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

 

Cornerstone Building Brands, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware	76-0127701
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

5020 Weston Parkway	Suite 400	Cary	NC	27513
(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 filer	☐	Accelerated filer	ý
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 Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock $0.01 par value per share	CNR	New 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
	Part I — Financial Information
Item 1.	Unaudited Consolidated Financial Statements	1
	Consolidated Statements of Operations for the Three and Six Months Ended July 3, 2021 and July 4, 2020	1
	Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended July 3, 2021 and July 4, 2020	2
	Consolidated Balance Sheets as of July 3, 2021 and December 31, 2020	3
	Consolidated Statements of Cash Flows for the Six Months Ended July 3, 2021 and July 4, 2020	4
	Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended July 3, 2021 and July 4, 2020	5
	Notes to Unaudited Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	47
Item 4.	Controls and Procedures	48
	Part II — Other Information
Item 1.	Legal Proceedings	49
Item 1A.	Risk Factors	49
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49
Item 6.	Exhibits	50

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 Ended				Six 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 profit	311,728		254,731		571,457		485,618
Selling, general and administrative expenses	163,518		134,371		316,686		299,325
Intangible asset amortization	46,809		45,240		93,011		90,101
Restructuring and impairment charges, net	4,652		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 operations	96,810		58,925		152,018		(441,866)
Interest income	23		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), net	493		660		830		(2)
Income (loss) before income taxes	7,863		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:
Basic	125,863		125,754		125,683		125,927
Diluted	126,841		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 Ended				Six 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 earnings	6,669		—		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 cash	6,224		6,223
Accounts receivable, less allowances of $10,340 and $13,313, respectively	613,193		554,649
Inventories, net	549,736		431,937
Income taxes receivable	46,358		39,379
Investments in debt and equity securities, at market	2,695		2,333
Prepaid expenses and other	88,942		77,751
Assets held for sale	390,025		4,644
Total current assets	1,786,151		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 assets	272,366		264,107
Goodwill	1,107,758		1,194,729
Intangible assets, net	1,488,426		1,584,604
Deferred income taxes	2,178		1,867
Other assets, net	28,283		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 payable	266,067		211,441
Accrued compensation and benefits	75,966		81,548
Accrued interest	21,406		25,485
Accrued income taxes	6,560		5,060
Current portion of lease liabilities	68,198		70,125
Other accrued expenses	280,236		247,893
Liabilities held for sale	75,927		—
Total current liabilities	820,360		667,152
Long-term debt	3,180,759		3,563,429
Deferred income taxes	233,602		269,792
Long-term lease liabilities	205,530		198,875
Other long-term liabilities	334,565		337,437
Total long-term liabilities	3,954,456		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 capital	1,265,887		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’ equity	479,247		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, 2021		July 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 amortization	145,901		140,480
Non-cash interest expense	10,924		4,593
Share-based compensation expense	8,593		8,543
Loss on extinguishment of debt	42,234		—
Goodwill impairment	—		503,171
Asset impairment	3,988		3,490
Loss on sale of assets, net	—		169
Provision for credit losses	1,428		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 payable	73,627		(7,818)
Accrued expenses	38,347		(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 equipment	715		114
Net cash used in investing activities	(141,311)		(89,336)
Cash flows from financing activities:
Proceeds from ABL facility	160,000		345,000
Payments on ABL facility	—		(30,000)
Proceeds from cash flow revolver	—		115,000
Proceeds from term loan	108,438		—
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 period	680,478		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 Quarters	Common Stock			Additional Paid-In Capital		Retained Earnings (Deficit)		Accumulated Other Comprehensive Income (Loss)		Treasury Stock			Stockholders’ Equity
	Shares	Amount								Shares	Amount
Balance, April 3, 2021	125,807,655	$	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 stock	257,991	3		(3)		—		—		—	—		—
Issuance of common stock for the Ply Gem merger	15,220	—		185		—		—		—	—		185
Stock options exercised	101,514	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, 2021	126,072,088	$	1,261	$	1,265,887	$	(757,413)	$	(30,064)	(21,071)	$	(424)	$	479,247
Balance, April 4, 2020	126,167,645	$	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 stock	84,110	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, 2020	125,122,988	$	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 Periods	Common Stock			Additional Paid-In Capital		Retained Earnings (Deficit)		Accumulated Other Comprehensive Income (Loss)		Treasury Stock			Stockholders’ Equity
	Shares	Amount								Shares	Amount
December 31, 2020	125,425,931	$	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 stock	596,930	6		(6)		—		—		—	—		—
Issuance of common stock for the Ply Gem merger	15,220	—		185		—		—		—	—		185
Stock options exercised	145,875	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, 2021	126,072,088	$	1,261	$	1,265,887	$	(757,413)	$	(30,064)	(21,071)	$	(424)	$	479,247
Balance, December 31, 2019	126,110,000	$	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 stock	179,961	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, 2020	125,122,988	$	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 losses	1,428		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 Ended				Six 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 windows	21,636		19,806		41,916		39,282
Other	9,518		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
Metal	79,500		64,424		150,593		117,090
Injection molded	21,680		15,857		39,289		29,096
Stone	23,803		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 panels	89,683		72,093		175,286		171,322
Metal coil coating	49,651		30,231		87,488