Basis of Presentation (Policies)

6 Months Ended

Jun. 30, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Recently Adopted Accounting Pronouncements

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” The amendments under ASU 2017-12 refine and expand hedge accounting requirements for both financial (e.g., interest rate) and commodity risks. Its provisions create more transparency around how economic results are presented, both on the face of the financial statements and in the footnotes. It also makes certain targeted improvements to simplify the application of hedge accounting guidance. ASU 2017-12 was effective for us in the first quarter of 2019, but we elected to early-adopt this guidance effective on December 31, 2017, the first day of our 2018 fiscal year. During the three and six months ended June 30, 2018, we entered into several aluminum forwards contracts which we have designated as cash flow hedges and are accounting for as derivative financial instruments to which we are applying the provisions of ASU 2017-12. For additional information, see Note 12.

In February 2017, the FASB issued ASU 2017-05, “Other Income - Gain and Losses from the Derecognition of Nonfinancial Assets.” ASU 2017-05 clarifies the scope of Subtopic 610-20, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets and adds guidance for partial sales of nonfinancial assets. Subtopic 610-20, which was issued in May 2014 as a part of ASU 2014-09, provides guidance for recognizing gains and losses from the transfer of nonfinancial assets in contracts with non-customers. We adopted this update effective on December 31, 2017, the first day of our 2018 fiscal year. The adoption of this guidance had no impact on our financial position, results of operations or cash flows.

In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805) – Clarifying the Definition of a Business.” ASU 2017-01 affects all companies and other reporting organizations that must determine whether they have acquired or sold a business. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The amendments are intended to help companies and other organizations evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 provides a more robust framework to use in determining when a set of assets and activities is a business. It also provides more consistency in applying the guidance, reduces the costs of application, and makes the definition of a business more operable. We adopted this update effective on December 31, 2017, the first day of our 2018 fiscal year. The adoption of this guidance had no impact on our financial position, results of operations or cash flows.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force).” ASU 2016-15 reduces diversity in practice in how certain transactions are classified in the statement of cash flows. We adopted this update effective on December 31, 2017, the first day of our 2018 fiscal year. The adoption of this guidance had no impact on our statement of cash flows.

Adoption of ASU 2014-09, “Revenue from Contracts with Customers”

We adopted the new revenue recognition standard on December 31, 2017 (the first day of our 2018 fiscal year) using the modified retrospective adoption methodology, whereby the cumulative impact of all prior periods is recorded in retained earnings or other impacted balance sheet line items upon adoption. Under the modified retrospective adoption method, we elected to retroactively adjust, inclusive of all previous modifications, only those contracts that were considered open at the date of initial application. Refer to Note 2, “Revenue Recognition and Contracts with Customers” for further information along with our new accounting policies.

Upon adoption, we recognized a net decrease to the fiscal year 2018 opening balance of accumulated deficit of $1.9 million related to sales in excess of billings of $8.7 million, that would have been recognized as earned over time in our prior year ended December 30, 2017. The details of the adjustment to accumulated deficit upon adoption on December 31, 2017 (the first day or our 2018 fiscal year) is as follows (in thousands):


	Cumulative
	Effect			Description of Effects on Line Item
Net sales	$	8,704		Additional contract asset sales
Cost of sales		(5,642	)	Inventory classified as cost of sales
SG&A expenses		(532	)	Accruals for selling costs
Income tax expense		(647	)	Estimated income tax effects

Net income	$	1,883		Additional net income

The following tables reconcile the balances as presented as of and for the three months ended June 30, 2018 to the balances prior to the adjustments made to implement the new revenue recognition standard for the same period, for the accompanying condensed consolidated statement of comprehensive income, and the condensed consolidated balance sheet. The impact to the condensed consolidated statement of cash flows for the three months ended June 30, 2018 was deemed insignificant (in thousands, except per share amounts):


	Three Months Ended June 30, 2018
	As			Impact of			Previous
	Presented			ASU 2014-09			Standard
	(unaudited)
Net sales	$	169,269		$	(1,987	)	$	167,282
Cost of sales		109,322			(1,459	)		107,863

Gross profit		59,947			(528	)		59,419
Selling, general and administrative expenses		32,581			(100	)		32,481
Gains on transfers of assets		(2,551	)		—			(2,551	)

Income from operations		29,917			(428	)		29,489
Interest expense, net		3,609			—			3,609
Debt extinguishment costs		—			—			—

Income before income taxes		26,308			(428	)		25,880
Income tax expense		3,760			(108	)		3,652

Net income	$	22,548		$	(320	)	$	22,228

Basic	$	0.45					$	0.44

Diluted	$	0.43					$	0.43

Comprehensive income	$	22,226		$	(320	)	$	21,906


	Six Months Ended June 30, 2018
	As Presented			Impact of ASU 2014-09			Previous Standard
	(unaudited)
Net sales	$	309,522		$	(2,952	)	$	306,570
Cost of sales		204,802			(1,886	)		202,916

Gross profit		104,720			(1,066	)		103,654
Selling, general and administrative expenses		61,238			(185	)		61,053
Gains on transfers of assets		(2,551	)		—			(2,551	)

Income from operations		46,033			(881	)		45,152
Interest expense, net		7,652			—			7,652
Debt extinguishment costs		3,079			—			3,079

Income before income taxes		35,302			(881	)		34,421
Income tax expense		5,414			(225	)		5,189

Net income	$	29,888		$	(656	)	$	29,232

Basic	$	0.60					$	0.58

Diluted	$	0.57					$	0.56

Comprehensive income	$	29,504		$	(656	)	$	28,848


	At June 30, 2018
	As Presented		Impact of ASU 2014-09			Previous Standard
	(unaudited)
Cash and cash equivalents	$	63,923	$	—		$	63,923
Accounts receivable, net		74,970		—			74,970
Inventories		35,326		7,528			42,854
Contract assets, net		11,012		(11,012	)		—
Prepaid expenses		2,757		—			2,757
Other current assets		7,899		—			7,899

Total current assets		195,887		(3,484	)		192,403
Property, plant and equipment, net		93,433		—			93,433
Trade name and other intangible assets, net		111,725		—			111,725
Goodwill		108,060		—			108,060
Other assets, net		1,336		—			1,336

Total assets	$	510,441	$	(3,484	)	$	506,957


Accounts payable and accrued liabilities	$	45,911	$	(298	)	$	45,613
Current portion of long-term debt		303		—			303

Total current liabilities		46,214		(298	)		45,916
Long-term debt, less current portion		215,081		—			215,081
Deferred income taxes		23,287		(647	)		22,640
Other liabilities		17,015		—			17,015

Total liabilities		301,597		(945	)		300,652

Total shareholders’ equity		208,844		(2,539	)		206,305

Total liabilities and shareholders’ equity	$	510,441	$	(3,484	)	$	506,957

Amounts in the tables above presented under “Previous Standard” represent balances as-if ASU 2014-09 had not been adopted, which primarily reflects finished goods and certain unused glass components with no alternative future use, but recognized as revenue over time under the new standard but still classified in inventory, and no net contract assets on the condensed consolidated balance sheet as of June 30, 2018.

Recently Issued Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, “Leases (Topic 842)”. This guidance supersedes the existing guidance for lease accounting, Leases (Topic 840). ASU 2016-02 requires lessees to recognize leases on their balance sheets, and leaves lessor accounting largely unchanged. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early application is permitted for all entities. ASU 2016-02 requires a modified retrospective approach for all leases existing at, or entered into after, the date of initial application, with an option to elect to use certain transition relief. The Company is currently evaluating the impact of this new standard on its consolidated financial statements.

New Revenue Recognition Accounting Policy

The Company is a manufacturer of fully-customized windows and doors, and manufactures products based on design specifications, measurements, colors, finishes, framing materials, glass-types, and other options selected by the customer at the point in time an order is received from the customer. The Company has an enforceable right to payment at the time an order is received and accepted at the agreed-upon sales prices contained in our agreements with our customers for all manufacturing efforts expended by the Company on behalf of its customers .The Company’s assessment is that all its finished goods and certain unused glass components have no alternative use, and that control of these products and components passes to the customer over time during the manufacturing of the products in an order, or upon our receipt of certain pre-cut glass components from our supplier. Based on these factors, the Company recognizes revenue upon completion of the manufacturing process, and for certain unused glass components on hand, at the end of a reporting period.

Revenue recognized on products for which the manufacturing process has been completed is based on the per-unit agreed-upon sales prices contained in our agreements with our customers, applied to each completed unit of unshipped finished product on hand at the end of the reporting period. Revenue on unused glass components on hand at the end of a reporting period is based on an allocation of the agreed-upon per-unit sales price contained in our agreements to which each glass component on hand relates, based on an estimate of the percentage of which the cost of the glass component is of the estimated total cost of the finished product.

Policies Regarding Shipping and Handling Costs and Commissions on Contract Assets

The Company has made a policy election to continue to recognize shipping and handling costs as a fulfillment activity. Treating shipping and handling as a fulfillment activity requires estimated shipping and handling costs for undelivered products and certain glass components on which we have recognized revenue and created a contract asset, to be accrued to match this cost with the recognized revenue. This policy is unchanged from the Company’s policy for recognizing shipping and handling costs prior to the adoption of the new revenue guidance.

The newly adopted revenue guidance provides for a practical expedient which permits expensing of costs to obtain a contract when the expected amortization period is one year or less, which typically results in expensing commissions paid to employees. We continue to expense sales commissions paid to employees as sales are recognized, including sales from the creation of contract assets, as the expected amortization period is less than one year. Our backlog as of June 30, 2018, is $98.9 million. Backlog is composed of confirmed, non cancellable orders scheduled for production and for which the customer has an obligation to pay.