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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 31, 1995.

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

For the transition period from to .

Commission File Number

1-4087

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PLY GEM INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 11-1727150
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

777 THIRD AVENUE, NEW YORK, NEW YORK 10017
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)

Registrant's telephone number, including area code (212) 832-1550

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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $.25 par value New York Stock Exchange

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

The aggregate market value of voting stock held by non-affiliates of the
registrant, using the closing price which the registrant's voting stock was
sold on such date, was $191,900,000 as of March 20, 1996.

The number of shares outstanding of the registrant's common stock, $.25 par
value was 14,460,173 as of March 20, 1996.

DOCUMENTS INCORPORATED BY REFERENCE

IDENTIFICATION OF DOCUMENT PART INTO WHICH INCORPORATED
-------------------------- --------------------------------

Proxy Statement for Annual Meeting of
Stockholders
to be held on May 10, 1996 Part III Items 10, 11, 12 and 13

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PART I

ITEM 1. BUSINESS.

Ply Gem Industries, Inc., a Delaware corporation ("Ply Gem", hereinafter with
its subsidiaries referred to collectively as the "Company"), was originally
incorporated in 1946 in New York and reincorporated in Delaware in 1987. The
Company is a leading manufacturer and distributor of a wide range of specialty
products for the home improvement industry. The Company believes that it is
among the nation's largest manufacturers of wood windows, vinyl windows, vinyl
siding and accessories and a major supplier of specialty wood and other related
products. Each of the Company's ten wholly-owned subsidiaries and its one
division have achieved a leading market position within their respective niches
of the home improvement industry.

The home improvement industry includes products designed for remodeling,
repair and alteration of residential structures whether the work is performed
by the homeowner (the "do-it-yourselfer" or "D-I-Y"), or by a professional
contractor. Home improvement products, which in some cases are also used in new
construction applications, are sold either through retailers or specialty
wholesale distributors that in turn sell to retailers, contractors and
builders. The success of the recently introduced warehouse home center format,
such as that utilized by Home Depot, continues to change the traditional way in
which home improvement products are sold.

Ply Gem is strategically positioned to be the supplier of choice to major
home centers, the fastest growing segment of the home improvement industry.
Reflecting its broad product offering, national coverage and superior customer
service, including its direct to retail distribution capability, the nation's
largest retailers are increasingly turning to the Company to meet their strict
service requirements across many product lines. Consequently, Ply Gem is
attractively positioned for growth in sales and earnings as it further
penetrates this rapidly expanding customer base and continues to broaden its
product offerings.

The Company's products are distributed through an extensive network which
includes major retail home center chains, specialty home remodeling
distributors, lumber and building products wholesalers, professional
contractors and Company operated distribution centers. The products are
marketed primarily in the United States through Company sales personnel and
independent representatives.

The Company operates predominantly in one business segment--Home Improvement
Products. Prior to 1992, the Company reported in two industry segments, Home
Improvement Products and Home Products. The operations of the latter segment,
consisting of manufacturing and distribution of disposable paper vacuum cleaner
bags, have become less significant over the past several years and as a result
the Home Products operations are not material to an understanding of the
Company's business taken as a whole.

On August 2, 1995, the Company engaged the investment banking firm of Bear,
Stearns & Co. Inc. to explore strategic alternatives for the Company, including
the possible sale of the Company, with the intent of maximizing shareholder
value. The Company does not expect to disclose developments with respect to its
exploration of strategic alternatives unless and until it is in a position to
announce a definitive transaction. Furthermore, no assurances can be given that
the process will result in any specific transaction.

BUSINESSES OF THE COMPANY

The Company's subsidiaries and division are categorized into four primary
business groups: Windows, Doors and Siding; Specialty Wood Products;
Distribution; and Home Products. Set forth below are the operating entities
within each group and the year in which the entity was acquired by the Company.
Ply*Gem Manufacturing is a division of the Company and constitutes the
Company's original business.

YEAR
ACQUIRED
--------

WINDOWS, DOORS AND SIDING
Variform, Inc. ("Variform")....................................... 1986
Great Lakes Window, Inc. ("Great Lakes").......................... 1986
SNE Enterprises, Inc. ("SNE")..................................... 1989
Richwood Building Products, Inc. ("Richwood")..................... 1992
SPECIALTY WOOD PRODUCTS
Ply*Gem Manufacturing
Hoover Treated Wood Products, Inc. ("Hoover")..................... 1983
Sagebrush Sales, Inc. ("Sagebrush")............................... 1988
Continental Wood Preservers, Inc. ("Continental")................. 1988
DISTRIBUTION
Goldenberg Group, Inc. ("Goldenberg")............................. 1983
Allied Plywood Corporation ("Allied")............................. 1985
HOME PRODUCTS
Studley Products, Inc. ("Studley")................................ 1969

SNE Enterprises, Inc.: SNE is a major manufacturer of wood windows, competing
with companies such as Andersen Corporation, Marvin Windows and Doors and Pella
Corporation. The Company believes that it is a leading supplier of wood windows
which are sold directly to the major home centers and the fourth largest
producer of wood windows in the United States.

SNE manufactures a full line of wood, wood clad and vinyl windows and patio
doors, glass and polycarbonate skylights, and wooden interior bifold doors and
shutters. SNE's products are sold under the Crestline(R), Vetter(R), and
Kenergy(R) brand names, as well as through numerous private label programs, to
wholesale distributors, home centers and lumber yards. SNE's products are
marketed to both the home improvement and new construction markets.

Crestline(R) and Vetter(R) brand wood windows are available with primed, or
clad exteriors, and offer innovative product features with a wide selection of
options. A complete range of window styles include double hung, casement,
awning, sliding, angle bay and bow windows. Specialty and custom windows are
available in a wide variety of shapes and sizes. Patio doors are offered in
traditional hinged, French hinged, sliding and French sliding designs.

The new CrestWood(TM) Series of premium wood windows and patio doors combines
the performance of an energy efficient, maintenance free solid vinyl exterior
with the warmth and beauty of a natural pine interior that can be painted or
stained, and is also available in three hardwood species. Most SNE products are
available with insulated divided lite glass, a patented energy efficient
replica of historically correct narrow mutten bar divided lite wood windows and
patio doors.

Introduced in late 1994, VinylCrest(TM), a complete line of solid vinyl
windows, is available for replacement and new construction applications, in a
full range of window styles. The introduction of this line of vinyl new
construction windows gives SNE an important presence in what is believed to be
the fastest growing niche in the window market. The new VinylCrest(TM) product
line is a critical component of SNE's strategy to offer windows in all price
points and market segments. In addition to an extremely broad line of standard
windows and doors, its custom window factory can build nearly any shape and
size window.

SNE differentiates itself from its competition with a multiple brand
strategy, multi-channels of distribution (with an emphasis on the home center
market), an established distribution network utilizing custom design and
manufacturing capabilities, and a superior field sales and service support
network. SNE's ability to sell direct to this channel in full truck load and
less than truck load quantities is tailored to the desires of large home center
chains who prefer to purchase windows direct from the manufacturer. SNE is the
only company in the United States to supply a full product line that includes
primed and clad wood windows and patio doors, vinyl windows and patio doors and
skylights under a single brand.

The Company believes that SNE will continue to grow as its existing products
gain market share due to improved brand recognition from cooperative and other
advertising programs with its customers, and the introduction of new products
such as CrestWood(TM) and VinylCrest(TM). Furthermore, SNE expects to enjoy
continued growth as a result of its focus on the fastest growing segment of the
industry, home centers and lumber yards, which will continue to generate an
increasing share of industry sales.

Currently, SNE's strongest market presence is in the Northeast and Midwest.
SNE believes significant opportunity exists to expand geographically,
particularly in the Southeast, Southwest, West Coast and export markets.

Variform, Inc.: Variform is a manufacturer of vinyl siding, soffit, skirting
and accessories, which are available in a wide variety of woodgrain, colors,
price points and profiles. Its products are used in both remodeling and new
construction applications and have captured an increasing share of the overall
market for exterior siding materials (which includes wood, aluminum and
masonry) due to its ease of installation, high performance, durability, low
maintenance requirements and price stability as compared to alternative siding
materials. Products are marketed principally to building material distributors,
who in turn sell primarily to home centers and lumber yards, the fastest
growing distribution channel for vinyl siding. The Company believes Variform is
the leading supplier to home centers and lumber yards, and the third largest
producer of vinyl siding in the United States.

Vinyl siding is sold to either specialty wholesale distributors who, in turn,
sell directly to remodeling contractors (one-step distribution), or to building
materials distributors who sell to home centers and lumberyards who in turn
sell to remodeling contractors and consumers (two-step distribution). While
Variform sells through both channels of distribution, it focuses on the two
step market, where management believes it is the dominant supplier to the major
home center retailers and retail lumber yards. The Company believes that
Variform is able to compete on favorable terms as a result of its broad
distribution coverage, high quality innovative products, and production
efficiency. Additionally, Variform is strongest in the retail segment of the
market, which continues to grow at a rate that is faster that the overall
market, as warehouse retailers continue to take business away from the
traditional one-step market by offering remodeling contractors a "one-stop-
shop" for all of their home improvement material needs.

Great Lakes Window, Inc.: Great Lakes is a manufacturer of high quality,
energy efficient and maintenance free vinyl windows and patio doors.
Historically, Great Lakes focused only on the replacement segment of the vinyl
window market. However, in response to the growing acceptance of standard size
vinyl windows in new construction applications, Great Lakes introduced a new
construction vinyl window in 1994.

Great Lakes markets its products under the Great Lakes(R) Gold, PLY GEM(R)
Premium, Uniframe(R), MC +(TM) and Duo Temp(TM) brand names. Great Lakes'
window and patio door systems are available for both new construction and
replacement applications. The new construction series is available in both
standard and custom sizes. Replacement units are custom manufactured to exact
specifications and include patented R-Core insulation within the frame. The
Company believes it is among the largest suppliers of vinyl windows serving the
replacement market in the United States.

Products include single hung, double hung, casement, garden, sliding and
awning windows, as well as hinged and sliding patio doors in the new
construction and remodeling markets. Great Lakes offers a wide selection of
products, including a variety of vinyl colors and interior woodgrains, several
different grille styles and patterns and a wide assortment of glass options.

Great Lakes' product lines feature fusion welded sash and frame corners which
are guaranteed not to separate, leak air or water, or require maintenance. The
Intercept(TM) warm edge glass spacer system is manufactured in one continuous
piece, resulting in a stronger, more energy efficient insulated glass unit. A
unique weather-stripping system ensures one of the lowest air infiltration
ratings in the industry. Additionally, Great Lakes is the only vinyl window
manufacturer to offer Easy Clean(TM) glass, providing an owner with a window
which requires less cleaning. Great Lakes has pioneered other product
innovations which differentiate its product line from other window
manufacturers, including wood grain vinyl interiors available in three
finishes, multi-point locking hardware, and sliding patio doors which utilize a
proprietary tank type roller system.

Great Lakes' replacement products are sold through specialty distributors and
directly to large contractors. The new construction series is currently being
sold under a private label program and to a select number of Great Lakes'
dealer distributors. Great Lakes' multiple brand approach has allowed it to
achieve maximum penetration in a given geographic area, by offering dealer
distributors individual brands on an exclusive basis. Great Lakes relies on a
highly trained Company sales force that is among the most effective in the
industry.

The Company believes that Great Lakes is able to compete successfully due to
the breadth and quality of its product offering and its merchandising support.

Richwood Building Products, Inc.: Richwood is a manufacturer of a broad line
of injection molded siding accessories for the remodeling and new construction
markets. Siding accessories include blocks, which allow for the flush mounting
of items like light fixtures to the exterior of a home, and gable vents that
provide attic ventilation. The products are sold through a network of
manufacturers representatives and directly to home centers, lumberyards and
wholesale distributors of building materials, electrical and plumbing products.
Richwood is the only manufacturer of siding accessories to offer a color
selection that matches the colors offered by most, if not all, major
manufacturers of vinyl siding.

SPECIALTY WOOD PRODUCTS

Hoover Treated Wood Products, Inc.: Hoover is a leading producer of pressure
treated wood products, offering a full range of preservative and fire retardant
treated lumber and plywood products which are marketed to distributors, home
centers, cooperative buying groups and lumber yards for use generally in
residential decking and commercial construction applications. Its products
include lumber and plywood which have been treated for fire retardancy and for
protection against moisture and insect infestation.

Sagebrush Sales, Inc.: Sagebrush is a manufacturer and distributor of
specialty lumber and related building products serving the home improvement and
building materials market principally in the Southwest.

Ply*Gem Manufacturing is a manufacturer of decorative pre-finished wall
coverings and is a distributor of ceramic marble, porcelain tile and wood and
melamine shelving, as well as many other products sold to home centers and
lumber yards.

Continental Wood Preservers, Inc .: Continental is a Midwestern manufacturer
of pressure treated wood products for home improvement retailers and
lumberyards in the Midwest.

While the specialty wood products industry is very competitive, the Company
believes it is able to compete effectively by providing superior customer
service, outstanding quality, and wherever possible, proprietary products. The
companies within the group focus on high margin, niche markets within the

broader defined wood products industry which tends to be commodity driven. Its
products are sold through home center retailers and wholesalers of building
materials. The Company believes that growth of this segment of its business
will result from continued expansion of its share of the home center market.

DISTRIBUTION

Allied Plywoood Corporation: Allied is a national distributor of a broad
range of high end specialty wood and wood related products, including hardwood
plywood, melamine and other laminated board products, hardwood lumber, high
pressure laminate (HPL), solid surface materials and cabinet hardware. Allied
is a leading importer of specialty wood panels from all over the world,
including Baltic Birch(R) from Russia. Allied's customers are industrial
woodworkers, including cabinet manufacturers, architectural millworkers, and
manufacturers of store fixtures, furniture, and signs and exhibits. Allied
sells its products through an extensive network of twelve company operated
warehouse facilities and utilizes numerous public warehouses located in various
major port cities. Sales are generated by a well trained and experienced sales
force.

Allied differentiates itself from its competitors, which primarily include
local independent distributors, by its superior customer service, geographic
coverage and breadth of product line. As a result, it has become a preferred
distributor of many products, selling them on an exclusive, or limited
exclusive, basis.

The Company believes that Allied's future growth will be from the
introduction of new products, and expansion of its customer base. Allied
recently began to penetrate the retail home center market with some of its
products and, the Company believes, will increase its sales to that industry
segment.

Goldenberg Group, Inc.: Goldenberg is a West Coast manufacturer and
distributor of furniture components, laminates and board products to furniture
manufacturers and other original equipment manufacturers, building material
retailers and wholesalers. In addition to distribution of wood products,
Goldenberg is capable of laminating vinyl and paper on almost any core
material. As a large manufacturer and distributor of high quality, cost
efficient products for the furniture, ready-to-assemble, cabinet and building
industries, Goldenberg specializes in providing custom laminations to
industrial customers that meet almost any specification.

HOME PRODUCTS

Studley Products, Inc.: Studley is a manufacturer of disposable paper vacuum
cleaner bags and related floor care products. Studley's products are sold to
manufacturers of vacuum cleaners, mass merchandisers and other retailers and
recently to the retail home center market and other retailers.

Even though the market is very competitive, Studley is able to compete on the
basis of its technical expertise in the design and manufacture of its products.
In 1994, Studley introduced an innovative new vacuum cleaner bag that is able
to capture pollen and other allergy causing bacteria through the use of such
high performance materials. The continued introduction of new products and the
fact that many consumers are now likely to own more than one vacuum cleaner are
expected to provide opportunities for future growth.

PRODUCTION AND FACILITIES

The Windows, Doors and Siding group operates eleven manufacturing and
warehouse facilities in the United States and one in Canada.

SNE's manufacturing process of wood windows and patio doors involves cutting
and shaping of components that are assembled with high speed tools.
Manufacturing begins with the receipt of cutstock, which is inspected for
quality and then machined (tenoning and molding). After a part has been
machined, it

is sent to a dip process which treats the wood with a preservative to make it
more resistant to damage from moisture. Then the part may be toned or painted,
depending on the requirements of a specific order, and dried, palletized and
readied for delivery into the various assembly areas. On a just-in-time basis,
insulated glass is fabricated upon the receipt of an order beginning with the
cutting of raw sheet glass by a computerized glass cutter which optimizes yield
and reduces costly scrap. The necessary wood parts are then pulled from
inventory and sash frames and unit frames are assembled and finished with
appropriate cladding and hardware. The finished sash is then installed into the
assembled frame, at which time product labels and optional parts, such as
screens, are attached to the finished unit. In 1994, the Company closed three
window assembly and distribution facilities and consolidated these operations
into its main facility in Mosinee, Wisconsin.

Variform's vinyl siding is produced by an extrusion process which forms
siding through various dies from certain resin compounds, primarily polyvinyl
chloride ("PVC"). PVC resin is received by rail car and is unloaded into a
storage silo in staging for blending. The blending operations are a state-of-
the-art, computer-controlled operation where PVC resin and other ingredients,
such as stabilizers and processing aids, are blended to give a highly-
consistent feedstock for the extrusion process. A variety of capstocks and a
substrate are blended in this operation and stored in intermediate silos ready
for draw down into the extrusion process. The extrusion process draws blended
feedstock to each production line via pneumatic conveying systems. The polymer
extruded from the co-extrusion process passes through an embossing roll to
imprint the desired woodgrain pattern, then passes through post-form tooling
and a water bath to give the panel its desired shape.

Siding accessories are manufactured through an injection molding process
using proprietary mold designs and polypropylene. The polypropylene is vacuum
fed from containers to injection molding machines.

Insulated vinyl framed replacement windows are manufactured, using a patented
process, from insulated glass and vinyl extrusions. The vinyl lineals are cut
to requirements and welded together to create sash and unit frames. Hardware is
then added and the product is prepared for shipping.

The Specialty Woods Group operates eight production and warehouse facilities
in the United States. The treatment process of wood products generally involves
vacuum pressure impregnation of chemicals into the wood in an enclosed vessel
to ensure thorough penetration to meet industry and government standards. Some
of the wood is kiln dried after treatment to remove moisture imparted during
the pressure impregnation process, providing a clean, dry and easily handled
product. The Company's high-speed laminating production facilities in
Gloucester City, New Jersey afford flexibility in laminating paper and vinyl to
various substrate materials. Furniture components are manufactured from
particle board or fiberboard which is machined to customer specifications.
Several unique proprietary processes are employed to manufacture these products
efficiently. Specialty lumber products, including siding, decking and paneling
are manufactured by the Company in three facilities with a combined annual
production capacity in excess of 100 million board feet.

The Distribution Group operates fourteen distribution centers located
primarily in the East and utilizes numerous public warehouses located in
various major port cities.

Disposable paper vacuum cleaner bags are manufactured at one facility in the
United States and one in Canada. Disposable paper vacuum cleaner bags are
manufactured on highly automated equipment, the major part of which was
designed and built by the Company. The Company is continuously engaged in
designing vacuum cleaner bags for new vacuum cleaner models.

RAW MATERIALS

The principal raw materials used in the manufacture of the Company's products
are PVC, polypropylene, glass, vinyl extrusions, particle board, fiberboard,
plywood, various species of lumber such as pine, spruce, lauan, hemlock and
fir, various chemicals, filter paper, woven and non woven fabric, and paper.

The Company purchases its raw materials from a large number of domestic and
international sources. The Company believes that there are alternative sources
of supply in the event of its inability to purchase from its present suppliers.

The Company has a procurement strategy whereby it attempts to reduce the
total cost of materials and services by integrating suppliers into the supply
chain and leveraging purchasing power through joint buying programs.

SEASONALITY

The Company's home improvement business is seasonal, particularly in the
Northeast and Midwest regions of the United States where inclement weather
during the winter months usually reduces the level of activity in both the home
improvement and new construction markets. The Company's lowest sales levels
usually occur during the first and fourth quarters. Since a high percentage of
the Company's manufacturing overhead and operating expenses are relatively
fixed throughout the year, operating income tends to be lower in quarters with
lower sales. Inventory and borrowings to satisfy working capital requirements
are usually at their highest level during the second and third quarters.

BACKLOG

In general, the Company does not produce against a backlog of firm orders;
production is geared primarily to the level of incoming orders and to
projections of future demand. Significant inventories of finished goods, work-
in-process and raw materials are maintained to meet delivery requirements of
customers.

Hoover and Continental maintain a steady backlog of firm orders to be filled
in an amount representing approximately 6% of its annual sales. Distribution
consists of warehouse operations where orders are filled from stock and where
there is no significant backlog.

EMPLOYEES

At December 31, 1995 approximately 3,700 persons were employed by the
Company. Approximately 1,400 of such employees are covered by collective
bargaining agreements which expire at various times over the next three years.
The Company has not had any significant work stoppages and considers its
relations with its employees to be good.

ITEM 2. PROPERTIES.

The Windows, Doors and Siding group operates eleven manufacturing and
warehouse facilities in the United States and one in Canada ranging in size
from approximately 19,000 square feet to 660,000 square feet. Of these
facilities, six are owned, and six are leased under net leases that expire at
various dates through 2017. The group's manufacturing facilities operated at
ranges of approximately 60% to 85% of capacity during 1995.

The Specialty Woods Group operates eight manufacturing and warehouse
facilities in the United States ranging in size from approximately 20,000
square feet to 200,000 square feet. Of these facilities, six are owned and two
facilities are leased under net leases that expire at various dates through
2001. The group's manufacturing facilities operated at ranges of approximately
50% to 90% of capacity during 1995.

Distribution operates fourteen facilities located primarily in the East
ranging in size from approximately 16,000 square feet to 257,000 feet. Two
facilities are owned, and twelve facilities are leased under leases that expire
at various dates through 2005.

Home Products has one manufacturing facility (approximately 160,000 square
feet) in the United States and one (approximately 39,000 square feet) in
Canada. These facilities are leased by the Company under leases that expire in
2007. The facilities operated at ranges of approximately 50% of capacity during
1995.

The Company's building, machinery and equipment have been generally well
maintained, are in good operating condition and are adequate for current and
future production requirements.

The Company's executive offices are located at 777 Third Avenue, New York,
New York and consist of 14,700 square feet of office space which is leased
through 1999.

ITEM 3. LEGAL PROCEEDINGS.

Hoover, a wholly-owned subsidiary of Ply Gem, is a defendant in a number of
commercial lawsuits alleging property damage caused by alleged defects in
certain pressure treated interior wood products. Hoover has not manufactured or
sold these products since August, 1988. Sales of this product constituted less
than 3% of total sales of Ply Gem and its subsidiaries on a consolidated basis
during the period January 1, 1984 through December 31, 1990. The number of
lawsuits pending, as of December 31, 1995, as well as the number of lawsuits
filed since 1993, have declined significantly from earlier periods. Most of the
suits have been resolved by dismissal or settlement. A purported class action
on behalf of certain Maryland homeowners was dismissed in November, 1995, when
the Maryland Court of Appeals, the State's highest court, found that the
homeowners had no viable claims against Hoover. In those suits that remain
pending, direct defense costs are being paid out of insurance proceeds. Two
actions have proceeded to trial against Hoover and resulted in jury verdicts
against it. In one of these actions, judgment was entered in Hoover's favor by
the court after a jury verdict against it and the plaintiff's petition to
appeal the judgment entered in Hoover's favor was denied. In the other case,
the judgment against Hoover was vacated and the case was settled with proceeds
from insurance settlements.

Hoover and Ply Gem have engaged in litigation with some of their insurers
regarding coverage for these lawsuits and claims. Hoover has settled its
coverage claim with a majority of its insurers and is negotiating settlements
with others. Hoover and Ply Gem believe they have meritorious claims for
coverage from their remaining unsettled insurers and are seeking declaratory
judgments confirming such coverage. The proceeds from settled insurance claims,
along with the proceeds from a settlement of claims by Hoover against certain
suppliers of materials used by it in the production of treated wood, are
available for the settlement of the underlying property damage actions. Ply Gem
believes that Hoover's remaining coverage disputes will be resolved within the
next two years on a satisfactory basis and a substantial amount of additional
coverage will be available to Hoover. In reaching this belief, it has analyzed
Hoover's insurance coverage, considered its history of successful settlements
with primary and excess insurers and consulted with counsel.

Hoover and Ply Gem are vigorously defending the underlying lawsuits which
cannot be resolved on a reasonable basis and believe that they have meritorious
defenses to those suits including, in the case of Ply Gem, the defense that it
has been improperly joined, as it did not manufacture or market the Hoover
products at issue, and is not legally liable for the damage allegedly caused by
them.

In evaluating the effect of the lawsuits, which Hoover expects to discharge
over the next four years, and its anticipated additional insurance recoveries,
Hoover and Ply Gem have considered a number of factors including: the number
and exposure posed by the pending lawsuits; the significant decline in the
number of lawsuits filed in 1994 and 1995; the availability of various legal
defenses, including statutes of limitations; the existence of settlement
protocols; an agreement indemnifying Hoover as to certain past and future
claims; and Hoover's experience to date in settling with its insurance
companies and the likely availability of proceeds from additional insurance.
Based on its evaluation, the Company believes that the ultimate resolution of
the lawsuits and the insurance claims will not have a material effect upon the
financial position of the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.

No matters were submitted to a vote of security-holders during the fourth
quarter of 1995.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.

The Company's Common Stock has been listed on the New York Stock Exchange
since December 1, 1994. Prior to that date, the stock traded on the American
Stock Exchange. The following table sets forth, for the periods indicated, the
high and low market prices and dividends paid.

1995 1994
------------------------ ------------------------
QUARTER HIGH LOW DIVIDEND HIGH LOW DIVIDEND
- ------- ------- ------- -------- ------- ------- --------

First......................... $21 1/4 $17 1/8 $.03 $25 5/8 $17 1/2 $.03
Second........................ 18 3/4 15 .03 23 5/8 19 1/2 .03
Third......................... 19 15 .03 23 1/2 18 3/4 .03
Fourth........................ 19 1/8 15 5/8 .03 23 1/4 17 .03

The Company has paid cash dividends on its Common Stock since 1976 and
presently pays quarterly dividends at the annual rate of $.12 per share.

The Company's revolving credit facility has limitations on the annual amounts
of the Company's dividends. Under the most restrictive provision, at December
31, 1995, approximately $2,900,000 was available for the payments of dividends
in 1996.

The number of stockholders of record of the Company's common stock as of
March 20, 1996 was approximately 2,800.

ITEM 6. SELECTED FINANCIAL DATA.

The selected financial data presented below as of the dates and for the
periods indicated are derived from the consolidated financial statements of the
Company. The selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's consolidated financial statements and notes
thereto.

1995 (1) 1994(2) 1993 1992 1991
-------- ------- ---- ---- ----
INCOME STATEMENT DATA
- --------------------- (IN THOUSANDS, EXCEPT PER SHARE DATA)

Net sales...................... $741,394 $796,419 $722,660 $623,182 $561,550
Net income (loss).............. (7,402) (8,531) 9,650 6,306 4,039
Net income (loss) per share.... (.51) (.62) .75 .56 .39
BALANCE SHEET DATA:
Total assets................... $324,990 $345,569 $344,944 $313,997 $281,124
Long-term debt................. 93,135 79,501 92,898 62,451 57,996
Capital lease obligations...... 7,106 7,159 7,166 7,215 105
Convertible subordinated deben-
tures......................... -- -- 50,000 50,000 50,000
Stockholders' equity........... 144,485 161,636 128,942 118,439 111,349
Dividends per common share..... .12 .12 .12 .12 .12

- --------
(1) Results include a pretax charge of $12.0 million related to the write-down
of long-lived assets.
(2) Results include a nonrecurring pretax charge of $41.0 million, related to
employee severance, facility consolidations and closures and asset
writedowns.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto appearing elsewhere in this Annual
Report.

RESTRUCTURING UPDATE

As further described in Note 2 to the consolidated financial statements, the
Company commenced a restructuring program during 1994 designed to improve its
cost structure primarily through facilities consolidations and closures,
abandonment of certain information systems and workforce reductions, and has
recorded $29.1 million for these actions. Implementation of several initiatives
included in the restructuring program have been delayed or have resulted in
higher costs than originally anticipated, primarily in the Company's window
subsidiaries, and to a lesser extent, in its distribution businesses, which
offset the aggressive cost cutting actions implemented by the Company. As a
result the Company does not expect to realize the majority of the savings from
full implementation of the restructuring program until 1996 and thereafter. As
previously disclosed, however, there can be no assurance that the Company will
realize any significant future savings.

The cash outlays with respect to the restructuring program during 1995 of
approximately $10 million relate primarily to severance costs, lease
termination expenses and costs associated with the abandonment of certain
information systems. Noncash writedowns relate primarily to fixed asset and
inventory write-offs in connection with the closing or consolidation of
facilities. Remaining cash outlays relate primarily to work-force related
activities and are expected to total approximately $7.6 million of which
approximately $4.5 million will be expended in 1996.

WRITE-DOWN OF LONG-LIVED ASSETS

As more fully described in Note 5 to the consolidated financial statements,
the Company adopted SFAS No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" during the fourth quarter
of 1995. Adoption of SFAS No. 121 required a non-cash pre-tax write-down of
certain long-lived assets of approximately $12.0 million. Future depreciation
and amortization of these assets will be reduced by approximately $2 million
annually.

NET SALES

Net sales for the year ended December 31, 1995 totaled $741.4 million, a
decrease of 6.9% over 1994 net sales of $ 796.4 million. The primary cause of
the decline in sales was the Company's planned discontinuance or de-emphasis of
certain low margin products. Excluding these products, net sales declined
approximately 1.8% for the comparison period. The Company's Windows, Doors and
Siding businesses experienced sales growth of approximately $10.4 million
during 1995 as unit sales increases in the Company's vinyl siding and vinyl
window businesses were partially offset by a decline in unit volume in the
Company's wood window business. The 1995 sales growth in the Company's Windows,
Doors and Siding businesses was offset by both lower sales volume at the
Company's Specialty Wood businesses, which continue to be impacted by low
framing lumber prices, and lower volume at the Company's Distribution
businesses.

Net sales for the year ended December 31, 1994 were $796.4 million, which
represents a 10.2% increase over 1993 net sales of $722.7 million. The 1994
sales growth was driven by the Company's Windows, Doors and Siding subsidiaries
which experienced a 14% increase in sales. Increased market penetration and new
products helped fuel this growth. Of the total net sales increase in 1994,
approximately 6% is attributable to increases in unit volume and the remainder
to increases in average selling prices.

GROSS PROFIT

Gross profit, expressed as a percentage of net sales, was 16.7% in 1995,
compared with 19.3% in 1994 and 19.1% in 1993. The 1995 gross margins have been
impacted by higher conversion costs, including costs related to the
restructuring program such as training and moving costs but not classified as
such, product mix, and new product manufacturing start-up costs. In addition,
higher commodity costs, particularly PVC resin and glass (which are used in the
manufacture of siding and windows), had a negative impact on gross margins, as
did declining framing lumber prices in the Company's Specialty Wood businesses
and lower absorption of fixed manufacturing costs in the Company's Distribution
business.

Gross profit in 1994 was also impacted by higher commodity costs,
particularly PVC resin and glass. However, improved labor productivity, lower
conversion costs and the absence of new plant start-up costs (incurred in 1993)
offset these higher costs and resulted in a modest improvement in gross profit
during 1994 as compared to 1993.

The Company's results of operations are affected by fluctuations in the
market prices of wood products used as raw materials in its various
manufacturing operations. Over the years, the Company has experienced
significant fluctuations in the cost of wood products from primary suppliers. A
variety of factors over which the Company has no control, including
environmental regulations, weather, economic conditions and natural disasters,
impact the cost of wood products. The Company anticipates that these
fluctuations will continue in the future. Although the Company attempts to
increase sales prices of its products in response to higher wood products
costs, such sales prices often lag behind the escalation of the cost of raw
materials in question. While the Company intends to increase prices in a timely
manner to cover possible increases in the cost of wood products, its ability to
do so may be limited by competitive or other factors.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses, as a percentage of net sales,
were 15.3% in 1995 as compared to 14.7% in 1994 and 15.4% in 1993. The
percentage increase for the 1995 comparison to 1994 is primarily due to the
absorption of such expenses over lower sales levels. In absolute dollars,
selling, general and administrative expenses declined by $3.9 million in 1995
compared to 1994 primarily due to lower amortization of intangibles, lower
employment costs related in part to the reduction in workforce and lower
incentive compensation expense.

The percentage decrease in 1994 compared to 1993 is primarily attributable to
a lower provision for bad debts, certain administrative and functional
consolidations and workforce reductions, partially offset by employment costs
associated with the creation of new positions in purchasing, executive
management, information systems, total quality management and marketing.

INCOME FROM OPERATIONS

Income from operations, excluding the write-down of long-lived assets in 1995
and nonrecurring charges in 1994, was $10.5 million in 1995 compared to $36.9
million in 1994 and $26.8 million in 1993. The lower levels of operating income
were a result of the aforementioned factors.

The Company is taking a number of steps to improve operating results in 1996
and beyond. These actions include: implementation of a new systems at the
Company's window businesses; aggressive procurement initiatives, particularly
with regard to vinyl profiles and glass; elimination of costly consulting fees;
reduction in administrative costs, including the closure of an administrative
facility; and, realization of fixed cost reductions from the completion of
facility consolidations and headcount reductions.

INTEREST EXPENSE

Interest expense was $6.6 million in 1995 compared to $7.5 million in 1994
and $10.1 million in 1993. The decline in interest expense in 1995 and 1994
resulted from the conversion of the Company's 10% Convertible Subordinated
Debentures into common stock during March 1994, partially offset by higher
average debt balances and higher interest rates experienced during 1995 and
1994.

OTHER INCOME (EXPENSE)

The increase in other income (expense) of $1.8 million for the 1995
comparison period, primarily relates to higher accounts receivable program
costs due to an increase in the average amount of receivables sold under this
program during 1995 as compared to 1994. Other income (expense) in 1994
includes the costs associated with the sale of accounts receivables program,
partially offset in 1993 by a gain resulting from an involuntary conversion of
property.

INCOME TAXES

The effective income tax rate (benefit in 1995 and 1994) was 27.9% in 1995,
28.6% in 1994 and 44.8% in 1993. The lower tax benefit in 1995 is due to the
proportionately higher amount of non-deductible goodwill amortization in 1995
as compared to the loss before taxes than such comparison in 1994.

The lower tax rate in 1994 compared to 1993 is due to factors discussed in
the preceding sentence and certain state tax benefits relating to the
nonrecurring charge which, in accordance with the criteria set forth in SFAS
No. 109, were not recognized.

NET INCOME

Net income, before the aforementioned nonrecurring charges and write-down of
long-lived assets, decreased to $.2 million in 1995 from $17.2 million in 1994.
Net income was $9.7 million in 1993. The factors cited above were responsible
for the decline in operating results of the Company.

LIQUIDITY AND CAPITAL RESOURCES

The Company has a revolving $200 million credit facility with a syndicate of
twelve banks which provides financing through February 1999. Availability under
this facility was $58 million at December 31, 1995.

The table below summarizes the Company's cash flow from operating, investing
and financing activities as reflected in the Consolidated Statements of Cash
Flows.

1995 1994 1993
------ ----- -----
(IN MILLIONS)

Cash provided by (used in)
Operating activities.................................... $ 11.1 $48.8 $ 4.7
Investing activities.................................... 26.2) 19.9) 11.0)
Financing activities.................................... 8.8 (27.0) 16.9
------ ----- -----
Net increase (decrease) in cash and cash equivalents.... $ (6.3) $ 1.9 $10.6
====== ===== =====

OPERATING ACTIVITIES

Cash flow provided from operations was $11.1 million in 1995, compared to
$48.8 million provided in 1994.

The decrease in cash from operations resulted primarily from lower operating
results, cash used for the restructuring program and an increase in notes
receivable.

The Company's working capital requirements for inventory and accounts
receivable are impacted by changes in raw material costs, the availability of
raw materials, growth of the Company's business and seasonality. As a result,
such requirements may fluctuate significantly.

INVESTING ACTIVITIES

Investing activities of the Company during the discussion periods primarily
consist of acquisition of property, plant and equipment.

Capital expenditures were $27.8 million in 1995 compared to $23.0 million in
1994 and $20.5 million in 1993. Approximately $9.9 million and $4.3 million was
incurred in 1995 and 1994 respectively, in connection with the design and
development of the Company's new information systems. The remaining outlays in
1995 were for machinery and equipment used to expand capacity and improve
productivity. The Company expects to incur approximately $16 million in 1996
for capital expenditures.

Capital expenditures provide a basis for future growth. The acceptability of
a capital project is based on many factors, including its discounted cash flow,
return on investment and projected payback period. Management expects that its
capital expenditure program will continue at a level sufficient to support the
strategic and operating needs of the Company's operating subsidiaries.

FINANCING ACTIVITIES

During 1995, the Company increased bank debt by $13.6 million primarily to
fund capital expenditures. In the fourth quarter of 1994, the Board of
Directors authorized the repurchase of up to one million shares of the
Company's common stock. Repurchases for 1995 were 292,000 shares with a total
purchase price of approximately $5.0 million. The Company is expected to
continue its buy-back program during 1996 subject to market conditions.

BALANCE SET ANALYSIS

The capitalization of the Company (long-term debt plus stockholders' equity)
was $244.7 million at December 31, 1995. The ratio of debt to capitalization
was 41% at December 31, 1995, as compared to 35% at December 31, 1994
reflecting the increase in bank debt during 1995 and the net loss incurred.

The Company's working capital was $104.7 million at December 31, 1995
compared to $110.5 million at December 31, 1994. The current ratio was 2.8 at
December 31, 1995, compared to 2.5 at December 31, 1994. The decrease in
working capital was the result of a decrease in current assets of $23.0 million
from December 31, 1994 to December 31, 1995 and a decrease in current
liabilities of $17.2 million during the same period. The decrease in current
assets at December 31, 1995 compared to December 31, 1994 resulted primarily
from lower inventories due to the implementation of inventory reduction
programs and lower accounts receivable as a result of lower sales volume during
the fourth quarter of 1995 compared to the same period in 1994. The decrease in
current liabilities from December 31, 1994 to December 31, 1995 was due
primarily to the reduction in restructuring accrual as a result of cash
payments in 1995.

In 1995 the Company increased its outstanding borrowings by a net total of
$14.0 million compared to reducing its borrowings by a net total of $14.9
million in 1994. In 1995 borrowings were used to finance capital expenditures
and working capital needs of the Company.

The Company will continue to have cash requirements to support working
capital needs, pay interest, fund the balance of the restructuring program and
fund capital expenditures. In order to meet these cash requirements, the
Company intends to use internally generated funds and, if necessary, borrowings
from its credit facility. Management believes cash generated from these sources
will be adequate to meet the Company's cash requirements over the next 12
months.

SEASONAL NATURE OF BUSINESS

The home improvement business is seasonal, particularly in the Northeast and
Midwest regions of the United States where inclement weather during the winter
months usually reduces the level of building and remodeling activity in both
the home improvement and new construction markets. The Company's lowest sales
levels usually occur during the first and fourth quarters. Since a high
percentage of the Company's manufacturing overhead and operating expenses are
relatively fixed throughout the year, operating income tends to be lower in
quarters with lower sales. Inventory and borrowings to satisfy working capital
requirements are usually at their highest level during the second and third
quarters.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
(THE INDEX TO CONSOLIDATED FINANCIAL STATEMENTS IS INCORPORATED
BY REFERENCE IN ITEM 14(A) OF PART IV OF THIS FORM 10-K)

PAGE
----

Report of Independent Certified Public Accountants........................ 15
Financial Statements
Consolidated Balance Sheets at December 31, 1995 and 1994............... 16
Consolidated Statements of Operations for the Three Years Ended December
31, 1995............................................................... 17
Consolidated Statements of Stockholders' Equity for the Three Years
Ended December 31, 1995................................................ 18
Consolidated Statements of Cash Flows for the Three Years Ended December
31, 1995............................................................... 19
Notes to Consolidated Financial Statements.............................. 20
Quarterly Data............................................................ 31

[LOGO]

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors and Stockholders
Ply Gem Industries, Inc.

We have audited the accompanying consolidated balance sheets of Ply Gem
Industries, Inc. and Subsidiaries (the "Company") as of December 31, 1995 and
1994, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conduct our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Ply Gem
Industries, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.

Grant Thornton LLP

New York, New York
March 6, 1996

PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31,
-------------------------
1995 1994
---- ----

ASSETS
Cash and cash equivalents....................... $ 8,107,000 $ 14,403,000
Accounts receivable, net of allowance of
$4,511,000; $6,353,000 in 1994................. 33,020,000 42,243,000
Inventories..................................... 96,228,000 103,089,000
Prepaid and deferred income taxes............... 15,714,000 17,426,000
Other current assets............................ 9,194,000 8,070,000
------------ ------------
Total Current Assets........................ 162,263,000 185,231,000
Property, plant and equipment--at cost, net..... 81,832,000 77,084,000
Patents and trademarks, net of accumulated amor-
tization of $8,971,000; $7,825,000 in 1994..... 15,334,000 16,464,000
Intangible assets, net.......................... 15,507,000 16,586,000
Cost in excess of net assets acquired, net...... 23,081,000 24,647,000
Other assets.................................... 26,973,000 25,557,000
------------ ------------
Total Assets................................ $324,990,000 $345,569,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses........... $ 40,455,000 $ 46,778,000
Accrued restructuring........................... 4,480,000 13,413,000
Accrued payroll and commissions................. 7,790,000 10,539,000
Accrued insurance............................... 4,400,000 3,523,000
Current maturities of long-term debt and capital 458,000 480,000
leases......................................... ------------ ------------
Total Current Liabilities................... 57,583,000 74,733,000
Long-term debt.................................. 93,135,000 79,501,000
Capital leases.................................. 7,106,000 7,159,000
Other liabilities............................... 22,681,000 22,540,000
Stockholders' equity -- --
Preferred stock, $.01 par value; authorized
5,000,000 shares; none issued Common stock,
$.25 par value; authorized 60,000,000 shares;
issued 17,463,072 shares; 17,296,195 shares
in 1994...................................... 4,366,000 4,324,000
Additional paid-in capital...................... 148,618,000 146,967,000
Retained earnings............................... 53,246,000 62,397,000
------------ ------------
Less
Treasury stock--at cost (3,015,311 shares;
2,745,319 shares in 1994)...................... 55,676,000 50,954,000
Unamortized restricted stock and note receiv- 6,069,000 1,098,000
able......................................... ------------ ------------
TOTAL STOCKHOLDERS' EQUITY.................. 144,485,000 161,636,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.. $324,990,000 $345,569,000
============ ============

The accompanying notes are an integral part of these statements.

PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
------------ ------------ ------------

Net sales............................ $741,394,000 $796,419,000 $722,660,000
Cost of goods sold................... 617,620,000 642,337,000 584,271,000
------------ ------------ ------------
Gross profit....................... 123,774,000 154,082,000 138,389,000
Selling, general and administrative
expenses............................ 113,276,000 117,184,000 111,560,000
Write-down of long-lived assets...... 11,950,000 -- --
Nonrecurring charges................. -- 40,962,000 --
------------ ------------ ------------
Income (loss) from operations...... (1,452,000) (4,064,000) 26,829,000
Interest expense..................... (6,649,000) (7,479,000) (10,056,000)
Other income (expense)............... (2,161,000) (406,000) 708,000
------------ ------------ ------------
Income (loss) before income taxes.. (10,262,000) (11,949,000) 17,481,000
Income tax provision (benefit)....... (2,860,000) (3,418,000) 7,831,000
------------ ------------ ------------
Net Income (loss).................. $ (7,402,000) $ (8,531,000) $ 9,650,000
============ ============ ============
Earnings (loss) per share............
Primary............................ $(0.51) $(.62) $.76
Fully diluted...................... (0.51) (.62) .75
------------ ------------ ------------
Weighted average number of shares
outstanding.........................
Primary............................ 14,445,000 13,870,000 14,217,000
Fully diluted...................... 14,445,000 13,870,000 14,217,000
------------ ------------ ------------

The accompanying notes are an integral part of these statements.

PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

THREE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

COMMON STOCK TREASURY STOCK
--------------------- ----------------------
NUMBER ADDITIONAL NUMBER
OF PAID-IN RETAINED OF
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT
---------- ---------- ------------ ----------- --------- -----------

Balance at January 1,
1993................... 11,550,819 $2,887,000 $ 61,014,000 $64,249,000 831,122 $ 8,262,000
Cash dividends on common
stock ($.12 per share). (1,298,000)
Exercise of employee
stock options.......... 321,690 81,000 2,591,000 87,356 1,185,000
Tax benefit arising from
exercise of stock
options................ 210,000
Contribution of treasury
stock to employee
profit sharing trust... 42,000 (5,600) (58,000)
Other................... 149,000 (2,805) (27,000)
Net income.............. 9,650,000
---------- ---------- ------------ ----------- --------- -----------
Balance at December 31,
1993................... 11,872,509 2,968,000 64,006,000 72,601,000 910,073 9,362,000
Cash dividends on common
stock ($.12 per share). (1,673,000)
Exercise of employee
stock options.......... 2,672,318 668,000 23,423,000 1,197,241 29,465,000
Tax benefit arising from
exercise of stock
options................ 9,962,000
Conversion of
debentures............. 2,751,328 688,000 48,379,000
Purchase of treasury
shares................. 640,700 12,175,000
Other................... 40 -- 1,197,000 (2,695) (48,000)
Net loss................ (8,531,000)
---------- ---------- ------------ ----------- --------- -----------
Balance at December 31,
1994................... 17,296,195 4,324,000 146,967,000 62,397,000 2,745,319 50,954,000
Cash dividends on common
stock ($.12 per share). (1,749,000)
Exercise of employee
stock options.......... 166,872 42,000 1,494,000 30,580 573,000
Tax benefit arising from
exercise of stock
options................ 174,000
Shares held for
distribution to
employee profit sharing
trust.................. (52,500) (819,000)
Purchase of treasury
shares................. 292,000 4,955,000
Other................... 5 -- (17,000) (88) 13,000
Net loss................ (7,402,000)
---------- ---------- ------------ ----------- --------- -----------
Balance at December 31, 17,463,072 $4,366,000 $148,618,000 $53,246,000 3,015,311 $55,676,000
1995................... ========== ========== ============ =========== ========= ===========

The accompanying notes are an integral part of these statements.

PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------
1995 1994 1993
------------------------- ------------------------- ------------------------

CASH FLOWS FROM OPERAT-
ING ACTIVITIES:
Net income (loss)....... $ (7,402,000) $ (8,531,000) $ 9,650,000
Adjustments to reconcile
net income (loss) to
net cash provided by
operating activities:
Depreciation and amor-
tization.............. $14,171,000 $13,385,000 $12,166,000
Write-down of long-
lived assets.......... 11,950,000 -- --
Nonrecurring charges
net of cash payments
of $5,223,000......... -- 35,739,000 --
Deferred taxes......... 3,644,000 (8,067,000) (1,782,000)
Provision for doubtful
accounts.............. 1,505,000 874,000 4,642,000
Changes in assets and
liabilities Accounts
receivable............ 8,333,000 10,515,000 (16,720,000)
Inventories............ 6,861,000 5,575,000 (10,325,000)
Prepaid expenses and
other current
assets.............. (3,845,000) 1,459,000 (423,000)
Accounts payable and
accrued
expenses............ (8,195,000) 3,860,000 4,768,000
Income taxes payable. -- (4,902,000) (1,535,000)
Restructuring........ (10,608,000) -- --
Other assets......... (5,305,000) 18,511,000 (1,061,000) 57,377,000 4,273,000 (4,936,000)
----------- ------------ ----------- ------------ ----------- -----------
Net cash provided by
operating
activities.......... 11,109,000 48,846,000 4,714,000
------------ ------------ -----------
CASH FLOWS FROM INVEST-
ING ACTIVITIES:
Additions to property,
plant and
equipment............. (27,827,000) (23,046,000) (20,519,000)
Funds used for con-
struction............. -- 1,327,000 7,721,000
Proceeds from proper-
ty, plant and equip-
ment disposals........ 799,000 1,681,000 216,000
Proceeds from sales of
marketable securi-
ties, net............. 788,000 -- --
Other.................. 25,000 129,000 1,564,000
------------ ------------ -----------
Net cash used in in-
vesting activities.. (26,215,000) (19,909,000) (11,018,000)
------------ ------------ -----------
CASH FLOWS FROM FINANC-
ING ACTIVITIES:
Short-term debt repay-
ments, net............ -- (2,330,000) (4,752,000)
Repayment of long-term
debt.................. (481,000) (881,000) (13,482,000)
Net change in revolv-
ing note borrowings
with original matu-
rity of 90 days or
less.................. 14,040,000 (14,884,000) --
Purchase of treasury
shares................ (4,955,000) (12,175,000) --
Long-term borrowings... -- -- 34,760,000
Cash dividends......... (1,749,000) (1,673,000) (1,298,000)
Proceeds from exercise
of employee stock op-
tions................. 1,499,000 6,491,000 1,655,000
Other.................. 456,000 (1,581,000) 40,000
------------ ------------ -----------
Net cash provided by
(used in) financing
activities............. 8,810,000 (27,033,000) 16,923,000
------------ ------------ -----------
Net increase (de-
crease) in cash and
cash equivalents.... (6,296,000) 1,904,000 10,619,000
Cash and cash equiva-
lents at beginning of
year................... 14,403,000 12,499,000 1,880,000
------------ ------------ -----------
Cash and cash equiva-
lents at end of year... $ 8,107,000 $ 14,403,000 $12,499,000
------------ ------------ -----------

The accompanying notes are an integral part of these statements.

PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Ply Gem Industries, Inc. and subsidiaries (the "Company") operates
predominantly in one business segment; the manufacture and sale of vinyl
siding, wood and vinyl-framed windows and patio doors, prefinished decorative
plywood and solid wood paneling, furniture components, pressure-treated wood
products and the distribution of a variety of other products for the home
improvement markets.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Ply Gem
Industries, Inc. and its wholly-owned subsidiaries after eliminating all
significant intercompany accounts and transactions. The Company revised its
statement of operations reporting format in 1995 to include amortization
expense relating to intangible assets as a selling, general and administrative
expense. Previously such amortization had been reported as a separate expense
caption after income from operations. In addition, other prior year items have
been reclassified to conform to the 1995 presentation.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash on hand and temporary investments
having an original maturity of three months or less.

INVENTORIES

Inventories are stated at the lower of cost or market. Cost is determined on
the first-in, first-out (FIFO) method.

PROPERTY, PLANT AND EQUIPMENT

Owned property, plant and equipment are depreciated on a straight-line basis
over the estimated useful lives of the assets using the straight-line method
for financial reporting purposes and accelerated methods for income tax
purposes. Service lives for principal assets are 5 to 35 years for buildings
and improvements and 3 to 12 years for machinery and equipment.

Leasehold improvements are amortized on a straight-line basis over their
respective lives or the terms of the applicable leases, including expected
renewal options, whichever is shorter. Capitalized leases are amortized on a
straight-line basis over the terms of the leases or their economic useful
lives.

INTANGIBLE ASSETS

(a) Patents and Trademarks

Purchased patents and trademarks are recorded at appraised value at time of
acquisition and are being amortized on a straight-line basis over their
estimated remaining economic lives; thirteen to seventeen years for patents and
thirty years for trademarks.

(b) Cost in Excess of Net Assets Acquired and Other Intangibles

Cost in excess of net assets acquired is being amortized from twenty to
thirty years on a straight-line basis. Other purchased intangibles are being
amortized on a straight-line basis generally from ten to thirty-nine years.

PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Company annually evaluates the carrying value of its intangible assets to
evaluate whether changes have occurred that would suggest that the carrying
amount of such assets may not be recoverable based on the estimated future
undiscounted cash flows of the businesses to which the intangible relates.

INCOME TAXES

Deferred income tax liabilities and assets reflect the tax effects of
temporary differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes and
net operating loss carryforwards. These differences are classified as current
or noncurrent based upon the classification of the related asset or liability.
Deferred income tax assets, such as benefits related to net operating loss
carryforwards, are recognized to the extent that such benefits are more likely
than not to be realized.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value for cash, receivables, accounts payable, and accrued
liabilities approximate carrying amount because of the short maturity of these
instruments. The fair value of long-term debt approximates its carrying amount,
as the debt carries variable interest rates.

EARNINGS (LOSS) PER SHARE

Loss per share of common stock is computed by dividing net loss by the
weighted average number of common shares outstanding. Stock options have been
excluded from the calculation in 1995 and 1994 as their effect would be anti-
dilutive. Earnings per share is calculated using the modified treasury stock
method, which limits the assumed purchase of treasury shares to 20% of the
outstanding common shares.

CUSTOMERS

The Company's products are distributed through an extensive network that
includes major retail home center chains, specialty home remodeling
distributors, lumber and building products wholesalers, professional
contractors and Company operated distribution centers. The products are
marketed predominately in the United States through Company sales personnel and
independent representatives. One customer accounted for 18.8%, 14.2% and 12.2%
of the Company's net sales for the years ended December 31, 1995, 1994 and
1993, respectively.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

NOTE 2 NONRECURRING CHARGES

During 1994, the Company recorded nonrecurring charges of $41.0 million
($25.7 million after tax), consisting of approximately $29.1 million related to
a restructuring program designed to improve profitability and $11.9 million for
unusual items primarily consisting of the write down of certain intangible
assets and

PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
discontinued products and costs associated with the Company's business process
redesign. The status of the components of the restructuring provision at the
end of the year was:

BALANCE AT BALANCE AT
DECEMBER 31, 1995 DECEMBER 31,
1994 ACTIVITY 1995
------------ ----------- ------------

Consolidation and closure of facili-
ties, including
severance and related costs........ $15,100,000 $ 8,274,000 $6,826,000
Other severance and related costs... 3,900,000 2,947,000 953,000
Abandonment of certain information
systems............................ 1,300,000 1,150,000 150,000
Other, including lease termination
expenses and costs to execute the
restructuring program.............. 2,000,000 1,915,000 85,000
----------- ----------- ----------
$22,300,000* $14,286,000 $8,014,000*
=========== =========== ==========

- --------
* The following amounts are included in the consolidated balance sheet at
December 31, 1995 and 1994, respectively, under the captions: "accrued
restructuring" ($4.5 and $13.4 million), "other liabilities" ($3.1 and $4.1
million), "property, plant and equipment" (reduction of $.2 and $2.0 million),
"inventory" (reduction of $.1 and $1.5 million) and "accounts receivable"
(reduction of $.1 and $.8 million), and "various other asset accounts"
(reduction of $.5 million in 1994.)

The Company has completed the consolidation or closure of six facilities
since the inception of the program. During 1995, the Company wrote-off
additional discontinued products, closed an administrative office and incurred
additional severance. These items were not included in the original
nonrecurring/restructuring charge recorded in 1994. Based on current estimates,
existing accruals are adequate to cover the above items because the estimated
cost to implement certain strategies was reduced or the initiatives were
cancelled.

NOTE 3 ACCOUNTS RECEIVABLE

The Company has a program which currently allows for the sale of up to $50
million of undivided fractional interests in a designated pool of eligible
accounts receivable to a financial institution with limited recourse. The
program expires in January 1998 with options to extend the agreement to January
2000. At December 31, 1995 and 1994 respectively, the Company sold $42 and $40
million of receivables under this program. Program costs of $3,205,000,
$1,892,000, and $1,495,000 are included in "other income (expense)" for 1995,
1994 and 1993, respectively.

NOTE 4 INVENTORIES

The classification of inventories at the end of each year was as follows:

1995 1994
----------- ------------

Finished goods.................................... $54,530,000 $ 52,390,000
Work in progress.................................. 12,508,000 18,002,000
Raw materials..................................... 29,190,000 32,697,000
----------- ------------

$96,228,000 $103,089,000
=========== ============

PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 5 PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at the end of each year consisted of the
following:

1995 1994
------------ ------------

Land........................................... $ 2,704,000 $ 2,679,000
Buildings and improvements..................... 24,853,000 26,389,000
Machinery and equipment........................ 78,830,000 64,285,000
Transportation equipment....................... 2,428,000 2,313,000
Furniture and fixtures......................... 11,312,000 11,107,000
Capital leases................................. 7,501,000 7,397,000
Construction in progress....................... 5,777,000 6,760,000
------------ ------------
133,405,000 120,930,000
Accumulated depreciation and amortization...... (51,573,000) (43,846,000)
------------ ------------
$ 81,832,000 $ 77,084,000
============ ============

During the fourth quarter of 1995, the Company adopted SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of" and recorded a non cash pre-tax charge of $12.0 million
($7.6 million after tax) related to the write down of certain long-lived
assets. The charge consisted of a write-down of approximately $9.5 million
related to the Company's new information system and $2.5 million related
primarily to certain machinery and equipment. The latter charge related to the
permanent decline in the value of these assets as a result of the Company not
relocating a facility in 1995 as planned.

NOTE 6 INTANGIBLE AND OTHER ASSETS

Accumulated amortization of cost in excess of net assets acquired and other
intangible assets is $19,917,000 at December 31, 1995 and $17,711,000 at
December 31, 1994.

Other assets at December 31, 1995 includes notes receivable from an officer.
The $5,400,000 ($5,400,000 at December 31, 1994) note, which includes current
maturities, has an average interest rate of 7.1% and is due in approximately
equal annual installments through 2003. Under the terms of the note, principal
and interest are forgiven upon the attainment of at least a 20% improvement in
net income, as defined, versus the prior year or at the discretion of the Board
of Directors. Accordingly, the annual installments for 1994 and 1993 were
forgiven. The $3,000,000 ($3,250,000 at December 31, 1994) and $5,000,000 notes
have interest rates which are the higher of the Company's average bank
borrowing rate or the applicable Federal rate in effect for such period. They
are payable in annual installments of $250,000 each with the final payments due
December 31, 1998 and April 30, 2001, respectively. Furthermore, under the
terms of the officer's employment agreement, the notes shall be forgiven upon
the occurrence of a change in control of the Company or permanent disability of
the officer. At December 31, 1995, $5,000,000 of notes receivable have been
reflected as a reduction of stockholder's equity since the officer may reduce
the indebtedness through the Company's redemption of its shares which are owned
by the officer.

NOTE 7 STOCKHOLDERS' EQUITY

In addition to treasury stock, deductions from stockholders' equity consists
of unamortized restricted stock of $1,069,000 and $1,098,000 at December 31,
1995 and 1994, respectively and notes receivable due from officer of $5,000,000
at December 31, 1995. See Note 6.

PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 8 SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental cash flow information for the years ended December 31 is as
follows:

1995 1994 1993
---------- ---------- -----------

Interest paid (net of $746,000 capitalized
in 1995, $323,000 in 1994 and $510,000 in
1993).................................... $5,887,000 $5,546,000 $ 9,692,000
---------- ---------- -----------
Income taxes paid......................... $ 872,000 $2,819,000 $10,180,000
========== ========== ===========

Noncash financing activities involve the issuance of common stock upon
conversion of $49,963,000 of the Company's Debentures in 1994.

NOTE 9 LONG-TERM DEBT

The composition of long-term debt at the end of each year was as follows:

1995 1994
----------- -----------

Revolving credit facility expiring in 1999.......... $85,540,000 $71,500,000
Industrial Development Revenue Bonds maturing at
various dates to 2012, generally at floating inter-
est rates which are reset
periodically (6.0% average interest rate for 1995). 7,955,000 8,324,000
Other............................................... 45,000 107,000
----------- -----------
93,540,000 79,931,000
Less current maturities............................. 405,000 430,000
----------- -----------
$93,135,000 $79,501,000
=========== ===========

The Company has a revolving credit facility with a syndicate of banks, which
provides financing of up to $200 million through February 1999. Interest on
borrowings are at varying rates based, at the Company's option, on the London
Interbank Offered Rate (LIBOR) or the bank's prime rate. The Company pays an
annual fee on the facility which, based on a formula, was .4375% of the
facility amount at December 31, 1995. The average weighted interest rate on
these loans for the year 1995 and 1994 was 6.9% and 5.9%, respectively (7.0%
and 6.6% at December 31, 1995 and 1994, respectively). The credit facility
includes customary covenants, including covenants limiting the Company's
ability to pledge assets or incur liens on assets and financial covenants
requiring among other things, the Company to maintain a specified leverage
ratio, fixed charge ratio and tangible net worth levels. In addition, the
amount of annual dividends the Company can pay is limited based on a formula.
At December 31, 1995 $2,900,000 was available for payments of dividends in
1996. Borrowings under this credit facility are collateralized by the common
stock of the Company's principal subsidiaries.

During 1994, holders of the Company's Debentures converted a total principal
amount of $49,963,000 into 2,751,328 shares of the Company's common stock. As a
result of this transaction, the total principal amount converted was credited
to common stock at par and paid-in-capital, net of unamortized expenses of the
original debt issue and transaction costs and offset by the accrued interest
from the last payment date to the conversion date. The remaining $37,000 of the
original $50 million face amount was redeemed by the Company.

The Company has $40 million of interest rate caps, which has the effect of
mitigating the Company's current exposure to high interest rates. These caps
mature over various periods through October 1996 and have cap rates ranging
from 7.5% to 8.0%.

PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Future maturities of long-term debt, for the years 1996 through 2000, are:
1996-$405,000; 1997-$421,000; 1998-$446,000; 1999-$86,016,000 and 2000-
$500,000.

The net book value of property, plant and equipment pledged as collateral
under industrial revenue bonds was approximately $7,266,000 at December 31,
1995.

NOTE 10 INCOME TAXES

The income tax provision (benefit) for the years ended December 31 consisted
of the following:

1995 1994 1993
---- ---- ----

Federal
Current........................... $ (7,485,000) $ (6,195,000) $7,986,000
Deferred.......................... 4,172,000 (7,353,000) (1,782,000)
Foreign............................. 7,000 (21,000) 190,000
State and local
Current........................... 800,000 903,000 1,227,000
Deferred.......................... (528,000) (714,000) --
------------ ------------ ----------
(3,034,000) (13,380,000) 7,621,000
Tax benefit from exercise of stock 174,000 9,962,000 210,000
options.......................... ------------ ------------ ----------
Actual tax provision (benefit).... $ (2,860,000) $ (3,418,000) $7,831,000
============ ============ ==========

The significant components of the Company's deferred tax assets and
liabilities as of December 31, 1995 and 1994 are as follows:

1995 1994
---- ----

Net deferred tax assets (liabilities)--current:
Nonrecurring charge............................. $ 1,917,000 $ 6,581,000
Allowance for bad debts......................... 1,567,000 2,678,000
Accrued expenses deductible for tax purposes
when paid...................................... 2,775,000 1,831,000
State and local net operating loss tax
carryforwards.................................. 1,747,000 897,000
Other........................................... 47,000 (290,000)
----------- -----------
Total deferred tax assets..................... 8,053,000 11,697,000
Valuation allowance for deferred tax assets... (897,000) (897,000)
----------- -----------
Net deferred tax current assets............... $ 7,156,000 $10,800,000
=========== ===========
Net deferred tax liabilities (assets)--noncurrent:
Write-down of long-lived assets................. $(4,107,000) $ --
Nonrecurring charge............................. (1,073,000) (2,843,000)
Accelerated depreciation........................ 6,557,000 4,330,000
Involuntary conversion.......................... 450,000 450,000
Accrued expenses deductible for tax purposes
when paid...................................... (2,318,000) (2,037,000)
Income not recognized for book purposes......... (671,000) (493,000)
Other........................................... 620,000 51,000
----------- -----------
Net deferred tax noncurrent (assets).......... $ (542,000) $ (542,000)
=========== ===========

As of December 31, 1995, the Company has deferred tax assets largely
attributable to the 1994 nonrecurring charge (see Note 2) and the 1995 write-
down of long-lived assets (see Note 5). Deferred tax assets, net of the
valuation reserve, are expected to be realized through carryback to taxable
income in prior years, future taxable income and from the reversal of temporary
differences.

PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The actual income tax provision (benefit) varies from the Federal statutory
rate applied to consolidated pretax income (loss) as follows:

1995 1994 1993
---- ---- ----

Income taxes at Federal statutory rate
of 35%................................ $(3,592,000) $(4,182,000) $6,118,000
Increases resulting from
State and local income taxes net of
Federal
income tax benefit.................. 177,000 123,000 798,000
Amortization of cost in excess of net
assets
acquired............................ 478,000 509,000 513,000
Other--net........................... 77,000 132,000 402,000
----------- ----------- ----------
Actual tax provision (benefit)....... $(2,860,000) $(3,418,000) $7,831,000
=========== =========== ==========

NOTE 11 RETIREMENT PLANS

The Company provides retirement benefits to certain of its salaried and
hourly employees through non-contributory defined benefit pension plans. The
benefits provided are primarily based upon length of service and compensation,
as defined. The Company funds the plans in amounts as actuarially determined
and to the extent deductible for federal income tax purposes. The pension plan
assets are invested in a diversified portfolio of common stock and fixed income
securities.

The components of pension expense are as follows:

1995 1994 1993
---------- ---------- --------

Service cost--benefits earned in cur-
rent year............................. $1,013,000 $1,044,000 $786,000
Interest cost on projected benefit ob-
ligation.............................. 923,000 782,000 665,000
Income earned on plan assets........... (1,053,000) (866,000) (680,000)
Net amortization and deferral.......... 200,000 28,000 (134,000)
---------- ---------- --------
$1,083,000 $ 988,000 $637,000
========== ========== ========

Assumptions used in the computation of net pension expense are as follows:

1995 1994 1993
---- ---- ----

Weighted average discount rate for plan obligations...... 8.0% 8.0% 7.5%
Rate of future compensation increases.................... 5.0 5.0 5.0
Weighted average rate of return on plan assets........... 8.0 8.8 8.9
=== === ===

PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The reconciliation of the funded status of the plans at year end follows:

1995 1994
----------- -----------

Accumulated benefit obligation:
Vested........................................ $10,595,000 $ 9,748,000
Nonvested..................................... 676,000 662,000
Total........................................... 11,271,000 10,410,000
Projected salary increases...................... 1,793,000 1,690,000
Projected benefit obligation.................... 13,064,000 12,100,000
Plan assets at fair value....................... 12,088,000 11,016,000
Assets (less) greater than projected benefit ob-
ligation....................................... (976,000) (1,084,000)
Unrecognized net (gain) loss.................... (1,111,000) (1,179,000)
Unrecognized prior service cost................. 1,742,000 1,828,000
Unrecognized transition cost.................... 158,000 169,000
Additional liability............................ (1,623,000) (1,595,000)
----------- -----------
Prepaid (accrued) pension....................... $(1,810,000) $(1,861,000)
=========== ===========

The Company maintains a discretionary profit sharing plan with a voluntary
401(k) option for certain of its salaried and hourly employees who vest after
meeting certain minimum age and service requirements. Profit sharing plan
expense, including the Company's 401(k) match, is comprised as follows:

1995 1994 1993
---------- ---------- ----------

Ply Gem common stock...................... $1,371,000 $2,636,000 $1,181,000
Cash...................................... -- -- 170,000
---------- ---------- ----------
$1,371,000 $2,636,000 $1,351,000
========== ========== ==========

NOTE 12 STOCK OPTION PLANS

The Company's Executive Incentive Stock Option Plan provides for the granting
of options to key employees to purchase up to 2,037,500 shares of common stock.
Option prices must be 100% of fair market value at date of grant except for an
employee who owns in excess of 10% of the common stock outstanding, in which
case the exercise price is 110% of the fair market value at date of grant.
Options are exercisable in full or in part after one year from the date of
grant and expire within ten years (within five years for an employee owning in
excess of 10% of the outstanding common stock). Shares acquired must be held
for one year.

The Senior Executive Stock Option Plan (the "Senior Plan") authorizes the
granting of either incentive or non-qualified stock options only to executives
of businesses acquired by the Company or to newly employed executives. The
Senior Plan provides for 750,000 shares of the Company's common stock to be
reserved for such issuance.

The 1989 Employee Incentive Stock Plan (the "1989 Plan") authorizes the
granting of incentive and non-qualified stock options and awards of restricted
stock and is made available to executives and key employees of the Company. As
in the Senior Plan, option terms and holding and exercise periods may vary
except that no option may be exercised more than ten years after date of grant.
Stock awarded under the 1989 Plan will be subject to restrictions as to sale or
transfer. These restrictions may lapse or be waived based on performance,
period of service or other factors. The 1989 Plan provides for 3,500,000 shares
of the Company's common stock to be reserved for issuance.

PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The 1994 Incentive Stock Plan (the "1994 Plan") authorizes the granting of
incentive and non-qualified stock options and awards of restricted stock. The
terms and conditions of the 1994 Plan are similar to those as described above.
The 1994 Plan provides for 2,250,000 shares reserved for such issuance.

At December 31, 1995, approximately 1,248,000 shares were available for
future grants.

In 1991, the Company granted 250,000 shares of restricted stock to an
executive officer of the Company. The restrictions on these shares will be
released at the rate of 25,000 shares per year upon the attainment of certain
performance goals and the continued employment of the officer. These goals were
attained in 1993 and 1994. The restrictions will be released in the event of a
change in control of the Company. The unamortized restricted stock resulting
from this stock award has been deducted from stockholders' equity and is being
amortized over the periods earned.

For the three years ended December 31, 1995, option activity was as follows:

INCENTIVE OPTIONS NON-QUALIFIED OPTIONS
------------------------ -------------------------
NUMBER OF NUMBER OF
SHARES OPTION PRICES SHARES OPTION PRICES
--------- ------------- ---------- -------------

Outstanding, January 1,
1993.................... 1,530,045 $5.50-$14.25 3,360,570 $5.63-$16.00
1993
Granted.............. 323,900 10.25- 10.38 792,650 10.38- 12.63
Exercised............ (198,370) 5.50- 10.75 (123,320) 6.63- 12.13
Cancelled............ (35,750) 6.63- 12.25 (45,700) 8.38- 12.13
--------- ------------ ---------- ------------
Outstanding, December 31,
1993.................... 1,619,825 6.63- 14.25 3,984,200 5.63- 16.60
1994
Granted.............. 160,970 19.13 1,428,400 17.75- 25.50
Exercised............ (796,644) 6.63- 13.75 (1,875,674) 5.63- 13.25
Cancelled............ (42,050) 6.63- 12.25 -- --
--------- ------------ ---------- ------------
Outstanding, December 31,
1994.................... 942,101 6.63- 19.13 3,536,926 5.63- 25.50
1995
Granted.............. 168,950 16.00- 18.00 607,400 16.00- 18.88
Exercised............ (118,682) 6.25- 12.25 (48,750) 5.63- 12.13
Cancelled............ (20,350) 6.63- 19.13 (142,200) 6.63- 25.50
--------- ------------ ---------- ------------
At December 31, 1995.....
Outstanding............ 972,019 6.63- 19.13 3,953,376 5.63- 21.88
Exercisable............ 803,069 6.63- 19.13 3,553,376 5.63- 21.88
========= ============ ========== ============

During 1995, SFAS No. 123--"Accounting for Stock Based Compensation" was
issued. SFAS No. 123 is effective in 1996 and the Company believes the effect
of the adoption of the new standard will have no impact on the Company's
consolidated results of operations or financial position because, in accordance
with SFAS No. 123, the Company intends to continue to measure compensation
costs under Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" and present footnote disclosures of net income and
earnings per share as required by SFAS No. 123.

NOTE 13 COMMITMENTS AND CONTINGENCIES

LEASES

The Company leases certain of its manufacturing, distribution and office
facilities as well as some transportation and manufacturing equipment under
noncancellable leases expiring at various dates through the year 2017. Certain
real estate leases contain escalation clauses and generally provide for payment
of various occupancy costs.

PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Minimum future lease obligations on noncancellable leases in effect at
December 31, 1995 are as follows:

CAPITAL OPERATING
LEASES LEASES
---------- -----------

Year ending December 31,
1996............................................. $ 63,000 $14,236,000
1997............................................. 60,000 11,263,000
1998............................................. 38,000 9,659,000
1999............................................. 9,000 8,455,000
2000............................................. 9,000 6,949,000
Subsequent years through 2017.................... 7,000,000 46,888,000
---------- -----------
Net minimum lease payments......................... 7,179,000 $97,450,000
Amount representing interest....................... 20,000
----------
Present value of net minimum lease payments (in-
cluding $53,000 payable within one year).......... $7,159,000
==========

Rental expense for operating leases amounted to approximately $19,883,000 in
1995, $19,993,000 in 1994 and $20,004,000 in 1993.

HOOVER TREATED WOOD PRODUCTS, INC.

Hoover Treated Wood Products, Inc. ("Hoover"), a wholly-owned subsidiary of
the Company, is a defendant in a number of commercial lawsuits alleging
property damage caused by alleged defects in certain pressure treated interior
wood products. Hoover has not manufactured or sold these products since August,
1988. The number of lawsuits pending, as of December 31, 1995, as well as the
number of lawsuits filed since 1993, have declined significantly from earlier
periods. Most of the suits have been resolved by dismissal or settlement. A
purported class action on behalf of certain Maryland homeowners was dismissed
in November, 1995 when the Maryland Court of Appeals, the State's highest
court, found that the homeowners had no viable claims against Hoover. In those
suits that remain pending, direct defense costs are being paid out of insurance
proceeds. Two actions have proceeded to trial against Hoover and resulted in
jury verdicts against it. In one of these actions, judgment was entered in
Hoover's favor by the court after a jury verdict against it and the plaintiff's
petition to appeal the judgment entered in Hoover's favor was denied. In the
other case, the judgment against Hoover was vacated and the case was settled
with proceeds from insurance settlements.

Hoover and the Company have engaged in litigation with some of their insurers
regarding coverage for these lawsuits and claims. Hoover has settled its
coverage claim with a majority of its insurers and is negotiating settlements
with others. Hoover and the Company believe they have meritorious claims for
coverage from their remaining unsettled insurers and are seeking declaratory
judgments confirming such coverage. The proceeds from settled insurance claims,
along with the proceeds from a settlement of claims by Hoover against certain
suppliers of materials used by it in the production of treated wood, are
available for the settlement of the underlying property damage actions. The
Company believes that Hoover's remaining coverage disputes will be resolved
within the next two years on a satisfactory basis and a substantial amount of
additional coverage will be available to Hoover. In reaching this belief, it
has analyzed Hoover's insurance coverage, considered its history of successful
settlements with primary and excess insurers and consulted with counsel.

Hoover and the Company are vigorously defending the underlying lawsuits which
cannot be resolved on a reasonable basis and believe that they have meritorious
defenses to those suits including, in the case of the Company, the defense that
it has been improperly joined, as it did not manufacture or market the Hoover
products at issue, and is not legally liable for the damage allegedly caused by
them.

PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

In accordance with the provisions of SFAS Interpretation No. 39, which became
effective on January 1, 1994, Hoover has recorded a receivable at December 31,
1995 (included in other assets) for $12.7 million for the estimated proceeds
and recoveries related to insurance matters discussed above and recorded an
accrual for the same amount (included in other liabilities) for its estimated
cost to resolve those matters not presently covered by existing settlements
with insurance carriers and suppliers. In estimating both this liability, which
Hoover expects to discharge over the next four years, and its anticipated
additional insurance recoveries, Hoover and the Company have considered a
number of factors including: the number and exposure posed by the pending
lawsuits; the significant decline in the number of lawsuits filed in 1994 and
1995; the availability of various legal defenses, including statutes of
limitations; the existence of settlement protocols; an agreement indemnifying
Hoover as to certain past and future claims; and Hoover's experience to date in
settling with its insurance companies and the likely availability of proceeds
from additional insurance. Based on its evaluation, the Company believes that
the ultimate resolution of the lawsuits and the insurance claims will not have
a material effect upon the financial position of the Company.

EXECUTIVE COMPENSATION

During the third quarter of 1995, the Board of Directors amended resolutions
providing for severance payments in the event of a change in control and
subsequent termination, as defined, to certain designated employees of the
Company. As of December 31, 1995 the maximum amount payable would be
approximately $5.2 million. Under the previous plan the maximum amount payable
would have been approximately $14 million at December 31, 1994.

LETTERS OF CREDIT

At December 31, 1995 approximately $20 million of letters of credit issued by
the Company's banks were outstanding, principally in connection with certain
financing transactions.

OTHER

The Company and its subsidiaries are subject to legal actions from time to
time which have arisen in the ordinary course of its business. In the opinion
of management, the resolution of these claims will not materially affect the
financial position of the Company. The Company has various commitments for the
purchase of materials arising in the ordinary course of business.

PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED

NOTE 14 QUARTERLY RESULTS (UNAUDITED)

1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
(IN THOUSANDS EXCEPT PER SHARE DATA)

Year Ended December 31, 1995:
Net Sales.................... $160,235 $199,571 $207,099 $174,489
Gross Profit................. 24,429 33,770 37,559 28,016
Income (loss) Before Taxes
(1)......................... (4,594) 1,618 4,365 (11,651)
Net Income (Loss)............ (2,665) 1,028 2,276 (8,041)
Per Share:
Primary.................... (.18) .07 .16 (.56)
Fully Diluted.............. (.18) .07 .16 (.56)
Year Ended December 31, 1994:
Net Sales.................... $163,412 $219,805 $218,997 $194,205
Gross Profit................. 26,477 46,079 46,653 34,873
Income (loss) Before Taxes
(2)......................... (2,372) 11,376 (21,477) 524
Net Income (Loss)............ (1,305) 6,265 (13,977) 486
Per Share:
Primary.................... (.11) .40 (.95) .03
Fully Diluted.............. (.11) .40 (.95) .03

- --------
(1) After charge of $12.0 million for the impairment of assets in the fourth
quarter. See Note 5 to the consolidated financial statements.

(2) After nonrecurring charges of $36.3 million in third quarter and $4.7
million in fourth quarter. See Note 2 to the consolidated financial
statements.

Earnings (loss) per share calculations for each of the quarters presented are
based on the weighted average number of shares and common equivalent shares
outstanding during such periods. The sum of the quarters may not necessarily be
equal to the full year earnings per share amounts.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information required is incorporated by reference from the Proxy
Statement prepared with respect to the Annual Meeting of Stockholders to be
held on May 10, 1996.

ITEM 11. EXECUTIVE COMPENSATION.

The information required is incorporated by reference from the Proxy
Statement prepared with respect to the Annual Meeting of Stockholders to be
held on May 10, 1996.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The information required is incorporated by reference from the Proxy
Statement prepared with respect to the Annual Meeting of Stockholders to be
held on May 10, 1996.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information required is incorporated by reference from the Proxy
Statement prepared with respect to the Annual Meeting of Stockholders to be
held on May 10, 1996.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K.

(a) The following documents are filed as part of this report:

(a)(1) Financial Statements:

The list of consolidated financial statements is set forth in Part II, Item 8
of this Form 10-K and such Index to Consolidated Financial Statements is
incorporated herein by reference.

(a)(2) Financial Statement Schedule:

Report of Independent Certified Public Accountants

Schedule II--Valuation and Qualifying Accounts--Two Years Ended December 31,
1995.

(b) Reports on Form 8-K

None filed during the fourth quarter of 1995.

3(a) Registrant's By-Laws as currently in effect is incorporated by reference herein
from the Registrant's Annual Report on Form 10-K for the year ended December 31,
1992, as amended by the Registrant's Current Report on Form 8-K as filed with the
Securities and Exchange Commission on November 4, 1994.
3(b) Registrant's Certificate of Incorporation and all amendments thereto are
incorporated by reference herein to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1992 and the registrant's Quarterly Report on
Form 10-Q for the quarterly period ended July 1, 1995.
10(iii)(a) Registrant's 1989 Employee Incentive Stock Plan is incorporated by reference
herein from the Registrant's Registration Statement on Form S-8 (Registration
Number 33-28753), as amended by the Company's Registration Statement on Form S-8
(Registration Number 33-52514).
10(iii)(b) Registrant's 1989 Senior Executive Stock Option Plan is incorporated by reference
herein from the Registrant's Registration Statement on Form S-8 (Registration
Number 33-28752).
10(iii)(c) Registrant's Executive Incentive Stock Option Plan is incorporated herein by
reference from the Registrant's Registration Statement on Form S-8 (Registration
Number 2-84279), as amended by the Registrant's Registration Statement on Form S-
8 (Registration Number 33-52516).
10(iii)(d) Employment agreements with Herbert P. Dooskin, Donald Kruse and Jeffrey S.
Silverman are incorporated by reference herein from the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993. Employment agreement
with Dana R. Snyder.
10(iii)(e) Registrant's 1994 Employee Incentive Stock Plan is incorporated herein by
reference from the Registrant's Registration Statement on Form S-8 (Registration
No. 33-55035).
10(iii)(f) Registrant's Group Profit-Sharing/401(k) Plan is incorporated herein by reference
to the Registrant's Registration Statement on Form S-8 (Registration No. 33-
55037).
10(iii)(g) Registrant's 1994 Incentive Compensation Plan is incorporated by reference herein
from the Registrant's Annual Report on Form 10-K for the year ended December 31,
1994.
11 Schedule of Computation of Net Income per Share.
21 Subsidiaries of the Registrant.
23 Consent of Independent Certified Public Accountants.
27 Financial Data Schedule.

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.

Ply Gem Industries, Inc.
(Registrant)

/s/ Jeffrey S. Silverman
By __________________________________
JEFFREY S. SILVERMAN, CHAIRMAN
(MARCH 29, 1996)

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND
IN THE CAPACITIES AND ON THE DATES INDICATED.

NAMES TITLE DATE

/s/ Jeffrey S. Silverman Chairman, Chief March 29, 1996
_____________________________________ Executive Officer,
JEFFREY S. SILVERMAN (Principal
Executive Officer)
and Director

/s/ Dana R. Synder President, Chief March 29, 1996
_____________________________________ Operating Officer
DANA R. SYNDER and Director

/s/ Herbert P. Dooskin Executive Vice March 29, 1996
_____________________________________ President and
HERBERT P. DOOSKIN Director (Principal
Financial Officer)

/s/ Jerome Baum Controller (Chief March 29, 1996
_____________________________________ Accounting Officer)
JEROME BAUM

/s/ Albert Hersh Director March 29, 1996
_____________________________________
ALBERT HERSH

/s/ Elihu H. Modlin Director March 29, 1996
_____________________________________
ELIHU H. MODLIN

PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

- -----------------------------------------------------------------------------------

COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -----------------------------------------------------------------------------------
ADDITIONS
---------------------
CHARGED TO
BALANCE AT CHARGED TO OTHER BALANCE AT
BEGINNING COST AND ACCOUNTS END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DEDUCTIONS PERIOD
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

Year ended December 31,
1995
Allowance for doubtful
accounts............... $6,353,000 $1,816,000 $3,347,000(a) $4,511,000
311,00(d)
Income tax valuation al-
lowance................ 897,000 897,000
Accumulated Amortiza-
tion:
Goodwill.............. 11,605,000 1,489,000 294,000(b) 12,800,000
Other Intangibles..... 6,106,000 1,011,000 7,117,000
Patents/Trademarks.... 7,825,000 1,150,000 4,000 8,971,000

- --------
(a) Uncollectible Receivables Net of Recoveries
(b) Fully Amortized
(c) Charge/(Credit) to Inventory
(d) Change Resulted from Sale of Receivables
(e) Write down of Intangible Assets
(f) Correction of prior period classification between Gross Cost and
Accumulated Amortization

PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

- ---------------------------------------------------------------------------------------

COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------------------------------------------------------------------
ADDITIONS
---------------------
CHARGED TO
BALANCE AT CHARGED TO OTHER BALANCE AT
BEGINNING COST AND ACCOUNTS END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DEDUCTIONS PERIOD
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------

Year ended December 31,
1994
Allowance for doubtful
accounts............... $7,197,000 $2,330,000 $2,518,000(a) $6,353,000
656,000(d)
Income tax valuation al-
lowance................ 669,000 228,000 897,000
Accumulated Amortiza-
tion:
Goodwill.............. 9,863,000 1,482,000 (260,000)(f) 11,605,000
Other Intangibles..... 16,273,000 2,048,000 (26,000)(c) 3,650,000(b) 6,106,000
Patents/Trademarks.... 6,677,000 1,148,000 8,539,000(e) 7,825,000

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors and Stockholders
Ply Gem Industries, Inc.

In connection with our audit of the financial statements of Ply Gem,
Industries, Inc. referred to in our report dated March 6, 1996, which is
included in the annual report on Form 10-K, we have also audited Schedule II
for the two years in the period ended December 31, 1995. In our opinion, this
schedule presents fairly, in all material respects, the information required to
be set forth therein.

New York, New York
March 6, 1996