INCOME TAXES
 12 Months Ended
Dec. 31, 2016
Income Tax Disclosure [Abstract]  
INCOME TAXES
INCOME TAXES
 
The following is a summary of the components of income (loss) before benefit for income taxes: 
 
 
For the year ended December 31,
(Amounts in thousands)
 
2016
 
2015
 
2014
Domestic
 
$
35,258

 
$
47,901

 
$
(9,685
)
Foreign
 
(11,766
)
 
(16,301
)
 
(21,689
)
 
 
$
23,492

 
$
31,600

 
$
(31,374
)

  
    
The following is a summary of the benefit for income taxes included in the accompanying consolidated statement of operations: 
 
 
For the year ended December 31,
(Amounts in thousands)
 
2016
 
2015
 
2014
Federal:
 
 
 
 
 
 
Current
 
$
1,043

 
$
692

 
$
—

Deferred
 
(54,692
)
 
(2,833
)
 
(6,962
)
 
 
(53,649
)
 
(2,141
)
 
(6,962
)
State:
 
 

 
 

 
 

Current
 
$
4,674

 
$
2,688

 
$
2,354

Deferred
 
(2,020
)
 
(779
)
 
324

 
 
2,654

 
1,909

 
2,678

Foreign:
 
 

 
 

 
 

Current
 
$
277

 
$
833

 
$
(86
)
Deferred
 
(1,277
)
 
(1,289
)
 
4,265

 
 
(1,000
)
 
(456
)
 
4,179

 
 
 
 
 
 
 
Total
 
$
(51,995
)
 
$
(688
)
 
$
(105
)


The table that follows reconciles the federal statutory income tax rate to the effective tax rate of approximately 221.3% for the year ended December 31, 2016, 2.2% for the year ended December 31, 2015, and 0.3% for the year ended December 31, 2014.
 
 
 
For the year ended December 31,
(Amounts in thousands)
 
2016
 
2015
 
2014
Income tax provision (benefit) at the federal statutory rate
 
$
8,222

 
$
11,060

 
$
(10,981
)
 
 
 
 
 
 
 
Net change from statutory rate:
 
 

 
 

 
 

Valuation allowance-US
 
(88,653
)
 
(30,446
)
 
(1,851
)
Valuation allowance-Canada
 
1,714

 
3,551

 
9,789

State income tax provision, net of federal income tax benefit
 
5,937

 
4,986

 
641

Taxes at non-U.S. statutory rate
 
348

 
(153
)
 
(48
)
Additional provisions/reversals of unrecognized tax benefits
 
187

 
(116
)
 
131

Canadian rate differential
 
808

 
1,284

 
2,015

Attribute reduction
 
(3,118
)
 
3,118

 
—

Tax Receivable Agreement
 
21,306

 
4,531

 
(220
)
Alternative minimum tax
 
1,483

 
1,298

 
—

Minimum tax credit
 
(1,483
)
 
(1,298
)
 
—

Meals and entertainment
 
675

 
595

 
—

Executive compensation
 
599

 
—

 
—

Work opportunity tax credit
 
(438
)
 
—

 
—

Other, net
 
418

 
902

 
419

 
 
$
(51,995
)
 
$
(688
)
 
$
(105
)


The tax effect of temporary differences, which gave rise to significant portions of deferred income tax assets and liabilities as of December 31, 2016 and 2015 are as follows:
(Amounts in thousands)
 
December 31, 2016
 
December 31, 2015
Deferred tax assets:
 
 
 
 
Accounts receivable
 
$
824

 
$
1,075

Insurance reserves
 
3,302

 
3,925

Warranty reserves
 
26,826

 
26,397

Pension accrual
 
6,292

 
6,426

Deferred compensation
 
10,946

 
10,803

Inventories
 
4,898

 
4,473

Federal, net operating loss carry-forwards
 
48,732

 
78,900

State, net operating loss carry-forwards
 
10,496

 
13,507

Non-capital losses - foreign jurisdiction
 
11,743

 
9,514

Related party interest
 
18,055

 
32,820

Professional fees
 
2,031

 
1,550

Environmental reserves
 
576

 
591

Other assets, net
 
10,312

 
9,428

Valuation allowance
 
(22,889
)
 
(109,361
)
Total deferred tax assets
 
132,144

 
90,048

Deferred tax liabilities:
 
 

 
 

Property and equipment, net
 
(27,589
)
 
(24,387
)
Intangible assets, net
 
(36,894
)
 
(44,032
)
Deferred financing
 
(18,063
)
 
(25,964
)
Attribute reduction
 
—

 
(3,456
)
Other liabilities, net
 
(1,973
)
 
(2,335
)
Total deferred tax liabilities
 
(84,519
)
 
(100,174
)
Net deferred tax asset (liability)
 
$
47,625

 
$
(10,126
)


ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, was issued in November 2015 and it establishes simplification of the presentation of deferred income taxes. Under the new standard, both deferred tax liabilities and assets are required to be classified as noncurrent in a classified balance sheet. As of December 31, 2015, we had deferred taxes that were classified as current assets and noncurrent liabilities. During the fourth quarter of 2016, the Company elected to prospectively adopt this standard, thus reclassifying the current deferred tax assets to noncurrent (netted within noncurrent liabilities) on the accompanying consolidated balance sheet. The prior reporting period was not retrospectively adjusted. The adoption of this guidance had no impact on the Company's consolidated results of operations or cash flows.

Debt Transaction

On September 19, 2014, Ply Gem Industries issued $150.0 million aggregate principal amount of its 6.50% Senior Tack-on Notes with a $10.1 million debt discount. These Senior Tack-on Notes have the same terms and covenants as the original $500.0 million of 6.50% Senior Notes issued in January 2014 that were issued at par and will mature in 2022. These Senior Tack-on Notes are not considered Applicable High Yield Discount Obligation ("AHYDO"). The discount and deferred financing costs related to these notes will be amortized over the life of the notes utilizing the constant yield method.

        
Valuation allowance

During the year ended December 31, 2016, the Company determined that a valuation allowance was no longer required against its federal net deferred tax assets and a portion of its state deferred tax assets. As a result, the Company released $86.5 million of its total valuation allowance during the year ended December 31, 2016 since positive evidence outweighed negative evidence thereby allowing the Company to achieve the “more likely than not” realization threshold. Of the total valuation allowance reversal of $86.5 million, $31.3 million was offset against 2016 current year tax expense with the remaining $55.2 million representing the discrete valuation allowance release.

As of December 31, 2016, the Company was no longer in a three-year cumulative pre-tax loss position due to the significant improvement in the Company’s profitability from the housing market recovery. The housing market has experienced steady improvement from a demand perspective over the last several years which has benefited the Company’s financial performance and profitability for both new construction and repair and remodeling reflected in the Company’s net sales and earnings growth. This annual financial improvement was further evidenced by the Company continuing to have net sales and profitability growth in the Company’s second and third quarters which are traditionally the Company’s strongest financial quarters based on seasonality. Finally, the consensus expectation and outlook for both new construction and repair and remodeling both show positive growth rates over the next few years which result in future forecasted profitability for the Company. Based on the preponderance of these positive factors, the valuation allowance for federal and certain state NOL carry-forwards was released during the year ended December 31, 2016. The valuation allowance release is reflected within our benefit for income taxes in the accompanying consolidated statement of operations and comprehensive income (loss) during the year ended December 31, 2016.

As of December 31, 2016, the Company had a full valuation allowance on its deferred tax assets for Gienow Canada of approximately $13.0 million as a result of its operating performance and challenges associated with combining two separate manufacturing facilities into a single facility. As a result of the Simonton acquisition on September 19, 2014, the Company evaluated Simonton's net deferred tax liability position with Ply Gem's full valuation allowance position, which resulted in a $7.5 million release of valuation allowance during the year ended December 31, 2014 and an additional release of $2.8 million for the year ended December 31, 2015.
The Company had book goodwill of approximately $28.0 million that was not amortized resulting in a deferred tax liability of approximately $6.7 million at December 31, 2015.  Therefore, the reversal of deferred tax liabilities related to this goodwill is not considered a source of future taxable income in assessing the realization of its deferred tax assets.  The Company continues to evaluate the realizability of its net deferred tax assets and its estimates are subject to change.

The Company remains in a valuation allowance position against its deferred tax assets for certain state and Canadian jurisdictions as it is currently deemed "more likely than not" that the benefit of such net tax assets will not be utilized as the Company continues to be in a three-year cumulative loss position for these states and Canadian jurisdictions. The Company will continue to monitor the positive and negative factors for these jurisdictions and make further changes to the valuation allowances as necessary.

Other tax considerations
 
As of December 31, 2016, the Company has approximately $175.4 million of federal gross operating loss carry-forwards which can be used to offset future taxable income.  These federal carry-forwards will begin to expire in 2028 if not utilized.  The Company has approximately $328.3 million of gross state NOL carry-forwards and $11.2 million (net of federal benefit) of deferred tax assets related to these state NOL carry-forwards which can be used to offset future state tax liabilities.  The Company has established a valuation allowance which offsets the deferred tax asset associated with certain state NOL carry-forwards.  Future tax planning strategies implemented by the Company could reduce or eliminate future NOL expiration.
 
As of December 31, 2016, the Company has not established U.S. deferred taxes on unremitted earnings for the Company's foreign subsidiaries.  Notwithstanding the provisions within the American Jobs Creation Act of 2004, the Company continues to consider these amounts to be permanently invested.

Unrecognized tax benefits

The Company records reserves for unrecognized tax benefits based on the likelihood of an unfavorable outcome.  Of this amount, approximately $1.5 million, if recognized, would have an impact on the Company’s effective tax rate.  As of December 31, 2016, the reserve was approximately $3.9 million which includes interest and penalties of approximately $1.6 million.  As of December 31, 2015, the reserve was approximately $2.9 million which included interest and penalties of approximately $1.1 million. The difference between the total unrecognized tax benefits and the amount of the liability for unrecognized tax benefits represents unrecognized tax benefits that have been netted against deferred tax assets related to net operating losses in accordance with ASC 740 in addition to accrued penalties and interest.
 
The Company has elected to treat interest and penalties on unrecognized tax benefits as income tax expense in its consolidated statement of operations.  Interest and penalty charges have been recorded in the contingency reserve account within other long term liabilities in the Company's consolidated balance sheet.
 
The following is a rollforward of unrecognized tax benefits from January 1, 2015 through December 31, 2016.

Unrecognized tax benefits balance at January 1, 2015
$
16,518

Additions based on tax positions related to current year
415

Additions for tax positions of prior years
—

Reductions for tax positions of prior years
(859
)
Settlement or lapse of applicable statutes
(164
)
Unrecognized tax benefits balance at December 31, 2015
15,910

Additions based on tax positions related to current year
208

Additions for tax positions of prior years
603

Reductions for tax positions of prior years
(13
)
Settlement or lapse of applicable statutes
(39
)
Unrecognized tax benefits balance at December 31, 2016
$
16,669



Unrecognized tax benefits are reversed as a discrete event if an examination of applicable tax returns is not begun by a federal or state tax authority within the statute of limitations or upon effective settlement with federal or state tax authorities.  During the year ended December 31, 2016, the Company reversed approximately $0.1 million of unrecognized tax benefits due to the expiration of the statute of limitations in certain state jurisdictions. The Company's open tax years that are subject to federal examination are 2008 through 2016.

During the year ended December 31, 2015, the Company also reversed approximately $0.2 million of unrecognized tax benefits due to the expiration of the statute of limitations for the tax year ended December 31, 2006.

During the next 12 months, the Company does not anticipate the reversal of any material tax contingency reserves.

Tax Receivable Agreement
On May 22, 2013, the Company entered into a Tax Receivable Agreement (the “Tax Receivable Agreement”) with PG ITR Holdco, L.P. (the “Tax Receivable Entity”). The Tax Receivable Agreement generally provides for the payment by the Company to the Tax Receivable Entity of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax that the Company actually realizes in periods ending after the IPO as a result of (i) net operating loss ("NOL") carryovers from periods (or portions thereof) ending before January 1, 2013, (ii) deductible expenses attributable to the transactions related to the IPO and (iii) deductions related to imputed interest deemed to be paid by the Company as a result of or attributable to payments under the Tax Receivable Agreement. The term of the Tax Receivable Agreement will continue until all such benefits have been utilized or expired. The Company will retain the benefit of the remaining 15% of these tax savings. The Tax Receivable Agreement will obligate the Company to make payments to the Tax Receivable Entity generally equal to 85% of the applicable cash savings that is actually realized as a result of utilizing NOL carryovers once the tax returns are filed for that respective tax year.
The Company estimates that the total anticipated amount of future payments under the Tax Receivable Agreement would be approximately $84.4 million assuming no material changes in the relevant tax law or federal rates, that the Company earns sufficient taxable income to utilize the net operating loss carry forwards, and that utilization of such tax attributes is not subject to limitation under Section 382 of the Internal Revenue Code of 1986, as amended (the "Code") as the result of an “ownership change”. It is possible that future transactions or events or changes in estimates could increase or decrease the actual tax benefits realized from these tax attributes and the corresponding Tax Receivable Agreement payments and liability. As of December 31, 2016, the Company estimates the Tax Receivable Agreement liability to be approximately $79.7 million with the remaining $4.7 million estimated for the state NOLs associated with the Tax Receivable Agreement which have a valuation allowance. Future changes in the Company's state valuation allowance position including the reversal of all or a portion of the Company's remaining state valuation allowance may increase the Tax Receivable Agreement liability up to the $84.4 million estimate as the Company at that point in time will project future taxable income beyond the current fiscal year for certain state income tax purposes.

As of December 31, 2016 and 2015, the Company had a $79.7 million and $23.8 million liability, respectively, for the amount due pursuant to the Tax Receivable Agreement. The Company has $25.4 million and $3.0 million as current liabilities in the Company's consolidated balance sheets as of December 31, 2016 and December 31, 2015, respectively. The Company has $54.3 million and $20.8 million of this liability recorded as noncurrent as of December 31, 2016 and December 31, 2015, respectively, in the consolidated balance sheets as these amounts will not be paid in cash within the next 12 months. The $60.9 million Tax Receivable Agreement liability adjustment for the year ended December 31, 2016 resulted primarily from the $55.2 million discrete valuation allowance release. The factors surrounding the release of this valuation allowance thereby eliminated any uncertainty as to future taxable income. Consequently, for purposes of calculating the TRA liability, the Company during the year ended December 31, 2016 utilized future forecasts of taxable income beyond the 2016 tax year to determine the TRA liability. The $12.9 million tax receivable agreement liability adjustment for the year ended December 31, 2015 resulted from a $115.9 million increase in 2015 taxable income partially offset by the timing of reversals of deferred tax assets and liabilities.