Revenue Recognition and Contracts with Customers

12 Months Ended

Jan. 02, 2021

Revenue From Contract With Customer [Abstract]

Revenue Recognition and Contracts with Customers

4. Revenue Recognition and Contracts with Customers

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

We adopted ASU 2014-09, “Revenue from Contracts with Customers”, together with subsequently issued related guidance, 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 was 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. Upon adoption, we recognized a net decrease to the fiscal year 2018 opening balance of accumulated deficit of $1.9 million related to sales of $8.7 million, that would have been recognized over time in our prior year ended December 30, 2017.

The details of the adjustment to accumulated deficit upon adoption on December 31, 2017 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 for the year ended December 29, 2018 to the balances prior to the adjustments made to implement the new revenue recognition standard for the same period, for the accompanying consolidated statement of operations. Adoption of the revenue recognition standard did not impact our cash from operating, investing, or financing activities on our condensed consolidated statements of cash flows. (in thousands, except per share amounts):

	Year Ended December 29, 2018
	As			Impact of		Previous
	Presented			ASU 2014-09		Standard
Net sales	$	698,493		$	2,553	$	701,046
Cost of sales		455,025			1,875		456,900
Gross profit		243,468			678		244,146
Selling, general and administrative expenses		150,910			104		151,014
Gains on sales of assets		(2,551	)		-		(2,551	)
Income from operations		95,109			574		95,683
Interest expense, net		26,529			-		26,529
Debt extinguishment costs		3,375			-		3,375
Income before income taxes		65,205			574		65,779
Income tax expense		11,272			146		11,418
Net income	$	53,933		$	428	$	54,361
Basic	$	1.03				$	1.04
Diluted	$	1.00				$	1.00
Other comprehensive loss before tax:
Change in fair value of derivatives		(4,357	)		-		(4,357	)
Reclassification to earnings		239			-		239
Other comprehensive loss before tax		(4,118	)		-		(4,118	)
Income tax benefit related to other comprehensive loss		(1,053	)		-		(1,053	)
Other comprehensive loss, net of tax		(3,065	)		-		(3,065	)
Comprehensive income	$	50,868		$	428	$	51,296

Amounts in the table 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 directly attributable to noncancelable sales orders and with no alternative future use, and therefore recognized as revenue over time under the new standard.

Revenue Recognition Accounting Policy

The Company primarily manufactures fully customized windows and doors 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 agreements with our customers for all manufacturing efforts expended by the Company on behalf of its customers. Due to the customized build-to-order nature of these products, the Company’s assessment is that the substantial portion of 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 attributed to specific customer orders.

Based on these factors, the Company recognizes a substantial portion of revenue over time during the manufacturing process once customization begins, and for certain unused glass components on hand, at the end of a reporting period. Revenue on work-in-process at the end of a reporting period is recognized in proportion to costs incurred to total estimated cost of the product being manufactured. Except for the Western segment’s volume products, discussed in the section titled Disaggregation of Revenue from Contracts with Customers below, revenue recognized at a point in time is immaterial.

Disaggregation of Revenues from Contracts with Customers

The following table provides information about our revenue differentiated based on reportable segment, product category, and market, See Note 20 for more information regarding a realignment of our segments in 2020 (dollars in millions):

	Year Ended
	January 2,		December 28,		December 29,
Disaggregation of revenue:	2021		2019		2018
Reporting segment:
Southeast	$	752.4	$	606.6	$	648.8
Western		130.2		138.4		49.7
Total net sales	$	882.6	$	745.0	$	698.5
Product category:
Impact-resistant window and door products	$	630.2	$	516.1	$	561.8
Non-impact window and door products		252.4		228.9		136.7
Total net sales	$	882.6	$	745.0	$	698.5
Market:
New construction	$	402.5	$	368.4	$	283.1
Repair and remodel		480.1		376.6		415.4
Total net sales	$	882.6	$	745.0	$	698.5

The Company’s Western segment includes both custom and volume products. This segment’s volume products are not made-to-order and are of standardized sizes and design specifications. Therefore, the Company’s assessment is that the Western segment’s volume products have alternative uses, and that control of these products passes to the customer at a point in time, which is typically when the product has been delivered to the customer. For the years ended January 2, 2021 and December 28, 2019, the Western segment’s net sales of its volume products were $53.2 million and $53.9 million, respectively. For the post-acquisition period from the August 13, 2018 acquisition date to December 29, 2018, the Western segment’s net sales of its volume products were $23.5 million.

Contract Balances

Contract assets represent sales recognized in excess of billings related to finished goods not yet shipped and certain unused glass components not yet placed into the production process for which revenue is recognized over time as noted above. Contract liabilities relate to customer deposits at the end of reporting periods. At January 2, 2021, and December 28, 2019, those contract liabilities totaled $22.8 million and $7.9 million, respectively, of which $18.1 million and $7.4 million, respectively, are classified within accrued liabilities, and $4.6 million and $0.5 million, respectively, are classified within contract assets, net, in the accompanying condensed consolidated balance sheets at January 2, 2021, and December 28, 2019.

Because of the short-term nature of our performance obligations, as discussed below, substantially all of our performance obligations are satisfied within the quarter following the end of a reporting period. As such, substantially all of the contract liabilities at December 28, 2019 were satisfied in the first quarter of 2020, and contract assets at December 28, 2019 were transferred to accounts receivable in the first quarter of 2020. Contract liabilities at January 2, 2021 represents cash received during the three-month period ended January 2, 2021, excluding amounts recognized as revenue during that period. Contract assets at January 2, 2021 represents revenue recognized during the three-month period ended January 2, 2021, excluding amounts transferred to accounts receivable during that period.

Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is defined as the unit of account. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue as the performance obligation is satisfied. Our contracts with our customers generally represent an approved purchase order, together with our standard terms and conditions. Our custom product contracts include distinct goods that are substantially the same and have the same pattern of transfer to the customer over time, and therefore represent a series of distinct goods accounted for as a single performance obligation. For volume products, we allocate the contract’s transaction price to each distinct performance obligation based on the estimated relative standalone selling price of each distinct good. Observable standalone sales are used to determine the standalone selling price. Certain customers are eligible for rebates based on their volume or purchases during an annual period. Rebates are recorded as a reduction to sales and were immaterial in all periods presented.

Performance obligations are satisfied over time, generally for our custom products, and as of a point in time for our volume products. Performance obligations are supported by contracts with customers, and we have elected not to disclose our unsatisfied performance obligations as of January 2, 2021 under the short-term contract exemption as we expect such performance obligations will be satisfied within the quarter following the end of a reporting period.

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 custom 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 standard.

The Company utilizes the 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 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.