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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
(Mark One) 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: July 3, 2021
 
or
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from          to    
 
Commission file number: 1-14315
 
 cnr-20210703_g1.jpg
Cornerstone Building Brands, Inc.
(Exact name of registrant as specified in its charter)

 
Delaware76-0127701
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
5020 Weston ParkwaySuite 400CaryNC27513
(Address of principal executive offices)(Zip Code)
 
(866) 419-0042
(Registrant’s telephone number, including area code)

 
 
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 ý No ¨
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ý Yes ¨ No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filerAccelerated filerý
Non-accelerated filer
¨ (Do not check if a smaller reporting company)
Smaller reporting company
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ý No
 
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of Each ClassTrading SymbolName of Each Exchange on Which Registered
Common Stock $0.01 par value per shareCNRNew York Stock Exchange

APPLICABLE ONLY TO CORPORATE ISSUERS
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
Common Stock, $0.01 par value - 126,051,017 shares as of July 27, 2021.




TABLE OF CONTENTS 
  PAGE
  
Item 1.
 
 
 
 
 
Item 2.
Item 3.
Item 4.
   
  
Item 1.
Item 1A.
Item 2.
Item 6.
 

i


PART I — FINANCIAL INFORMATION 
Item 1. Unaudited Consolidated Financial Statements. 
CORNERSTONE BUILDING BRANDS, INC. 
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 Three Months EndedSix Months Ended
 July 3,
2021
July 4,
2020
July 3,
2021
July 4,
2020
Sales$1,400,121 $1,084,936 $2,667,153 $2,198,747 
Cost of sales
1,088,393 830,205 2,095,696 1,713,129 
Gross profit311,728 254,731 571,457 485,618 
Selling, general and administrative expenses163,518 134,371 316,686 299,325 
Intangible asset amortization46,809 45,240 93,011 90,101 
Restructuring and impairment charges, net4,652 15,411 6,490 29,246 
Strategic development and acquisition related costs(61)784 3,252 5,641 
Goodwill impairment   503,171 
Income (loss) from operations96,810 58,925 152,018 (441,866)
Interest income23 341 140 679 
Interest expense(47,458)(52,384)(103,957)(107,219)
Foreign exchange gain (loss)229 2,025 203 (2,112)
Loss on extinguishment of debt(42,234) (42,234) 
Other income (expense), net493 660 830 (2)
Income (loss) before income taxes7,863 9,567 7,000 (550,520)
Benefit for income taxes(1,064)(17,332)(272)(35,346)
Net income (loss)8,927 26,899 7,272 (515,174)
Net income allocated to participating securities(123)(442)(93) 
Net income (loss) applicable to common shares$8,804 $26,457 $7,179 $(515,174)
Income (loss) per common share:  
Basic$0.07 $0.21 $0.06 $(4.09)
Diluted$0.07 $0.21 $0.06 $(4.09)
Weighted average number of common shares outstanding:  
Basic125,863 125,754 125,683 125,927 
Diluted126,841 125,755 126,469 125,927 
See accompanying notes to consolidated financial statements.
 


1


CORNERSTONE BUILDING BRANDS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
 Three Months EndedSix Months Ended
 July 3,
2021
July 4,
2020
July 3,
2021
July 4,
2020
Comprehensive income (loss):    
Net income (loss)$8,927 $26,899 $7,272 $(515,174)
Other comprehensive income (loss), net of tax:    
Foreign exchange translation gains (losses)4,589 8,566 10,663 (997)
Unrealized gain (loss) on derivative instruments, net of income tax of $891, $1,182, $(1,799) and $13,214, respectively
(5,055)(3,729)4,121 (41,905)
Amount reclassified from Accumulated other comprehensive income (loss) into earnings6,669  6,669  
Other comprehensive income (loss)6,203 4,837 21,453 (42,902)
Comprehensive income (loss)$15,130 $31,736 $28,725 $(558,076)
See accompanying notes to consolidated financial statements.
2


CORNERSTONE BUILDING BRANDS, INC. 
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
 July 3,
2021
December 31,
2020
ASSETS  
Current assets:  
Cash and cash equivalents$88,978 $674,255 
Restricted cash6,224 6,223 
Accounts receivable, less allowances of $10,340 and $13,313, respectively
613,193 554,649 
Inventories, net549,736 431,937 
Income taxes receivable46,358 39,379 
Investments in debt and equity securities, at market2,695 2,333 
Prepaid expenses and other88,942 77,751 
Assets held for sale390,025 4,644 
     Total current assets1,786,151 1,791,171 
Property, plant and equipment, less accumulated depreciation of $593,555 and $644,308, respectively
568,901 631,821 
Lease right-of-use assets272,366 264,107 
Goodwill1,107,758 1,194,729 
Intangible assets, net1,488,426 1,584,604 
Deferred income taxes2,178 1,867 
Other assets, net28,283 10,191 
     Total assets$5,254,063 $5,478,490 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
Current liabilities:  
Current portion of long-term debt$26,000 $25,600 
Accounts payable266,067 211,441 
Accrued compensation and benefits75,966 81,548 
Accrued interest21,406 25,485 
Accrued income taxes6,560 5,060 
Current portion of lease liabilities68,198 70,125 
Other accrued expenses280,236 247,893 
Liabilities held for sale75,927  
     Total current liabilities820,360 667,152 
Long-term debt3,180,759 3,563,429 
Deferred income taxes233,602 269,792 
Long-term lease liabilities205,530 198,875 
Other long-term liabilities334,565 337,437 
     Total long-term liabilities3,954,456 4,369,533 
Stockholders’ equity:  
Common stock, $0.01 par value; 200,000,000 authorized; 126,072,088 and 126,051,017 shares issued and outstanding at July 3, 2021, respectively; and 125,425,931 and 125,400,599 shares issued and outstanding at December 31, 2020, respectively
1,261 1,255 
Additional paid-in capital1,265,887 1,257,262 
Accumulated deficit(757,413)(764,685)
Accumulated other comprehensive loss, net(30,064)(51,517)
Treasury stock, at cost (21,071 and 25,332 shares at July 3, 2021 and December 31, 2020, respectively)
(424)(510)
     Total stockholders’ equity479,247 441,805 
     Total liabilities and stockholders’ equity$5,254,063 $5,478,490 
See accompanying notes to consolidated financial statements.
3


CORNERSTONE BUILDING BRANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Six Months Ended
 July 3, 2021July 4, 2020
Cash flows from operating activities:  
Net income (loss)$7,272 $(515,174)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:  
Depreciation and amortization145,901 140,480 
Non-cash interest expense10,924 4,593 
Share-based compensation expense8,593 8,543 
Loss on extinguishment of debt42,234  
Goodwill impairment 503,171 
Asset impairment3,988 3,490 
Loss on sale of assets, net 169 
Provision for credit losses1,428 252 
Deferred income taxes(24,758)(48,190)
Changes in operating assets and liabilities, net of effect of acquisitions:  
Accounts receivable(119,813)(24,844)
Inventories(176,077)36,872 
Income taxes(6,979)12,226 
Prepaid expenses and other(15,960)9,782 
Accounts payable73,627 (7,818)
Accrued expenses38,347 (53,834)
Other, net(448)(2,756)
Net cash provided by (used in) operating activities(11,721)66,962 
Cash flows from investing activities:  
Acquisitions, net of cash acquired(94,383)(41,841)
Capital expenditures(47,643)(47,609)
Proceeds from sale of property, plant and equipment715 114 
Net cash used in investing activities(141,311)(89,336)
Cash flows from financing activities:  
Proceeds from ABL facility160,000 345,000 
Payments on ABL facility (30,000)
Proceeds from cash flow revolver 115,000 
Proceeds from term loan108,438  
Payments on term loan(12,905)(12,810)
Payments on senior notes(670,800) 
Payments of financing costs(13,187) 
Purchases of treasury stock (6,428)
Payments on derivative financing obligations(2,848) 
Other(61)(467)
Net cash provided by (used in) financing activities(431,363)410,295 
Effect of exchange rate changes on cash and cash equivalents(881)(508)
Net increase (decrease) in cash, cash equivalents and restricted cash(585,276)387,413 
Cash, cash equivalents and restricted cash at beginning of period680,478 102,307 
Cash, cash equivalents and restricted cash at end of period$95,202 $489,720 
Supplemental disclosure of cash flow information:
Interest paid, net of amounts capitalized$102,045 $101,142 
Taxes paid, net$23,968 $1,109 
 See accompanying notes to consolidated financial statements.
4



CORNERSTONE BUILDING BRANDS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share data)
(Unaudited)
Fiscal QuartersCommon StockAdditional Paid-In CapitalRetained Earnings (Deficit)Accumulated Other Comprehensive Income (Loss)Treasury StockStockholders’ Equity
 SharesAmountSharesAmount
Balance, April 3, 2021125,807,655 $1,258 $1,260,946 $(766,340)$(36,267)(131,363)$(1,950)$457,647 
Retirement of treasury shares(110,292)(1)(1,525)— — 110,292 1,526  
Issuance of restricted stock257,991 3 (3)— — — —  
Issuance of common stock for the Ply Gem merger15,220 — 185 — — — — 185 
Stock options exercised101,514 1 993 — — — — 994 
Other comprehensive income— — — — 6,203 — — 6,203 
Share-based compensation— — 5,291 — — — — 5,291 
Net income— — — 8,927 — — — 8,927 
Balance, July 3, 2021126,072,088 $1,261 $1,265,887 $(757,413)$(30,064)(21,071)$(424)$479,247 
Balance, April 4, 2020126,167,645 $1,262 $1,251,252 $(823,980)$(80,137)(25,332)$(509)$347,888 
Treasury stock purchases— — — — — (1,129,085)(6,568)(6,568)
Retirement of treasury shares(1,128,767)(11)(6,555)— — 1,128,767 6,566  
Issuance of restricted stock84,110 1 (1)— — — —  
Other comprehensive income— — — — 4,837 — — 4,837 
Share-based compensation— — 5,156 — — — — 5,156 
Net income— — — 26,899 — — — 26,899 
Balance, July 4, 2020125,122,988 $1,252 $1,249,852 $(797,081)$(75,300)(25,650)$(511)$378,212 
See accompanying notes to consolidated financial statements.
5





CORNERSTONE BUILDING BRANDS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)
(In thousands, except share data)
(Unaudited)
Fiscal Year to Date PeriodsCommon StockAdditional Paid-In CapitalRetained Earnings (Deficit)Accumulated Other Comprehensive Income (Loss)Treasury StockStockholders’ Equity
 SharesAmountSharesAmount
December 31, 2020125,425,931 $1,255 $1,257,262 $(764,685)$(51,517)(25,332)$(510)$441,805 
Treasury stock purchases— — — — — (111,868)(1,541)(1,541)
Retirement of treasury shares(111,868)(1)(1,540)— — 111,868 1,541  
Issuance of restricted stock596,930 6 (6)— — — —  
Issuance of common stock for the Ply Gem merger15,220 — 185 — — — — 185 
Stock options exercised145,875 1 1,479 — — — — 1,480 
Other comprehensive income— — — — 21,453 — — 21,453 
Deferred compensation obligation—  (86)— — 4,261 86  
Share-based compensation— — 8,593 — — — — 8,593 
Net income— — — 7,272 — — — 7,272 
Balance, July 3, 2021126,072,088 $1,261 $1,265,887 $(757,413)$(30,064)(21,071)$(424)$479,247 
Balance, December 31, 2019126,110,000 $1,261 $1,248,787 $(281,229)$(32,398)(55,513)$(1,103)$935,318 
Treasury stock purchases— — — — — (1,166,879)(6,895)(6,895)
Retirement of treasury shares(1,166,973)(12)(6,883)— — 1,166,973 6,895  
Issuance of restricted stock179,961 2 (2)— — — —  
Other comprehensive loss— — — — (42,902)— — (42,902)
Deferred compensation obligation— 1 (593)— — 29,769 592  
Share-based compensation— — 8,543 — — — — 8,543 
Cumulative effect of accounting change— — — (678)— — — (678)
Net loss— — — (515,174)— — — (515,174)
Balance, July 4, 2020125,122,988 $1,252 $1,249,852 $(797,081)$(75,300)(25,650)$(511)$378,212 
See accompanying notes to consolidated financial statements.

6


CORNERSTONE BUILDING BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 3, 2021
(Unaudited)

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited consolidated financial statements for Cornerstone Building Brands, Inc. (together with its subsidiaries, unless otherwise indicated, the “Company,” “Cornerstone,” “we,” “us” or “our”) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles (“GAAP”) for complete financial statements. In the opinion of management, the unaudited consolidated financial statements included herein contain all adjustments, which consist of normal recurring adjustments, necessary to fairly present the Company’s financial position, results of operations and cash flows for the periods indicated. Operating results for the period from January 1, 2021 through July 3, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2021.
 Certain reclassifications have been made to the prior period amounts in the consolidated financial statements to conform to the current presentation.
For additional information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the Securities and Exchange Commission (the “SEC”) on March 4, 2021.
Reporting Periods
The Company’s fiscal quarters are based on a four-four-five week calendar with periods ending on the Saturday of the last week in the quarter except that December 31st will always be the year-end date. Therefore, the financial results of certain fiscal quarters may not be comparable to prior fiscal quarters.
Restricted Cash
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that total the amounts shown in the consolidated statements of cash flows (in thousands):
 July 3,
2021
December 31,
2020
Cash and cash equivalents$88,978 $674,255 
Restricted cash(1)
6,224 6,223 
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows$95,202 $680,478 
(1)Restricted cash primarily relates to escrow balances held for an outstanding earn-out agreement and other indemnification agreements.
Accounts Receivables and Related Allowance
The Company reports accounts receivable net of the allowance for expected credit losses. Trade accounts receivable are the result of sales of vinyl windows, aluminum windows, vinyl siding, metal siding, injection molded products, metal building products, insulated metal panels, metal coating, and other products and services to customers throughout the United States and Canada and affiliated territories, including international builders who resell to end users. Sales are primarily denominated in U.S. dollars. Credit sales do not normally require a pledge of collateral; however, various types of liens may be filed to enhance the collection process and we require payment prior to shipment for certain international shipments.
The Company establishes provisions for expected credit losses based on the Company’s assessment of the collectability of amounts owed to us by our customers. Such provisions are included in selling, general and administrative expenses. In establishing these reserves, the Company considers changes in the financial position of a customer, age of the accounts receivable balances, availability of security, unusual macroeconomic conditions, lien rights and bond rights as well as disputes, if any, with our customers. Our allowance for credit losses reflects reserves for customer receivables to reduce receivables to amounts expected to be collected. Interest on delinquent accounts receivable is included in the trade accounts receivable balance and recognized as interest income when earned and collectability is reasonably assured. Uncollectible accounts are written off when a settlement is reached for an amount that is less than the outstanding historical balance, all collection efforts have been exhausted, and/or any legal action taken by the Company has concluded.
7


The following table represents the rollforward of the allowance for credit losses for the periods indicated (in thousands):
Six Months Ended
July 3,
2021
July 4,
2020
Ending balance, prior period$13,313 $9,962 
Cumulative effect of accounting change(1)
 678 
Provision for expected credit losses1,428 252 
Amounts charged against allowance for credit losses, net of recoveries(750)(2,076)
Held for sale adjustment(3,651) 
Allowance for credit losses of acquired company at date of acquisition 810 
Ending balance$10,340 $9,626 
(1)Cumulative effect of accounting change reflects the modified retrospective effect of adopting ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.
Net Sales
The Company enters into contracts that pertain to products, which are accounted for as separate performance obligations and are typically one year or less in duration. Given the nature of the Company's sales arrangements, we are not required to exercise significant judgment in determining the timing for the satisfaction of performance obligations or the transaction price. Revenue is measured as the amount of consideration expected to be received in exchange for our products. Revenue is generally recognized when the product has shipped from our facility and control has transferred to the customer. For a portion of our business, when we process customer owned material, control is deemed to transfer to the customer as the processing is being completed.
The Company’s revenues are adjusted for variable consideration, which includes customer volume rebates and prompt payment discounts. The Company measures variable consideration by estimating expected outcomes using analysis and inputs based upon anticipated performance, historical data, and current and forecasted information. Customer returns are recorded as a reduction to sales on an actual basis throughout the year and also include an estimate at the end of each reporting period for future customer returns related to sales recorded prior to the end of the period. The Company generally estimates customer returns based upon the time lag that historically occurs between the sale date and the return date while also factoring in any new business conditions that might impact the historical analysis such as new product introduction. Measurement of variable consideration is reviewed by management periodically and revenue is adjusted accordingly. We do not have significant financing components. The Company recognizes installation revenue, primarily within the stone veneer business, over the period for which the stone is installed, which is typically a very short duration.
Shipping and handling activities performed by us are considered activities to fulfill the sales of our products. Amounts billed for shipping and handling are included in net sales, while costs incurred for shipping and handling are included in cost of sales.
In accordance with certain contractual arrangements, we receive payment from our customers in advance related to performance obligations that are to be satisfied in the future and recognize such payments as deferred revenue, primarily related to the Company’s weathertightness warranties (see Note 12 — Warranty).
A portion of the Company’s revenue, exclusively within the Commercial segment, includes multiple-element revenue arrangements due to multiple deliverables. Each deliverable is generally determined based on customer-specific manufacturing and delivery requirements. Because the separate deliverables have value to the customer on a stand-alone basis, they are typically considered separate units of accounting. A portion of the entire job order value is allocated to each unit of accounting. Revenue allocated to each deliverable is recognized upon shipment. The Company uses estimated selling price (“ESP”) based on underlying cost plus a reasonable margin to determine how to separate multiple-element revenue arrangements into separate units of accounting, and how to allocate the arrangement consideration among those separate units of accounting. The Company determines ESP based on normal pricing and discounting practices.
8


The following table presents disaggregated revenue disclosure details of net sales by segment (in thousands):
Three Months EndedSix Months Ended
July 3,
2021
July 4,
2020
July 3,
2021
July 4,
2020
Windows Net Sales Disaggregation:
Vinyl windows$548,590 $398,843 $1,045,607 $817,865 
Aluminum windows21,636 19,806 41,916 39,282 
Other9,518 9,626 19,484 19,578 
Total$579,744 $428,275 $1,107,007 $876,725 
Siding Net Sales Disaggregation:
Vinyl siding$175,873 $131,426 $326,102 $240,974 
Metal79,500 64,424 150,593 117,090 
Injection molded21,680 15,857 39,289 29,096 
Stone23,803 22,201 43,634 41,011 
Other products & services(1)
61,331 51,341 118,960 98,121 
Total$362,187 $285,249 $678,578 $526,292 
Commercial Net Sales Disaggregation:
Metal building products$318,856 $269,088 $618,794 $561,524 
Insulated metal panels89,683 72,093 175,286 171,322 
Metal coil coating49,651 30,231 87,488