Product Warranty Costs and Service Returns

9 Months Ended

Oct. 01, 2011

Product Warranty Costs and Service Returns [Abstract]

Product Warranty Costs and Service Returns

Note 10 — Product Warranty Costs and Service Returns

Consistent with industry practice, the Company provides to homeowners limited warranties on certain products, primarily related to window and siding product categories. Warranties are of varying lengths of time from the date of purchase up to and including lifetime. Warranties cover product failures such as stress cracks and seal failures for windows and fading and peeling for siding products, as well as manufacturing defects. The Company has various options for remedying product warranty claims including repair, refinishing or replacement and directly incurs the cost of these remedies. Warranties also become reduced under certain conditions of time and change in ownership. Certain metal coating suppliers provide warranties on materials sold to the Company that mitigate the costs incurred by the Company. Reserves for future warranty costs are provided based on management’s estimates of such future costs using historical trends of claims experience, sales history of products to which such costs relate, and other factors. An independent actuary assists the Company in determining reserve amounts related to warranties for product failures.

As a result of the Merger and the application of purchase accounting, the Company adjusted its warranty reserves to represent an estimate of the fair value of the liability as of the closing date of the Merger. The estimated fair value of the liability was based on an actuarial calculation performed by an independent actuary which projected future remedy costs using historical data trends of claims incurred, claims payments and sales history of products to which such costs relate. The fair value of the expected future remedy costs related to products sold prior to the Merger was based on the actuarially determined estimates of expected future remedy costs and other factors and assumptions the Company believes market participants would use in valuing the warranty reserves. These other factors and assumptions included inputs for claims administration costs, confidence adjustments for uncertainty in the estimates of expected future remedy costs and a discount factor to arrive at the estimated fair value of the liability at the date of the Merger. The excess of the estimated fair value over the expected future remedy costs, which was included in the Company’s warranty reserve at the date of the Merger, is being amortized as a reduction of warranty expense over the expected term such warranty claims will be satisfied. The provision for warranties is reported within cost of sales in the consolidated statements of operations.

A reconciliation of the warranty reserve activity is as follows (in thousands):

	Quarters Ended						Nine Months Ended
	October 1,			October 2,			October 1,			October 2,
	2011			2010			2011			2010
	Successor			Predecessor			Successor			Predecessor
Balance at the beginning of the period	$	96,465		$	33,661		$	94,712		$	33,016
Provision for warranties issued and changes in estimates for pre-existing warranties		3,032			2,669			6,057			5,989
Claims paid		(3,248	)		(1,113	)		(5,089	)		(4,389	)
Foreign currency translation		(1,322	)		(286	)		(753	)		315
Balance at the end of the period	$	94,927		$	34,931		$	94,927		$	34,931