SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 29, 2019

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Change of Name

Effective May 23, 2019, NCI Building Systems, Inc. changed its name to Cornerstone Building Brands, Inc. (together with its subsidiaries, unless otherwise indicated, the “Company,” “Cornerstone,” “NCI”, “we,” “us” or “our”). In connection with the name change, the Company changed its NYSE trading symbol from “NCS” to “CNR”.

Basis of Presentation

The accompanying unaudited consolidated financial statements for Cornerstone Building Brands, Inc. 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, 2019 through June 29, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2019.

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 October 28, 2018 filed with the Securities and Exchange Commission (the “SEC”) on December 19, 2018.

Reporting Periods

On November 16, 2018, the Company’s Board of Directors approved a change to the Company’s fiscal year end from a 52/53 week year with the Company’s fiscal year end on the Sunday closest to October 31 to a calendar year of the twelve-month period from January 1 to December 31. The Company elected to change its fiscal year end in connection with the Merger (as defined below) to align the Company’s fiscal year end with Ply Gem’s (as defined below). As a result of this change, the Company filed a Transition Report on Form 10-Q that included the financial information for the transition period from October 29, 2018 to December 31, 2018, which period is referred to herein as the “Transition Period”. The financial statements contained herein are being filed as part of a Quarterly Report on Form 10-Q for the period from March 31, 2019 through June 29, 2019. References in this Quarterly Report on Form 10-Q to “fiscal year 2018” or “fiscal 2018” refer to the period from October 30, 2017 through October 28, 2018. The results of operations for the three and six months ended April 29, 2018 are presented herein as the comparable period to the three and six months ended June 29, 2019. The Company did not recast the consolidated financial statements for the period from March 31, 2018 to June 29, 2018 or January 1, 2018 to June 29, 2018, because the financial reporting processes in place at that time included certain procedures that were completed only on a quarterly basis. Consequently, to recast this period would have been impractical.

The Company’s current 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.

Change in Operating Segments

For the Transition Period, the Company began reporting results under three reportable segments: (i) Commercial; (ii) Siding; and (iii) Windows, to align with how the Company manages its business, reviews operating performance and allocates resources following the Merger. The Commercial segment will include the aggregate operating results of the Company’s legacy businesses. The Siding and Windows segments will include the operating results of the legacy Ply Gem operating segments.

Disposition of Business

In the second quarter of fiscal 2018, the Company closed on the sale of CENTRIA International LLC, which owned our China manufacturing facility. The Company recognized a $6.7 million loss on the sale during the second quarter of fiscal 2018, which is included in the Commercial segment financial results. The disposition did not represent a strategic shift that had a major effect on the Company’s operations or financial results.

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):



	June 29, 2019
Cash and cash equivalents	$	87,496
Restricted cash⁽¹⁾	3,989
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows	$	91,485


(1)	Restricted cash at June 29, 2019 relates to an escrow balance held for an outstanding earnout agreement.

Net Sales

The Company adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), as of October 29, 2018 for the Transition Period. ASU 2014-09 provides enhancements to the quality and consistency of how revenue is reported while also improving comparability in the financial statements of companies reporting using IFRS and GAAP. The core principle of this update is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

We enter into contracts that pertain to products, which are accounted for as separate performance obligations and are typically one year or less in duration. We do not 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. We have elected to apply the practical expedient provided for in ASU No. 2014-09 and have not disclosed information regarding remaining performance obligations that have original expected durations of one year or less. 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.

Our revenues are adjusted for variable consideration, which includes customer volume rebates and prompt payment discounts. We measure 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.

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 our weathertightness warranties (see Note 11 — Warranty).

The following table presents disaggregated revenue disclosure details of net sales by segment (in thousands):



	Three Months Ended				Six Months Ended
	June 29, 2019		April 29, 2018		June 29, 2019		April 29, 2018
Commercial Net Sales Disaggregation:
Metal building products	$	321,170	$	304,797	$	594,595	$	580,613
Insulated metal panels	116,709		99,792		223,081		197,305
Metal coil coating	42,406		52,480		87,570		100,500
Total	$	480,285	$	457,069	$	905,246	$	878,418

Siding Net Sales Disaggregation:
Vinyl siding	$	145,351	$	—	$	251,308	$	—
Metal	70,352		—		123,332		—
Injection molded	17,896		—		29,734		—
Stone	45,266		—		67,580		—
Other products	27,660		—		52,848		—
Total	$	306,525	$	—	$	524,802	$	—

Windows Net Sales Disaggregation:
Vinyl windows	$	480,299	$	—	$	874,229	$	—
Aluminum windows	16,019		—		27,727		—
Other	12,329		—		28,285		—
Total	$	508,647	$	—	$	930,241	$	—

Total Net Sales:	$	1,295,457	$	457,069	$	2,360,289	$	878,418