form10-q.htm

Item 1.	Condensed Consolidated Financial Statements

	Condensed Consolidated Statements of Operations -
	Three months ended July 2, 2011 and July 3, 2010	1

	Condensed Consolidated Statements of Operations -
	Six months ended July 2, 2011 and July 3, 2010	2

	Condensed Consolidated Balance Sheets -
	July 2, 2011 and December 31, 2010	3

	Condensed Consolidated Statements of Cash Flows -
	Six months ended July 2, 2011 and July 3, 2010	4

	Notes to Condensed Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition
	and Results of Operations	30

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	45

Item 4.	Controls and Procedures	45

	For the three months ended
(Amounts in thousands)	July 2, 2011			July 3, 2010

Net sales	$	294,491		$	301,660
Cost of products sold		227,462			231,085
Gross profit		67,029			70,575
Operating expenses:
Selling, general and administrative expenses		34,563			33,499
Amortization of intangible assets		6,669			6,791
Total operating expenses		41,232			40,290
Operating earnings		25,797			30,285
Foreign currency gain		218			122
Interest expense		(24,939	)		(30,207	)
Interest income		28			55
Income before provision (benefit) for income taxes		1,104			255
Provision (benefit) for income taxes		(959	)		664
Net income (loss)	$	2,063		$	(409	)

	For the six months ended
(Amounts in thousands)	July 2, 2011			July 3, 2010

Net sales	$	494,598		$	505,865
Cost of products sold		399,787			398,393
Gross profit		94,811			107,472
Operating expenses:
Selling, general and administrative expenses		69,927			67,305
Amortization of intangible assets		13,353			13,585
Total operating expenses		83,280			80,890
Operating earnings		11,531			26,582
Foreign currency gain		351			226
Interest expense		(51,399	)		(64,214	)
Interest income		64			108
Gain (loss) on modification or extinguishment of debt		(27,863	)		98,187
Income (loss) before provision for income taxes		(67,316	)		60,889
Provision for income taxes		1,513			7,196
Net income (loss)	$	(68,829	)	$	53,693

(Amounts in thousands, except share amounts)	July 2, 2011			December 31, 2010
ASSETS
Current Assets:
Cash and cash equivalents	$	24,069		$	17,498
Accounts receivable, less allowances of $4,731 and $5,294, respectively		150,652			97,859
Inventories:
Raw materials		56,678			39,828
Work in process		27,823			23,231
Finished goods		47,342			35,520
Total inventory		131,843			98,579
Prepaid expenses and other current assets		15,044			10,633
Deferred income taxes		9,147			12,189
Total current assets		330,755			236,758
Property and Equipment, at cost:
Land		3,746			3,741
Buildings and improvements		36,229			36,012
Machinery and equipment		269,283			264,300
Total property and equipment		309,258			304,053
Less accumulated depreciation		(200,980	)		(187,341	)
Total property and equipment, net		108,278			116,712
Other Assets:
Intangible assets, net		133,614			146,965
Goodwill		393,473			393,433
Deferred income taxes		2,349			2,279
Other		35,833			26,090
Total other assets		565,269			568,767
	$	1,004,302		$	922,237
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current Liabilities:
Accounts payable	$	83,172		$	54,973
Accrued expenses		105,470			75,117
Total current liabilities		188,642			130,090
Deferred income taxes		14,481			10,583
Other long term liabilities		53,203			60,489
Long-term debt		988,771			894,163

Commitments and contingencies

Stockholder's Deficit:
Preferred stock $0.01 par, 100 shares authorized, none issued and outstanding		-			-
Common stock $0.01 par, 100 shares authorized, issued and outstanding		-			-
Additional paid-in-capital		321,906			321,767
Accumulated deficit		(564,907	)		(496,078	)
Accumulated other comprehensive income		2,206			1,223
Total stockholder's deficit		(240,795	)		(173,088	)
	$	1,004,302		$	922,237

	For the six months ended
(Amounts in thousands)	July 2, 2011			July 3, 2010

Cash flows from operating activities:
Net income (loss)	$	(68,829	)	$	53,693
Adjustments to reconcile net income (loss) to cash
used in operating activities:
Depreciation and amortization expense		27,083			31,165
Non-cash interest expense, net		5,344			5,038
Gain on foreign currency transactions		(351	)		(226	)
(Gain) loss on modification or extinguishment of debt		27,863			(98,187	)
Deferred income taxes		328			3,565
Other		(5	)		28
Changes in operating assets and liabilities:
Accounts receivable, net		(53,949	)		(50,880	)
Inventories		(32,997	)		(21,310	)
Prepaid expenses and other assets		(4,115	)		539
Accounts payable		27,863			23,350
Accrued expenses		30,351			10,266
Cash payments on restructuring liabilities		(407	)		(1,640	)
Other		496			185
Net cash used in operating activities		(41,325	)		(44,414	)
Cash flows from investing activities:
Capital expenditures		(5,155	)		(5,514	)
Proceeds from sale of assets		10			52
Net cash used in investing activities		(5,145	)		(5,462	)
Cash flows from financing activities:
Proceeds from long-term debt		423,684			145,709
Payments on long-term debt		(348,684	)		(141,191	)
Net revolver borrowings		85,000			45,000
Payments on previous revolver credit facility		(30,000	)		-
Payment of early tender premium		(49,769	)		-
Debt issuance costs paid		(26,082	)		(4,919	)
Tax payments on behalf of parent		-			(1,532	)
Equity contributions		-			2,428
Equity repurchases		(1,183	)		(2,978	)
Net cash provided by financing activities		52,966			42,517
Impact of exchange rate movements on cash		75			(44	)
Net increase (decrease) in cash and cash equivalents		6,571			(7,403	)
Cash and cash equivalents at the beginning of the period		17,498			17,063
Cash and cash equivalents at the end of the period	$	24,069		$	9,660

The accompanying unaudited condensed consolidated financial statements of Ply Gem Holdings, Inc. and its subsidiaries (referred to herein as “Ply Gem Holdings”, “Ply Gem”, the “Company”, “we”, “us”, or “our”) have been prepared in accordance with U.S. generally accepted accounting principles as described in the consolidated financial statements and related notes included in our 2010 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 21, 2011. These statements do not include all of the information and footnotes required by U.S. generally accepted accounting principles and should be read in conjunction with our 2010 Annual Report on Form 10-K. In management’s opinion, all normal and recurring adjustments considered necessary for a fair presentation have been included. Operating results for the period from January 1, 2011 through July 2, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.

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 wholly owned by Ply Gem Prime Holdings, Inc. (“Ply Gem Prime”). Ply Gem Investment Holdings was incorporated on January 23, 2004 by affiliates of CI Capital Partners LLC (“CI Capital Partners”) for the purpose of acquiring Ply Gem Industries, Inc. (“Ply Gem Industries”) from Nortek, Inc. (“Nortek”). On January 11, 2010, Ply Gem Investment Holdings was merged with and into Ply Gem Prime, with Ply Gem Prime as the surviving corporation. As a result, each outstanding share of senior preferred stock of Ply Gem Investment Holdings was converted into a share of a corresponding class of shares of the capital stock of Ply Gem Prime. As a result, Ply Gem Holdings is currently a wholly owned subsidiary of Ply Gem Prime. The Ply Gem acquisition was completed on February 12, 2004, when Nortek sold Ply Gem Industries to Ply Gem Holdings pursuant to the terms of the stock purchase agreement among Ply Gem Investment Holdings, Nortek, and WDS LLC, dated as of December 19, 2003, as amended.

The Company’s fiscal quarters are based on periods ending on the last Saturday of the last week in the quarter. Therefore, the financial results of certain fiscal quarters will not be comparable to the prior and subsequent fiscal quarters. The accompanying financial statements include the Company’s condensed consolidated statements of operations for the three and six month periods ended July 2, 2011 and July 3, 2010, the condensed consolidated statements of cash flows for the six month periods ended July 2, 2011 and July 3, 2010, and the condensed consolidated balance sheets for the Company as of July 2, 2011 and December 31, 2010.

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

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

Accounts receivable-trade are recorded at their net realizable value. The allowance for doubtful accounts was $4.7 million and $5.3 million at July 2, 2011 and December 31, 2010, respectively. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The Company estimates the allowance for doubtful accounts based on a variety of factors including the length of time receivables are past due, the financial health of its customers, unusual macroeconomic conditions and historical experience. If the financial condition of its customers deteriorates or other circumstances occur that result in an impairment of customers’ ability to make payments, the Company records additional allowances as needed. The Company writes off uncollectible trade accounts receivable against the allowance for doubtful accounts when collection efforts have been exhausted and/or any legal action taken by the Company has concluded. During the three months ended July 2, 2011, the Company reclassified approximately $1.4 million from accounts receivable to a note receivable, which is classified as other assets in the accompanying condensed consolidated balance sheet.

Inventories in the accompanying condensed consolidated balance sheets are valued at the lower of cost or market. The Company records provisions, as appropriate, to write-down obsolete and excess inventory to estimated net realizable value. The process for evaluating obsolete and excess inventory often requires the Company to make subjective judgments and estimates concerning future sales levels, quantities and prices at which such inventory will be sold in the normal course of business. Accelerating the disposal process or incorrect estimates of future sales may cause actual results to differ from estimates at the time such inventory is disposed or sold. As of July 2, 2011, the Company had inventory purchase commitments of approximately $47.1 million. Inventory reserves were approximately $7.1 million at July 2, 2011, decreasing approximately $0.1 million compared to the December 31, 2010 reserve balance of approximately $7.2 million.

The Company tests for long-lived asset impairment at the following asset group levels: (i) Siding, Fencing, and Stone (“Siding”), (ii) the combined U.S. Windows companies in the Windows and Doors segment (“US Windows”), and (iii) Ply Gem Canada (formerly known as CWD Windows and Doors, Inc.) in the Windows and Doors segment. For purposes of recognition and measurement of an impairment loss, a long-lived asset or asset group should represent the lowest level for which an entity can separately identify cash flows that are largely independent of the cash flows of other assets and liabilities. There were no indications of impairment during the three and six months ended July 2, 2011.

The Company evaluates goodwill for impairment on an annual basis and whenever events or business conditions warrant. All other intangible assets are amortized over their estimated useful lives. The Company assesses goodwill for impairment at the November month end 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. To evaluate goodwill for impairment, the Company estimates 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. There were no indications of impairment during the three and six months ended July 2, 2011 that would trigger an interim impairment test. The Company will continue to evaluate goodwill during future periods and further declines in the residential housing and repair and remodeling markets could result in goodwill impairments.

Debt issuance costs, composed of facility, agency, and certain legal fees associated with acquiring new debt financing, are amortized over the contractual term of the related agreement using the effective interest method. Debt issuance costs, net of accumulated amortization, were approximately $29.2 million and $20.6 million at July 2, 2011 and December 31, 2010, respectively, and have been recorded in other long term assets in the accompanying condensed consolidated balance sheets. Amortization of debt issuance costs for the three month periods ended July 2, 2011 and July 3, 2010 was approximately $1.2 million and $1.5 million, respectively. Amortization of debt issuance costs for the six month periods ended July 2, 2011 and July 3, 2010 was approximately $2.6 million and $3.5 million, respectively. Amortization of debt issuance costs is recorded in interest expense in the accompanying condensed consolidated statements of operations.

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

Estimates are required with respect to, among other things, the appropriate state income tax rates used in the various states that the Company and its subsidiaries are required to file, the potential utilization of operating and capital loss carry-forwards for both federal and state income tax purposes and valuation allowances required, if any, for tax assets that may not be realized in the future. The Company establishes reserves when, despite our belief that our tax return positions are fully supportable, certain positions could be challenged, and the positions may not be fully sustained. Subsequent to February 12, 2004, U.S. federal income tax returns are prepared and filed by Ply Gem Investment Holdings on behalf of itself, Ply Gem Holdings, and Ply Gem Industries and its subsidiaries. We have executed a tax sharing agreement with Ply Gem Holdings and Ply Gem Investment Holdings (Ply Gem Investment Holdings has since been merged with and into Ply Gem Prime, with Ply Gem Prime being the surviving corporation), pursuant to which tax liabilities for each respective party are computed on a stand-alone basis. U.S. subsidiaries file unitary, combined federal income tax returns and separate state income tax returns. Ply Gem Canada files separate Canadian income tax returns.

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

For the three month periods ended July 2, 2011 and July 3, 2010, the Company recorded a gain from foreign currency transactions of approximately $0.2 million and $0.1 million, respectively. For the six month periods ended July 2, 2011 and July 3, 2010, the Company recorded a gain from foreign currency transactions of approximately $0.4 million and $0.2 million, respectively. As of July 2, 2011 and December 31, 2010, accumulated other comprehensive income included a currency translation adjustment of approximately $1.0 million and $1.6 million, respectively.

							Significant
(Amounts in thousands)							Other		Significant
			Fair		Quoted Prices		Observable		Unobservable
	Carrying		Value		in Active Markets		Inputs		Inputs
	Value *		Total		(Level 1)		(Level 2)		(Level 3)
As of July 2, 2011
Liabilities:
Senior Subordinated Notes-13.125%	$	150,000	$	158,250	$	158,250	$	-	$	-
Senior Secured Notes-8.25%		800,000		762,000		762,000		-		-
	$	950,000	$	920,250	$	920,250	$	-	$	-

As of December 31, 2010
Liabilities:
Senior Subordinated Notes-13.125%	$	150,000	$	159,375	$	159,375	$	-	$	-
Senior Secured Notes-11.75%		725,000		775,750		775,750		-		-
	$	875,000	$	935,125	$	935,125	$	-	$	-

In December 2010, the Financial Accounting Standards Board (“FASB”) issued guidance for goodwill and other intangibles, specifically when to perform Step Two of goodwill impairment tests for reporting units with zero or negative carrying amounts. The guidance modifies Step One of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step Two of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that impairment may exist. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. The adoption of this standard did not have an effect on the Company’s financial position and results of operations.

In June 2011, the FASB issued an accounting standards update to comprehensive income aimed at increasing the prominence of items reported in other comprehensive income in the financial statements. This update requires companies to present comprehensive income in a single statement below net income or in a separate statement of comprehensive income immediately following the income statement. Companies will no longer be allowed to present comprehensive income on the statement of changes in shareholders' equity. In both options, companies must present the components of net income, total net income, the components of other comprehensive income, total other comprehensive income and total comprehensive income. This update does not change which items are reported in other comprehensive income or the requirement to report reclassifications of items from other comprehensive income to net income. This requirement will become effective for the Company beginning with the first quarter 2012 Form 10-Q filing and will require retrospective application for all periods presented. Management is currently evaluating these changes to determine which option will be chosen for the presentation of comprehensive income. Other than the change in presentation, management has determined these changes will not have an impact on the consolidated financial statements.

The Company records the excess of purchase price over the fair value of the net assets of acquired companies as goodwill or other identifiable intangible assets. The Company performs an annual test for goodwill impairment at the November month end each year and also at any other date when events or changes in circumstances indicate that the carrying value of these assets may exceed their fair value. The Company has defined its reporting units and performs the impairment testing of goodwill at the operating segment level. The Company aggregated US Windows and Ply Gem Canada, which represent components of the Windows and Doors operating segment, into a single reporting unit since they have similar economic characteristics and certain interdependencies. Thus, the Company has two reporting units: (1) Siding, Fencing, and Stone and (2) Windows and Doors. Separate valuations are performed for each of these reporting units in order to test for impairment.

The Company uses the two-step method to determine goodwill impairment. If the carrying amount of a reporting unit exceeds its fair value (Step One), the Company measures the possible goodwill impairment based upon a hypothetical allocation of the fair value estimate of the reporting unit to all of the underlying assets and liabilities of the reporting unit, including previously unrecognized intangible assets (Step Two). The excess of the reporting unit’s fair value over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. An impairment loss is recognized to the extent that a reporting unit’s recorded goodwill exceeds the implied fair value of goodwill. There was no goodwill impairment at December 31, 2010 and no impairment indicators which would trigger an interim impairment test during the three and six months ended July 2, 2011.

To determine the fair value of its reporting units, the Company equally considers both the income and market valuation methodologies. The income valuation methodology uses the fair value of the cash flows that the reporting unit can be expected to generate in the future. This method requires management to project revenues, operating expenses, working capital investment, capital spending and cash flows for the reporting unit over a multi-year period as well as determine the weighted average cost of capital to be used as the discount rate. The Company also utilizes the market valuation method to estimate the fair value of the reporting units by utilizing comparable public company multiples. These comparable public company multiples are then applied to the reporting unit’s financial performance. During the year ended December 31, 2010, the Company utilized forward-looking market multiples for its reporting units. The forward multiples were used since each reporting unit incurred various restructuring activities during 2010. The market approach is more volatile as an indicator of fair value as compared to the income approach as internal forecasts and projections have historically been more stable. The Company equally weights the approaches to balance the internal and external factors affecting the Company’s fair value.

The Company’s fair value estimates of its reporting units and goodwill are sensitive to a number of assumptions including discount rates, cash flow projections, operating margins, and comparable market multiples. In order to accurately forecast future cash flows, the Company estimates single family housing starts and the repair and remodeling market’s growth rates. However, there is no assurance that: (1) valuation multiples will not decline, (2) discount rates will not increase, or (3) the earnings, book values or projected earnings and cash flows of the Company’s reporting units will not decline. The Company will continue to evaluate goodwill during future periods and declines in the residential housing and repair and remodeling markets could result in goodwill impairments.

	Average
	Amortization
(Amounts in thousands)	Period				Accumulated			Net Carrying
	(in Years)		Cost		Amortization			Value
As of July 2, 2011:
Patents		14	$	12,770	$	(6,890	)	$	5,880
Trademarks/Tradenames		11		85,644		(41,589	)		44,055
Customer relationships		13		158,158		(74,761	)		83,397
Other				1,633		(1,351	)		282
Total intangible assets		13	$	258,205	$	(124,591	)	$	133,614

As of December 31, 2010:
Patents		14	$	12,770	$	(6,418	)	$	6,352
Trademarks/Tradenames		11		85,644		(34,885	)		50,759
Customer relationships		13		158,158		(68,651	)		89,507
Other				1,631		(1,284	)		347
Total intangible assets		13	$	258,203	$	(111,238	)	$	146,965

On June 9, 2008, Ply Gem Industries issued $700.0 million of 11.75% Senior Secured Notes due 2013 (“11.75% Senior Secured Notes”) at an approximate 1.0% discount, yielding proceeds of approximately $693.5 million. Interest was 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 11.75% Senior Secured Notes in a private placement transaction. The additional $25.0 million of 11.75% Senior Secured Notes had the same terms and covenants as the initial $700.0 million of 11.75% Senior Secured Notes.

On February 11, 2011, the Company purchased approximately $718.6 million principal amount of the 11.75% Senior Secured Notes in a tender offer at a price of $1,069.00 per $1,000 principal amount, which included an early tender payment of $40.00 per $1,000 principal amount, plus accrued and unpaid interest, and on February 28, 2011, the Company purchased $6.0 million principal amount of the 11.75% Senior Secured Notes in the tender offer at a price of $1,029.00 per $1,000 principal amount, plus accrued and unpaid interest. On March 13, 2011, pursuant to the terms of the indenture governing the 11.75% Senior Secured Notes, the Company redeemed the remaining approximate $0.4 million at a redemption price of 103% of the principal amount thereof, plus accrued and unpaid interest. As a result of these transactions, the Company paid cumulative early tender premiums of approximately $49.8 million during the six months ended July 2, 2011. Following the redemption on March 13, 2011, there were no longer any 11.75% Senior Secured Notes outstanding. The 11.75% Senior Secured Notes would have matured on June 15, 2013 and bore interest at the rate of 11.75% per annum.

On February 11, 2011, Ply Gem Industries issued $800.0 million of 8.25% Senior Secured Notes due 2018 (“8.25% Senior Secured Notes”) at par. Ply Gem Industries used the proceeds to purchase approximately $724.6 million principal amount of its outstanding 11.75% Senior Secured Notes in a tender offer, to redeem the remaining approximate $0.4 million principal amount of outstanding 11.75% Senior Secured Notes, and to pay related fees and expenses. A portion of the early tender premiums and the original unamortized discount on the 11.75% Senior Secured Notes was recorded as a discount on the $800.0 million of 8.25% Senior Secured Notes given that the 2011 transaction was predominately accounted for as a loan modification. The 8.25% Senior Secured Notes will mature on February 15, 2018 and bear interest at the rate of 8.25% per annum. Interest will be paid semi-annually on February 15 and August 15 of each year.

Prior to February 15, 2014, Ply Gem Industries may redeem the 8.25% Senior Secured Notes, in whole or in part, at a redemption price equal to 100% of the principal amount plus a “make-whole” premium. Prior to February 15, 2014, Ply Gem Industries may redeem up to 35% of the aggregate principal amount of the 8.25% Senior Secured Notes with the net cash proceeds from certain equity offerings at a redemption price equal to 108.25% of the aggregate principal amount of the 8.25% Senior Secured Notes, plus accrued and unpaid interest, if any, provided that at least 55% of the original aggregate principal amount of the 8.25% 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 the greater of (i) $80.0 million of the 8.25% Senior Secured Notes and (ii) 10% of the principal amount of the 8.25% Senior Secured Notes issued pursuant to the indenture governing the 8.25% Senior Secured Notes (including additional notes) at a redemption price equal to 103% of the aggregate amount of the 8.25 % Senior Secured Notes, plus accrued and unpaid interest, if any. At any time on or after February 15, 2014, Ply Gem Industries may redeem the 8.25% Senior Secured Notes, in whole or in part, at declining redemption prices set forth in the indenture governing the 8.25% Senior Secured Notes, plus, in each case, accrued and unpaid interest, if any, to the redemption date.

The 8.25% 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 8.25% Senior Secured Notes contains certain covenants that limit the ability of Ply Gem Industries and its restricted 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 assets. In particular, Ply Gem Industries and its restricted subsidiaries may not incur additional debt (other than permitted debt in limited circumstances) unless, after giving effect to such incurrence, the consolidated interest coverage ratio of Ply Gem Industries would be at least 2.00 to 1.00. In the absence of satisfying the consolidated interest coverage ratio, Ply Gem Industries and its restricted subsidiaries may only incur additional debt in limited circumstances, including, but not limited to, debt under our credit facilities not to exceed the greater of (x) $250 million less the amounts of certain prepayments or commitment reductions as a result of repayments from asset sales and (y) the borrowing base; purchase money indebtedness in an aggregate amount not to exceed $25.0 million at any one time outstanding; debt of foreign subsidiaries in an aggregate amount not to exceed $30.0 million at any one time outstanding; debt pursuant to a general debt basket in an aggregate amount not to exceed $50.0 million at any one time outstanding; and the refinancing of other debt under certain circumstances. In addition, Ply Gem Industries and its restricted subsidiaries are limited in their ability to make certain payments, pay dividends or make other distributions to Ply Gem Holdings. Permitted payments, dividends and distributions include, but are not limited to, those used to redeem equity of officers, directors or employees under certain circumstances, to pay taxes, and to pay customary and reasonable costs and expenses of an offering of securities that is not consummated.

The 8.25% Senior Secured Notes and the related guarantees are secured on a first-priority lien basis by substantially all of the assets (other than the assets securing the Company’s obligations under the ABL Facility, which consist of accounts receivable, inventory, cash, deposit accounts, securities accounts, chattel paper and proceeds of the foregoing and certain assets such as contract rights, instruments and documents related thereto) of Ply Gem Industries and the Guarantors and on a second-priority lien basis by the assets that secure the ABL Facility.

Concurrently with the 11.75% Senior Secured Notes offering on June 9, 2008, Ply Gem Industries, Ply Gem Holdings and the subsidiaries of Ply Gem Industries entered into an ABL Facility. The prior 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. In July 2009, the Company amended the prior ABL Facility to increase the available commitments by $25.0 million from $150.0 million to $175.0 million. As of July 2, 2011, there were no outstanding borrowings under the prior ABL Facility, as it was replaced with the new ABL Facility on January 26, 2011.

On January 26, 2011, Ply Gem Industries, Ply Gem Holdings and the subsidiaries of Ply Gem Industries entered into a new ABL Facility. Ply Gem Industries and Ply Gem Canada used the initial borrowing under the new ABL Facility to repay all of the outstanding indebtedness (including all accrued interest) under the Senior Secured Asset-Based Revolving Credit Facility due 2013. The new ABL Facility provides for revolving credit financing of up to $175.0 million, subject to borrowing base availability, including sub-facilities for letters of credit, swingline loans, and borrowings in Canadian dollars and U.S. dollars by Ply Gem Canada. Under the new ABL Facility, $160.0 million is available to Ply Gem Industries and $15.0 million is available to Ply Gem Canada. In addition, the new ABL Facility provides that the revolving commitments may be increased to $250.0 million, subject to certain terms and conditions. All outstanding loans under the new ABL Facility are due and payable in full on January 26, 2016 (or April 15, 2014 if the 13.125% Senior Subordinated Notes are not repaid or refinanced by such date).

Borrowings under the new ABL Facility bear interest at a rate per annum equal to, at Ply Gem Industries’ option, either (a) a base rate determined by reference to the higher of (1) the corporate base rate of the administrative agent and (2) the federal funds effective rate plus 0.5% or (b) a Eurodollar rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, in each case plus an applicable margin. The initial applicable margin for borrowings under the new ABL Facility is 1.50% for base rate loans and 2.50% for Eurodollar rate loans. The applicable margin for borrowings under the new ABL Facility are subject to step ups and step downs based on average excess availability under that facility. Swingline loans bear interest at a rate per annum equal to the base rate plus the applicable margin.

In addition to paying interest on outstanding principal under the new ABL Facility, Ply Gem Industries is required to pay a commitment fee, in respect of the unutilized commitments thereunder, which fee will be determined based on utilization of the new ABL Facility (increasing when utilization is low and decreasing when utilization is high). Ply Gem Industries must also pay customary letter of credit fees equal to the applicable margin on Eurodollar loans and agency fees. The new ABL Facility eliminated the interest rate floor that existed in the prior ABL Facility. As of July 2, 2011, the Company’s interest rate on the new ABL Facility was approximately 2.8%. The new ABL Facility contains a requirement to maintain a fixed charge coverage ratio of 1.0 to 1.0 if the Company’s excess availability is less than the greater of (a) 12.5% of the lesser of (i) the commitments and (ii) the borrowing base and (b) $17.5 million. The new ABL Facility also contains a cash dominion requirement if the Company’s excess availability is less than the greater of (a) 15.0% of the lesser of (i) the commitments and (ii) the borrowing base and (b) $20.0 million.

All obligations under the new ABL Facility are unconditionally guaranteed by Ply Gem Holdings and substantially all of Ply Gem Industries’ existing and future, direct and indirect, wholly owned domestic subsidiaries. All obligations under the new ABL Facility, and the guarantees of those obligations, are secured, subject to certain exceptions, by substantially all of the assets of Ply Gem Industries and the guarantors, including a first-priority security interest in personal property consisting of accounts receivable, inventory, cash, deposit accounts, and certain related assets and proceeds of the foregoing and a second-priority security interest in, and mortgages on, substantially all of Ply Gem Industries’ and the Guarantors’ material owned real property and equipment and all assets that secure the 8.25% 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 new 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.

The new ABL Facility contains certain covenants that limit the Company’s ability and the ability of the Company’s 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 transactions with affiliates, and consolidate, merge or sell assets. In particular, the Company is permitted to incur additional debt in limited circumstances, including senior secured notes in an aggregate principal amount not to exceed $800.0 million, permitted subordinated indebtedness in an aggregate principal amount not to exceed $75.0 million at any time outstanding (subject to the ability to incur additional permitted subordinated debt provided that immediately after giving effect to such incurrence excess availability is more than 25% of the lesser of the total borrowing base and the aggregate commitments and Ply Gem Industries is in pro forma compliance with the fixed charge coverage ratio), purchase money indebtedness in an aggregate amount not to exceed $15.0 million at any one time outstanding, debt of foreign subsidiaries (other than Canadian subsidiaries) in an aggregate amount not to exceed $2.5 million at any one time outstanding, and the refinancing of other debt under certain circumstances. In addition, Ply Gem Industries is limited in its ability to pay dividends or make other distributions to Ply Gem Holdings. Permitted dividends and distributions include those used to redeem equity of its officers, directors or employees under certain circumstances, to pay taxes, to pay operating and other corporate overhead costs and expenses in the ordinary course of business in an aggregate amount not to exceed $2.0 million in any calendar year plus reasonable and customary indemnification claims of its directors and executive officers and to pay fees and expenses related to any unsuccessful debt or equity offering. Ply Gem Industries may also make additional payments to Ply Gem Holdings which may be used by Ply Gem Holdings to pay dividends or other distributions on its stock under the new ABL Facility so long as before and after giving effect to such dividend or other distribution excess availability is greater than 25% of the lesser of the total borrowing base and the aggregate commitments and Ply Gem Industries is in pro forma compliance with the consolidated fixed charge coverage ratio.

During August 2011, the Company exercised the accordion feature under the ABL Facility for $37.5 million, or 50% of the eligible accordion, increasing the Company’s ABL Facility from $175.0 million to $212.5 million. Under the terms of the ABL Facility, the Company has the ability to further increase the revolving commitments up to another $37.5 million to $250.0 million. In addition to the $37.5 million accordion exercise, the Company amended the existing ABL Facility to include, among other things, the following: (i) increased the limitation on the Canadian excess availability threshold to 25% from 15% for purposes of determining whether a covenant trigger event has occurred, (ii) created the option for the Company to provide interim borrowing base certificates, at its sole discretion, in periods of significant mid-month working capital increases, (iii) adjusted the Canadian borrowing base definition to include U.S. excess availability, (iv) excluded from the definition of restricted payments $12.6 million of future equity repurchases from certain executive officers, (v) modified the floor of the cash dominion event from $20.0 million to $17.5 million for the months of January, February, and March, and (vi) modified the asset disposition prohibition to exclude certain assets. Considering these subsequent amendments and the exercise of the $37.5 million accordion feature, the Company would have had approximately $120.8 million of contractual availability and approximately $90.0 million of borrowing base availability under the ABL Facility as of July 2, 2011.

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 acquisition of MWM Holding, Inc. (“MWM Holding”), 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.

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 the Company’s indirect stockholders and ultimately to Ply Gem Prime. Such notes were then transferred to the Company and then to Ply Gem Industries as a capital contribution and cancelled on February 12, 2010. As of July 3, 2010, there were no 9% Senior Subordinated Notes outstanding.

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 previous 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, 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. At any time on or after January 15, 2012, Ply Gem Industries may redeem the 13.125% Senior Subordinated Notes, in whole or in part, at declining redemption prices set forth in the indenture governing the 13.125% Senior Subordinated Notes, plus, in each case, 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 the Company’s existing and future debt, including the ABL Facility and the 8.25% 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 8.25% 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 repurchase or redeem their stock, make loans and investments, sell assets, incur certain liens, enter into transactions with affiliates, and consolidate, merge or sell Ply Gem Industries’ assets. In particular, Ply Gem Industries may not incur additional debt (other than permitted debt in limited circumstances) unless, after giving effect to such incurrence, the consolidated interest coverage ratio would be at least 2.00 to 1.00. In the absence of satisfying the consolidated interest coverage ratio, Ply Gem Industries may only incur additional debt in limited circumstances, including, debt under credit facilities not to exceed the sum of (a) the greater of (i) $250.0 million and (ii) the borrowing base and (b) the greater of (i) $725.0 million less the amounts of certain prepayments or commitment reductions as a result of repayments from asset sales and (ii) an amount that is three times Consolidated Cash Flow (as defined in the indenture) for the four-quarter period; purchase money indebtedness in an aggregate amount not to exceed $25.0 million at any one time outstanding; debt of foreign subsidiaries in an aggregate amount not to exceed $30.0 million at any one time outstanding; debt pursuant to a general debt basket in an aggregate amount not to exceed $25.0 million at any one time outstanding; and the refinancing of other debt under certain circumstances. In addition, Ply Gem Industries is limited in its ability to pay dividends or make other distributions to Ply Gem Holdings. Permitted dividends and distributions include those used to redeem equity of its officers, directors or employees under certain circumstances, to pay taxes, to pay out-of-pocket costs and expenses in an aggregate amount not to exceed $500,000 in any calendar year, to pay customary and reasonable costs and expenses of an offering of securities that is not consummated and other dividends or distributions of up to $20.0 million. Ply Gem Industries may also pay dividends or make other distributions to Ply Gem Holdings so long as it can incur $1.00 of additional debt pursuant to the 2.00 to 1.00 consolidated interest coverage ratio test described above and so long as the aggregate amount of such dividend or distribution together with certain other dividends and distributions does not exceed 50% of consolidated net income plus certain other items.

As a result of the 8.25% Senior Secured Notes issuance and purchase and redemption of the 11.75% Senior Secured Notes during the six months ended July 2, 2011, the Company performed an analysis to determine the proper accounting treatment for this transaction. Specifically, the Company evaluated each creditor with ownership in both the 11.75% Senior Secured Notes and 8.25% Senior Secured Notes to determine whether the transaction was to be accounted for as a modification or an extinguishment of debt. The Company determined that this transaction resulted predominantly in a modification but in some instances as an extinguishment as some creditors did not participate in both the 11.75% Senior Secured Notes and 8.25% Senior Secured Notes. The Company incurred an early tender premium of approximately $49.8 million in conjunction with this transaction, of which approximately $38.9 million was recorded as a discount on the 8.25% Senior Secured Notes and approximately $10.9 million was expensed as loss on extinguishment of debt in the condensed consolidated statement of operations. The Company also expensed approximately $0.8 million for the unamortized discount and $2.8 million for the unamortized debt issuance costs for the 11.75% Senior Secured Notes in this transaction. The Company also incurred approximately $25.9 million of costs associated with this transaction, of which approximately $13.6 million was recorded as debt issuance costs and approximately $12.2 million was expensed as a loss on modification or extinguishment of debt in the condensed consolidated statement of operations.

As a result of the ABL Facility refinancing that was conducted during the first quarter of 2011, the Company evaluated the proper accounting treatment for the debt issuance costs associated with the prior ABL Facility and the new ABL Facility as there were certain members of the loan syndication that existed in both facilities and other members who were not participants in the new ABL Facility. Based on this evaluation, the Company expensed approximately $1.2 million of debt issuance costs as a loss on modification or extinguishment of debt and recorded approximately $2.1 million of debt issuance costs.

As a result of the $141.2 million redemption of the previous 9% Senior Subordinated Notes on February 16, 2010, the Company recognized a loss on extinguishment of debt of approximately $2.2 million related predominantly to the write-off of unamortized debt issuance costs. On February 12, 2010, as a result of the $218.8 million contribution of the 9% Senior Subordinated Notes by an affiliate of the Company’s controlling stockholder in exchange for equity of Ply Gem Prime valued at approximately $114.9 million, the Company recognized a gain on extinguishment of approximately $100.4 million, including the write-off of unamortized debt issuance costs of approximately $3.5 million. The $98.2 million gain on debt extinguishment was recorded separately in the accompanying condensed consolidated statement of operations for the six months ended July 3, 2010.

	For the six months ended
(Amounts in thousands)	July 2, 2011			July 3, 2010

Gain (loss) on extinguishment of debt:
Tender premium	$	(10,883	)	$	-
11.75% Senior Secured Notes unamortized discount		(775	)		-
11.75% Senior Secured Notes unamortized debt issuance costs		(2,757	)		-
		(14,415	)		-

Carrying value of 9% Senior Subordinated Notes		-			360,000
9% Senior Subordinated Notes unamortized debt issuance costs		-			(5,780	)
9% Senior Subordinated Notes unamortized premium		-			100
Reaquisition price of 9% Senior Subordinated Notes		-			(256,133	)
		-			98,187
Loss on modification of debt:
Third party fees for 8.25% Senior Secured Notes		(12,261	)		-
Unamortized debt issuance costs for previous ABL Facility		(1,187	)		-
		(13,448	)		-

Total gain (loss) on modification or extinguishment of debt	$	(27,863	)	$	98,187

In connection with the Ply Gem acquisition, in which Ply Gem Industries was acquired from Nortek in February 2004, Nortek has agreed to indemnify the Company for certain liabilities as set forth in the stock purchase agreement governing the Ply Gem acquisition. In the event Nortek is unable to satisfy amounts due under these indemnifications, the Company would be liable. The Company believes that Nortek has the financial capacity to honor its indemnification obligations and therefore does not anticipate incurring any losses related to liabilities indemnified by Nortek under the stock purchase agreement. A receivable related to this indemnification has been recorded in other long-term assets in the approximate amount of $3.7 million and $3.9 million at July 2, 2011 and December 31, 2010, respectively. As of July 2, 2011 and December 31, 2010, the Company has recorded liabilities related to these indemnifications of approximately $0.4 million in current liabilities, and $3.3 million and $3.5 million, respectively, in long-term liabilities, consisting of the following:

The Company sells a number of products and offers a number of warranties on these products. The specific terms and conditions of these warranties vary depending on the product sold and the country in which the product is sold. The Company estimates the costs expected to be incurred under its warranties and records a liability for such costs at the time of sale, which is recorded in both accrued expenses and other long-term liabilities in the accompanying condensed consolidated balance sheets. Factors that affect the Company’s warranty liabilities include the number of units sold, historical and anticipated rates of warranty claims, cost per claim and new product introduction. The Company periodically assesses the adequacy of the recorded warranty claims and adjusts the amounts as necessary. As of July 2, 2011 and December 31, 2010, warranty liabilities of approximately $8.5 million and $9.4 million, respectively, have been recorded in current liabilities and approximately $32.3 million and $32.4 million, respectively, have been recorded in long-term liabilities.

The Company is subject to other contingencies, including legal proceedings and claims arising out of its businesses that cover a wide range of matters, including, among others, environmental matters, contract and employment claims, product liability, warranty and modification, adjustment or replacement of component parts of units sold, which may include product recalls. Product liability, environmental and other legal proceedings also include matters with respect to businesses previously owned. The Company has used various substances in their products and manufacturing operations, which have been or may be deemed to be hazardous or dangerous, and the extent of its potential liability, if any, under environmental, product liability and workers’ compensation statutes, rules, regulations and case law is unclear. Further, due to the lack of adequate information and the potential impact of present regulations and any future regulations, there are certain circumstances in which no range of potential exposure may be reasonably estimated. Also, it is not possible to ascertain the ultimate legal and financial liability with respect to contingent liabilities, including lawsuits, and therefore no such estimate has been made. However, the Company is not aware of any contingencies for which a material loss is reasonably possible.

On February 24, 2011, the Company received a draft Administrative Order on Consent from the United States Environmental Protection Agency, Region III, under Section 3008(h) of the Resource Conservation and Recovery Act (RCRA) relating to contamination associated with an underground storage tank formerly located at its Rocky Mount, Virginia property. The Company is currently in the process of finalizing the Consent Order with the EPA, Region III. Certain liabilities for this subject contamination have 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 MWM Holding to Fenway Partners. As the successor-in-interest of Fenway Partners, the Company is similarly indemnified by U.S. Industries, Inc. The Company’s ability to seek indemnification from U.S. Industries is, however, limited by the terms of the indemnity as well as the strength of U.S. Industries’ financial condition, which could change in the future.

Income taxes for interim periods have been included in the accompanying condensed consolidated financial statements on the basis of an estimated annual effective tax rate. In addition to the tax resulting from applying the estimated annual effective tax rate to pre-tax income (loss), the Company included certain items treated as discrete events to arrive at an estimated effective tax rate. For the six months ended July 2, 2011, the Company’s estimated effective income tax rate was approximately 2.2%, which varied from the statutory rate primarily due to state income tax expense, valuation allowance, and foreign income taxes. The tax expense of approximately $1.5 million is primarily state income tax expense for the six months ended July 2, 2011.

During February 2010, approximately $218.8 million aggregate principal amount of 9% Senior Subordinated Notes held by affiliates of Ply Gem Prime’s controlling stockholders was transferred to Ply Gem Prime’s controlling stockholders and ultimately to Ply Gem Prime in exchange for equity of Ply Gem Prime valued at approximately $114.9 million. These notes were then transferred to the Company and then to Ply Gem Industries as a capital contribution and cancelled. Also during February 2010, Ply Gem Industries redeemed the remaining $141.2 million aggregate principal amount of outstanding 9% Senior Subordinated Notes (including approximately $62.5 million aggregate principal amount of the 9% Senior Subordinated Notes held by affiliates of Ply Gem Prime’s controlling stockholders). As a result of these debt transactions, the Company realized approximately $35.3 million of additional cancellation of indebtedness income (“CODI”) for income tax purposes during the six months ended July 3, 2010.

As of July 2, 2011, a full valuation allowance has been provided against certain deferred tax assets as it is presently deemed more likely than not that the benefit of such net tax assets will not be utilized. Due to recent cumulative losses incurred by the Company, management did not rely upon projections of future taxable income in assessing the recoverability of deferred tax assets. The Company currently has book goodwill of approximately $13.4 million that is not amortized, which results in a deferred tax liability of approximately $3.5 million at July 2, 2011. Therefore, the reversal of deferred tax liabilities related to this goodwill is not considered a source of future taxable income in assessing the realization of its deferred tax assets. The Company continues to evaluate the realizability of its net deferred tax assets and its estimates are subject to change.

Despite the Company’s belief that its tax return positions are consistent with applicable tax laws, the Company believes that certain positions could be challenged by taxing authorities. The Company’s tax reserves reflect the difference between the tax benefit claimed on tax returns and the amount recognized in the financial statements. These reserves have been established based on management’s assessment as to potential exposure attributable to permanent differences and interest applicable to both permanent and temporary differences. The tax reserves are reviewed periodically and adjusted in light of changing facts and circumstances, such as progress of tax audits, lapse of applicable statutes of limitations and changes in tax law. The Company’s state income tax returns are currently under examination by various state taxing authorities. During the three months ended July 2, 2011, the Company reversed approximately $6.6 million of tax contingency reserves due to the closing of a federal income tax audit. The reversal was primarily offset with an increase to the valuation allowance.

As of July 2, 2011, the Company has not established U.S. deferred taxes on approximately $19.2 million of unremitted earnings of the Company’s foreign subsidiary, Ply Gem Canada. As of July 2, 2011, these earnings are intended to be indefinitely reinvested; as such, it is not practical or appropriate to calculate the estimated deferred tax liability on these indefinitely reinvested earnings. In the future, the Company may decide not to indefinitely reinvest these earnings at which time the Company would record the related deferred tax liabilities which could be significant.

Upon the completion of the acquisitions of Ply Gem and MW, certain members of management contributed their investment in predecessor companies in exchange for phantom common stock units and phantom preferred stock units which were governed by a phantom stock plan. Under the phantom stock plan, each participant’s interest in the plan was recorded in a bookkeeping account; however, no stock was initially issued under the phantom stock plan. Each account recorded a number of units so that, any “phantom common stock units” were deemed to be invested in common stock and any “phantom preferred stock units” were deemed invested in senior preferred stock. Under the plan, upon liquidation and payment of a participant’s account, the value of the account generally was to be paid to the participant either in cash or in shares of Ply Gem Prime’s stock having a fair market value equal to the account balance, at the discretion of Ply Gem Prime.

In 2006, the Company converted all phantom common and preferred stock units into a cash account payable on a fixed schedule in years 2007 and beyond. The value of the portion of each cash account that represented phantom common units equaled the number of phantom common stock units credited to the phantom plan account on September 25, 2006 multiplied by $10.00. From September 25, 2006 through January 31, 2007, the value of the cash account was updated as if interest was credited on such value and compounded at December 31, 2006 at a rate equal to the applicable federal rate for short-term loans. This portion of the account was paid to each party in a single lump-sum cash payment on January 31, 2007. The value of the portion of the cash account that represented the value of the phantom preferred stock units equaled the face amount of the number of shares of senior preferred stock represented by such units. This portion of the account is credited with deemed earnings, as if with interest, at an annual rate of 10% compounded semi-annually as of each June 30 and December 31, from the date of issuance of the phantom preferred stock unit through the date of payment. This portion of the account is payable on each of August 31, 2009, 2010, and 2011, such that one third of the original face amount, plus deemed earnings, is paid on each such date, or, if earlier, the officer’s death, disability or a change of control. As of July 2, 2011 and December 31, 2010, the Company accrued on its condensed consolidated balance sheets approximately $2.3 million and $2.2 million, respectively, in accrued expenses for this liability.

The Company has two reportable segments: (1) Siding, Fencing, and Stone, and (2) Windows and Doors. The operating earnings (loss) of each segment includes the revenue generated on transactions involving products within that segment less identifiable expenses. Corporate unallocated income and expenses include items which are not directly attributed to or allocated to either of the reporting segments. Such items include interest, legal costs, corporate payroll, and unallocated finance and accounting expenses. Corporate unallocated assets include debt issuance costs, cash and certain non-operating receivables.

	For the three months ended						For the six months ended
(Amounts in thousands)	July 2, 2011			July 3, 2010			July 2, 2011			July 3, 2010

Net Sales
Siding, Fencing, and Stone	$	187,340		$	194,599		$	309,482		$	312,267
Windows and Doors		107,151			107,061			185,116			193,598
	$	294,491		$	301,660		$	494,598		$	505,865

Operating earnings (loss)
Siding, Fencing, and Stone	$	34,726		$	37,565		$	39,976		$	48,087
Windows and Doors		(5,263	)		(3,838	)		(20,470	)		(14,581	)
Unallocated		(3,666	)		(3,442	)		(7,975	)		(6,924	)
	$	25,797		$	30,285		$	11,531		$	26,582

	Total assets as of
	July 2,			December 31,
		2011			2010

Siding, Fencing, and Stone	$	649,748		$	585,542
Windows and Doors		296,847			298,898
Unallocated		57,707			37,797
	$	1,004,302		$	922,237

Under the “General Advisory Agreement” the Company has entered into with CI Capital Partners LLC (“CI Capital Partners”), formerly Caxton-Iseman Capital, LLC, CI Capital Partners provides the Company with acquisition and financial advisory services as the Board of Directors shall reasonably request. Under the General Advisory Agreement, the Company expensed management fees paid to CI Capital Partners of approximately $0.9 million and $0.9 million within selling, general, and administrative expenses for the three month periods ended July 2, 2011 and July 3, 2010, respectively, and approximately $1.0 million and $1.1 million within selling, general, and administrative expenses for the six month periods ended July 2, 2011 and July 3, 2010, respectively.

During February 2010, approximately $218.8 million aggregate principal amount of 9% Senior Subordinated Notes held by affiliates of Ply Gem Prime’s controlling stockholders was transferred to Ply Gem Prime’s controlling stockholders and ultimately to Ply Gem Prime in exchange for equity of Ply Gem Prime valued at approximately $114.9 million. These notes were then transferred to the Company and then to Ply Gem Industries as a capital contribution and cancelled. Also during February 2010, Ply Gem Industries redeemed the remaining $141.2 million aggregate principal amount of outstanding 9% Senior Subordinated Notes (including approximately $62.5 million aggregate principal amount of the 9% Senior Subordinated Notes held by affiliates of Ply Gem Prime’s controlling stockholders). As a result of these debt transactions, the Company paid interest to related parties of approximately $9.8 million during the six months ended July 3, 2010. These interest payments were recorded within interest expense in the Company’s condensed consolidated statement of operations.

During the six months ended July 3, 2010, the Company received equity contributions of approximately $2.4 million from certain members of management. In addition, the Company repurchased equity of approximately $4.2 million from certain former and existing members of management. As of December 31, 2010, approximately $1.2 million was classified as a current liability in accrued expenses in the condensed consolidated balance sheet. During the six months ended July 2, 2011, the approximate $1.2 million was paid in cash.

During June 2010, the Company made a state tax payment of approximately $1.5 million for Ply Gem Prime. Ply Gem Prime incurred a state tax liability as a result of the 9% Senior Subordinated Notes debt extinguishment and related contribution during the first quarter of 2010 in which Ply Gem Prime recognized a capital gain of approximately $13.3 million. Ply Gem Prime is a holding company with no independent operating assets or liabilities other than its investment in the Company and therefore has no ability to make tax payments. The Company recognized this payment as a return of capital in the Company’s condensed consolidated balance sheet as of July 3, 2010.

The 8.25% Senior Secured Notes and 13.125% Senior Subordinated Notes were issued by our direct subsidiary, Ply Gem Industries, and are fully and unconditionally guaranteed on a joint and several basis by the Company and certain of Ply Gem Industries’ 100% owned subsidiaries. Accordingly, the following guarantor and non-guarantor information is presented as of July 2, 2011 and December 31, 2010, and for the three and six month periods ended July 2, 2011 and July 3, 2010. The non-guarantor information presented represents our Canadian subsidiary.

PLY GEM HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the three months ended July 2, 2011

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

Net sales	$	-	$	-		$	277,272		$	17,219	$	-		$	294,491
Cost of products sold		-		-			215,240			12,222		-			227,462
Gross profit		-		-			62,032			4,997		-			67,029
Operating expenses:
Selling, general and
administrative expenses		-		3,657			27,175			3,731		-			34,563
Intercompany administrative
charges		-		-			4,027			545		(4,572	)		-
Amortization of intangible assets		-		9			6,660			-		-			6,669
Total operating expenses		-		3,666			37,862			4,276		(4,572	)		41,232
Operating earnings (loss)		-		(3,666	)		24,170			721		4,572			25,797
Foreign currency gain		-		-			-			218		-			218
Intercompany interest		-		25,683			(25,683	)		-		-			-
Interest expense		-		(24,939	)		-			-		-			(24,939	)
Interest income		-		-			26			2		-			28
Intercompany administrative income		-		4,572			-			-		(4,572	)		-
Income (loss) before equity in
subsidiaries' income (loss)		-		1,650			(1,487	)		941		-			1,104
Equity in subsidiaries' income (loss)		2,063		413			-			-		(2,476	)		-
Income (loss) before provision
(benefit) for income taxes		2,063		2,063			(1,487	)		941		(2,476	)		1,104
Provision (benefit) for income taxes		-		-			(1,206	)		247		-			(959	)
Net income (loss)	$	2,063	$	2,063		$	(281	)	$	694	$	(2,476	)	$	2,063

Other comprehensive income:
Foreign currency translation adjustments		-		-			-			52		-			52
Total comprehensive income (loss)	$	2,063	$	2,063		$	(281	)	$	746	$	(2,476	)	$	2,115

PLY GEM HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the three months ended July 3, 2010

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

Net sales	$	-		$	-		$	282,377		$	19,283		$	-		$	301,660
Cost of products sold		-			-			218,342			12,743			-			231,085
Gross profit		-			-			64,035			6,540			-			70,575
Operating expenses:
Selling, general and
administrative expenses		-			3,433			26,521			3,545			-			33,499
Intercompany administrative
charges		-			-			3,282			218			(3,500	)		-
Amortization of intangible assets		-			9			6,782			-			-			6,791
Total operating expenses		-			3,442			36,585			3,763			(3,500	)		40,290
Operating earnings (loss)		-			(3,442	)		27,450			2,777			3,500			30,285
Foreign currency gain		-			-			-			122			-			122
Intercompany interest		-			25,922			(25,681	)		(241	)		-			-
Interest expense		-			(30,175	)		(32	)		-			-			(30,207	)
Interest income		-			3			45			7			-			55
Intercompany administrative income		-			3,500			-			-			(3,500	)		-
Income (loss) before equity in
subsidiaries' income (loss)		-			(4,192	)		1,782			2,665			-			255
Equity in subsidiaries' income (loss)		(409	)		3,450			-			-			(3,041	)		-
Income (loss) before provision
(benefit) for income taxes		(409	)		(742	)		1,782			2,665			(3,041	)		255
Provision (benefit) for income taxes		-			(333	)		192			805			-			664
Net income (loss)	$	(409	)	$	(409	)	$	1,590		$	1,860		$	(3,041	)	$	(409	)

Other comprehensive loss:
Foreign currency translation adjustments		-			-			-			(1,731	)		-			(1,731	)
Total comprehensive income (loss)	$	(409	)	$	(409	)	$	1,590		$	129		$	(3,041	)	$	(2,140	)

PLY GEM HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the six months ended July 2, 2011

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

Net sales	$	-		$	-		$	465,973		$	28,625		$	-		$	494,598
Cost of products sold		-			-			378,494			21,293			-			399,787
Gross profit		-			-			87,479			7,332			-			94,811
Operating expenses:
Selling, general and
administrative expenses		-			7,957			54,451			7,519			-			69,927
Intercompany administrative
charges		-			-			7,401			986			(8,387	)		-
Amortization of intangible assets		-			18			13,335			-			-			13,353
Total operating expenses		-			7,975			75,187			8,505			(8,387	)		83,280
Operating earnings (loss)		-			(7,975	)		12,292			(1,173	)		8,387			11,531
Foreign currency gain		-			-			-			351			-			351
Intercompany interest		-			51,365			(51,365	)		-			-			-
Interest expense		-			(51,398	)		(1	)		-			-			(51,399	)
Interest income		-			3			50			11			-			64
Loss on modification or
extinguishment of debt		-			(27,863	)		-			-			-			(27,863	)
Intercompany administrative income		-			8,387			-			-			(8,387	)		-
Loss before equity in
subsidiaries' loss		-			(27,481	)		(39,024	)		(811	)		-			(67,316	)
Equity in subsidiaries' loss		(68,829	)		(41,348	)		-			-			110,177			-
Loss before provision (benefit) for
income taxes		(68,829	)		(68,829	)		(39,024	)		(811	)		110,177			(67,316	)
Provision (benefit) for income taxes		-			-			1,706			(193	)		-			1,513
Net loss	$	(68,829	)	$	(68,829	)	$	(40,730	)	$	(618	)	$	110,177		$	(68,829	)

Other comprehensive income:
Foreign currency translation adjustments		-			-			-			983			-			983
Total comprehensive income (loss)	$	(68,829	)	$	(68,829	)	$	(40,730	)	$	365		$	110,177		$	(67,846	)

PLY GEM HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the six months ended July 3, 2010

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

Net sales	$	-	$	-		$	471,162		$	34,703		$	-		$	505,865
Cost of products sold		-		-			374,566			23,827			-			398,393
Gross profit		-		-			96,596			10,876			-			107,472
Operating expenses:
Selling, general and
administrative expenses		-		6,906			53,415			6,984			-			67,305
Intercompany administrative
charges		-		-			6,105			395			(6,500	)		-
Amortization of intangible assets		-		18			13,567			-			-			13,585
Total operating expenses		-		6,924			73,087			7,379			(6,500	)		80,890
Operating earnings (loss)		-		(6,924	)		23,509			3,497			6,500			26,582
Foreign currency gain		-		-			-			226			-			226
Intercompany interest		-		55,266			(54,720	)		(546	)		-			-
Interest expense		-		(64,135	)		(79	)		-			-			(64,214	)
Interest income		-		12			88			8			-			108
Gain on extinguishment of debt		-		98,187			-			-			-			98,187
Intercompany administrative income		-		6,500			-			-			(6,500	)		-
Income (loss) before equity in
subsidiaries' income (loss)		-		88,906			(31,202	)		3,185			-			60,889
Equity in subsidiaries' income (loss)		53,693		(25,614	)		-			-			(28,079	)		-
Income (loss) before provision
(benefit) for income taxes		53,693		63,292			(31,202	)		3,185			(28,079	)		60,889
Provision (benefit) for income taxes		-		9,599			(3,370	)		967			-			7,196
Net income (loss)	$	53,693	$	53,693		$	(27,832	)	$	2,218		$	(28,079	)	$	53,693

Other comprehensive loss:
Foreign currency translation adjustments		-		-			-			(417	)		-			(417	)
Total comprehensive income (loss)	$	53,693	$	53,693		$	(27,832	)	$	1,801		$	(28,079	)	$	53,276

PLY GEM HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
As of July 2, 2011

(Amounts in thousands)	Guarantor			Issuer						Non-
	Ply Gem			Ply Gem			Guarantor			Guarantor			Consolidating
ASSETS	Holdings, Inc.			Industries, Inc.			Subsidiaries			Subsidiary			Adjustments			Consolidated
Current Assets:
Cash and cash equivalents	$	-		$	23,434		$	(1,135	)	$	1,770		$	-		$	24,069
Accounts receivable, net		-			-			140,945			9,707			-			150,652
Inventories:
Raw materials		-			-			51,316			5,362			-			56,678
Work in process		-			-			27,117			706			-			27,823
Finished goods		-			-			44,321			3,021			-			47,342
Total inventory		-			-			122,754			9,089			-			131,843
Prepaid expenses and other
current assets		-			536			11,743			2,765			-			15,044
Deferred income taxes		-			-			9,133			14			-			9,147
Total current assets		-			23,970			283,440			23,345			-			330,755
Investments in subsidiaries		(240,795	)		(122,114	)		-			-			362,909			-
Property and Equipment, at cost:
Land		-			-			3,565			181			-			3,746
Buildings and improvements		-			-			34,941			1,288			-			36,229
Machinery and equipment		-			1,388			259,307			8,588			-			269,283
		-			1,388			297,813			10,057			-			309,258
Less accumulated depreciation		-			(677	)		(195,202	)		(5,101	)		-			(200,980	)
Total property and equipment, net		-			711			102,611			4,956			-			108,278
Other Assets:
Intangible assets, net		-			-			133,614			-			-			133,614
Goodwill		-			-			382,165			11,308			-			393,473
Deferred income taxes		-			-			-			2,349			-			2,349
Intercompany note receivable		-			856,739			-			-			(856,739	)		-
Other		-			33,026			2,807			-			-			35,833
Total other assets		-			889,765			518,586			13,657			(856,739	)		565,269
	$	(240,795	)	$	792,332		$	904,637		$	41,958		$	(493,830	)	$	1,004,302

LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current Liabilities:
Accounts payable	$	-		$	450		$	77,470		$	5,252		$	-		$	83,172
Accrued expenses		-			43,061			59,079			3,330			-			105,470
Total current liabilities		-			43,511			136,549			8,582			-			188,642
Deferred income taxes		-			-			14,481			-			-			14,481
Intercompany note payable		-			-			856,739			-			(856,739	)		-
Other long term liabilities		-			845			51,447			911			-			53,203
Long-term debt		-			988,771			-			-			-			988,771
Commitments and contingencies
Stockholder's Equity (Deficit):
Preferred stock		-			-			-			-			-			-
Common stock		-			-			-			-			-			-
Additional paid-in-capital		321,906			321,906			444,495			6,587			(772,988	)		321,906
(Accumulated deficit) retained earnings		(564,907	)		(564,907	)		(599,074	)		19,151			1,144,830			(564,907	)
Accumulated other
comprehensive income		2,206			2,206			-			6,727			(8,933	)		2,206
Total stockholder's (deficit) equity		(240,795	)		(240,795	)		(154,579	)		32,465			362,909			(240,795	)
	$	(240,795	)	$	792,332		$	904,637		$	41,958		$	(493,830	)	$	1,004,302

PLY GEM HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2010

(Amounts in thousands)	Guarantor			Issuer						Non-
	Ply Gem			Ply Gem			Guarantor			Guarantor			Consolidating
ASSETS	Holdings, Inc.			Industries, Inc.			Subsidiaries			Subsidiary			Adjustments			Consolidated
Current Assets:
Cash and cash equivalents	$	-		$	12,172		$	(1,117	)	$	6,443		$	-		$	17,498
Accounts receivable, net		-			-			90,387			7,472			-			97,859
Inventories:
Raw materials		-			-			35,890			3,938			-			39,828
Work in process		-			-			22,466			765			-			23,231
Finished goods		-			-			33,316			2,204			-			35,520
Total inventory		-			-			91,672			6,907			-			98,579
Prepaid expenses and other
current assets		-			356			9,573			704			-			10,633
Deferred income taxes		-			-			12,175			14			-			12,189
Total current assets		-			12,528			202,690			21,540			-			236,758
Investments in subsidiaries		(173,088	)		(142,820	)		-			-			315,908			-
Property and Equipment, at cost:
Land		-			-			3,565			176			-			3,741
Buildings and improvements		-			-			34,886			1,126			-			36,012
Machinery and equipment		-			1,272			255,060			7,968			-			264,300
		-			1,272			293,511			9,270			-			304,053
Less accumulated depreciation		-			(593	)		(182,210	)		(4,538	)		-			(187,341	)
Total property and equipment, net		-			679			111,301			4,732			-			116,712
Other Assets:
Intangible assets, net		-			-			146,965			-			-			146,965
Goodwill		-			-			382,472			10,961			-			393,433
Deferred income taxes		-			-			-			2,279			-			2,279
Intercompany note receivable		-			856,738			-			-			(856,738	)		-
Other		-			24,590			1,500			-			-			26,090
Total other assets		-			881,328			530,937			13,240			(856,738	)		568,767
	$	(173,088	)	$	751,715		$	844,928		$	39,512		$	(540,830	)	$	922,237

LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current Liabilities:
Accounts payable	$	-		$	399		$	50,280		$	4,294		$	-		$	54,973
Accrued expenses		-			22,922			49,884			2,311			-			75,117
Total current liabilities		-			23,321			100,164			6,605			-			130,090
Deferred income taxes		-			-			10,583			-			-			10,583
Intercompany note payable		-			-			856,738			-			(856,738	)		-
Other long term liabilities		-			7,319			51,369			1,801			-			60,489
Long-term debt		-			894,163			-			-			-			894,163
Commitments and contingencies
Stockholder's Equity (Deficit):
Preferred stock		-			-			-			-			-			-
Common stock		-			-			-			-			-			-
Additional paid-in-capital		321,767			321,767			384,418			5,591			(711,776	)		321,767
(Accumulated deficit) retained earnings		(496,078	)		(496,078	)		(558,344	)		19,769			1,034,653			(496,078	)
Accumulated other
comprehensive income		1,223			1,223			-			5,746			(6,969	)		1,223
Total stockholder's (deficit) equity		(173,088	)		(173,088	)		(173,926	)		31,106			315,908			(173,088	)
	$	(173,088	)	$	751,715		$	844,928		$	39,512		$	(540,830	)	$	922,237

PLY GEM HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the six months ended July 2, 2011

(Amounts in thousands)	Guarantor			Issuer						Non-
	Ply Gem			Ply Gem			Guarantor			Guarantor			Consolidating
	Holdings, Inc.			Industries, Inc.			Subsidiaries			Subsidiary			Adjustments			Consolidated
Cash flows from operating
activities:
Net loss	$	(68,829	)	$	(68,829	)	$	(40,730	)	$	(618	)	$	110,177		$	(68,829	)
Adjustments to reconcile net loss
to cash provided by (used in) operating activities:
Depreciation and amortization
expense		-			84			26,577			422			-			27,083
Non-cash interest expense, net		-			5,344			-			-			-			5,344
Gain on foreign currency transactions		-			-			-			(351	)		-			(351	)
Loss on modification or
extinguishment of debt		-			27,863			-			-			-			27,863
Deferred income taxes		-			-			263			65			-			328
Equity in subsidiaries' net loss		68,829			41,348			-			-			(110,177	)		-
Other		-			-			(2	)		(3	)		-			(5	)
Changes in operating assets and
liabilities:
Accounts receivable, net		-			-			(52,000	)		(1,949	)		-			(53,949	)
Inventories		-			-			(31,082	)		(1,915	)		-			(32,997	)
Prepaid expenses and other
current assets		-			(167	)		(1,916	)		(2,032	)		-			(4,115	)
Accounts payable		-			51			26,764			1,048			-			27,863
Accrued expenses		-			13,650			15,999			702			-			30,351
Cash payments on restructuring liabilities		-			-			(407	)		-			-			(407	)
Other		-			139			1			356			-			496
Net cash provided by (used in)
operating activities		-			19,483			(56,533	)		(4,275	)		-			(41,325	)
Cash flows from investing
activities:
Capital expenditures		-			(116	)		(4,539	)		(500	)		-			(5,155	)
Proceeds from sale of assets		-			-			10			-			-			10
Net cash used in
investing activities		-			(116	)		(4,529	)		(500	)		-			(5,145	)
Cash flows from financing
activities:
Proceeds from long-term debt		-			423,684			-			-			-			423,684
Payments on long-term debt		-			(348,684	)		-			-			-			(348,684	)
Net revolver borrowings		-			85,000			-			-			-			85,000
Payments on previous revolver credit facility		-			(30,000	)		-			-			-			(30,000	)
Proceeds from intercompany																	-
investment		-			(61,071	)		61,044			27			-			-
Payment of early tender premium		-			(49,769	)		-			-			-			(49,769	)
Debt issuance costs paid		-			(26,082	)		-			-			-			(26,082	)
Equity repurchases		-			(1,183	)		-			-			-			(1,183	)
Net cash provided by
financing activities		-			(8,105	)		61,044			27			-			52,966
Impact of exchange rate movement
on cash		-			-			-			75			-			75
Net increase (decrease) in cash
and cash equivalents		-			11,262			(18	)		(4,673	)		-			6,571
Cash and cash equivalents at the
beginning of the period		-			12,172			(1,117	)		6,443			-			17,498
Cash and cash equivalents at the end
of the period	$	-		$	23,434		$	(1,135	)	$	1,770		$	-		$	24,069

PLY GEM HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the six months ended July 3, 2010

(Amounts in thousands)	Guarantor			Issuer						Non-
	Ply Gem			Ply Gem			Guarantor			Guarantor			Consolidating
	Holdings, Inc.			Industries, Inc.			Subsidiaries			Subsidiary			Adjustments			Consolidated
Cash flows from operating
activities:
Net income (loss)	$	53,693		$	53,693		$	(27,832	)	$	2,218		$	(28,079	)	$	53,693
Adjustments to reconcile net
income (loss) to cash provided by
(used in) operating activities:
Depreciation and amortization
expense		-			84			30,685			396			-			31,165
Non-cash interest expense, net		-			5,038			-			-			-			5,038
Gain on foreign currency transactions		-			-			-			(226	)		-			(226	)
Gain on extinguishment of debt		-			(98,187	)		-			-			-			(98,187	)
Deferred income taxes		-			-			3,547			18			-			3,565
Equity in subsidiaries' net income (loss)		(53,693	)		25,614			-			-			28,079			-
Other		-			-			34			(6	)		-			28
Changes in operating assets and
liabilities:
Accounts receivable, net		-			-			(49,576	)		(1,304	)		-			(50,880	)
Inventories		-			-			(21,024	)		(286	)		-			(21,310	)
Prepaid expenses and other
current assets		-			(826	)		(679	)		2,044			-			539
Accounts payable		-			(3,263	)		24,993			1,620			-			23,350
Accrued expenses		-			816			8,735			715			-			10,266
Cash payments on restructuring liabilities		-			-			(1,640	)		-			-			(1,640	)
Other		-			42			(3	)		146			-			185
Net cash provided by (used in)
operating activities		-			(16,989	)		(32,760	)		5,335			-			(44,414	)
Cash flows from investing
activities:
Capital expenditures		-			-			(5,287	)		(227	)		-			(5,514	)
Proceeds from sale of assets		-			-			46			6			-			52
Net cash used in
investing activities		-			-			(5,241	)		(221	)		-			(5,462	)
Cash flows from financing
activities:
Proceeds from long-term debt		-			145,709			-			-			-			145,709
Payments on long-term debt		-			(141,191	)		-			-			-			(141,191	)
Net revolver borrowings		-			45,000			-			-			-			45,000
Proceeds from intercompany																	-
investment		-			(19,797	)		28,222			(8,425	)		-			-
Debt issuance costs paid		-			(4,919	)		-			-			-			(4,919	)
Tax payments on behalf of parent		-			(1,532	)		-			-			-			(1,532	)
Equity contributions		-			2,428			-			-			-			2,428
Equity repurchases		-			(2,978	)		-			-			-			(2,978	)
Net cash provided by (used in)
financing activities		-			22,720			28,222			(8,425	)		-			42,517
Impact of exchange rate movement
on cash		-			-			-			(44	)		-			(44	)
Net increase (decrease) in cash
and cash equivalents		-			5,731			(9,779	)		(3,355	)		-			(7,403	)
Cash and cash equivalents at the
beginning of the period		-			7,341			2,592			7,130			-			17,063
Cash and cash equivalents at the end
of the period	$	-		$	13,072		$	(7,187	)	$	3,775		$	-		$	9,660

The information contained in this discussion and in the unaudited condensed consolidated financial statements and accompanying notes presented in this Form 10-Q should be read in conjunction with information set forth in Ply Gem Holdings’ Annual Report on Form 10-K for the year ended December 31, 2010. Certain statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are “forward-looking statements”. See “Special Note Regarding Forward-Looking Statements.” As used in this Quarterly Report on Form 10-Q, the “Company”, “we”, “us”, and “our” refer to Ply Gem Holdings and its subsidiaries, except where the context otherwise requires or as otherwise indicated.

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 six months ended July 2, 2011. These two segments produce a comprehensive product line of vinyl siding, designer accents and skirting, vinyl fencing, vinyl and composite 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 CI Capital Partners LLC (“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.

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 $175.0 million senior secured asset-based revolving credit facility (the “ABL Facility”) place restrictions on the ability of Ply Gem Industries and our other subsidiaries to pay dividends and otherwise transfer assets to us. Further, the terms of the indentures governing the 8.25% senior secured notes due 2018 (the “8.25% Senior Secured Notes”) and 13.125% senior subordinated notes due 2014 (the “13.125% Senior Subordinated Notes”) place restrictions on the ability of Ply Gem Industries and our other subsidiaries to pay dividends and otherwise transfer assets to us.

PVC resin and aluminum are major components in the production of our products and changes in PVC resin and aluminum prices have a direct impact on our cost of products sold. Historically, we have been able to pass on a substantial portion of significant 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.

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 these quarters producing significantly less sales revenue than in any other period of the year. As a result, we have historically had lower profits or higher 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.

Our discussion and analysis of financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. We base these estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances, and these estimates form the basis for our judgments concerning the carrying values of assets and liabilities that are not readily apparent from other sources. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty. We periodically evaluate these estimates and judgments based on available information and experience. Actual results could differ from our estimates under different assumptions and conditions. If actual results significantly differ from our estimates, our financial condition and results of operations could be materially impacted. For more information regarding our critical accounting policies and estimates please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” contained in our Annual Report on Form 10-K for the year ended December 31, 2010 and Note 1 to our condensed consolidated financial statements. There have been no material changes to the critical accounting policies previously disclosed in that report.

	For the three months ended						For the six months ended
(Amounts in thousands)	July 2, 2011			July 3, 2010			July 2, 2011			July 3, 2010

Net Sales
Siding, Fencing, and Stone	$	187,340		$	194,599		$	309,482		$	312,267
Windows and Doors		107,151			107,061			185,116			193,598
Operating earnings (loss)
Siding, Fencing, and Stone		34,726			37,565			39,976			48,087
Windows and Doors		(5,263	)		(3,838	)		(20,470	)		(14,581	)
Unallocated		(3,666	)		(3,442	)		(7,975	)		(6,924	)
Foreign currency gain
Windows and Doors		218			122			351			226
Interest expense, net
Siding, Fencing, and Stone		26			45			50			88
Windows and Doors		2			(25	)		10			(71	)
Unallocated		(24,939	)		(30,172	)		(51,395	)		(64,123	)
Income tax benefit (provision)
Unallocated		959			(664	)		(1,513	)		(7,196	)
Gain (loss) on modification or extinguishment of debt
Unallocated		-			-			(27,863	)		98,187

Net income (loss)	$	2,063		$	(409	)	$	(68,829	)	$	53,693

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

According to the U.S. Census Bureau, second quarter 2011 single family housing starts decreased approximately 13.5% from actual levels achieved in the second quarter of 2010. This decrease is attributable in part to the poor weather conditions that existed throughout the U.S. for a significant portion of the second quarter as well as continued general demand weakness associated with the U.S. housing market. In addition, the 2010 second quarter single family housing activity was artificially inflated as a direct result of the Federal First-Time and Repeat Home Buyer Tax Credit programs, which expired on April 30, 2010.

The Company’s sales to new customers partially offset the general housing market conditions. According to the Vinyl Siding Institute, the vinyl siding industry shipments decreased 9.5% for the second quarter of 2011 compared to the second quarter of 2010. The Company’s vinyl siding market share percentage for the second quarter of 2011 increased to approximately 36% from 33% for the second quarter of 2010. Included as a reduction of net sales for the three months ended July 2, 2011 were inventory buybacks for the lift-out of competitor’s inventory of approximately $3.4 million related to these market share gains. Excluding the impact of these buybacks, net sales would have only decreased approximately 2.0% compared to the prior year period.

Gross profit for the three months ended July 2, 2011 decreased compared to the same period in 2010 by approximately $2.0 million or 3.7%. The gross profit decrease resulted from higher material and freight costs partially offset by increased selling prices for our products and favorable warranty experience. According to the London Metal Exchange, the price of aluminum has increased approximately 24.2% for the three months ended July 2, 2011 compared to the three months ended July 3, 2010. In addition, market prices for PVC resin were estimated to have increased 16.8% for the three months ended July 2, 2011 compared to the three months ended July 3, 2010. As discussed above, the Company initiated selling price increases in response to the rising material and freight cost increases. For the three months ended July 2, 2011, gross profit included favorable warranty expense compared to the three months ended July 3, 2010, which had a positive impact on gross profit percentage as a result of better claims experience on the Company’s existing products.

According to the U.S. Census Bureau, the first six months of 2011 single family housing starts decreased approximately 17.1% from actual levels achieved in the first six months of 2010. This decrease is attributable in part to the poor weather conditions that existed throughout the U.S. for a significant portion of the first and second quarters as well as continued general demand weakness associated with the U.S. housing market. In addition, sales for the first six months of 2010 were artificially inflated as a direct result of the Federal First-Time and Repeat Home Buyer Tax Credit programs, which expired on April 30, 2010.

The Company’s sales to new customers partially offset the general housing market conditions. According to the Vinyl Siding Institute, the vinyl siding industry shipments decreased 5.4% for the first six months of 2011 compared to the first six months of 2010. The Company’s vinyl siding market share percentage for the first six months of 2011 increased to approximately 37% from 32% for the comparable 2010 period. Included as a reduction of net sales for the six months ended July 2, 2011 were inventory buybacks for the lift-out of competitor’s inventory of approximately $11.3 million related to these market share gains. Excluding the impact of these buybacks, net sales would have increased 2.7% compared to the prior year period.

Gross profit for the six months ended July 2, 2011 decreased compared to the same period in 2010 by approximately $7.3 million or 9.0%. The gross profit decrease resulted from higher material and freight costs, partially offset by increased selling prices for our products and favorable warranty experience. According to the London Metal Exchange, the price of aluminum increased approximately 19.8% for the six months ended July 2, 2011 compared to the six months ended July 3, 2010. In addition, the average market prices for PVC resin were estimated to have increased 11.3% for the six months ended July 2, 2011 compared to the six months ended July 3, 2010. As discussed above, the Company initiated selling price increases in response to the rising material and freight costs. For the six months ended July 2, 2011, gross profit included favorable warranty expense compared to the six months ended July 3, 2010, which had a positive impact on gross profit percentage as a result of better claims experience on the Company’s existing products.

Gross profit percentage decreased from 25.9% for the six month period ended July 3, 2010 to 23.8% for the six month period ended July 2, 2011. Included in gross profit was a net inventory buyback of approximately $9.7 million resulting from the buyback, or lift-out, of our competitor’s product on initial stocking orders partially offset by the scrap value of inventory received. Our gross profit percentage for the six months ended July 2, 2011 would have been 26.0% excluding these buybacks consistent with the prior year period.

Net sales for the three months ended July 2, 2011 increased slightly compared to the same period in 2010 by approximately $0.1 million. Despite the aforementioned 13.5% decrease in U.S. single family housing starts for the three months ended July 2, 2011 compared to the three months ended July 3, 2010, the Windows and Doors segment demonstrated an ability to gain sales with new customers in a challenging environment in both the new construction and repair and remodeling market. Sales gains to new customers in the U.S. were offset by a declining end user market in Western Canada, which demonstrated decreased market demand from decreased housing starts in Alberta, Canada which the Company believes were impacted in part by unusually poor weather conditions in the months of April and May. According to the Canadian Mortgage and Housing Corporation, housing starts in Alberta, Canada were estimated to have decreased by 19.9% in the three months ended July 2, 2011 as compared to the three months ended July 3, 2010. The decrease in unit volume sales was partially offset by increased selling prices that were increased in response to rising raw material and freight costs.

Net sales for the six months ended July 2, 2011 decreased compared to the same period in 2010 by approximately $8.5 million or 4.4%. Despite the aforementioned 17.1% decrease in U.S. single family housing starts for the six months ended July 2, 2011 compared to the six months ended July 3, 2010, the Windows and Doors segment demonstrated an ability to offset this general market decrease by gaining sales with new customers in both the new construction and repair and remodeling market. The sales gains to new customers were offset by a declining end user market in Western Canada which demonstrated decreased market demand from decreased housing starts in Alberta, Canada which the Company believes were impacted in part by unusually poor weather conditions in the first five months of 2011. According to the Canadian Mortgage and Housing Corporation, housing starts in Alberta, Canada were estimated to have decreased by 21.0% in the six months ended July 2, 2011 as compared to the six months ended July 3, 2010. The decrease in unit volume sales was partially offset by increased selling prices that were increased in response to rising raw material and freight costs.

Gross profit for the six months ended July 2, 2011 decreased compared to the same period in 2010 by approximately $5.4 million or 20.4%. Gross profit percentage decreased from 13.7% for the six months ended July 3, 2010 to 11.4% for the six months ended July 2, 2011. The decrease was caused by higher raw material, specifically PVC resin and aluminum, and freight costs that were not fully offset by selling price increases. In addition, our gross profit margins were negatively impacted by lower operating leverage as operating costs did not decrease in direct proportion to the reduction in sales.

The income tax provision for the three months ended July 2, 2011 decreased by approximately $1.6 million compared to the same period in 2010. Our pre-tax income for the three months ended July 2, 2011 was approximately $1.1 million compared to pre-tax income of approximately $0.3 million for the three months ended July 3, 2010. For the three months ended July 2, 2011, our estimated effective income tax rate varied from the statutory rate primarily due to state income tax expense, foreign income tax expense, and changes in the valuation allowance. During the three months ended July 2, 2011, our effective tax rate was consistent with our expectations for the full 2011 fiscal year.

As a result of the debt refinancings during January and February 2011, as further described in the Liquidity and Capital Resources section below, we recognized a loss on modification/extinguishment of debt of approximately $27.9 million for the six months ended July 2, 2011. The loss consisted of the write off of a portion of the tender premium paid with the redemption of the 11.75% Senior Secured Notes of approximately $10.9 million, the write off of a portion of the capitalized bond discount related to the 11.75% Senior Secured Notes of approximately $0.8 million, the write off of a portion of the capitalized financing costs related to the 11.75% Senior Secured Notes of approximately $2.8 million, the write off of the capitalized financing costs related to the previous ABL Facility of approximately $1.2 million, and the expense of certain third-party financing costs related to the 8.25% Senior Secured Notes of approximately $12.2 million. The loss was recorded separately in the condensed consolidated statement of operations for the six months ended July 2, 2011.

We also recognized an approximate $98.2 million gain on extinguishment during 2010 as a result of a financing transaction in February 2010. As a result of the $141.2 million redemption 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 $218.8 million contribution of the 9% Senior Subordinated Notes by an affiliate of our controlling stockholder 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 extinguishment of debt was recorded separately in the condensed consolidated statement of operations for the six months ended July 3, 2010.

The income tax provision for the six months ended July 2, 2011 decreased by approximately $5.7 million compared to the same period in 2010. Our pre-tax loss for the six months ended July 2, 2011 was approximately $67.3 million compared to pre-tax income of approximately $60.9 million for the six months ended July 3, 2010. For the six months ended July 2, 2011, our estimated effective income tax rate varied from the statutory rate primarily due to state income tax expense, foreign income tax expense, and changes in the valuation allowance. During the six months ended July 2, 2011, our effective tax rate was consistent with our expectations for the full 2011 fiscal year.

Our business is seasonal because inclement weather during the winter months reduces the level of building and remodeling activity in both the home repair and remodeling and new home construction sectors, especially in the Northeast and Midwest regions of the United States and Western Canada. As a result, our liquidity typically increases during the second and third quarters as our ABL facility borrowing base increases 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 debt service, capital expenditures, and working capital. As of July 2, 2011, our annual interest charges for debt service, including the ABL Facility, are estimated to be approximately $88.1 million. We do not have any scheduled debt maturities until 2014. The specific debt instruments and their corresponding terms and due dates are described in the following sections. Our capital expenditures have historically been approximately 1.4% to 1.6% of net sales on an annual basis. As of July 2, 2011, our purchase commitments for inventory are approximately $47.1 million. We finance these cash requirements through internally generated cash flow and funds borrowed under the ABL Facility.

Our outstanding indebtedness will mature in 2014, 2016, and 2018. Although we expect to refinance or pay off such indebtedness, we may not be successful in refinancing, extending the maturity or otherwise amending the terms of such indebtedness because of market conditions, disruptions in the debt markets, our financial performance or other reasons. Furthermore, the terms of any refinancing, extension or amendment may not be as favorable as the current terms of our indebtedness. If we are not successful in refinancing our indebtedness or extending its maturity, 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 our indebtedness.

Net cash used in operating activities for the six months ended July 2, 2011 was approximately $41.3 million as compared to approximately $44.4 million for the six months ended July 3, 2010. The decrease in cash used in operating activities was primarily caused by lower cash interest payments on the Company’s new debt instruments of approximately $36.5 million offset by lower operating earnings as a result of higher commodity costs in the six months ended July 2, 2011, and increased working capital usage primarily for inventory, which increased in part as a result of additional SKU requirements. In conjunction with the debt refinancing of the 11.75% Senior Secured Notes that occurred in the first quarter of 2011, the timing of interest payments changed as compared to the prior year. As a result, we paid less interest in the six months ended July 2, 2011 compared to the same period in the prior year, which resulted in more cash as of July 2, 2011 relative to July 3, 2010. Operating earnings for the six months ended July 2, 2011 was approximately $11.5 million compared to operating earnings of approximately $26.6 million for the six months ended July 3, 2010 impacted by the Federal First-Time and Repeat Home Buyer Tax Credit programs which expired on April 30, 2010, as well as higher commodity costs.

Net cash provided by financing activities for the six months ended July 2, 2011 was approximately $53.0 million, primarily from net revolver borrowings of $55.0 million under the ABL Facility, net proceeds of $75.0 million from the debt refinancing for the 8.25% Senior Secured Notes, offset by early tender premium payments of approximately $49.8 million, debt issuance costs of approximately $26.1 million, and equity repurchases of $1.2 million. Net cash provided by financing activities for the six months ended July 3, 2010 was approximately $42.5 million and consisted primarily from revolver borrowings of $45.0 million under the ABL Facility and proceeds from long-term debt of approximately $145.7 million, offset by the approximate $141.2 redemption of 9% Senior Subordinated Notes, debt issuance costs of approximately $4.9 million, and a net equity repurchase of approximately $0.6 million.

On June 9, 2008, Ply Gem Industries issued $700.0 million of 11.75% Senior Secured Notes at an approximate 1.0% discount, yielding proceeds of approximately $693.5 million. Interest was 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 11.75% Senior Secured Notes in a private placement transaction. The additional $25.0 million of 11.75% Senior Secured Notes had the same terms and covenants as the initial $700.0 million of 11.75% Senior Secured Notes.

On February 11, 2011, we purchased approximately $718.6 million principal amount of the 11.75% Senior Secured Notes in a tender offer at a price of $1,069.00 per $1,000 principal amount, which included an early tender payment of $40.00 per $1,000 principal amount, plus accrued and unpaid interest, and on February 28, 2011, we purchased $6.0 million principal amount of the 11.75% Senior Secured Notes in the tender offer at a price of $1,029.00 per $1,000 principal amount, plus accrued and unpaid interest. On March 13, 2011, pursuant to the terms of the indenture governing the 11.75% Senior Secured Notes, we redeemed the remaining approximate $0.4 million at a redemption price of 103% of the principal amount thereof, plus accrued and unpaid interest. As a result of these transactions, we paid cumulative early tender premiums of approximately $49.8 million during the six months ended July 2, 2011. Following the redemption on March 13, 2011, there were no longer any 11.75% Senior Secured Notes outstanding. The 11.75% Senior Secured Notes would have matured on June 15, 2013 and bore interest at the rate of 11.75% per annum.

The 8.25% 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 of accounts receivable, inventory, cash, deposit accounts, securities accounts, chattel paper and proceeds of the foregoing and certain assets such as contract rights, instruments and documents related thereto) of Ply Gem Industries and the Guarantors and on a second-priority lien basis by the assets that secure the ABL Facility.

Concurrently with the 11.75% Senior Secured Notes offering on June 9, 2008, Ply Gem Industries, Ply Gem Holdings and the subsidiaries of Ply Gem Industries entered into an ABL Facility. The prior 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. In July 2009, we amended the prior ABL Facility to increase the available commitments by $25.0 million from $150.0 million to $175.0 million. As of July 2, 2011, there were no outstanding borrowings under the prior ABL Facility, as it was replaced with the new ABL Facility on January 26, 2011.

In addition to paying interest on outstanding principal under the new ABL Facility, Ply Gem Industries is required to pay a commitment fee, in respect of the unutilized commitments thereunder, which fee will be determined based on utilization of the new ABL Facility (increasing when utilization is low and decreasing when utilization is high). Ply Gem Industries must also pay customary letter of credit fees equal to the applicable margin on Eurodollar loans and agency fees. As of July 2, 2011, our interest rate on the new ABL Facility was approximately 2.8%. The new ABL Facility contains a requirement to maintain a fixed charge coverage ratio of 1.0 to 1.0 if our excess availability is less than the greater of (a) 12.5% of the lesser of (i) the commitments and (ii) the borrowing base and (b) $17.5 million. The new ABL Facility also contains a cash dominion requirement if our excess availability is less than the greater of (a) 15.0% of the lesser of (i) the commitments and (ii) the borrowing base and (b) $20.0 million.

The new ABL Facility contains certain covenants that limit our ability and the ability of our 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 transactions with affiliates, and consolidate, merge or sell assets. In particular, we are permitted to incur additional debt in limited circumstances, including senior secured notes in an aggregate principal amount not to exceed $800.0 million, permitted subordinated indebtedness in an aggregate principal amount not to exceed $75.0 million at any time outstanding (subject to the ability to incur additional permitted subordinated debt provided that immediately after giving effect to such incurrence excess availability is more than 25% of the lesser of the total borrowing base and the aggregate commitments and Ply Gem Industries is in pro forma compliance with the fixed charge coverage ratio), purchase money indebtedness in an aggregate amount not to exceed $15.0 million at any one time outstanding, debt of foreign subsidiaries (other than Canadian subsidiaries) in an aggregate amount not to exceed $2.5 million at any one time outstanding, and the refinancing of other debt under certain circumstances. In addition, Ply Gem Industries is limited in its ability to pay dividends or make other distributions to Ply Gem Holdings. Permitted dividends and distributions include those used to redeem equity of its officers, directors or employees under certain circumstances, to pay taxes, to pay operating and other corporate overhead costs and expenses in the ordinary course of business in an aggregate amount not to exceed $2.0 million in any calendar year plus reasonable and customary indemnification claims of its directors and executive officers and to pay fees and expenses related to any unsuccessful debt or equity offering. Ply Gem Industries may also make additional payments to Ply Gem Holdings which may be used by Ply Gem Holdings to pay dividends or other distributions on its stock under the new ABL Facility so long as before and after giving effect to such dividend or other distribution excess availability is greater than 25% of the lesser of the total borrowing base and the aggregate commitments and Ply Gem Industries is in pro forma compliance with the consolidated fixed charge coverage ratio.

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.

The 13.125% Senior Subordinated Notes are unsecured and subordinated in right of payment to all of our existing and future debt, including the new ABL Facility and the 8.25% 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 8.25% Senior Secured Notes and the new 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 repurchase or redeem their stock, make loans and investments, sell assets, incur certain liens, enter into transactions with affiliates, and consolidate, merge or sell Ply Gem Industries’ assets. In particular, Ply Gem Industries may not incur additional debt (other than permitted debt in limited circumstances) unless, after giving effect to such incurrence, the consolidated interest coverage ratio would be at least 2.00 to 1.00. In the absence of satisfying the consolidated interest coverage ratio, Ply Gem Industries may only incur additional debt in limited circumstances, including, debt under credit facilities not to exceed the sum of (a) the greater of (i) $250.0 million and (ii) the borrowing base and (b) the greater of (i) $725.0 million less the amounts of certain prepayments or commitment reductions as a result of repayments from asset sales and (ii) an amount that is three times Consolidated Cash Flow (as defined in the indenture) for the four-quarter period; purchase money indebtedness in an aggregate amount not to exceed $25.0 million at any one time outstanding, debt of foreign subsidiaries in an aggregate amount not to exceed $30.0 million at any one time outstanding; debt pursuant to a general debt basket in an aggregate amount not to exceed $25.0 million at any one time outstanding; and the refinancing of other debt under certain circumstances. In addition, Ply Gem Industries is limited in its ability to pay dividends or make other distributions to Ply Gem Holdings. Permitted dividends and distributions include those used to redeem equity of its officers, directors or employees under certain circumstances, to pay taxes, to pay out-of-pocket costs and expenses in an aggregate amount not to exceed $500,000 in any calendar year, to pay customary and reasonable costs and expenses of an offering of securities that is not consummated and other dividends or distributions of up to $20.0 million. Ply Gem Industries may also pay dividends or make other distributions to Ply Gem Holdings so long as it can incur $1.00 of additional debt pursuant to the 2.00 to 1.00 consolidated interest coverage ratio test described above and so long as the aggregate amount of such dividend or distribution together with certain other dividends and distributions does not exceed 50% of consolidated net income plus certain other items.

As a result of the 8.25% Senior Secured Notes issuance and purchase and redemption of the 11.75% Senior Secured Notes during the six months ended July 2, 2011, we performed an analysis to determine the proper accounting treatment for this transaction. Specifically, we evaluated each creditor with ownership in both the 11.75% Senior Secured Notes and 8.25% Senior Secured Notes to determine whether the transaction was to be accounted for as a modification or an extinguishment of debt. We determined that this transaction resulted predominantly in a modification but in some instances as an extinguishment as some creditors did not participate in both the 11.75% Senior Secured Notes and 8.25% Senior Secured Notes. We incurred an early tender premium of approximately $49.8 million in conjunction with this transaction, of which approximately $38.9 million was recorded as a discount on the 8.25% Senior Secured Notes and approximately $10.9 million was expensed as loss on extinguishment of debt in the condensed consolidated statement of operations. We also expensed approximately $0.8 million for the unamortized discount and $2.8 million for the unamortized debt issuance costs for the 11.75% Senior Secured Notes in this transaction. We also incurred approximately $25.9 million of costs associated with this transaction, of which approximately $13.6 million was recorded as debt issuance costs and approximately $12.2 million was expensed as a loss on modification or extinguishment of debt in the condensed consolidated statement of operations.

As a result of the ABL Facility refinancing that was conducted during the first quarter of 2011, we evaluated the proper accounting treatment for the debt issuance costs associated with the prior ABL Facility and the new ABL Facility as there were certain members of the loan syndication that existed in both facilities and other members who were not participants in the new ABL Facility. Based on this evaluation, we expensed approximately $1.2 million of debt issuance costs as a loss on modification or extinguishment of debt and recorded approximately $2.1 million of debt issuance costs.

As a result of the $141.2 million redemption of the previous 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. On February 12, 2010, as a result of the $218.8 million contribution of the 9% Senior Subordinated Notes by an affiliate of our controlling stockholder in exchange for equity of Ply Gem Prime valued at approximately $114.9 million, we recognized a gain on extinguishment of approximately $100.4 million, including the write-off of unamortized debt issuance costs of approximately $3.5 million. The $98.2 million gain on debt extinguishment was recorded separately in the accompanying condensed consolidated statement of operations for the six months ended July 3, 2010.

	For the six months ended
(Amounts in thousands)	July 2, 2011			July 3, 2010

Gain (loss) on extinguishment of debt:
Tender premium	$	(10,883	)	$	-
11.75% Senior Secured Notes unamortized discount		(775	)		-
11.75% Senior Secured Notes unamortized debt issuance costs		(2,757	)		-
		(14,415	)		-

Carrying value of 9% Senior Subordinated Notes		-			360,000
9% Senior Subordinated Notes unamortized debt issuance costs		-			(5,780	)
9% Senior Subordinated Notes unamortized premium		-			100
Reaquisition price of 9% Senior Subordinated Notes		-			(256,133	)
		-			98,187
Loss on modification of debt:
Third party fees for 8.25% Senior Secured Notes		(12,261	)		-
Unamortized debt issuance costs for previous ABL Facility		(1,187	)		-
		(13,448	)		-

Total gain (loss) on modification or extinguishment of debt	$	(27,863	)	$	98,187

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

Management anticipates that our current liquidity position, as well as expected cash flows from our operations 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. As of July 2, 2011, we had cash and cash equivalents of approximately $24.1 million, $84.1 million of contractual availability under the ABL Facility and approximately $82.3 million of borrowing base availability.

The demand for our products is seasonal, particularly in the Northeast and Midwest regions of the United States and Western Canada where inclement weather during the winter months usually reduces the level of building and remodeling activity in both the home repair and remodeling and new home construction sectors. Our sales 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.

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

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. All written and oral forward-looking statements made in connection with this Quarterly Report on Form 10-Q that are attributable to us or persons acting on our behalf are expressly qualified in their entirety by the “Risk Factors” set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010 and other cautionary statements included therein and herein.

There can be no assurance that other factors will not affect the accuracy of these forward-looking statements or that our actual results will not differ materially from the results anticipated in such forward-looking statements. While it is impossible to identify all such factors, factors which could cause actual results to differ materially from those estimated by us include, but are not limited to, those factors or conditions described under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010, and the following:

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 July 2, 2011, 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 was fully drawn as of July 2, 2011, 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.

Our results of operations are affected by fluctuations in the value of the U.S. dollar as compared to the value of the Canadian dollar. For the three and six month periods ended July 2, 2011, the net impact of foreign currency changes to our results of operations was a gain of approximately $0.2 million and $0.4 million, respectively. The impact of foreign currency changes related to translation resulted in an increase in stockholder’s (deficit) of approximately $1.0 million for the six months ended July 2, 2011. 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 July 2, 2011, we did not have any outstanding foreign currency hedging contracts.

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 increasing our selling prices for corresponding material cost increases, continuing to diversify our product mix, strategic buying programs and vendor partnering.

As general economic conditions in the United States have deteriorated significantly over the past three 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 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.

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

Our management is responsible for establishing and maintaining our disclosure controls and procedures. Our Chief Executive Officer and Chief Financial Officer participated with our management in evaluating the effectiveness of our disclosure controls and procedures as of July 2, 2011. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures as of July 2, 2011 were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding the required disclosure.

* 31.1	Certification by President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
* 31.2	Certification by Vice President and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
* 32.1	Certification by President and Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
* 32.2	Certification by Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

† 101	The following financial statements from Ply Gem Holding, Inc. Quarterly Report on form 10-Q for the quarter ended July 2, 2011, filed on August 15, 2011, were formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets: (ii) Condensed Consolidated Statements of Operations: (iii) Condensed Consolidated Statements of Cash Flows: (iv) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.

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

Item 6.	Exhibits	46

Signatures		47

Building and improvements	10-37 years
Machinery and equipment, including leases	3-15 years
Leasehold improvements	Term of lease or useful life, whichever is shorter

(Amounts in thousands)	Amortization expense

2011 (remainder of year)	$	13,269
2012		26,585
2013		16,433
2014		14,985
2015		14,818

(Amounts in thousands)	July 2, 2011		December 31, 2010

Senior secured asset based revolving credit facility	$	85,000	$	30,000
11.75% Senior secured notes due 2013, net of
unamortized discount of $0 and $7,318		-		717,682
8.25% Senior secured notes due 2018, net of
unamortized early tender premium and
discount of $43,110 and $0		756,890		-
13.125% Senior subordinated notes due 2014, net of
unamortized discount of $3,119 and $3,519		146,881		146,481
	$	988,771	$	894,163

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

Balance at January 1, 2011		387,891		$	56.38		6.48
Granted		-					-
Forfeited or expired		(5,900	)				-
Balance at July 2, 2011		381,991		$	57.09		6.03

	Common Stock
	Shares Owned by
	Management

Balance at January 1, 2011		582,282
Shares issued		-
Shares repurchased		-
Balance at July 2, 2011		582,282

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

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

(Amounts in thousands)	July 2, 2011		December 31, 2010
Insurance	$	4,105	$	3,887
Employee compensation and benefits		8,820		6,086
Sales and marketing		25,040		21,637
Product warranty		8,466		9,375
Accrued freight		1,249		513
Interest		34,867		13,592
Accrued pension		1,961		1,961
Accrued deferred compensation		2,262		2,155
Accrued taxes		4,688		3,123
Other		14,012		12,788
	$	105,470	$	75,117

(Amounts in thousands)	July 2, 2011		December 31, 2010
Insurance	$	1,929	$	2,216
Pension liabilities		8,731		9,176
Multi-employer pension withdrawal liability		2,967		3,079
Product warranty		32,311		32,405
Long-term product claim liability		199		216
Liabilities for tax uncertainties		3,653		10,123
Other		3,413		3,274
	$	53,203	$	60,489