148,666     $ 633,171     $ 792,944     $ 69,221  
 
 
 
(1) Long-term debt is shown before discount (premium), and consists of our Senior Secured Notes, 9% Senior Subordinated Notes and ABL Facility. For more information concerning the long-term debt, see “Liquidity and capital resources” above. As a result of the redemption of the 9% Senior Subordinated Notes in February 2010, we will have no principal payments due until our 2013 fiscal year.


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(2) Interest payments for variable interest debt are based on current interest rates and debt obligations at December 31, 2009.
 
(3) Non-cancelable lease commitments represent lease payments for facilities and equipment.
 
(4) Purchase obligations are defined as purchase agreements that are enforceable and legally binding and that specify all significant terms, including quantity, price and the approximate timing of the transaction. These obligations are related primarily to inventory purchases.
 
(5) Other long-term liabilities include pension obligations which are estimated based on our 2010 annual funding requirement. Because we are unable to reliably estimate the timing of future tax payments related to uncertain tax positions, certain tax related obligations of approximately $9.7 million have been excluded from the table above.
 
The following table summarizes our contractual cash obligations under financing arrangements and lease commitments as of April 3, 2010 including interest amounts, on a pro forma basis after giving effect to the Reorganization Transactions, this offering and the application of the net proceeds of this offering. Interest on the Senior Secured Notes and the 13.125% Senior Subordinated Notes is fixed at 11.75% and 13.125%, respectively. Interest on the ABL Facility is variable and has been presented at the current rate. Actual rates for future periods may differ from those presented here.
 
                                         
 
    Total
    Less than
                More than
 
(amounts in thousands)   Amount     1 year     1 - 3 years     3 - 5 years     5 years  
 
 
Long-term debt(1)
  $           $           $           $           $        
Interest payments(2)
                                       
Non-cancelable lease commitments(3)
                                       
Purchase obligations(4)
                                       
Other long-term liabilities(5)
                                       
     
     
    $       $       $       $       $    
 
 
 
(1) Long-term debt is shown before discount (premium), and consists of our Senior Secured Notes, 13.125% Senior Subordinated Notes and ABL Facility. For more information concerning the long-term debt, see “—Liquidity and capital resources” above. We will have no principal payments due until our 2013 fiscal year.
 
(2) Interest payments for variable interest debt are based on current interest rates and debt obligations at April 3, 2010.
 
(3) Non-cancelable lease commitments represent lease payments for facilities and equipment.
 
(4) Purchase obligations are defined as purchase agreements that are enforceable and legally binding and that specify all significant terms, including quantity, price and the approximate timing of the transaction. These obligations are related primarily to inventory purchases.
 
(5) Other long-term liabilities include pension obligations which are estimated based on our 2010 annual funding requirement. Because we are unable to reliably estimate the timing of future tax payments related to uncertain tax positions, certain tax related obligations of approximately $9.7 million have been excluded from the table above.
 
In addition to the items listed in the tables presented above, we have a potential obligation related to certain tax issues of approximately $9.7 million, including interest of approximately $1.3 million. The timing of the potential tax payments is unknown.
 
As discussed in “Certain relationships and related party transactions,” under an advisory agreement we will pay an annual fee to an affiliate of CI Capital Partners each year based on 2% of EBITDA. In addition, a termination fee equal to $      million will be payable to an affiliate of CI Capital Partners upon the consummation of this offering in connection with the termination of such advisory agreement. Neither of these fees have been included in the above tables.
 
We also have a potential liability in connection with the tax receivable agreement which we will enter into upon the closing of this offering. The tax receivable agreement will obligate us to make payments to the Tax Receivable Entity generally equal to 85% of the applicable cash


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savings that we actually realize as a result of NOL carryovers. We will retain the benefit of the remaining 15% of these tax savings. The amounts we may be required to pay could be significant and are not reflected in the above tables. See “Risk factors—Risks associated with our business—We will be required to pay an affiliate of our current stockholders for certain tax benefits we may claim, and the amounts we may pay could be significant” and “Certain relationships and related party transactions—Tax receivable agreement.”
 
Off-balance sheet arrangements
 
We have no off-balance sheet arrangements.
 
Inflation; Seasonality
 
Our performance is dependent to a significant extent upon the levels of home repair and remodeling and new home construction spending, all of which are affected by such factors as interest rates, inflation, consumer confidence and unemployment. In addition, our lease payments related to our sale/leaseback agreement include an annual increase based on the Consumer Price Index, which could expose us to potential higher costs in years with high inflation. We do not believe that inflation has had a material impact on our business, financial condition or results of operations during the past three fiscal years.
 
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 the new home construction sectors. Our sales in both segments are usually lower during the first and fourth quarters. Since a portion of our manufacturing overhead and operating expenses are relatively fixed throughout the year, operating income and net earnings tend to be lower in quarters with lower sales levels. In addition, the demand for cash to fund our working capital is greater from late in the fourth quarter through the first quarter.
 
Recent accounting pronouncements
 
See Note 1 to our audited consolidated financial statements for recent accounting pronouncements, which are included in this prospectus.
 
Interest rate risk
 
Our principal interest rate exposure relates to the loans outstanding under our ABL Facility, which provided for borrowings of up to $175.0 million as of April 3, 2010, bearing interest at a variable rate, based on an adjusted LIBOR rate plus an applicable interest margin or the base rate plus an applicable interest margin. Assuming the ABL Facility is fully drawn as of April 3, 2010, each quarter point increase or decrease in the interest rate would change our interest expense by approximately $0.4 million per year. In the future, we may enter into interest rate swaps, involving exchange of floating for fixed rate interest payments, to reduce our exposure to interest rate volatility.
 
Foreign currency risk
 
Our results of operations are affected by fluctuations in the value of the U.S. dollar as compared to the value of the Canadian dollar. For the three month period ended April 3, 2010, the net


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impact of foreign currency changes to our results of operations was a gain of $0.1 million. The impact of foreign currency changes related to translation resulted in an increase in stockholder’s (deficit) of approximately $1.3 million for the three months ended April 3, 2010. In 2009, the net impact of foreign currency changes to our results of operations was a gain of $0.5 million. The impact of foreign currency changes related to translation resulted in a increase in stockholder’s equity of approximately $4.7 million at December 31, 2009. The revenue or expense reported by us as a result of currency fluctuations will be greater in times of U.S. dollar devaluation and less in times of U.S. dollar appreciation. We generally do not enter into derivative financial instruments to manage foreign currency exposure. At April 3, 2010, we did not have any outstanding foreign currency hedging contracts.
 
Commodity pricing risk
 
We are subject to significant market risk with respect to the pricing of our principal raw materials, which include PVC resin, aluminum and wood. If prices of these raw materials were to increase dramatically, we may not be able to pass such increases on to our customers and, as a result, gross margins could decline significantly. We manage the exposure to commodity pricing risk by continuing to diversify our product mix, strategic buying programs and vendor partnering.
 
Consumer and commercial credit
 
As general economic conditions in the United States have deteriorated significantly over the past two years, the availability of consumer and commercial credit has tightened. As such, we have increased our focus on the credit worthiness of our customers. These procedures are necessary to ensure that our allowance for doubtful accounts is adequate and that we are performing proper due diligence prior to initiating sales. We will continue to monitor these statistics over the next year to ensure that issues, if any, are identified in a timely manner to reduce risk and minimize our bad debt exposure. If general economic conditions continue to worsen, additional reserves may be necessary.


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Business
 
Company overview
 
We are a leading manufacturer of residential exterior building products in North America, operating in two reportable segments: (i) Siding, Fencing, and Stone and (ii) Windows and Doors, which comprised approximately 60% and 40% of our sales, respectively, for the fiscal year ended December 31, 2009. These two segments produce a comprehensive product line of vinyl siding, designer accents and skirting, vinyl and composite fencing and railing, stone veneer and vinyl windows and doors used in both new construction and home repair and remodeling in the United States and Western Canada. Vinyl building products have the leading share of sales volume in siding and windows in the United States. We also manufacture vinyl and aluminum soffit and siding accessories, aluminum trim coil, wood windows, aluminum windows, vinyl and aluminum-clad windows and steel and fiberglass doors, enabling us to bundle complementary and color-matched products and accessories with our core products. We believe that our comprehensive product portfolio and geographically diverse, low cost manufacturing platform allow us to better serve our customers and provide us with a competitive advantage over other exterior building products suppliers. For the year ended December 31, 2009, we had net sales of $951.4 million, adjusted EBITDA of $116.2 million and net loss of $76.8 million. For the three months ended April 3, 2010, we had net sales of $204.2 million, adjusted EBITDA of $12.4 million and net income of $54.1 million as compared to net sales of $182.8 million, adjusted EBITDA of $(12.5) million and net loss of $55.5 million for the three months ended April 4, 2009.
 
Additional information concerning our business is set forth in “Management’s discussion and analysis of financial condition and results of operations.”
 
History
 
Ply Gem Holdings was incorporated on January 23, 2004 by affiliates of CI Capital Partners for the purpose of acquiring Ply Gem Industries from Nortek. The Ply Gem acquisition was completed on February 12, 2004. Prior to the Ply Gem acquisition, our business was known as the Windows, Doors and Siding division of Nortek, where the business operated as a holding company with a broad set of brands. Since the Ply Gem acquisition, we have acquired five additional businesses to complement and expand our product portfolio and geographical diversity. After being recruited by our directors affiliated with CI Capital Partners, Gary E. Robinette, our President and Chief Executive Officer, joined Ply Gem in October 2006, and has employed the strategy of transitioning Ply Gem to an integrated and consolidated business model under the Ply Gem brand.
 
The following is a summary of Ply Gem’s acquisition history:
 
•  On August 27, 2004, Ply Gem acquired MWM Holding, a manufacturer of vinyl, wood, wood-clad, composite, impact and aluminum windows and patio doors under the name MW Windows & Doors.
 
•  On February 24, 2006, Alenco, a manufacturer of aluminum and vinyl windows and door products, was acquired by Ply Gem. This acquisition supported our national window strategy and today operates under common leadership with our other U.S. window businesses.


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•  On October 31, 2006, Ply Gem completed the acquisition of Alcoa Home Exteriors, Inc. (“AHE”), a leading manufacturer of vinyl siding, aluminum siding, injection molded shutters and vinyl, aluminum and injection molded accessories. As a result of the AHE acquisition, AHE became part of our Siding, Fencing, and Stone Segment and operates under common leadership with our existing siding business.
 
•  On September 30, 2007, Ply Gem completed the acquisition of CertainTeed Corporation’s vinyl window and patio door business, which we named Ply Gem Pacific Windows, a leading manufacturer of premium vinyl windows and patio doors.
 
•  On October 31, 2008, Ply Gem acquired substantially all of the assets of Ply Gem Stone (formerly United Stone Veneer), a manufacturer of stone veneer products. As a result of the Ply Gem Stone acquisition, the Company modified the name of its “Siding, Fencing, and Railing” segment to “Siding, Fencing, and Stone” during 2008.
 
Our competitive strengths
 
We believe the following competitive strengths differentiate us from our competitors and are critical to our continued success:
 
•  Leading Manufacturer of Exterior Building Products.  We believe we have established leading positions in many of our core product categories including: No. 1 in vinyl siding in the U.S.; No. 1 in aluminum accessories in the U.S.; No. 2 in vinyl and aluminum windows in the U.S.; and No. 2 in windows and doors in Western Canada. We achieved this success by developing a broad offering of high quality products and providing superior service to our customers. We are one of the few companies that operate a geographically diverse manufacturing platform capable of servicing our customers across the entire United States and Western Canada. The scale of our operations also positions us well as customers look to consolidate their supplier base. We believe our broad offering of leading products, geographically diverse manufacturing platform and long-term customer relationships make us the manufacturer of choice for our customers’ exterior building products needs.
 
•  Comprehensive Product Portfolio with Strong Brand Recognition.  We offer a comprehensive portfolio of over twenty exterior building product categories covering a full range of price points. Our broad product line gives us a competitive advantage over other exterior building product suppliers who provide a narrower range of products by enabling us to provide our customers with a differentiated value proposition to meet their own customers’ needs. Our leading brands, such as Ply Gem®, Mastic® Home Exteriors, Variform®, Napco®, Georgia-Pacific (which we license) and Great Lakes® Window, are well recognized in the industry. Many of our customers actively support our brands and typically become closely tied to our brands through joint marketing and training, fostering long-term relationships under the common goal of delivering a quality product.
 
We believe a distinguishing factor in our customers’ selection of Ply Gem as a supplier is the innovation and quality for which our brands are known. As a result, our customers’ positive experience with one product or brand affords us the opportunity to cross-sell additional products and effectively introduce new products. Since 2007, we have successfully implemented a more unified brand strategy to expand our cross-selling opportunities between our siding and window product offerings. For instance, we recently consolidated certain window product offerings under the Ply Gem brand to offer a national window platform to our customers, which now represents the most comprehensive line of new


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construction and home repair and remodeling windows in the industry. With our extensive product line breadth, industry-leading brands and national platform, we believe we can provide our customers with a more cost-effective, single source from which to purchase their exterior building products.
 
•  Multi-Channel Distribution Network Servicing a Broad Customer Base. We have a multi-channel distribution network that serves both the new construction and home repair and remodel end markets through our broad customer base of specialty and wholesale distributors, retail home centers, lumberyards, remodeling dealers and builders. Our multi-channel distribution strategy has increased our sales and penetration within these end markets, while limiting our exposure to any one customer or channel such that our top ten customers only accounted for approximately 36.3% of our net sales in 2009. We believe our strategy enables us to minimize channel conflict, reduce our reliance on any one channel and reach the greatest number of end customers while providing us with the ability to increase our sales and to sustain our financial performance through economic fluctuations.
 
•  Balanced Customer Exposure to New Construction and Home Repair and Remodeling.  Our products are used in new construction and home repair and remodeling, with our diversified product mix reducing our overall exposure to any single sector. We operate in two reportable segments: (i) Siding, Fencing, and Stone, which has been weighted towards home repair and remodeling, and (ii) Windows and Doors, which has historically focused on new construction. We have recently begun to expand our presence in the home repair and remodel window sector through the launch of a new series of repair and remodel window products, focusing on the unique requirements of this sector while leveraging our existing customer relationships. This is one of several new initiatives that have been well received by our customers and that complement our established product offerings by utilizing our national sales force to sell multiple products in our portfolio. We believe the diversity of our end markets and products provides us with a unique opportunity to capitalize on the overall housing market recovery.
 
•  Highly Efficient, Low Cost Operating Platform.  Since mid-2006, we have closed or consolidated eight plants, generating savings of over $30 million annually, and reduced our workforce by approximately 50%. During this time, we also invested approximately $54 million in capital expenditures, including new product introductions and upgrades to equipment, facilities and technology, to continue improving our vertically integrated manufacturing platform. For example, our multi-plant window manufacturing platform allows us to service our customers with less than one week lead times across a broad geographic coverage area, providing us a competitive advantage with the ability to operate in just-in-time fashion. This capability provides a unique service proposition to our customers while allowing us to maintain minimal inventory levels in our window product offerings. In addition, as a result of our Polyvinyl Chloride Resin (PVC) purchasing scale (we are the third largest purchaser in North America), we are able to secure favorable prices, terms and input availability through various cycles.
 
Through our strong cost controls, vertically-integrated manufacturing platform, continued investment in technology and significant purchasing scale, we have improved efficiency and safety in our manufacturing facilities while reducing fixed costs to approximately 21% of our total cost structure, which provides significant operating leverage as the housing market recovers. Furthermore, our manufacturing facilities are among the safest in all of North America with three of them having received the highest federal and/or state OSHA safety


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award and rating. We believe that we have one of the most efficient and safest operating platforms in the exterior building products industry, helping to drive our profitability.
 
•  Proven Track Record of Acquisition Integration and Cost Savings Realization. Our five acquisitions since early 2004 have enhanced our geographic diversity, expanded our product offerings and enabled us to enter new product categories. Most recently, our acquisition of United Stone Veneer (now branded Ply Gem Stone) in 2008 enabled us to enter the stone veneer product category, which is one of the fastest growing categories of exterior cladding products. We have maintained a disciplined focus on integrating new businesses, rather than operating them separately, and have created meaningful synergies as a result. Through facility and headcount rationalizations, strategic sourcing and other manufacturing improvements, we have permanently eliminated over $50 million in aggregate costs. We view our ability to identify, execute and integrate acquisitions as one of our core strengths and expect that this initial public offering will significantly improve our financial position and flexibility, enabling us to lead the continued consolidation of the exterior building products industry.
 
•  Strong Management Team with Significant Ownership.  We are led by a committed senior management team that has an average of over 20 years of relevant industry experience. Our current senior management, with financial and advisory support from affiliates of CI Capital Partners, has successfully transformed Ply Gem from operating as a holding company with a broad set of brand offerings to an integrated business model under the Ply Gem brand, positioning our Company to grow profitably and rapidly as the market recovers. As of April 3, 2010, after giving effect to the Reorganization Transactions (assuming a public offering price of $      per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus)), members of our management team held common stock and stock awards representing approximately     % of the shares of our Company, which will decline to     % upon completion of this initial public offering.
 
Our business strategy
 
We are pursuing the following business and growth strategies:
 
•  Capture Growth Related to Housing Market Recovery.  As a leading manufacturer of exterior building products, we intend to capitalize on the recovery in new construction and home repair and remodeling. The 2009 level of 441,000 single family housing starts was approximately 60% below the 50 year average, representing a significant opportunity for growth as activity returns to historical levels. Furthermore, we believe that the underinvestment in homes during the recent recession and the overall age of the U.S. housing stock will drive significant future spending for home repair and remodeling.
 
We expect current and new homeowners’ purchases to focus on including or replacing items that provide the highest return on investment, have positive energy efficiency attributes and provide potential cost savings. Our broad product offering addresses expected demand growth from all of these key trends, through our balanced exposure to the new construction and home repair and remodel end markets, diverse price points, the high recovery value for home improvements derived from our core product categories and the ability to provide products that qualify for many of the energy efficiency rebate and tax programs currently in effect or under consideration.
 
•  Continued Increase of Market Penetration.  We intend to increase the market penetration of our siding, fencing and stone products and our window and door products by leveraging the


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breadth of our product offering and broad geographical footprint to serve customers across North America. Additionally, our continued investments in product innovation and quality, coupled with strong customer service, further enhance our ability to capture increased sales in each of our core product categories. For example, we believe that we have increased our penetration of the U.S. vinyl siding end market and that in 2009 we accounted for approximately 33% of total unit sales as compared to approximately 29% in 2008. In addition, we believe that we have increased our share of total unit sales of U.S. vinyl and aluminum windows for new construction from approximately 17% in 2008 to 24% in 2009. In 2010, we will be introducing a new line of vinyl windows under our Ply Gem brand as well as under our Mastic Home Exteriors brand, historically associated with vinyl siding products, that will be marketed and sold by our vinyl siding sales force, a first for Ply Gem. We believe that this demonstrates the substantial opportunity across our product categories to continue to cross-sell and bundle products, thereby increasing revenues from our existing channel partners and industry relationships. We expect to build upon the approximately $285 million in product share gains we achieved in 2008 and 2009, and as the market recovers from its current low levels we expect to further enhance our leading positions.
 
•  Expand Brand Coverage and Product Innovation.  We will continue to increase the value of the Ply Gem brands by introducing new product categories for our customers and by developing innovative new products within our existing product categories. For example, we have developed a complete series of window products under the Ply Gem brand to target the higher margin home repair and remodeling window end market. Furthermore, our recent addition of stone veneer to our product offering in the Siding, Fencing, and Stone segment provides existing siding customers with access to the fastest growing category of exterior cladding products.
 
Our new products frequently receive industry awards, as evidenced by our Ply Gem Mira aluminum-clad wood window, which won the New Product of the Day award at the 2008 International Builder’s Show. In addition, our Cedar Discovery designer accent product and our Ovation vinyl siding product were both named one of the top 100 products by leading industry publications. The result of our commitment to product development and innovation has been demonstrated in the $85 million of incremental annualized sales that we recognized from new products introduced in 2008 and 2009.
 
•  Drive Operational Leverage and Further Improvements.  While we reduced our production capacity during the past several years, we have retained the flexibility to increase our production as market conditions improve. This incremental capacity can be selectively restarted, providing us with the ability to match increasing customer demand levels as the housing market returns to historical levels of approximately one million or more single family housing starts without the need for significant capital investment. In our Windows and Doors segment, where we have historically focused on new construction, we believe that our new window products for home repair and remodeling will be able to drive increased volumes through these manufacturing facilities and enhance operating margins.
 
Over the past several years, we have significantly improved our manufacturing cost structure; however, there are opportunities for further improvements. We believe that the continued expansion of lean manufacturing and vertical integration in our manufacturing facilities, along with the further consolidation of purchases of key raw materials, supplies and services will continue to provide us with cost advantages compared to our competitors. In addition, the integration of our sales and marketing efforts across our product categories provides an


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ongoing opportunity to significantly improve our customer penetration and leverage the strength of our brands. Furthermore, we have centralized many back office functions into our corporate office in Cary, North Carolina and believe that additional opportunities remain. We believe all of these factors should drive continued growth in profitability while improving our cash flow and capital efficiency.
 
Building products end markets
 
Demand for exterior building products, including siding, fencing, stone, windows and doors, is primarily driven by the construction of new homes and the repair and remodeling of existing homes, which are affected by changes in national and local economic and demographic conditions, employment levels, availability of financing, interest rates, consumer confidence and other economic factors.
 
New construction
 
New construction in the United States experienced strong growth from the early 1990s to 2006, with housing starts increasing at a compounded annual growth rate of 3.8%. However, from 2006 to 2009, single family housing starts declined 70% according to the NAHB. While the industry has experienced a period of severe correction and downturn, management believes that the long-term economic outlook for new construction in the United States is favorable and supported by an attractive interest rate environment and strong demographics, as new household formations and increasing immigration drives demand for starter homes. According to the Joint Center for Housing Studies of Harvard University, net new households between 2010 and 2020 are expected to be between 12.5 million units and 14.8 million units, with the low end of the range equal to net new housing units achieved between 1995 and 2005. Strong demographics and interest rates on home loans at historically low levels are stimulants for demand in the United States for new construction. According to the NAHB April 23, 2010 forecast, annual single family housing starts are expected to increase by 25.3% and 52.3% in 2010 and 2011, respectively. In addition, new construction in Canada is expected to benefit from similar demand stimulants as new construction in the United States, such as strong demographic trends and historically low interest rate levels. According to the CMHC, housing starts in Alberta, Canada are estimated to increase by approximately 18.5% and 19.4% in 2010 and 2011, respectively, demonstrating the recovery in new construction in Western Canada.
 
Home repair and remodeling
 
Since the early 1990s and through 2006, demand for home repair and remodeling products in the United States increased at a compounded annual growth rate of 4.3%, according to the U.S. Census Bureau, as a result of strong economic growth, low interest rates and favorable demographics. However, beginning in 2007 the ability for homeowners to finance repair and remodeling expenditures, such as replacement windows or vinyl siding, has been negatively impacted by a general tightening of lending requirements by financial institutions and the significant decrease in home values, which limited the amount of home equity against which homeowners could borrow. Management believes that expenditures for home repair and remodeling products are also affected by consumer confidence that declined during 2009 due to general economic conditions and increased unemployment levels. Although certain aspects of the federal stimulus plan enacted in early 2009, such as energy saving tax credits and Homestar, may encourage some consumers to make home improvements, including the replacement of


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older windows with newer more energy-efficient windows, management believes that these favorable measures could be offset during 2010 by the effects of high unemployment, limited availability of consumer financing and lower consumer confidence levels. However, management believes the long-term economic outlook of the demand for home repair and remodeling products in the United States is favorable and supported by the move towards more energy-efficient products, recent underinvestment in home maintenance and repair and aging housing stock.
 
Our business
 
Financial information about our segments is included in the Notes to Consolidated Financial Statements and included elsewhere in this prospectus.
 
Siding, Fencing, and Stone segment
 
Products
 
In our Siding, Fencing, and Stone segment, our principal products include vinyl siding and skirting, vinyl and aluminum soffit, aluminum trim coil, J-channels, wide crown molding, window and door trim, F-channels, H-molds, fascia, undersill trims, outside/inside corner posts, rain removal systems, injection molded designer accents such as shakes, shingles, scallops, shutters, vents and mounts, vinyl fence, vinyl and composite railing and stone veneer. We sell our siding and accessories under our Variform, Napco, Mastic Home Exteriors and Cellwood brand names and under the Georgia-Pacific brand name through a private label program. We also sell our Providence line of vinyl siding and accessories to Lowe’s under our Durabuilt private label brand name. Our vinyl and vinyl-composite fencing and railing products are sold under our Kroy and Kroy Express brand names. Our stone veneer products are sold under our Ply Gem Stone brand name. A summary of our product lines is presented below according to price point:
 
                                 
    Mastic® Home Exteriors   Variform®   Napco®   Cellwood®   Durabuilt®   Georgia Pacific   Kroy®   Ply Gem® Stone
 
Specialty/ Super Premium
  Cedar Discovery® Structure® EPS Premium Insulated Siding   Heritage Cedartm CSL 600®   Cedar Select® American Essencetm   Cedar Dimensionstm   670
Seriestm
Hand
Split
650
Seriestm
Shingle
Siding
660
Seriestm
Round
Cut Siding
  Cedar Spectrumtm Seasons       Fieldstone
Tuscan
Fieldstone
Shadow
Ledgestone
Cut Cobblestone
Cobblestone
Ridgestone
Riverstone
Brick
Premium
  Quest® T-Lok® Barkwood® Liberty Elite® Board + Batten   Tmber Oak Ascenttm Varigrain Preferred® Board and Batten   American Splendor® Board and Battentm   Dimensions® Board & Batten   480 Seriestm 440 Seriestm   Cedar Lane® Select Board and Batten   Elegance Vinyl Fence and Composite Rail    
Standard
  Carvedwood 44tm Silhouette Classic® Ovationtm Charleston Beaded®   Camden Pointe® Nottingham® Ashton Heights® Victorian Harbor®   American Herald® American Tradition American 76 Beaded®   Progressions® Colonial Beaded   450 Seriestm Beaded   Heritage Hilltm Forest Ridge® Shadow Ridge® Castle Ridge® Somersettm Beaded   Performance Vinyl Fence and Rail    
Economy
  Mill Creek® Brentwood® Trade Mark®   Contractors Choice®   American Comfort®   Evolutions®   410 Seriestm   Chatham Ridge® Vision Pro® Parkside® Oakside®   Classic Vinyl Fence    
 
 


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The breadth of our product lines and our multiple brand and price point strategy enable us to target multiple distribution channels (wholesale and specialty distributors, retailers and manufactured housing) and end users (new construction and home repair and remodeling).
 
Customers and distribution
 
We have a multi-channel distribution network that serves both the new construction and the home repair and remodeling sectors, which exhibit different, often counter-balancing, demand characteristics. In conjunction with our multiple brand and price point strategy, we believe our multi-channel distribution strategy enables us to increase our sales and sector penetration while minimizing channel conflict. We believe our strategy reduces our dependence on any one channel, which provides us with a greater ability to sustain our financial performance through economic fluctuations.
 
We sell our siding and accessories to specialty distributors (one-step distribution) and to wholesale distributors (two-step distribution). Our specialty distributors sell directly to remodeling contractors and builders. Our wholesale distributors sell to retail home centers and lumberyards who, in turn, sell to remodeling contractors, builders and consumers. In the specialty channel, we have developed an extensive network of approximately 800 independent distributors, serving over 22,000 contractors and builders nationwide. We are well-positioned in this channel as many of these distributors are both the largest and leading consolidators in the industry. In the wholesale channel, we are the sole supplier of vinyl siding and accessories to BlueLinx (formerly a distribution operation of the Georgia-Pacific Corporation), one of the largest building products distributors in the United States. Through BlueLinx and our BlueLinx dedicated sales force, our Georgia-Pacific private label vinyl siding products are sold at major retail home centers, lumberyards and manufactured housing manufacturers. A portion of our siding and accessories is also sold directly to Lowe’s Home Improvement Centers under our Durabuilt brand name. Our growing customer base of fencing and railing consists of fabricators, distributors, retail home centers and lumberyards. Our customer base of stone veneer products consists of distributors, lumberyards, retailers and contractors.
 
Our largest customer, BlueLinx, made up 15.2% of the net sales of our Siding, Fencing, and Stone segment and 9.2% of our consolidated net sales for both the years ended December 31, 2008 and 2009. BlueLinx accounted for approximately 8.6% of our consolidated net sales in the first quarter of 2010.
 
Production and facilities
 
Vinyl siding, skirting, soffit and accessories are manufactured in our Martinsburg, West Virginia, Jasper, Tennessee, Stuarts Draft, Virginia and Kearney, Missouri facilities, while all metal products are produced in our Sidney, Ohio facility with some metal painting operations being performed in our Valencia, Pennsylvania facility. The majority of our injection molded products such as shakes, shingles, scallops, shutters, vents and mounts are manufactured in our Gaffney, South Carolina facility. Due to excess capacity and to reduce operating costs, we closed the Denison, Texas facility in early 2008 and consolidated the majority of the production from our vinyl siding plant in Kearney, Missouri into our other three remaining vinyl siding plants in the first half of 2009. In addition, we consolidated our metal accessory production from our Valencia, Pennsylvania facility into our Sidney, Ohio facility which occurred during the later part of 2008 and early 2009. The vinyl and metal plants have sufficient capacity to support planned levels of sales growth for the foreseeable future. Our fencing and railing products are currently


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manufactured at our York, Nebraska and Fair Bluff, North Carolina facilities. The fencing and railing plants have sufficient capacity to support our planned sales growth for the foreseeable future. Our stone veneer products are manufactured at our Middleburg, Pennsylvania facility. The stone veneer plant has sufficient capacity to support our planned sales growth for the foreseeable future. We expect our capital expenditures for our Siding, Fencing, and Stone segment in the near future to be at or below our historical expenditure levels as a result of lower near-term demand due to market conditions. Our manufacturing facilities are among the safest in all of North America with three of them having received the highest federal and/or state OSHA safety award and rating.
 
Raw materials and suppliers
 
PVC resin and aluminum are major components in the production of our Siding, Fencing, and Stone products and changes in PVC resin and aluminum prices have a direct impact on our cost of products sold. Historically, we have been able to pass on the price increases to our customers. The results of operations for individual quarters can be negatively impacted by a delay between the time of raw material cost increases and price increases that we implement in our products, or conversely can be positively impacted by a delay between the time of a raw material price decrease and competitive pricing moves that we implement accordingly.
 
Competition
 
We compete with other national and regional manufacturers of vinyl siding, fencing and stone products. We believe we are one of the largest manufacturers of vinyl siding in North America, alongside CertainTeed and Alside. We believe that we have increased our penetration of the U.S. vinyl siding end market and that in 2009 we accounted for approximately 33% of total unit sales as compared to approximately 29% in 2008. Our aluminum accessories competitors include Alsco, Gentek and other smaller regional competitors. Significant growth in vinyl fencing and railing has attracted many new entrants, and the sector today is fragmented. Our fencing and railing competitors include U.S. Fence, Homeland, Westech, Bufftech, Royal and Azek. Our stone veneer competitors include Owens Corning, Eldorado Stone, Coronado Stone and smaller, regional competitors. We generally compete on product quality, breadth of product offering, sales and service support. In addition to competition from other vinyl siding, fencing and stone products, our products face competition from alternative materials, such as wood, metal, fiber cement and masonry siding. Increases in competition from other exterior building products manufacturers and alternative building materials could cause us to lose customers and lead to net sales decreases.
 
Intellectual property
 
We possess a wide array of intellectual property rights, including patents, trademarks, tradenames, proprietary technology and know-how and other proprietary rights. In connection with the marketing of our products, we generally obtain trademark protection for our brand names in the Siding, Fencing and Stone segment. Depending on the jurisdiction, trademarks are valid as long as they are in use and/or their registrations are properly maintained and they have not become generic. Registrations of trademarks can generally be renewed indefinitely as long as the trademarks are in use. While we do not believe the Siding, Fencing and Stone segment is dependent on any one of our trademarks, we believe that our intellectual property rights are


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important to the development and conduct of our business as well as the marketing of our products. We vigorously protect these rights.
 
Seasonality
 
Markets for our products are seasonal and can be affected by inclement weather conditions. Historically, our business has experienced increased sales in the second and third quarters of the year due to increased construction during those periods. Because a portion of our overhead and expenses are fixed throughout the year, our operating profits tend to be lower in the first and fourth quarters. Inclement weather conditions can affect the timing of when our products are applied or installed, causing delayed profit margins when such conditions exist.
 
We generally carry increased working capital during the first half of a fiscal year to support those months where customer demand exceeds production capacity. We believe that this is typical within the industry.
 
Backlog
 
Our Siding, Fencing, and Stone segment had a backlog of approximately $14.7 million at April 3, 2010, and a backlog of approximately $12.9 million at April 4, 2009. We expect to fill 100% of the orders during 2010.
 
Windows and Doors segment
 
Products
 
In our Windows and Doors segment, our principal products include vinyl, aluminum, wood and clad-wood windows and patio doors and steel, wood, and fiberglass entry doors that serve both the new construction and the home repair and remodeling sectors in the United States and Western Canada. Our products in our Windows and Doors segment are sold under the Ply Gem Windows, Great Lakes Window and Ply Gem Canada brands. In the past, we have also sold our windows and doors under our MW, Patriot, Twin Seal, Alenco, Builders View, Great Lakes, Ply Gem, Uniframe, Grandview, Seabrooke, Bayshore, Napco, CertainTeed and CWD Windows and Doors brand names. A summary of our current product lines is presented below according to price point:
 
                 
    Ply Gem U.S. Windows   Great Lakes® Window   Ply Gem Canada
 
    New Construction   Replacement   Replacement   New Construction
Specialty/ Super-Premium
  Mira Premium Series   Select Series   Uniframe   Regency Fusion
Premium
  Pro Series - West   Premium Series   Lifestyles   Ambassador
Standard
  Pro Series - East   Pro Series   Seabrooke   Envoy Diplomat Premier
Economy
  Builder Series   Contractor Series   Bayshore   Consul
 
 
 
We continue introducing new products to the portfolio which allow us to enter or further penetrate new distribution channels and customers. The breadth of our product lines and our multiple price point strategy enable us to target multiple distribution channels (wholesale and specialty distributors, retailers and manufactured housing) and end user markets (new construction and home repair and remodeling).


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Customers and distribution
 
We have a multi-channel distribution and product strategy that enables us to serve both the new construction and the home repair and remodeling sectors. By offering this broad product offering and industry leading service, we are able to meet the local needs of our customers on a national scale. This strategy has enabled our customer base (existing and new) to simplify their supply chain by consolidating window suppliers. Our good, better, best product and price point strategy allows us to increase our sales and sector penetration while minimizing channel conflict. This strategy reduces our dependence on any one channel, providing us with a greater ability to sustain our financial performance through economic fluctuations.
 
The new construction product lines are sold for use in new residential and light commercial construction through a highly diversified customer base, which includes independent building material dealers, regional/national lumberyard chains, builder direct/OEMs and retail home centers. Our repair and remodeling window products are primarily sold through independent home improvement dealers and one-step distributors. Dealers typically market directly to homeowners or contractors in connection with remodeling requirements while distributors concentrate on local independent retailers.
 
In Canada, sales of product lines for new construction are predominantly made through direct sales to builders and contractors, while sales for repair and remodeling are made primarily through retail lumberyards. Ply Gem Canada products are distributed through eight distribution centers.
 
Our sales of windows and doors to our top five largest window and door customers represented 30.7% and 23.1% of the net sales of our Windows and Doors segment and 13.0% and 9.1% of our consolidated net sales for the quarter ended April 3, 2010 and the year ended December 31, 2009, respectively. For the year ended December 31, 2008, our five largest customers represented 24.8% of the net sales of our Windows and Doors segment and 8.5% of our consolidated net sales.
 
Production and facilities
 
Our window and door products leverage a network of vertically integrated production and distribution facilities located in Virginia, Ohio, North Carolina, Georgia, Texas, California, Washington and Western Canada. Our window and door manufacturing facilities have benefited from our continued investment and commitment to product development and product quality combined with increasing integration of best practices across our product offerings. In 2009, we began producing vinyl compound for our west coast facilities which improved our operating efficiency and resulted in lower production cost for these items. In 2009, we also began making upgrades to insulated glass production lines in anticipation of more stringent energy efficiency requirements driven by changes in building codes and consumer demand for Energy Star rated products. These improvements will continue throughout 2010.
 
Due to excess capacity and the need to reduce operating costs, we closed the Hammonton, New Jersey, Phoenix, Arizona and Tupelo, Mississippi facilities in the first six months of 2009. While market conditions required us to close facilities and ramp down capacity in our remaining facilities in 2009, all of our facilities have the ability to increase capacity in a cost effective manner by expanding production shifts. Ongoing capital investments will focus upon new product introductions, equipment maintenance and cost reductions.


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Raw materials and suppliers
 
PVC compound, wood, aluminum and glass are major components in the production of our window and door products. Historically, changes in PVC compound, aluminum billet and wood cutstock prices have had the most significant impact on our material cost of products sold in our Windows and Doors segment. We are one of the largest consumers of PVC resin in North America and we continue to leverage our purchasing power on this key raw material. As mentioned above, the PVC resin compound that is used in window lineal production is now produced internally. The leveraging of our PVC resin buying power and the expansion of PVC resin compounding capabilities has begun to benefit all of our domestic window companies. Our window plants have significantly consolidated glass purchases to take advantage of strategic sourcing savings opportunities. In addition, we have continued to vertically integrate aluminum extrusion for a variety of our product lines.
 
Competition
 
The window and patio door sector remains fragmented, comprised primarily of local and regional manufacturers with limited product offerings. The sector’s competitors in the United States include national brands, such as Jeld-Wen, Simonton, Pella and Andersen, and numerous regional brands, including MI Home Products, Atrium, Weathershield and Milgard. Competitors in Canada include Jeld-Wen, Gienow, All Weather and Loewen. We generally compete on service, product performance, a complete product offering, sales and support. We believe all of our products are competitively priced and that we are one of the only manufacturers to serve all end markets and price points.
 
Intellectual property
 
We possess a wide array of intellectual property rights, including patents, trademarks, tradenames, proprietary technology and know-how and other proprietary rights. In connection with the marketing of our products, we generally obtain trademark protection for our brand names in the Windows and Doors segment. Depending on the jurisdiction, trademarks are valid as long as they are in use and/or their registrations are properly maintained and they have not become generic. Registrations of trademarks can generally be renewed indefinitely as long as the trademarks are in use. We believe that our intellectual property rights are important to the Windows and Doors segment and the development and conduct of our business as well as the marketing of our products. We vigorously protect these rights.
 
Seasonality
 
Markets for our products are seasonal and can be affected by inclement weather conditions. Historically, our business has experienced increased sales in the second and third quarters of the year due to increased construction during those periods. Accordingly, our working capital is typically higher in the second and third quarters as well. Because much of our overhead and expense are fixed throughout the year, our operating profits tend to be lower in the first and fourth quarters. Inclement weather conditions can affect the timing of when our products are applied or installed, causing delayed profit margins when such conditions exist.
 
Because we have successfully implemented lean manufacturing techniques and many of our windows and doors are made to order, inventories in our Windows and Doors segment do not change significantly with seasonal demand.


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Backlog
 
Our Windows and Doors segment had a backlog of approximately $23.8 million at April 3, 2010, and approximately $19.4 million at April 4, 2009. We expect to fill 100% of the orders during 2010.
 
Environmental and other regulatory matters
 
We are subject to Canadian and U.S. federal, state, provincial and local environmental laws and regulations that relate to pollution and the protection of the environment, including those governing emissions to air, discharges to water, use, storage and transport of hazardous materials, storage, treatment and disposal of waste, remediation of contaminated sites, and protection of worker health and safety. From time to time, our facilities are subject to investigation by environmental regulators. We believe that our current operations are in substantial compliance with all applicable environmental laws and that we maintain all material permits required to operate our business.
 
Based on available information, we do not believe that any known compliance obligations, claims, releases or investigations will have a material adverse effect on our results of operations, cash flows or financial position. However, there can be no guarantee that previously known or newly discovered matters or any inability to enforce our available indemnification rights against previous owners of our subsidiaries will not result in material costs.
 
Under the stock purchase agreement governing the Ply Gem acquisition, our former parent, Nortek, has agreed to indemnify us, subject to certain limitations, for environmental liabilities arising from our former ownership or operation of subsidiaries or properties where such ownership or operation ceased prior to the completion of the Ply Gem acquisition and for certain other liabilities. Our ability to seek indemnification from Nortek is, however, limited by the strength of Nortek’s financial condition, which could change in the future, as well as by specific financial limits for certain aspects of the indemnity. Nortek has also covenanted that after the Ply Gem acquisition, it will not dispose of all or substantially all of its property and assets in a single transaction or series of related transactions, unless the acquirer of either its residential building products segment or HVAC segment (whichever is sold first) assumes all of Nortek’s obligations (including Nortek’s indemnification obligations) under the stock purchase agreement.
 
We are currently involved in environmental proceedings involving Ply Gem Canada and Alberta Environment (arising from subsurface contamination discovered at our Calgary, Alberta property), and we may in the future be subject to environmental proceedings involving Thermal-Gard, Inc. (arising from groundwater contamination in Punxsutawney, Pennsylvania) and Kroy Building Products, Inc. (relating to contamination in a drinking water well in York, Nebraska). Under the stock purchase agreement governing the Ply Gem acquisition, Nortek is to indemnify us fully for any liability in connection with the Punxsutawney contamination. Alcan Aluminum Corporation assumed the obligation to indemnify us with respect to certain liabilities for environmental contamination of the York property occurring prior to 1994. Our former subsidiary, Hoover Treated Wood Products, Inc., is involved in an environmental proceeding with the Georgia Department of Natural Resources in connection with a contaminated landfill site in Thomson, Georgia. While we had assumed an obligation to indemnify the purchaser of our former subsidiary when we sold Hoover Treated Wood Products, Inc., our obligation has been novated and assumed by Nortek.


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Under the stock purchase agreement governing the MWM Holding acquisition, the sellers agreed to indemnify us for the first $250,000 in certain costs of compliance with the New Jersey Industrial Site Recovery Act at a facility of MW Manufacturers Inc. (“MW”), a subsidiary of MWM Holding, in Hammonton, New Jersey and for 75% of any such costs between $250,000 and $5.5 million. MW’s Rocky Mount, Virginia property is involved in a corrective action, relating to contamination associated with an underground storage tank formerly located at the Rocky Mount, Virginia property. Liability for this subject contamination has been previously assumed by U.S. Industries, Inc., pursuant to its indemnity obligation under the stock purchase agreement dated August 11, 1995, whereby U.S. Industries, Inc. sold the stock of MW to Fenway Partners. As the successor in interest of Fenway Partners, we are similarly indemnified by U.S. Industries, Inc. U.S. Industries and MW are working to develop a course of action to address the site contamination that is acceptable to both companies and the Virginia regulatory authorities.
 
We voluntarily comply with the Vinyl Siding Institute (“VSI”) Certification Program with respect to our vinyl siding and accessories. Under the VSI Certification Program, third party verification and certification, provided by Architectural Testing, Inc. (“ATI”), is used to ensure uniform compliance with the minimum standards set by the American Society for Testing and Materials (“ASTM”). Those products compliant with ASTM specifications for vinyl siding will perform satisfactorily in virtually any environment. Upon certification, products are added to the official VSI list of certified products and are eligible to bear the official VSI certification logo.
 
Employees
 
As of April 3, 2010, we had approximately 4,200 full-time employees worldwide, of whom approximately 3,800 were in the United States and 400 were in Canada. We consider our relations with our employees to be good. Employees at our Canadian plant, our Valencia, Pennsylvania plant, and our Bryan, Texas plant are currently our only employees with whom we have a collective bargaining agreement.
 
•  Approximately 5.9% of our total employees are represented by the United Brotherhood of Carpenters and Joiners of America, pursuant to a collective bargaining agreement with certain of our Canadian employees, which expires on December 31, 2011.
 
•  Approximately 0.5% of our total employees are represented by the United Steelworkers of America, AFL-CIO-CLC, pursuant to a collective bargaining agreement with certain of our Valencia, Pennsylvania employees, which expires on December 1, 2011.
 
•  Approximately 8.3% of our total employees are represented by the International Chemical Workers Union Council, pursuant to a collective bargaining agreement with certain of our Alenco Windows employees, which expires on December 4, 2010.
 
Financial information about geographic areas
 
All of the Company’s operations are located in the United States and Canada. We attribute revenue based on the location of the customer and our sales are made in local currency. Revenue from external customers for the three months ended April 3, 2010 consists of:
 
•  $187.8 million from United States customers
•  $15.7 million from Canadian customers
•  $0.7 million from all other foreign customers


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Revenue from external customers for the year ended December 31, 2009 consists of:
 
•  $882.9 million from United States customers
•  $65.0 million from Canadian customers
•  $3.5 million from all other foreign customers
 
Revenue from external customers for the year ended December 31, 2008 consists of:
 
•  $1,084.1 million from United States customers
•  $84.5 million from Canadian customers
•  $6.4 million from all other foreign customers
 
Revenue from external customers for the year ended December 31, 2007 consists of:
 
•  $1,269.8 million from United States customers
•  $89.3 million from Canadian customers
•  $4.4 million from all other foreign customers
 
At April 3, 2010, December 31, 2009, 2008 and 2007, long-lived assets totaled approximately $18.1 million, $17.5 million, $23.2 million and $51.2 million, respectively, in Canada, and $715.2 million, $729.7 million, $771.7 million and $1,240.0 million, respectively, in the United States. We are exposed to risks inherent in any foreign operation, including foreign exchange rate fluctuations.
 
Properties
 
Our corporate headquarters are located in Cary, North Carolina. We own and lease several additional properties in the United States and Canada. We operate the following facilities as indicated, and each facility is leased unless indicated with “Owned” under the Lease Expiration Date column below.