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: ~~October~~April 2, ~~2021~~2022


☐			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

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	☐ý	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 - ~~126,218,902~~127,354,001 shares as of ~~November 2, 2021.~~April 26, 2022.

TABLE OF CONTENTS


		PAGE
	Part I — Financial Information
Item 1.	Unaudited Consolidated Financial Statements	1
	Consolidated Statements of Operations for the Three ~~and Nine~~ Months Ended ~~October~~April 2, ~~2021~~2022 and ~~October~~April 3, ~~2020~~2021	1
	Consolidated Statements of Comprehensive Income (Loss) for the Three ~~and Nine~~ Months Ended ~~October~~April 2, ~~2021~~2022 and ~~October~~April 3, ~~2020~~2021	2
	Consolidated Balance Sheets as of ~~October~~April 2, ~~2021~~2022 and December 31, ~~2020~~2021	3
	Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~October~~April 2, ~~2021~~2022 and ~~October~~April 3, ~~2020~~2021	4
	Consolidated Statements of Stockholders’ Equity for the Three ~~and Nine~~ Months Ended ~~October~~April 2, ~~2021~~2022 and ~~October~~April 3, ~~2020~~2021	5
	Notes to Unaudited Consolidated Financial Statements	76
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3735
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5048
Item 4.	Controls and Procedures	5149

	Part II — Other Information
Item 1.	Legal Proceedings	5250
Item 1A.	Risk Factors	5250
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52
Item 6.	Exhibits	53

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 Nine Months Ended
October 2,
2021 October 3,
2020 October 2,
2021 October 3,
2020
Net sales $ 1,444,405 $ 1,227,253 $ 4,111,558 $ 3,426,000
Cost of sales 1,134,909 929,751 3,230,605 2,642,880
Gross profit 309,496 297,502 880,953 783,120
Selling, general and administrative expenses 161,134 137,250 477,820 436,575
Intangible asset amortization 45,667 45,446 138,678 135,547
Restructuring and impairment charges, net 971 2,918 7,461 32,164
Strategic development and acquisition related costs 22,250 7,909 25,502 13,550
Gain on divestitures (831,252) — (831,252) —
Goodwill impairment — — — 503,171
Income (loss) from operations 910,726 103,979 1,062,744 (337,887)
Interest income 71 328 211 1,007
Interest expense (43,731) (51,519) (147,688) (158,738)
Foreign exchange gain (loss) (1,270) 812 (1,067) (1,300)
Loss on extinguishment of debt — — (42,234) —
Other income (expense), net 337 (23) 1,167 (25)
Income (loss) before income taxes 866,133 53,577 873,133 (496,943)
Provision (benefit) for income taxes 245,598 23,061 245,326 (12,285)
Net income (loss) 620,535 30,516 627,807 (484,658)
Net income allocated to participating securities (8,380) (488) (7,837) —
Net income (loss) applicable to common shares $ 612,155 $ 30,028 $ 619,970 $ (484,658)
Income (loss) per common share:
Basic $ 4.85 $ 0.24 $ 4.93 $ (3.86)
Diluted $ 4.82 $ 0.24 $ 4.90 $ (3.86)
Weighted average number of common shares outstanding:
Basic 126,159 125,100 125,840 125,655
Diluted 127,079 125,289 126,602 125,655

~~See~~


	Three Months Ended
		April 2, 2022		April 3, 2021
Net sales		$	1,566,838	$	1,267,032
Cost of sales		1,232,931		1,007,303
Gross profit		333,907		259,729
Selling, general and administrative expenses		176,536		153,168
Intangible asset amortization		49,008		46,202
Restructuring and impairment charges, net		831		1,838
Strategic development and acquisition related costs		4,791		3,313

Gain on legal settlements		(76,575)		—

Income from operations		179,316		55,208
Interest income		32		117
Interest expense		(44,106)		(56,499)
Foreign exchange gain (loss)		1,444		(26)

Other income (expense), net		(37)		337
Income (loss) before income taxes		136,649		(863)
Provision for income taxes		34,366		792
Net income (loss)		102,283		(1,655)
Net income allocated to participating securities		(757)		—
Net income (loss) applicable to common shares		$	101,526	$	(1,655)
Income (loss) per common share:
Basic		$	0.80	$	(0.01)
Diluted		$	0.79	$	(0.01)
Weighted average number of common shares outstanding:
Basic		127,129		125,506
Diluted		128,466		125,506

See accompanying notes to consolidated financial statements.

CORNERSTONE BUILDING BRANDS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)
Three Months Ended Nine Months Ended
October 2,
2021 October 3,
2020 October 2,
2021 October 3,
2020
Comprehensive income (loss):
Net income (loss) $ 620,535 $ 30,516 $ 627,807 $ (484,658)
Other comprehensive income (loss), net of tax:
Foreign exchange translation gains (losses) (6,787) 7,354 3,875 6,357
Unrealized gain (loss) on derivative instruments, net of income tax of $2,453, $(426), $654 and $12,788, respectively 4,658 194 8,780 (41,711)
Amount reclassified from Accumulated other comprehensive income (loss) into earnings 7,288 — 13,957 —
Other comprehensive income (loss) 5,159 7,548 26,612 (35,354)
Comprehensive income (loss) $ 625,694 $ 38,064 $ 654,419 $ (520,012)


	Three Months Ended
		April 2, 2022		April 3, 2021
Comprehensive income:
Net income (loss)		$	102,283	$	(1,655)
Other comprehensive income, net of tax:
Foreign exchange translation gains		4,784		6,113
Unrealized gain on derivative instruments, net of income tax of $(11,625) and $(2,690), respectively		60,696		9,137
Amount reclassified from Accumulated other comprehensive income (loss) into earnings		7,288		—

Other comprehensive income		72,768		15,250
Comprehensive income		$	175,051	$	13,595

See accompanying notes to consolidated financial statements.

CORNERSTONE BUILDING BRANDS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)


		October 2, 2021		December 31, 2020			April 2, 2022		December 31, 2021
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	677,187	$	674,255	Cash and cash equivalents	$	542,035	$	394,447
Restricted cash	Restricted cash	2,211		6,223		Restricted cash	2,211		2,211
Accounts receivable, less allowances of $11,176 and $13,313, respectively		645,298		554,649
Accounts receivable, less allowances of $12,153 and $11,299, respectively						Accounts receivable, less allowances of $12,153 and $11,299, respectively	708,340		685,316
Inventories, net	Inventories, net	614,573		431,937		Inventories, net	817,715		748,732
Income taxes receivable	Income taxes receivable	11,611		39,379		Income taxes receivable	3,502		14,514
Investments in debt and equity securities, at market	Investments in debt and equity securities, at market	2,567		2,333		Investments in debt and equity securities, at market	2,301		2,759
Prepaid expenses and other	Prepaid expenses and other	119,234		77,751		Prepaid expenses and other	99,777		135,701
Assets held for sale	Assets held for sale	3,909		4,644		Assets held for sale	3,400		3,400
Total current assets	Total current assets	2,076,590		1,791,171		Total current assets	2,179,281		1,987,080
Property, plant and equipment, less accumulated depreciation of $613,459 and $644,308, respectively		583,371		631,821
Property, plant and equipment, less accumulated depreciation of $674,324 and $656,492, respectively						Property, plant and equipment, less accumulated depreciation of $674,324 and $656,492, respectively	625,106		612,295
Lease right-of-use assets	Lease right-of-use assets	278,316		264,107		Lease right-of-use assets	295,692		322,608
Goodwill	Goodwill	1,326,411		1,194,729		Goodwill	1,355,161		1,358,056
Intangible assets, net	Intangible assets, net	1,438,039		1,584,604		Intangible assets, net	1,477,430		1,524,635
Deferred income taxes	Deferred income taxes	2,109		1,867		Deferred income taxes	2,055		1,839
Other assets, net	Other assets, net	26,259		10,191		Other assets, net	96,931		20,947
Total assets	Total assets	$	5,731,095	$	5,478,490	Total assets	$	6,031,656	$	5,827,460
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Current portion of long-term debt	Current portion of long-term debt	$	26,000	$	25,600	Current portion of long-term debt	$	26,000	$	26,000
Accounts payable	Accounts payable	307,153		211,441		Accounts payable	396,408		311,737
Accrued compensation and benefits	Accrued compensation and benefits	96,794		81,548		Accrued compensation and benefits	82,790		101,164
Accrued interest	Accrued interest	12,722		25,485		Accrued interest	12,186		19,775
Accrued income taxes	Accrued income taxes	8,216		5,060		Accrued income taxes	39,094		3,220
Current portion of lease liabilities	Current portion of lease liabilities	72,983		70,125		Current portion of lease liabilities	57,477		73,150
Other accrued expenses	Other accrued expenses	294,074		247,893		Other accrued expenses	281,376		320,389
Total current liabilities	Total current liabilities	817,942		667,152		Total current liabilities	895,331		855,435
Long-term debt	Long-term debt	3,015,795		3,563,429		Long-term debt	3,005,873		3,010,843
Deferred income taxes	Deferred income taxes	248,544		269,792		Deferred income taxes	248,726		252,173
Long-term lease liabilities	Long-term lease liabilities	207,570		198,875		Long-term lease liabilities	238,134		251,061
Other long-term liabilities	Other long-term liabilities	329,189		337,437		Other long-term liabilities	284,469		281,609
Total long-term liabilities	Total long-term liabilities	3,801,098		4,369,533		Total long-term liabilities	3,777,202		3,795,686
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Common stock, $0.01 par value; 200,000,000 authorized; 126,228,665 and 126,207,594 shares issued and outstanding at October 2, 2021, respectively; and 125,425,931 and 125,400,599 shares issued and outstanding at December 31, 2020, respectively		1,263		1,255
Common stock, $0.01 par value; 200,000,000 authorized; 127,329,476 and 127,329,476 shares issued and outstanding at April 2, 2022, respectively; and 126,992,107 and 126,971,036 shares issued and outstanding at December 31, 2021, respectively						Common stock, $0.01 par value; 200,000,000 authorized; 127,329,476 and 127,329,476 shares issued and outstanding at April 2, 2022, respectively; and 126,992,107 and 126,971,036 shares issued and outstanding at December 31, 2021, respectively	1,273		1,270
Additional paid-in capital	Additional paid-in capital	1,272,999		1,257,262		Additional paid-in capital	1,287,237		1,279,931
Accumulated deficit		(136,878)		(764,685)
Accumulated other comprehensive loss, net		(24,905)		(51,517)
Treasury stock, at cost (21,071 and 25,332 shares at October 2, 2021 and December 31, 2020, respectively)		(424)		(510)
Accumulated earnings (deficit)						Accumulated earnings (deficit)	3,457		(98,826)
Accumulated other comprehensive income (loss), net						Accumulated other comprehensive income (loss), net	67,156		(5,612)
Treasury stock, at cost (0 and 21,071 shares at April 2, 2022 and December 31, 2021, respectively)						Treasury stock, at cost (0 and 21,071 shares at April 2, 2022 and December 31, 2021, respectively)	—		(424)
Total stockholders’ equity	Total stockholders’ equity	1,112,055		441,805		Total stockholders’ equity	1,359,123		1,176,339
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	5,731,095	$	5,478,490	Total liabilities and stockholders’ equity	$	6,031,656	$	5,827,460

See accompanying notes to consolidated financial statements.


CORNERSTONE BUILDING BRANDS, INC.	CORNERSTONE BUILDING BRANDS, INC.					CORNERSTONE BUILDING BRANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS	CONSOLIDATED STATEMENTS OF CASH FLOWS					CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)	(In thousands)					(In thousands)
(Unaudited)	(Unaudited)					(Unaudited)

		Nine Months Ended					Three Months Ended
		October 2, 2021		October 3, 2020			April 2, 2022		April 3, 2021
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income (loss)	Net income (loss)	$	627,807	$	(484,658)	Net income (loss)	$	102,283	$	(1,655)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:	Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:					Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	Depreciation and amortization	216,956		212,413		Depreciation and amortization	73,932		72,615
Non-cash interest expense	Non-cash interest expense	19,857		6,948		Non-cash interest expense	8,928		2,314
Share-based compensation expense	Share-based compensation expense	16,946		12,568		Share-based compensation expense	11,451		3,302
Loss on extinguishment of debt		42,234		—
Goodwill impairment		—		503,171

Asset impairment	Asset impairment	4,091		3,490		Asset impairment	368		493
Gain on divestitures		(831,252)		—
Loss on sale of assets, net		—		710

Provision for credit losses	Provision for credit losses	2,289		3,762		Provision for credit losses	242		676
Deferred income taxes	Deferred income taxes	(23,441)		(27,052)		Deferred income taxes	(15,749)		(9,729)
Changes in operating assets and liabilities, net of effect of acquisitions and divestitures:
Changes in operating assets and liabilities, net of effect of acquisitions:						Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable	Accounts receivable	(137,424)		(84,309)		Accounts receivable	(23,628)		(47,157)
Inventories	Inventories	(241,068)		30,980		Inventories	(68,857)		(62,028)
Income taxes	Income taxes	27,768		16,886		Income taxes	11,012		7,976
Prepaid expenses and other	Prepaid expenses and other	(41,355)		6,246		Prepaid expenses and other	36,446		(7,755)
Accounts payable	Accounts payable	100,402		22,669		Accounts payable	84,726		49,424
Accrued expenses	Accrued expenses	31,554		12,920		Accrued expenses	(28,312)		8,597
Other, net	Other, net	996		132		Other, net	(2,736)		2,958
Net cash provided by (used in) operating activities		(183,640)		236,876
Net cash provided by operating activities						Net cash provided by operating activities	190,106		20,031
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Acquisitions, net of cash acquired	Acquisitions, net of cash acquired	(331,010)		(41,841)		Acquisitions, net of cash acquired	4,396		(180)
Capital expenditures	Capital expenditures	(75,183)		(62,535)		Capital expenditures	(33,306)		(21,230)
Proceeds from divestitures, net of cash divested		1,187,307		—

Proceeds from sale of property, plant and equipment	Proceeds from sale of property, plant and equipment	4,615		1,538		Proceeds from sale of property, plant and equipment	—		715
Net cash provided by (used in) investing activities		785,729		(102,838)
Net cash used in investing activities						Net cash used in investing activities	(28,910)		(20,695)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Proceeds from ABL facility		190,000		345,000
Payments on ABL facility		(190,000)		(415,000)
Proceeds from cash flow revolver		—		115,000
Payments on cash flow revolver		—		(115,000)
Proceeds from term loan		108,438		—

Payments on term loan	Payments on term loan	(19,405)		(19,215)		Payments on term loan	(6,500)		(6,404)
Proceeds from senior notes		—		500,000
Payments on senior notes		(670,800)		—
Payments of financing costs		(13,187)		(6,905)
Purchases of treasury stock		—		(6,428)

Payments on derivative financing obligations	Payments on derivative financing obligations	(6,131)		—		Payments on derivative financing obligations	(3,282)		—
Other	Other	(1,300)		(478)		Other	(3,718)		(1,055)
Net cash provided by (used in) financing activities		(602,385)		396,974
Net cash used in financing activities						Net cash used in financing activities	(13,500)		(7,459)
Effect of exchange rate changes on cash and cash equivalents	Effect of exchange rate changes on cash and cash equivalents	(784)		507		Effect of exchange rate changes on cash and cash equivalents	(108)		585
Net increase (decrease) in cash, cash equivalents and restricted cash	Net increase (decrease) in cash, cash equivalents and restricted cash	(1,080)		531,519		Net increase (decrease) in cash, cash equivalents and restricted cash	147,588		(7,538)
Cash, cash equivalents and restricted cash at beginning of period	Cash, cash equivalents and restricted cash at beginning of period	680,478		102,307		Cash, cash equivalents and restricted cash at beginning of period	396,658		680,478
Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	679,398	$	633,826	Cash, cash equivalents and restricted cash at end of period	$	544,246	$	672,940
Supplemental disclosure of cash flow information:	Supplemental disclosure of cash flow information:					Supplemental disclosure of cash flow information:
Interest paid, net of amounts capitalized	Interest paid, net of amounts capitalized	$	149,025	$	138,325	Interest paid, net of amounts capitalized	$	45,879	$	40,913
Taxes paid, net	Taxes paid, net	$	232,755	$	(1,881)	Taxes paid, net	$	1,562	$	1,949

See accompanying notes to consolidated financial statements.

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, July 3, 2021 126,072,088 $ 1,261 $ 1,265,887 $ (757,413) $ (30,064) (21,071) $ (424) $ 479,247
Treasury stock purchases — — — — — (88,330) (1,320) (1,320)
Retirement of treasury shares (88,330) (1) (1,319) — — 88,330 1,320 —
Issuance of restricted stock 238,329 2 (2) — — — — —
Stock options exercised 6,578 1 80 — — — — 81
Other comprehensive income — — — — 5,159 — — 5,159
Share-based compensation — — 8,353 — — — — 8,353
Net income — — — 620,535 — — — 620,535
Balance, October 2, 2021 126,228,665 $ 1,263 $ 1,272,999 $ (136,878) $ (24,905) (21,071) $ (424) $ 1,112,055
Balance, July 4, 2020 125,122,988 $ 1,252 $ 1,249,852 $ (797,081) $ (75,300) (25,650) $ (511) $ 378,212
Treasury stock purchases — — — — — (1,635) (11) (11)
Issuance of restricted stock 5,816 — — — — — — —
Other comprehensive income — — — — 7,548 — — 7,548
Share-based compensation — — 4,025 — — — — 4,025
Net income — — — 30,516 — — — 30,516
Balance, October 3, 2020 125,128,804 $ 1,252 $ 1,253,877 $ (766,565) $ (67,752) (27,285) $ (522) $ 420,290

~~See accompanying notes to consolidated financial statements.~~


CORNERSTONE BUILDING BRANDS, INC.	CORNERSTONE BUILDING BRANDS, INC.																				CORNERSTONE BUILDING BRANDS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY																					CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share data)	(In thousands, except share data)																				(In thousands, except share data)
(Unaudited)	(Unaudited)																				(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				Common Stock						Additional Paid-In Capital			Retained Earnings (Deficit)				Accumulated Other Comprehensive Income (Loss)				Treasury Stock								Stockholders’ Equity
December 31, 2020		125,425,931	$	1,255			$	1,257,262				$	(764,685)	$	(51,517)	(25,332)					$	(510)			$	441,805
																							Shares			Amount			Additional Paid-In Capital						Retained Earnings (Deficit)				Accumulated Other Comprehensive Income (Loss)						Shares			Amount			Stockholders’ Equity
Balance, December 31, 2021																					Balance, December 31, 2021		126,992,107		$	1,270										(21,071)							$	(424)
Treasury stock purchases	Treasury stock purchases	—	—		—				—			—		(200,198)		(2,861)			(2,861)		Treasury stock purchases		—		—			—						—				—				(170,400)					(4,082)			(4,082)
Retirement of treasury shares	Retirement of treasury shares	(200,198)	(2)		(2,859)				—			—		200,198		2,861			—		Retirement of treasury shares		(170,400)		(2)			(4,080)				—				—				170,400					4,082			—
Issuance of restricted stock	Issuance of restricted stock	835,259	8		(8)				—			—		—		—			—		Issuance of restricted stock		472,521		5			(5)				—				—				—					—			—
Issuance of common stock for the Ply Gem merger		15,220	—		185				—			—		—		—			185

Stock options exercised	Stock options exercised	152,453	2		1,559				—			—		—		—			1,561		Stock options exercised		35,248		—			364				—				—				—					—			364
Other comprehensive income	Other comprehensive income	—	—		—				—			26,612		—		—			26,612		Other comprehensive income		—		—			—				—				72,768				—					—			72,768
Deferred compensation obligation	Deferred compensation obligation	—	—		(86)				—			—		4,261		86			—		Deferred compensation obligation		—		—			(424)				—				—				21,071					424			—
Share-based compensation	Share-based compensation	—	—		16,946				—			—		—		—			16,946		Share-based compensation		—		—			11,451				—				—				—					—			11,451

Net income	Net income	—	—		—				627,807			—		—		—			627,807		Net income		—		—			—				102,283				—				—					—			102,283
Balance, October 2, 2021		126,228,665	$	1,263	$	1,272,999			$	(136,878)		$	(24,905)	(21,071)		$	(424)		$	1,112,055
Balance, April 2, 2022																					Balance, April 2, 2022		127,329,476		$	1,273		$		1,287,237			$	3,457			$	67,156			—					$	—		$	1,359,123

Balance, December 31, 2019		126,110,000	$	1,261	$	1,248,787			$	(281,229)		$	(32,398)	(55,513)		$	(1,103)		$	935,318
Balance, December 31, 2020																					Balance, December 31, 2020		125,425,931		$	1,255		$	1,257,262			$	(764,685)			$	(51,517)			(25,332)					$	(510)		$	441,805
Treasury stock purchases	Treasury stock purchases	—	—		—				—			—		(1,168,514)		(6,906)			(6,906)		Treasury stock purchases		—		—			—				—				—				(111,868)					(1,541)			(1,541)
Retirement of treasury shares	Retirement of treasury shares	(1,166,973)	(12)		(6,883)				—			—		1,166,973		6,895			—		Retirement of treasury shares		(1,576)		—			(15)				—				—				1,576					15			—
Issuance of restricted stock	Issuance of restricted stock	185,777	2		(2)				—			—		—		—			—		Issuance of restricted stock		338,939		3			(3)				—				—				—					—			—

Other comprehensive loss		—	—		—				—			(35,354)		—		—			(35,354)
Stock options exercised																					Stock options exercised		44,361		—			486				—				—				—					—			486
Other comprehensive income																					Other comprehensive income		—		—			—				—				15,250				—					—			15,250
Deferred compensation obligation	Deferred compensation obligation	—	1		(593)				—			—		29,769		592			—		Deferred compensation obligation		—		—			(86)				—				—				4,261					86			—
Share-based compensation	Share-based compensation	—	—		12,568				—			—		—		—			12,568		Share-based compensation		—		—			3,302				—				—				—					—			3,302
Cumulative effect of accounting change		—	—		—				(678)			—		—		—			(678)

Net loss	Net loss	—	—		—				(484,658)			—		—		—			(484,658)		Net loss		—		—			—				(1,655)				—				—					—			(1,655)
Balance, October 3, 2020		125,128,804	$	1,252	$	1,253,877			$	(766,565)		$	(67,752)	(27,285)		$	(522)		$	420,290

Balance, April 3, 2021																					Balance, April 3, 2021		125,807,655		$	1,258		$	1,260,946			$	(766,340)			$	(36,267)			(131,363)					$	(1,950)		$	457,647

See accompanying notes to consolidated financial statements.

CORNERSTONE BUILDING BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~October~~April 2, ~~2021~~2022

(Unaudited)

NOTE 1 — RECENT DEVELOPMENTS AND 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 Building Brands,” “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~~2022 through ~~October~~April 2, ~~2021~~2022 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, ~~2021.~~2022.

Certain reclassifications have been made to the prior period amounts in the unaudited 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~~2021, filed with the Securities and Exchange Commission (the “SEC”) on March ~~4, 2021.~~1, 2022.

Recent Developments

On March 5, 2022, the Company entered into an Agreement and Plan of Merger (the “CD&R Merger Agreement”), by and among Camelot Return Intermediate Holdings, LLC (“Parent”), Camelot Return Merger Sub, Inc. (“Merger Sub”). Parent and Merger Sub are subsidiaries of investment funds managed by Clayton, Dubilier & Rice (“CD&R”). Upon the terms and subject to the conditions of the CD&R Merger Agreement, among other things, Merger Sub will merge with and into the Company (the “CD&R Merger”). As a result of the CD&R Merger, the Company will cease to be publicly-traded, and investment funds managed by CD&R will become the indirect owner of all of the Company’s outstanding shares of common stock that it does not already own. The proposed transaction has been approved by a special committee of independent directors of the Company’s board of directors (the “Special Committee”) previously formed to evaluate and consider any potential or actual proposal from CD&R. The board of directors of the Company, acting on the Special Committee’s recommendation, resolved unanimously to recommend that the stockholders of the Company vote to adopt and approve the CD&R Merger Agreement. The CD&R Merger is expected to close in the second or third quarter of 2022, subject to customary closing conditions. The waiting period under the Hart-Scott-Rodino Act of 1976, as amended, applicable to the proposed CD&R transaction expired on April 18, 2022. The transaction is subject to approval by holders of a majority of the shares not owned by CD&R and its affiliates.

Additional information about the CD&R Merger Agreement and the CD&R Merger will be set forth in the Company’s Definitive Proxy Statement on Schedule 14A that will be filed with the SEC.

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):


		October 2, 2021		December 31, 2020			April 2, 2022		December 31, 2021
Cash and cash equivalents	Cash and cash equivalents	$	677,187	$	674,255	Cash and cash equivalents	$	542,035	$	394,447
Restricted cash(1)	Restricted cash(1)	2,211		6,223		Restricted cash (1)	2,211		2,211
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows	Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows	$	679,398	$	680,478	Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows	$	544,246	$	396,658

(1)Restricted cash primarily relates to ~~escrow balances held for an outstanding earn-out agreement as of December 31, 2020 and~~ indemnification agreements in both periods presented.

Accounts ~~Receivables~~Receivable and Related Allowance

The Company reports accounts receivable net of an 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, 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.

The following table represents the rollforward of the allowance for credit losses for the periods indicated (in thousands):
Nine Months Ended
October 2,
2021 October 3,
2020
Ending balance, prior period $ 13,313 $ 9,962
Cumulative effect of accounting change(1)
— 678
Provision for expected credit losses 2,289 3,762
Amounts charged against allowance for credit losses, net of recoveries (268) (1,801)
Allowance for credit losses of acquired company at date of acquisition — 810
Divestitures (4,158) —
Ending balance $ 11,176 $ 13,411

~~(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.~~


	Three Months Ended
	April 2, 2022		April 3, 2021
Ending balance, prior period	$	11,299	$	13,313
Provision for expected credit losses	242		676
Amounts charged against allowance for credit losses, net of recoveries	170		438
Allowance for credit losses of acquired company at date of acquisition	442		—

Ending balance	$	12,153	$	14,427

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~~the Company’s facility and control has transferred to the customer. For certain products, it is industry practice that customers take title to products upon delivery, at which time revenue is then recognized by the Company. For a portion of ~~our~~the Company’s business, when ~~we process~~the Company processes customer owned material, control is deemed to transfer to the customer as the processing is being completed. Allowances for cash discounts, volume rebates and other customer incentive programs, as well as gross customer returns, among others, are recorded as a reduction of sales at the time of sale based upon the estimated future outcome. Cash discounts, volume rebates and other customer incentive programs are based upon certain percentages agreed upon with the Company’s various customers, which are typically earned by the customer over an annual period.

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~~The Company does 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 usthe Company 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~~the Company receives payment from our customers in advance related to performance obligations that are to be satisfied in the future and ~~recognize~~recognizes 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.

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


		Three Months Ended				Nine Months Ended					Three Months Ended
		October 2, 2021		October 3, 2020		October 2, 2021		October 3, 2020				April 2, 2022		April 3, 2021
Windows Net Sales Disaggregation:	Windows Net Sales Disaggregation:									Windows Net Sales Disaggregation:
Vinyl windows(1)	Vinyl windows(1)	$	562,097	$	465,472	$	1,607,704	$	1,283,337	Vinyl windows(1)		$	657,796	$	497,017
Aluminum windows	Aluminum windows	22,420		22,056		64,336		61,338		Aluminum windows		24,660		20,280
Other	Other	11,969		13,786		31,453		33,364		Other		19,654		9,966
Total	Total	$	596,486	$	501,314	$	1,703,493	$	1,378,039	Total		$	702,110	$	527,263

Siding Net Sales Disaggregation:	Siding Net Sales Disaggregation:									Siding Net Sales Disaggregation:
Vinyl siding	Vinyl siding	$	182,019	$	146,585	$	508,121	$	387,559	Vinyl siding		$	161,200	$	150,229
Metal	Metal	70,667		75,477		221,260		192,567		Metal		73,702		71,093
Injection molded	Injection molded	19,131		20,460		58,420		49,556		Injection molded		18,773		17,609
Stone	Stone	23,025		20,988		66,659		61,999		Stone		20,322		19,831
Other products & services~~(1)~~(2)	Other products & services~~(1)~~(2)	63,028		58,388		181,988		156,509		Other products & services~~(1)~~(2)		58,993		57,629
Total	Total	$	357,870	$	321,898	$	1,036,448	$	848,190	Total		$	332,990	$	316,391

Commercial Net Sales Disaggregation:	Commercial Net Sales Disaggregation:									Commercial Net Sales Disaggregation:
Metal building products~~(2)~~(3)	Metal building products~~(2)~~(3)	$	395,869	$	281,339	$	1,014,663	$	842,863	Metal building products~~(2)~~(3)		$	476,458	$	299,938
Insulated metal panels~~(3)~~(4)	Insulated metal panels~~(3)~~(4)	32,934		89,088		208,220		260,410		Insulated metal panels~~(3)~~(4)		—		85,603
Metal coil coating	Metal coil coating	61,246		33,614		148,734		96,498		Metal coil coating		55,280		37,837
Total	Total	$	490,049	$	404,041	$	1,371,617	$	1,199,771	Total		$	531,738	$	423,378

Total Net Sales:	Total Net Sales:	$	1,444,405	$	1,227,253	$	4,111,558	$	3,426,000	Total Net Sales:		$	1,566,838	$	1,267,032

(1)The Prime Windows LLC (“Prime Windows”) and Cascade Windows, Inc. (“Cascade Windows”) businesses are included in the results of operations as of their April 30, 2021 and August 20, 2021 acquisition dates, respectively.

(2)Other products & services primarily consist of installation of stone veneer products.

~~(2)~~(3)Union Corrugating Company Holdings, Inc. (“UCC”) is included in the results of operations as of its December 3, 2021 acquisition date. The Company’s roll-up sheet doors (“DBCI”) business is only included in the fiscal 2021 results of operations through August ~~17,~~18, 2021, ~~as a result~~the date on which we divested of ~~divestiture. See Note 8 —~~ ~~Assets and Liabilities Held for Sale and Divestitures~~ ~~for more information.~~this business.

~~(3)~~(4)The Company’s insulated metal panels (“IMP”) business is only included in the fiscal 2021 results of operations through August 8,9, 2021, ~~as a result~~the date on which we divested of ~~divestiture. See Note~~ 8 — ~~Assets and Liabilities Held for Sale and Divestitures~~ ~~for more information.~~this business.

NOTE 2 — ACCOUNTING PRONOUNCEMENTS

~~Adopted Accounting Pronouncements~~

~~In December 2019, the FASB issued ASU 2019-12,~~ ~~Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,~~ which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and also improves consistent application of and simplifies U.S. GAAP for other areas of Topic 740 by clarifying and amending existing guidance. Effective January 1, 2021, the Company adopted this guidance. The application of ASU 2019-12 did not have a material effect on the consolidated financial statements.

Recent Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance to ease the potential burden in accounting for reference rate reform on financial reporting. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the reference rate transition. The amendments in these ASUs are elective, apply to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of rate reform, and may be adopted as of March 12, 2020 through December 31, 2022. The Company is evaluating the impact of electing to apply the amendments.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires the recognition and measurement of contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, Revenue from Contracts with Customers. This creates an exception to the general recognition and measurement principles in ASC 805. The Company will be required to adopt this guidance in the annual and interim periods for the fiscal year ending December 31, 2023, with early adoption permitted. The amendments in this ASU should be applied prospectively to business combinations occurring on or after the effective date of the amendments. The Company does not anticipate that the adoption of this guidance will have a material impact on the consolidated financial statements.

NOTE 3 — ACQUISITIONS

Union Corrugating Company Holdings, Inc.

On December 3, 2021, ~~Acquisitions~~the Company completed its acquisition of 100% of the issued and outstanding common stock of Union Corrugating Company Holdings, Inc. (“UCC”) for a purchase price of $214.2 million, including a post-closing adjustment of approximately $2.6 million that was finalized in the first quarter of 2022. UCC is a leading provider of residential metal roofing, metal buildings, and roofing components. The addition of UCC advances our growth strategy by expanding our offering to customers in the high growth metal roofing market. This acquisition was funded through cash available on the balance sheet. The Company reports UCC results within the Commercial segment.

The Company preliminarily determined the fair value of the tangible and intangible assets and the liabilities acquired, and recorded goodwill based on the excess of the fair value of the acquisition consideration over such fair values, as follows (in thousands):


Assets acquired:
Cash	$	19,594
Accounts receivable	20,821
Other receivables	16
Inventories	68,727
Prepaid expenses and other current assets	1,356
Property, plant and equipment	24,184
Lease right of use assets	37,964

Goodwill	137,800
Other assets	94
Total assets acquired	310,556
Liabilities assumed:
Accounts payable	32,732
Accrued expenses	22,520
Deferred income taxes	1,289
Current portion of lease liability	3,859
Other current liabilities	1,852
Non-current portion of lease liabilities	34,105

Total liabilities assumed	96,357
Net assets acquired	$	214,199

The $137.8 million of preliminary goodwill was allocated to the Commercial segment. Goodwill from this acquisition is not deductible for tax purposes. The goodwill is primarily attributable to the synergies expected to be realized.

Due to the recent closing of the UCC transaction, the purchase price allocation is preliminary and will be finalized when valuations are complete and final assessment of the fair value of acquired assets and assumed liabilities are completed. There can be no assurance that such finalization will not result in material changes from the preliminary purchase price allocation. The Company’s estimates and assumptions are subject to change during the measurement period (up to one year from the acquisition date) as the Company finalizes the valuations of accounts receivable, other receivables, inventories, prepaid expenses and other current assets, property, plant and equipment, lease right of use assets, goodwill, intangible assets, other assets, accounts payable, accrued expenses, other current liabilities, other long-term liabilities, lease liabilities, and deferred income taxes.

Cascade Windows

On August 20, 2021, the Company completed its acquisition of Cascade Windows, Inc. (“Cascade Windows”) for ~~$239.5~~$237.7 million in ~~cash.~~cash, including a post-closing adjustment of approximately $1.8 million that was finalized in the first quarter of 2022. Cascade Windows serves the residential new construction and repair and remodel markets with energy efficient vinyl window and door products from various manufacturing facilities in the United States, expanding our manufacturing capabilities and creating new opportunities for us in the Western United States. This acquisition was funded through cash available on the balance sheet. The Company reports Cascade Windows’ results within the Windows segment.


Assets acquired:
Cash	$	2,838
Accounts receivable	~~15,663~~16,956
Other receivables	~~409~~675
Inventories	~~15,644~~16,278
Prepaid expenses and other current assets	1,538
Property, plant and equipment	~~15,561~~18,300
Lease right of use assets	~~19,335~~21,849
Intangible assets (trade names/customer relationships)	137,660
Goodwill	~~220,428~~109,374
Other assets	500
Total assets acquired	~~291,916~~325,968
Liabilities assumed:
Accounts payable	17,680
Accrued expenses	~~7,673~~7,621
Deferred income taxes	~~2,491~~33,221
Current portion of lease liability	247
Other current liabilities	~~215~~2,349
Non-current portion of lease liabilities	19,926
Other long-term liabilities	~~4,220~~7,211
Total liabilities assumed	~~52,452~~88,255
Net assets acquired	$	~~239,464~~237,713

The ~~$220.4~~$109.4 million of goodwill was allocated to the Windows segment and is not deductible for tax purposes. The goodwill is primarily attributable to the synergies expected to be realized.

During the three and nine months ended October 2, 2021, Cascade Windows contributed net sales of $19.0 million and a net loss of $0.6 million, which have been included within the Company’s consolidated statements of operations. During the three and nine months ended October 2, 2021, the Company incurred $1.9 million of acquisition-related costs for Cascade Windows, $1.2 million of which are recorded in strategic development and acquisition related costs in the Co~~mpany’s consolidated statements of operations.~~

~~Due to the recent closing of the Cascade Windows transaction, the~~The purchase price allocation is preliminary and will be finalized when valuations are complete and final assessment of the fair value of acquired assets and assumed liabilities are completed. There can be no assurance that such finalization will not result in material changes from the preliminary purchase price allocation. The Company’s estimates and assumptions are subject to change during the measurement period (up to one year from the acquisition date) as the Company finalizes the valuations of accounts receivable, ~~other receivables, inventories,~~ prepaid expenses and other current assets, ~~property, plant and equipment, lease right of use assets,~~ goodwill, ~~intangible assets, other assets, accounts payable,~~ accrued expenses, and other current ~~liabilities, other long-term liabilities, lease liabilities, and deferred income taxes.~~liabilities.

Prime Windows

On April 30, 2021, the Company acquired Prime Windows LLC (“Prime Windows”) for total consideration of $93.0 million, exclusive of a $2.0 million working capital adjustment ~~which has not been~~that was finalized as of ~~October 2,~~December 31, 2021. Prime Windows serves residential new construction and repair and remodel markets with energy efficient vinyl window and door products from 2 manufacturing facilities in the United States, expanding our manufacturing capabilities and creating new opportunities for us in the Western United States. This acquisition was funded through borrowings under the Company’s existing credit facilities. Prime Windows’ results are reported within the Windows segment.


~~Assets acquired:~~
~~Cash~~	$	~~997~~
~~Accounts receivable~~	~~5,500~~
~~Inventories~~	~~4,446~~
~~Prepaid expenses and other current assets~~	~~823~~
~~Property, plant and equipment~~	~~2,500~~
~~Lease right of use assets~~	~~2,787~~
~~Intangible assets (trade names/customer relationships)~~	~~51,600~~
~~Goodwill~~	~~32,069~~
~~Other assets~~	50
~~Total assets acquired~~	~~100,772~~
~~Liabilities assumed:~~
~~Accounts payable~~	~~1,676~~
~~Other accrued expenses~~	~~1,429~~

~~Lease liabilities~~	~~2,637~~

~~Total liabilities assumed~~	~~5,742~~
~~Net assets acquired~~	$	~~95,030~~

~~The $32.1 million of goodwill was allocated to the Windows segment and is expected to be deductible for tax purposes. The goodwill is primarily attributable to the synergies expected to be realized.~~

During the three and nine months ended October 2, 2021, Prime Windows contributed net sales of $20.9 million and $33.7 million, respectively, and net income of $0.8 million and $2.5 million, respectively, which have been included within the Company’s consolidated statements of operations. During the nine months ended October 2, 2021, the Company incurred $1.0 million of acquisition-related costs for Prime Windows, $0.7 million of which are recorded in strategic development and acquisition related costs in the Company’s consolidated statements of operations.

The purchase price allocation for the acquisition of Prime Windows remains subject to further adjustments, and the measurement period remained open as of October 2, 2021. The specific accounts subject to ongoing acquisition accounting adjustments include accounts receivable, inventories, prepaid expenses and other current assets, property, plant and equipment, lease right of use assets, intangibles, goodwill, accounts payable, other accrued expenses, accrued warranties and lease liabilities. The Company anticipates completing the acquisition accounting adjustments during the first quarter of fiscal 2022.

~~2020 Acquisition~~

On March 2, 2020, the Company acquired 100% of the issued and outstanding shares of the common stock of Kleary Masonry, Inc. (“Kleary”) for total consideration of $40.0 million, exclusive of the $2.0 million working capital adjustment that was finalized during the three months ended July 4, 2020. The transaction was financed with cash on hand and through borrowings under the Company’s asset-based revolving credit facility. Kleary’s results are reported within the Siding segment.

The Company determined the fair value of the tangible and intangible assets and the liabilities acquired, and recorded goodwill based on the excess of the fair value of the acquisition consideration over such fair values, as follows (in thousands):


~~Assets acquired:~~
~~Cash~~	$	~~143~~
~~Accounts receivable~~	~~7,135~~
~~Inventories~~	~~670~~
~~Prepaid expenses and other current assets~~	~~277~~
~~Property, plant and equipment~~	~~1,042~~
~~Lease right of use assets~~	~~445~~
~~Intangible assets (trade names/customer relationships)~~	~~22,350~~
~~Goodwill~~	~~12,539~~

~~Total assets acquired~~	~~44,601~~
~~Liabilities assumed:~~
~~Accounts payable~~	~~1,149~~
~~Other accrued expenses~~	~~1,020~~


~~Lease liabilities~~	~~339~~
~~Other long-term liabilities~~	~~109~~
~~Total liabilities assumed~~	~~2,617~~
~~Net assets acquired~~	$	~~41,984~~

The $12.5 million of goodwill from the Kleary acquisition was allocated to the Siding segment and will be deductible for tax purposes. The goodwill is attributable to the workforce of the acquired business and the synergies expected to be realized. The fair value of all assets acquired and liabilities assumed was finalized during the first quarter of 2021.

Strategic development and acquisition related costs in the consolidated statements of operations for the nine months ended October 2, 2021 included a reduction of $4.2 million to the previously estimated accrual to reflect the final contingent earnout for the Kleary acquisition at approximately $5.4 million, which was paid as of October 2, 2021.

Unaudited Pro Forma Financial Information

The following table provides unaudited supplemental pro forma results for the Company for the three ~~and nine~~ months ended ~~October 2,~~April 3, 2021 ~~and October 3, 2020~~ as if the UCC, Cascade Windows and Prime Windows ~~and Kleary~~ acquisitions had occurred on January 1, ~~2020~~2021 (in thousands, except for per share data):

Three Months Ended Nine Months Ended
October 2, 2021 October 3, 2020 October 2, 2021 October 3, 2020
Net sales $ 1,467,982 $ 1,281,692 $ 4,243,700 $ 3,582,308
Net income (loss) applicable to common shares 609,695 32,053 618,073 (483,488)
Net income (loss) per common share:
Basic $ 4.83 $ 0.26 $ 4.91 $ (3.85)
Diluted $ 4.80 $ 0.26 $ 4.88 $ (3.85)


	Three Months Ended
		April 3, 2021
Net sales		$	1,382,660
Net loss applicable to common shares		(1,455)
Net loss per common share:
Basic		$	(0.01)
Diluted		$	(0.01)

The unaudited supplemental pro forma financial information was prepared based on historical information of the Company, UCC, Cascade Windows and Prime ~~Windows and Kleary.~~Windows. The unaudited supplemental pro forma financial information does not give effect to the potential impact of current financial conditions, any anticipated synergies, operating efficiencies or cost savings that may result from the acquisitions or any integration costs. Unaudited pro forma balances are not necessarily indicative of operating results had the UCC, Cascade Windows and Prime Windows ~~and Kleary~~ acquisitions occurred on January 1, ~~2020~~2021 or of future results.

NOTE 4 — RESTRUCTURING

The Company has various initiatives and programs in place within its business units to reduce selling, general, and administrative expenses (“SG&A”), manufacturing costs and to optimize the Company’s ~~combined~~ manufacturing footprint. During the ~~nine~~three months ended ~~October~~April 2, ~~2021,~~2022, the Company incurred restructuring charges of ~~$1.2~~$0.2 million, ~~$0.3~~$0.2 million and ~~$5.7~~$0.4 million in the Windows, Siding and Commercial segments, ~~respectively, and $0.2 million in corporate restructuring charges.~~respectively. Restructuring charges incurred to date since the current restructuring initiatives began in 2019 are ~~$59.8~~$79.4 million. The following table summarizes the costs related to those restructuring plans for the three ~~and nine~~ months ended ~~October~~April 2, ~~2021~~2022 and costs incurred to date since inception of those initiatives and programs (in thousands):


		Three Months Ended		Nine Months Ended		Costs Incurred to Date			Three Months Ended		Costs Incurred to Date
		October 2, 2021		October 2, 2021		(Since inception)			April 2, 2022		(Since inception)
Severance	Severance	$	646	$	3,125	$	39,356	Severance	$	304	$	40,231
Asset impairments	Asset impairments	103		4,091		11,959		Asset impairments	368		30,446
Gain on sale of facilities, net	Gain on sale of facilities, net	—		—		(1,298)		Gain on sale of facilities, net	—		(1,298)
Other restructuring costs	Other restructuring costs	222		245		9,781		Other restructuring costs	159		10,036
Total restructuring costs	Total restructuring costs	$	971	$	7,461	$	59,798	Total restructuring costs	$	831	$	79,415

For the three ~~and nine~~ months ended ~~October~~April 2, ~~2021,~~2022, total restructuring costs are recorded within restructuring and impairment costs in the consolidated statements of operations. The asset impairments of ~~$4.1~~$0.4 million for the ~~nine~~three months ended ~~October~~April 2, ~~2021~~2022 primarily included assets that were recorded at fair value less cost to sell, which was less than the assets’ carrying ~~amount, and the write-off of previously capitalized software development costs.~~amount.

The following table summarizes our severance liability, included within other accrued expenses on the consolidated balance sheets, and cash payments made pursuant to the restructuring plans from inception through ~~October~~April 2, ~~2021~~2022 (in

thousands):


		Windows		Siding		Commercial		Corporate		Total			Windows		Siding		Commercial		Corporate		Total
Balance, December 31, 2018	Balance, December 31, 2018	$	—	$	85	$	—	$	2,333	$	2,418	Balance, December 31, 2018	$	—	$	85	$	—	$	2,333	$	2,418
Costs incurred	Costs incurred	1,094		1,834		2,721		4,009		9,658		Costs incurred	1,094		1,834		2,721		4,009		9,658
Cash payments	Cash payments	(676)		(1,437)		(2,721)		(4,579)		(9,413)		Cash payments	(676)		(1,437)		(2,721)		(4,579)		(9,413)
Balance, December 31, 2019	Balance, December 31, 2019	$	418	$	482	$	—	$	1,763	$	2,663	Balance, December 31, 2019	$	418	$	482	$	—	$	1,763	$	2,663
Costs incurred	Costs incurred	4,294		2,705		16,561		3,013		26,573		Costs incurred	4,294		2,705		16,561		3,013		26,573
Cash payments	Cash payments	(4,406)		(2,352)		(14,570)		(4,346)		(25,674)		Cash payments	(4,406)		(2,352)		(14,570)		(4,346)		(25,674)
Balance, December 31, 2020	Balance, December 31, 2020	$	306	$	835	$	1,991	$	430	$	3,562	Balance, December 31, 2020	$	306	$	835	$	1,991	$	430	$	3,562
Costs incurred	Costs incurred	932		264		1,772		157		3,125		Costs incurred	971		264		2,004		457		3,696
Cash payments	Cash payments	(1,196)		(933)		(2,241)		(587)		(4,957)		Cash payments	(1,262)		(904)		(2,473)		(587)		(5,226)
Balance, October 2, 2021		$	42	$	166	$	1,522	$	—	$	1,730
Balance, December 31, 2021												Balance, December 31, 2021	$	15	$	195	$	1,522	$	300	$	2,032
Costs incurred												Costs incurred	212		—		67		25		304
Cash payments												Cash payments	(227)		(195)		(67)		(325)		(814)
Balance, April 2, 2022												Balance, April 2, 2022	$	—	$	—	$	1,522	$	—	$	1,522

We expect to fully execute our restructuring initiatives and programs over the next 12 to 24 months and we may incur future additional restructuring charges associated with these plans.

NOTE 5 — GOODWILL

The Company’s goodwill balance and changes in the carrying amount of goodwill by segment are as follows (in thousands):


		Windows		Siding		Commercial		Total			Windows		Siding		Commercial		Total
Balance, December 31, 2019		$	714,023	$	807,280	$	148,291	$	1,669,594
Goodwill recognized from acquisition		—		12,539		—		12,539
Impairment(1)		(320,990)		(176,774)		(5,407)		(503,171)
Currency translation		3,991		10,000		—		13,991
Purchase accounting adjustments from prior year acquisitions		—		1,776		—		1,776
Balance, December 31, 2020	Balance, December 31, 2020	$	397,024	$	654,821	$	142,884	$	1,194,729	Balance, December 31, 2020	$	397,024	$	654,821	$	142,884	$	1,194,729
Goodwill recognized from acquisitions	Goodwill recognized from acquisitions	252,497		122		—		252,619		Goodwill recognized from acquisitions	143,964		122		140,342		284,428
Divestiture	Divestiture	—		—		(121,464)		(121,464)		Divestiture	—		—		(121,464)		(121,464)

Currency translation										Currency translation	208		155		—		363

Balance, December 31, 2021										Balance, December 31, 2021	$	541,196	$	655,098	$	161,762	$	1,358,056

Currency translation	Currency translation	303		224		—		527		Currency translation	616		484		—		1,100

Balance, October 2, 2021		$	649,824	$	655,167	$	21,420	$	1,326,411
Purchase accounting adjustments from prior year acquisitions										Purchase accounting adjustments from prior year acquisitions	(1,442)		(10)		(2,543)		(3,995)
Balance, April 2, 2022										Balance, April 2, 2022	$	540,370	$	655,572	$	159,219	$	1,355,161

~~(1)~~Goodwill impairment charges occurred during the quarter ended April 4, 2020 as a result of a decline in the Company’s market valuation and near-term economic uncertainties related to the COVID-19 pandemic.

NOTE 6 — INVENTORIES

The components of inventory are as follows (in thousands):


		October 2, 2021		December 31, 2020			April 2, 2022		December 31, 2021
Raw materials	Raw materials	$	373,034	$	241,353	Raw materials	$	507,577	$	485,642
Work in process and finished goods	Work in process and finished goods	241,539		190,584		Work in process and finished goods	310,138		263,090
Total inventory	Total inventory	$	614,573	$	431,937	Total inventory	$	817,715	$	748,732

As of ~~October~~April 2, ~~2021,~~2022, the Company had inventory purchase commitments of ~~$24.9~~$235.3 million.

1513

NOTE 7 — INTANGIBLES

The table that follows presents the major components of intangible assets as of ~~October~~April 2, ~~2021~~2022 and December 31, ~~2020~~2021 (in thousands). Intangible assets that are fully amortized have been removed from the disclosures.


		Range of Life (Years)			Weighted Average Amortization Period (Years)	Cost		Accumulated Amortization		Net Carrying Value			Range of Life (Years)			Weighted Average Amortization Period (Years)	Cost		Accumulated Amortization		Net Carrying Value
As of October 2, 2021
As of April 2, 2022												As of April 2, 2022
Amortized intangible assets:	Amortized intangible assets:											Amortized intangible assets:
Trademarks/Trade names/Other	Trademarks/Trade names/Other	3	–	15	7	$	233,067	$	(69,885)	$	163,182	Trademarks/Trade names/Other	3	–	15	7	$	241,727	$	(82,707)	$	159,020
Customer lists and relationships	Customer lists and relationships	7	–	20	9	1,716,511		(441,654)		1,274,857		Customer lists and relationships	7	–	20	8	1,845,511		(527,101)		1,318,410
Total intangible assets	Total intangible assets				9	$	1,949,578	$	(511,539)	$	1,438,039	Total intangible assets				8	$	2,087,238	$	(609,808)	$	1,477,430

As of December 31, 2020
As of December 31, 2021												As of December 31, 2021
Amortized intangible assets:	Amortized intangible assets:											Amortized intangible assets:
Trademarks/Trade names/Other	Trademarks/Trade names/Other	5	–	15	8	$	248,155	$	(51,722)	$	196,433	Trademarks/Trade names/Other	3	–	15	7	$	241,727	$	(76,574)	$	165,153
Customer lists and relationships	Customer lists and relationships	7	–	20	9	1,758,611		(370,440)		1,388,171		Customer lists and relationships	7	–	20	9	1,845,511		(486,029)		1,359,482
Total intangible assets	Total intangible assets				9	$	2,006,766	$	(422,162)	$	1,584,604	Total intangible assets				8	$	2,087,238	$	(562,603)	$	1,524,635

The Company expects to recognize amortization expense over the next five fiscal years as follows (in thousands):


2021 (excluding the nine months ended October 2, 2021)		$	45,517
2022		181,916
2022 (excluding the three months ended April 2, 2022)				2022 (excluding the three months ended April 2, 2022)	$	147,108
2023	2023	181,904		2023	195,991
2024	2024	181,246		2024	195,565
2025	2025	181,136		2025	195,306
2026				2026	193,852

NOTE 8 — ASSETS ~~AND LIABILITIES~~ HELD FOR SALE ~~AND DIVESTITURES~~

~~On August 9, 2021, the~~The Company completed the sale of its IMP business for cash proceeds of $1.0 billion. On August 18, 2021, the Company completed the sale of its DBCI business for cash proceeds of $168.9 million. The IMP and DBCI businesses were within the Company’s Commercial segment and theirrecords assets ~~and liabilities were presented as~~ held for sale ~~as of July 3, 2021. For~~at the three and nine months ended October 2, 2021, the Company recognized a pre-tax gain of $679.8 million for the IMP divestiture and $151.5 million for the DBCI divestiture, which are included in gain on divestitures in the consolidated statements of operations. As partlower of the ~~consideration received~~carrying value or fair value less costs to sell. The following criteria are used to determine if property is held for sale: (i) management has the authority and commits to a plan to sell the property; (ii) the property is available for immediate sale in its present condition; (iii) there is an active program to locate a buyer and the plan to sell the property has been initiated; (iv) the sale of the ~~IMP business, we entered into~~property is probable within one year; (v) the property is being actively marketed at a ~~short-term agreement~~reasonable sale price relative to ~~supply steel~~its current fair value; and (vi) it is unlikely that the plan to Nucor for the IMP business and deferred approximately $15.5 million, which was recorded in other accrued expenses on the consolidated balance sheet, for the estimated fair value of this agreement (representing a Level 3 fair value measurement). The deferred revenuesell will be ~~amortized into net sales on a straight-line basis over~~withdrawn or that significant changes to the term of the agreement, which terminates in December 2021. For the three and nine months ended October 2, 2021, we amortized $6.2 million to net sales related to this agreement. For the three and nine months ended October 2, 2021, the Company incurred $17.9 million and $21.3 million, respectively, of divestiture-related costs, which are recorded in strategic development and acquisition related costs in the Company’s consolidated statements of operations. The divested businesses did not represent strategic shifts that have a major effect on our operations and financial results, so they were not presented as discontinued operations.plan will be made.

The total carrying value of assets held for sale was $3.9 million and $4.6 million as of October 2, 2021 and December 31, 2020, respectively. Assets held for sale at October 2, 2021 are actively marketed for sale. In determining the fair value of the ~~real property~~ assets less ~~cost~~costs to sell, ~~we consider~~the Company considers factors including current sales prices for comparable assets in the area, recent market analysis studies, appraisals and any recent legitimate offers. If the estimated fair value less ~~cost~~costs to sell of an asset is less than its current carrying value, the asset is written down to its estimated fair value less ~~cost~~costs to sell. During the nine months ended October 2, 2021, the Company completed the sale of certain real property assets resulting in approximately $4.6 million in net proceeds and immaterial losses from the transactions.

Our assumptions about property sales prices require significant judgment because the current market is highly sensitive to changes in economic conditions. We determined the estimated fair values of real property assets held for sale based on current market conditions and assumptions made by management, which may differ from actual results and may result in impairments if market conditions deteriorate. The total carrying value of assets held for sale is $3.4 million and $3.4 million as of April 2, 2022 and December 31, 2021, respectively. Assets held for sale as of April 2, 2022 are under contract. One of the real property assets held for sale with a carrying value of $2.3 million was subsequently sold on April 21, 2022, which is anticipated to result in a gain on sale that will be recorded in the second quarter of fiscal 2022.

NOTE 9 — LEASES

The Company has leases for certain office, manufacturing, warehouse and distribution locations, and vehicles and equipment, including fleet vehicles. Many of these leases have options to terminate prior to or extend beyond the end of the term. The exercise of the majority of lease renewal options is at the Company’s sole discretion. Some lease agreements have variable payments, the majority of which are real estate agreements in which future increases in rent are based on an index. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. The Company

accounts for lease and non-lease components as a single lease component for all leases other than leases of durable tooling. The Company ~~excludes~~has elected to exclude leases with an initial term of 12 months or less from the consolidated balance sheets and recognizes related lease payments in the consolidated statements of operations on a straight-line basis over the lease term.

Operating lease liabilities are recognized based on the present value of the future minimum lease payments over the reasonably expected holding period at the commencement date of the leases. Few of the Company’s lease contracts provide a readily determinable implicit rate. As such, an estimated incremental borrowing rate (“IBR”) is utilized, based on information available at the inception of the lease. The incremental borrowing rate represents an estimate of the interest rate we would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of the lease.

Accounting for leases requires judgment, including determining whether a contract contains a lease, the incremental borrowing rates to utilize for leases without a stated implicit rate, the reasonably certain holding period for a leased asset, and the allocation of consideration to lease and non-lease components. The allocation of the lease and non-lease components for durable tooling is based on the Company’s best estimate of standalone price.

Weighted average information about the Company’s lease portfolio as of ~~October~~April 2, ~~2021~~2022 was as follows:


Weighted-average remaining lease term	~~5.9~~7.1 years
Weighted-average IBR	~~5.82~~5.65	%

Operating lease costs were as follows (in thousands):

Three Months Ended Nine Months Ended
October 2,
2021 October 3,
2020 October 2,
2021 October 3,
2020
Operating lease costs
Fixed lease costs $ 26,117 $ 21,220 $ 79,342 $ 78,183
Variable lease costs(1)
29,942 19,013 82,730 54,188

~~(1)Includes short-term lease costs, which are immaterial.~~


	Three Months Ended
		April 2, 2022		April 3, 2021
Operating lease costs
Fixed lease costs		$	24,201	$	25,967
Short-term lease costs		8,235		2,343
Variable lease costs		23,871		22,383

1715

Cash and non-cash activities were as follows (in thousands):


		Three Months Ended				Nine Months Ended					Three Months Ended
		October 2, 2021		October 3, 2020		October 2, 2021		October 3, 2020				April 2, 2022		April 3, 2021
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:									Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	Operating cash flows for operating leases	$	24,994	$	24,853	$	74,734	$	80,241	Operating cash flows for operating leases		$	22,240	$	27,019

Right-of-use assets obtained in exchange for new operating lease liabilities	Right-of-use assets obtained in exchange for new operating lease liabilities	$	23,267	$	2,070	$	40,782	$	18,940	Right-of-use assets obtained in exchange for new operating lease liabilities		$	6,417	$	5,704

Future minimum lease payments under non-cancelable leases as of ~~October~~April 2, ~~2021~~2022 are as follows (in thousands):


		Operating Leases			Operating Leases
2021 (excluding the nine months ended October 2, 2021)		$	17,972
2022		81,817
2022 (excluding the three months ended April 2, 2022)				2022 (excluding the three months ended April 2, 2022)	$	50,586
2023	2023	56,245		2023	67,366
2024	2024	43,479		2024	53,886
2025	2025	36,384		2025	45,163
2026				2026	36,896
Thereafter	Thereafter	98,707		Thereafter	109,419
Total future minimum lease payments	Total future minimum lease payments	334,604		Total future minimum lease payments	363,316
Less: interest	Less: interest	54,051		Less: interest	67,705
Present value of future minimum lease payments	Present value of future minimum lease payments	$	280,553	Present value of future minimum lease payments	$	295,611

As of October 2, 2021
As of April 2, 2022				As of April 2, 2022
Current portion of lease liabilities	Current portion of lease liabilities	72,983		Current portion of lease liabilities	$	57,477
Long-term portion of lease liabilities	Long-term portion of lease liabilities	207,570		Long-term portion of lease liabilities	238,134
Total	Total	$	280,553	Total	$	295,611

NOTE 10 — SHARE-BASED COMPENSATION

Our 2003 Long-Term Stock Incentive Plan, as amended (the “2003 Incentive Plan”), is an equity-based compensation plan that allows us to grant a variety of types of awards, including stock options, restricted stock awards, stock appreciation rights, cash awards, phantom stock awards, restricted stock unit awards (“RSUs”) and long-term incentive awards with performance conditions (“performance share units” or “PSUs”). Awards are generally granted once per year, with the amounts and types of awards determined by the Compensation Committee of our Board of Directors (the “Committee”). In connection with the Merger (as defined herein) with Ply Gem Parent, LLC (“Ply Gem”), on November 16, 2018, awards were granted to certain senior executives and key employees (the “Founders Awards”), which included stock options, RSUs, and PSUs. A portion of the Founders Awards was not granted under the 2003 Incentive Plan but was instead granted pursuant to a separate equity-based compensation plan, the Long-Term Incentive Plan. These Founders Awards were subject to award agreements with the same terms and provisions as awards of the same type granted under the 2003 Incentive Plan.

As of ~~October~~April 2, ~~2021,~~2022, and for all periods presented, the Founders Awards and our share-based awards granted under the 2003 Incentive Plan have consisted of RSUs, PSUs and stock options, none of which can be settled through cash payments. Both our stock options and restricted stock awards are subject only to vesting requirements based on continued employment through the end of a specified time period and typically vest in annual increments over three to five years or earlier upon death, disability or a change in control. As a general rule, stock option awards expire on the earlier of (i) 10 years from the date of grant, (ii) 60 days after termination of employment or service for a reason other than death, disability or retirement, or (iii) 180 days after death, disability or retirement. Awards are non-transferable except by disposition on death or to certain family members, trusts and other family entities as the Committee may approve.

Our time-based restricted stock awards are typically subject to graded vesting over a service period, which is three to five years. Our performance-based and market-based restricted stock awards are typically subject to cliff vesting at the end of the service period, which is typically three years. Our share-based compensation arrangements are equity classified and we recognize compensation cost for these awards on a straight-line basis over the requisite service period for each award grant. In the case of performance-based awards, expense is recognized based upon management’s assessment of the probability that such

performance conditions will be achieved. Certain of our awards provide for accelerated vesting upon a change of control or upon termination without cause or for good reason.

Vesting of the PSUs granted as part of the Founders Awards is contingent upon the achievement of synergies captured from the Merger and continued employment. Based on achieved synergies during the period comprising the two fiscal years ended December 31, 2020, the Founders Awards will vest at 200% of target amounts, subject to continuing employment through the requisite service period ending on November

16 ~~2021.~~

Vesting of the PSUs granted under the 2003 Incentive Plan during the ~~nine~~three months ended ~~October~~April 2, ~~2021~~2022 and ~~October~~April 3, ~~2020~~2021 are contingent upon achievement of a cumulative three-year EBITDA growth target with an additional modifier based on total ~~shareholder~~stockholders return. The grant-date fair ~~values~~value of the PSUs granted during the ~~nine~~three months ended ~~October 2,~~April 3, 2021 ~~and October 3, 2020 were~~was determined by Monte Carlo ~~simulations.~~simulation.

Stock option awards

During the ~~nine~~three months ended ~~October~~April 2, ~~2021 and October 3, 2020, we granted 0.8 million and 1.1 million stock~~2022, there were NaN options respectively. The average grant date fair value of options granted during the nine months ended October 2, 2021 and October 3, 2020 was $7.38 and $2.13 per share, respectively. There were 0.2 million optionsexercised with an intrinsic value of ~~$0.7~~$0.3 million ~~exercised during the nine months ended October 2, 2021~~ and cash received from the options exercised was ~~$1.6~~$0.4 million. ~~No options were exercised during~~During the ~~nine~~three months ended ~~October~~April 3, ~~2020.~~2021, there were NaN options exercised with an intrinsic value of $0.1 million and cash received from the options exercised was $0.5 million.

Restricted stock units and performance share units

Annual awards to our key employees generally have a three-year performance period. The fair value of RSUs awarded is based on the Company’s stock price as of the date of grant. During the ~~nine~~three months ended ~~October~~April 2, 2022, we granted RSUs to certain key employees with a fair value of $1.7 million representing approximately 0.1 million shares. During the three months ended April 3, 2021, we granted RSUs to key employees with a fair value of ~~$18.0~~$8.5 million, representing ~~approximately 1.2~~0.6 million shares. During the nine months ended October 3, 2020, we granted RSUs to key employees with a fair value of $7.0 million, representing 1.4 million shares. During the nine months ended October 2, 2021 and October 3, 2020, we granted PSUs with a total fair value of approximately $28.0 million and $5.6 million, respectively, to key employees.

Share-based compensation expense

During the three ~~and nine~~ months ended ~~October~~April 2, 2022 and April 3, 2021, we recorded share-based compensation expense for all awards of ~~$8.4~~$11.5 million and ~~$16.9 million, respectively. During the three and nine months ended October 3, 2020, we recorded share-based compensation expense for all awards of $4.0 million and $12.6~~$3.3 million, respectively.

NOTE 11 — EARNINGS PER COMMON SHARE

Basic earnings per common share is computed by dividing net income allocated to common shares by the weighted average number of common shares outstanding. Diluted earnings per common share, if applicable, considers the dilutive effect of common stock equivalents. The reconciliation of the numerator and denominator used for the computation of basic and diluted earnings per common share is as follows (in thousands, except per share data):


		Three Months Ended				Nine Months Ended					Three Months Ended
		October 2, 2021		October 3, 2020		October 2, 2021		October 3, 2020				April 2, 2022		April 3, 2021
Numerator for Basic and Diluted Earnings Per Common Share	Numerator for Basic and Diluted Earnings Per Common Share									Numerator for Basic and Diluted Earnings Per Common Share
Net income (loss) applicable to common shares	Net income (loss) applicable to common shares	$	612,155	$	30,028	$	619,970	$	(484,658)	Net income (loss) applicable to common shares		$	101,526	$	(1,655)
Denominator for Basic and Diluted Earnings Per Common Share	Denominator for Basic and Diluted Earnings Per Common Share									Denominator for Basic and Diluted Earnings Per Common Share
Weighted average basic number of common shares outstanding	Weighted average basic number of common shares outstanding	126,159		125,100		125,840		125,655		Weighted average basic number of common shares outstanding		127,129		125,506
Common stock equivalents:	Common stock equivalents:									Common stock equivalents:
Employee stock options	Employee stock options	920		189		762		—		Employee stock options		1,337		—
PSUs and Performance Share Awards		—		—		—		—

Weighted average diluted number of common shares outstanding	Weighted average diluted number of common shares outstanding	127,079		125,289		126,602		125,655		Weighted average diluted number of common shares outstanding		128,466		125,506

Basic income (loss) per common share	Basic income (loss) per common share	$	4.85	$	0.24	$	4.93	$	(3.86)	Basic income (loss) per common share		$	0.80	$	(0.01)
Diluted income (loss) per common share	Diluted income (loss) per common share	$	4.82	$	0.24	$	4.90	$	(3.86)	Diluted income (loss) per common share		$	0.79	$	(0.01)

Incentive Plan securities excluded from dilution(1)	Incentive Plan securities excluded from dilution(1)	160		2,146		176		3,338		Incentive Plan securities excluded from dilution(1)		72		1,174

(1)Represents securities not included in the computation of diluted earnings per common share because their effect would have been anti-dilutive.

We calculate earnings per share using the “two-class” method, whereby unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are “participating securities” and, therefore, these participating securities are treated as a separate class in computing earnings per share. The calculation of earnings per share presented here excludes the income attributable to unvested restricted stock units from the numerator and excludes the dilutive impact of those shares from the denominator. Awards subject to the achievement of performance conditions or market conditions for which such conditions had been met at the end of any of the fiscal periods presented are included in the computation of diluted earnings per common share if their effect was dilutive.

NOTE 12 — WARRANTY

The Company offers a number of warranties associated with the products it sells. The specific terms and conditions of these warranties vary depending on the product sold. The Company’s warranty liabilities are undiscounted and adjusted for inflation based on third party actuarial estimates. Factors that affect the Company’s warranty liabilities include the number of units sold, historical and anticipated rates of warranty claims, cost per claim and new product introduction. Warranties are normally limited to replacement or service of defective components for the original customer. Some warranties are transferable to subsequent owners and are generally limited to ten years from the date of manufacture or require pro-rata payments from the customer. A provision for estimated warranty costs is recorded based on historical experience and the Company periodically adjusts these provisions to reflect actual experience. Warranty costs are included within cost of goods sold. The Company assesses the adequacy of the recorded warranty claims and adjusts the amounts as necessary. Separately, upon the sale of a weathertightness warranty in the Commercial segment, the Company records the resulting revenue as deferred revenue, which is included in other accrued expenses and other long-term liabilities on the consolidated balance sheets depending on when the revenues are expected to be recognized.

The following table represents the rollforward of our accrued warranty obligation and deferred warranty revenue activity for the ~~nine~~three months ended ~~October~~April 2, ~~2021~~2022 and ~~October~~April 3, ~~2020~~2021 (in thousands):


		Nine Months Ended					Three Months Ended
		October 2, 2021		October 3, 2020			April 2, 2022		April 3, 2021
Beginning balance	Beginning balance	$	216,230	$	216,173	Beginning balance	$	218,356	$	216,230
Acquisitions		6,464		109
Divestiture		(2,245)		—

Warranties sold	Warranties sold	1,597		1,885		Warranties sold	390		644
Revenue recognized	Revenue recognized	(2,043)		(2,054)		Revenue recognized	(606)		(693)
Expense	Expense	22,856		23,257		Expense	10,817		8,827
Settlements	Settlements	(23,978)		(22,645)		Settlements	(8,481)		(8,138)
Ending balance	Ending balance	218,881		216,725		Ending balance	220,476		216,870
Less: current portion	Less: current portion	29,523		27,201		Less: current portion	29,944		24,617
Total warranty, less current portion	Total warranty, less current portion	$	189,358	$	189,524	Total warranty, less current portion	$	190,532	$	192,253

The current portion of the warranty liabilities is recorded within other accrued expenses and the long-term portion of the warranty liabilities is recorded within other long-term liabilities in the Company’s consolidated balance sheets.

NOTE 13 — DEFINED BENEFIT PLANS

RCC Pension Plan — With the acquisition of Robertson-Ceco II Corporation (“RCC”) on April 7, 2006, wethe Company assumed a defined benefit plan (the “RCC Pension Plan”). Benefits under the RCC Pension Plan are primarily based on years of service and the employee’s compensation. The RCC Pension Plan is frozen and, therefore, employees do not accrue additional service benefits. Plan assets of the RCC Pension Plan are invested in broadly diversified portfolios of government obligations, mutual funds, stocks, bonds and fixed income ~~securities and master limited partnerships.~~securities.

Coil Coating Benefit Plans — On January 16, 2015, wethe Company assumed noncontributory defined benefit plans covering certain hourly employees (the “Coil Coating Benefit Plans”) and which are closed to new participants. Benefits under the Coil Coating Benefit Plans are calculated based on fixed amounts for each year of service rendered, although benefits accruals for one of the plans previously ceased. Plan assets of the Coil Coating Benefit Plans are invested in fixed income funds. The Company also sponsors postretirement medical and life insurance plans that cover certain of its employees and their spouses (the “OPEB Plans”). Currently, the Company’s policy is to fund the Coil Coating Benefit Plans as required by minimum funding standards of the Internal Revenue Code.

Ply Gem Pension Plans — As a result of the ~~Merger~~merger with Ply Gem Parent, LLC on November 16, 2018, wethe Company assumed the Ply Gem Group Pension Plan (the “Ply Gem Plan”) and the MW Manufacturers, Inc Retirement Plan (the “MW Plan”). The Ply Gem Plan was frozen during 1998, and no further increases in benefits for participants may occur as a result of increases in service years or compensation. The MW Plan was frozen for salaried participants during 2004 and non-salaried participants during 2005. No additional participants may enter the plan, but increases in benefits for participants as a result of increase in service years or compensation will occur. Plan assets of the Ply Gem Plan are invested in broadly diversified portfolios of government obligations, mutual funds, stocks, bonds and fixed income securities.

We refer to the RCC Pension Plan, the Coil Coating Benefit Plans, the Ply Gem Plan and the MW Plan collectively as the “Defined Benefit Plans” in this Note.

2118

The following tables set forth the components of the net periodic benefit cost (income), before tax for the periods indicated (in thousands):
Defined Benefit Plans
Three Months Ended Nine Months Ended
October 2,
2021 October 3,
2020 October 2,
2021 October 3,
2020
Service cost $ 14 $ 11 $ 41 $ 34
Interest cost 635 802 1,906 2,405
Expected return on assets (1,360) (1,398) (4,079) (4,193)
Amortization of prior service cost 17 16 49 47
Amortization of net actuarial loss 104 753 312 2,256
Net periodic benefit (income) cost $ (590) $ 184 $ (1,771) $ 549
OPEB Plans
Three Months Ended Nine Months Ended
October 2,
2021 October 3,
2020 October 2,
2021 October 3,
2020
Service cost $ 4 $ 4 $ 13 $ 13
Interest cost 44 59 133 178
Amortization of net actuarial loss 18 27 53 81
Net periodic benefit cost $ 66 $ 90 $ 199 $ 272

~~We expect~~


		Defined Benefit Plans
	Three Months Ended
			April 2, 2022		April 3, 2021
Service cost			$	11	$	14
Interest cost			669		635
Expected return on assets			(1,158)		(1,360)
Amortization of prior service cost			—		16
Amortization of net actuarial loss			50		104
Net periodic benefit income			$	(428)	$	(591)

		OPEB Plans
	Three Months Ended
			April 2, 2022		April 3, 2021
Service cost			$	4	$	4
Interest cost			44		44


Amortization of net actuarial loss			14		18
Net periodic benefit cost			$	62	$	66

In fiscal 2022, the Company expects to contribute ~~$3.2~~$0.5 million to the ~~Defined Benefit Plans and $0.7 million to~~ OPEB ~~Plans in the year ending December 31, 2021. Our policy is to fund the Coil Coating Benefit Plans as required by minimum funding standards of the Internal Revenue Code.~~Plans. The contributions to the OPEB Plans by retirees vary from none to 25% of the total premiums paid. The Company is not required to make contributions to the Defined Benefit Plans in fiscal 2022.

NOTE 14 — LONG-TERM DEBT

Debt is comprised of the following (in thousands):


		October 2, 2021		December 31, 2020			April 2, 2022		December 31, 2021

Term loan facility due April 2028	Term loan facility due April 2028	$	2,587,000	$	2,497,967	Term loan facility due April 2028	$	2,574,000	$	2,580,500

8.00% senior notes due April 2026		—		645,000
6.125% senior notes due January 2029	6.125% senior notes due January 2029	500,000		500,000		6.125% senior notes due January 2029	500,000		500,000
Less: unamortized discounts and unamortized deferred financing costs(1)	Less: unamortized discounts and unamortized deferred financing costs(1)	(45,205)		(53,938)		Less: unamortized discounts and unamortized deferred financing costs(1)	(42,127)		(43,657)
Total long-term debt, net of unamortized discounts and unamortized deferred financing costs	Total long-term debt, net of unamortized discounts and unamortized deferred financing costs	3,041,795		3,589,029		Total long-term debt, net of unamortized discounts and unamortized deferred financing costs	3,031,873		3,036,843
Less: current portion of long-term debt	Less: current portion of long-term debt	26,000		25,600		Less: current portion of long-term debt	26,000		26,000
Total long-term debt, less current portion	Total long-term debt, less current portion	$	3,015,795	$	3,563,429	Total long-term debt, less current portion	$	3,005,873	$	3,010,843

(1)Includes the unamortized discounts and unamortized deferred financing costs associated with the term loan facility ~~the 8.00% senior notes due April 2026 (included in December 31, 2020 balance only as the notes were redeemed in full in April 2021),~~ and the 6.125% senior notes due January 2029. The unamortized deferred financing costs associated with the asset-based and revolving credit facilities of ~~$1.4~~$1.2 million and ~~$1.7~~$1.3 million as of ~~October~~April 2, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively, are classified in other assets on the consolidated balance sheets.

Term Loan Facility due April 2028 and Cash Flow Revolver

On April 12, 2018, Ply Gem Midco entered into a Cash Flow Agreement (the "Current Cash Flow Credit Agreement"), which provides for (i) a term loan facility (the “Existing Term Loan Facility”) in an original aggregate principal amount of $1,755.0 million, issued with a discount of 0.5%, and (ii) a cash flow-based revolving credit facility (the “Existing Cash Flow Revolver” and together with the Existing Term Loan Facility, the “Existing Cash Flow Facilities”) of up to $115.0 million.

2219

On November 16, 2018, the Company entered into an incremental term loan facility in connection with the Merger, which increased the aggregate principal amount of the Existing Term Loan Facility by $805.0 million. The proceeds of this incremental term loan facility were used to, among other things, (a) finance the Merger and to pay certain fees, premiums and expenses incurred in connection therewith, (b) repay in full amounts outstanding under the Pre-merger Term Loan Credit Agreement and the Pre-merger ABL Credit Agreement and (c) repay $325.0 million of borrowings outstanding under the ABL Facility. On November 16, 2018, in connection with the consummation of the Merger, NCI and Ply Gem Midco entered into a joinder agreement with respect to the Existing Cash Flow Facilities, and the Company became the Borrower (as defined in the Current Cash Flow Credit Agreement) under the Existing Cash Flow Facilities.

On April 15, 2021, the Company entered into a Second Amendment to the Current Cash Flow Credit Agreement (the “Second Amendment"), among the Company, the several banks and other financial institutions party thereto (the "Cash Flow Lenders") and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent (the “Cash Flow Agent”), which amended the Current Cash Flow Credit Agreement to, among other things:

•Terminate $92.0 million of commitments by Cash Flow Lenders under the Company’s cash flow-based revolving credit facility of up to $115.0 million, maturing on April 12, 2023 (the “Existing Cash Flow Revolver”); and

•Replace such commitments with $92.0 million of extended cash flow-based revolving commitments, maturing on April 12, 2026 (the “Extended Cash Flow Revolver” and together with the Existing Cash Flow Revolver, the “ Current Cash Flow Revolver”).

On April 15, 2021, the Company entered into (i) a Third Amendment to Current Cash Flow Credit Agreement (the “Third Amendment”), among the Company, the subsidiary guarantors parties thereto, the Cash Flow Lenders party thereto and the Cash Flow Agent and (ii) an Increase Supplement (the “Increase Supplement”), between the Company and JPMorgan Chase Bank, N.A., as the increasing lender. The Third Amendment amended the Current Cash Flow Credit Agreement to, among other things, refinance the Existing Term Loan Facility in an original aggregate principal amount of $1,755.0 million with Tranche B Term Loans in an aggregate principal amount of approximately $2,491.6 million, maturing on April 12, 2028. The Increase Supplement supplemented the Current Cash Flow Credit Agreement to, among other things, increase the aggregate principal amount of the Tranche B Term Loan Facility by approximately $108.4 million (the “Incremental Tranche B Term Loans”), for a total principal amount of $2,600.0 million (the “Current Term Loan Facility” and together with the Current Cash Flow Revolver, the “Current Cash Flow Facilities”). Proceeds of the Incremental Tranche B Term Loans were used, together with cash on hand, (i) for the redemption of all of the 8.00% Senior Notes (as defined below) (the “Senior Notes Redemption”) and (ii) to pay any fees and expenses incurred in connection with the extension and refinancing of the Company’s senior credit facilities and the Senior Notes Redemption.

In connection with the Third Amendment and the Increase Supplement to the Current Cash Flow Credit Agreement, the Company incurred $24.8 million in financing costs of which $13.2 million was deferred and are being amortized using the effective interest method.

The Current Term Loan Facility amortizes in nominal quarterly ~~one~~ installments equal to one percent of the aggregate initial principal amount thereof per annum, with the remaining balance payable upon final maturity. The Current Term Loan Facility bears annual interest at a floating rate measured by reference to, at the Company’s option, either (i) an adjusted LIBOR rate (subject to a floor of 0.50%) plus an applicable margin of 3.25% per annum or (ii) an alternate base rate plus an applicable margin of 2.25% per annum. At ~~October~~April 2, ~~2021,~~2022, the interest rates on the Current Term Loan Facility were as follows:


	~~October~~April 2, ~~2021~~2022
Interest rate	3.75	%
Effective interest rate	4.02	%

The Company entered into certain interest rate swap agreements in 2019 and 2021 to effectively convert a portion of its variable rate debt to fixed. See Note 15 — Derivatives.

Loans outstanding under the Current Cash Flow Revolver bear annual interest at a floating rate measured by reference to, at the Company’s option, either (i) an adjusted LIBOR rate (subject to a floor of 0.00%) plus an applicable margin ranging from 2.50% to 3.00% per annum depending on the Company’s secured leverage ratio or (ii) an alternate base rate plus an applicable margin ranging from 1.50% to 2.00% per annum depending on the Company’s secured leverage ratio. There are no amortization payments under the Current Cash Flow Revolver. Additionally, unused commitments under the Current Cash Flow Revolver are subject to a fee ranging from 0.25% to 0.50% per annum depending on the Company’s secured leverage ratio.

2320

Both the Current Term Loan Facility and Current Cash Flow Revolver may be prepaid at the Company’s option at any time without premium or penalty (other than customary breakage costs), subject to minimum principal amount requirements.

Subject to certain exceptions, the Current Term Loan Facility is subject to mandatory prepayments in an amount equal to:

•the net cash proceeds of (1) certain asset sales, (2) certain debt offerings and (3) certain insurance recovery and condemnation events; and

•50% of annual excess cash flow (as defined in the Current Cash Flow Credit Agreement), subject to reduction to 25% and 0% if specified secured leverage ratio targets are met to the extent that the amount of such excess cash flow exceeds $10.0 million. No payments were required in 2021 under the fiscal year 2020 excess cash flow calculation.

The obligations under the Current Cash Flow Credit Agreement are guaranteed by each direct and indirect wholly-owned U.S. restricted subsidiary of the Company, subject to certain exceptions, and are secured by:

•a perfected security interest in substantially all tangible and intangible assets of the Company and each subsidiary guarantor (other than ABL Priority Collateral (as defined below)), including the capital stock of each direct material wholly-owned U.S. restricted subsidiary owned by the Company and each subsidiary guarantor, and 65% of the capital stock of any non-U.S. subsidiary held directly by the Company or any subsidiary guarantor, subject to certain exceptions (the “Cash Flow Priority Collateral”), which security interest will be senior to the security interest in the foregoing assets securing the Current ABL Facility; and

•a perfected security interest in the ABL Priority Collateral, which security interest will be junior to the security interest in the ABL Priority Collateral securing the Current ABL Facility.

The Current Cash Flow Revolver includes a financial covenant set at a maximum secured leverage ratio of 7.75:1.00, which will apply if the outstanding amount of loans and drawings under letters of credit which have not then been reimbursed exceeds a specified threshold at the end of any fiscal quarter.

ABL Facility due April 2026

On April 12, 2018, Ply Gem Midco entered into an ABL Credit Agreement (the ~~"Current~~“Current ABL Credit ~~Agreement"~~Agreement”), which provides for an asset-based revolving credit facility (the “Existing ABL Facility”) of up to $360.0 million, consisting of (i) $285.0 million available to U.S. borrowers (subject to U.S. borrowing base availability) (the “ABL U.S. Facility”) and (ii) $75.0 million available to both U.S. borrowers and Canadian borrowers (subject to U.S. borrowing base and Canadian borrowing base availability) (the “ABL Canadian Facility”). The Company and, at their option, certain of their subsidiaries are the borrowers under the Existing ABL Facility.

On October 15, 2018, Ply Gem Midco entered into an incremental asset-based revolving credit facility of $36.0 million, which upsized the Existing ABL Facility to $396.0 million in the aggregate, and with (x) the ABL U.S. Facility being increased from $285.0 million to $313.5 million and (y) the ABL Canadian Facility being increased from $75.0 million to $82.5 million.

On November 16, 2018, Ply Gem Midco entered into an incremental asset-based revolving credit facility of $215.0 million in connection with the Merger, which upsized the Existing ABL Facility to $611.0 million in the aggregate, and with (x) the ABL U.S. Facility being increased from $313.5 million to approximately $483.7 million and (y) the ABL Canadian Facility being increased from $82.5 million to approximately $127.3 million. On November 16, 2018, in connection with the consummation of the Merger, the Company and Ply Gem Midco entered into a joinder agreement with respect to the Existing ABL Facility, and the Company became the Parent Borrower (as defined in the ABL Credit Agreement) under the Existing ABL Facility.

On April 15, 2021, the Company entered into Amendment No. 6 to the Current ABL Credit Agreement, by and among the Company, the subsidiary borrowers party thereto, the several banks and financial institutions party thereto and UBS AG, Stamford Branch, as administrative agent and collateral agent, which amended the ABL Credit Agreement in order to, among other things:

•Terminate the existing revolving commitments of each of the Extending ABL Credit Lenders (as defined in therein), originally maturing on April 12, 2023 (the “Existing ABL Commitments”); and

•Replace the Existing ABL Commitments with an extended revolving commitment of $611.0 million, maturing on April 12, 2026 (the “Current ABL Facility”).

2421

Borrowing availability under the Current ABL Facility is determined by a monthly borrowing base collateral calculation that is based on specified percentages of the value of eligible inventory, eligible accounts receivable and eligible credit card receivables, less certain reserves and subject to certain other adjustments as set forth in the Current ABL Credit Agreement. Availability is reduced by issuance of letters of credit as well as any borrowings. As of ~~October~~April 2, ~~2021,~~2022, the Company had the following in relation to the Current ABL Facility (in thousands):


	~~October~~April 2, ~~2021~~2022
Excess availability	$	~~564,442~~565,697
Revolving loans outstanding	—
Letters of credit outstanding	~~40,925~~40,069

Loans outstanding under the Current ABL Facility bear interest at a floating rate measured by reference to, at the Company’s option, either (i) an adjusted LIBOR rate (subject to a LIBOR floor of 0.00%) plus an applicable margin ranging from 1.25% to 1.75% per annum depending on the average daily excess availability under the Current ABL Facility or (ii) an alternate base rate plus an applicable margin ranging from 0.25% to 0.75% per annum depending on the average daily excess availability under the ABL Facility. Additionally, unused commitments under the ABL Facility are subject to a 0.25% per annum fee.

The obligations under the Current ABL Credit Agreement are guaranteed by each direct and indirect wholly-owned U.S. restricted subsidiary of the Company, subject to certain exceptions, and are secured by:

•a perfected security interest in all present and after-acquired inventory, accounts receivable, deposit accounts, securities accounts, and any cash or other assets in such accounts and other related assets owned by the Company and the U.S. subsidiary guarantors and the proceeds of any of the foregoing, except to the extent such proceeds constitute Cash Flow Priority Collateral, and subject to certain exceptions (the “ABL Priority Collateral”), which security interest is senior to the security interest in the foregoing assets securing the Current Cash Flow Facilities; and

•a perfected security interest in the Cash Flow Priority Collateral, which security interest will be junior to the security interest in the Cash Flow Collateral securing the Current Cash Flow Facilities.

Additionally, the obligations of the Canadian borrowers under the Current ABL Credit Agreement are guaranteed by each direct and indirect wholly-owned Canadian restricted subsidiary of the Canadian borrowers, subject to certain exceptions, and are secured by substantially all assets of the Canadian borrowers and the Canadian subsidiary guarantors, subject to certain exceptions.

The Current ABL Credit Agreement includes a minimum fixed charge coverage ratio of 1.00:1.00, which is tested only when specified availability is less than 10.0% of the lesser of (x) the then applicable borrowing base and (y) the then aggregate effective commitments under the Current ABL Facility, and continuing until such time as specified availability has been in excess of such threshold for a period of 20 consecutive calendar days.

6.125% Senior Notes due January 2029

On September 24, 2020, the Company issued $500.0 million in aggregate principal amount of 6.125% Senior Notes due January 2029 (“the 6.125% Senior Notes”). Proceeds from the 6.125% Senior Notes were used to repay outstanding amounts under the Company’s Current ABL Facility and Current Cash Flow Revolver. The 6.125% Senior Notes bear interest at 6.125% per annum and will mature on January 15, 2029. Interest is payable semi-annually in arrears on January 15 and July 15 commencing on January 15, 2021. The effective interest rate for the 6.125% Senior Notes was 6.33% as of ~~October~~April 2, ~~2021,~~2022, after considering each of the different interest expense components of this instrument, including the coupon payment and the deferred debt issuance costs.

The 6.125% Senior Notes are guaranteed on a senior unsecured basis by each of the Company’s existing and future wholly-owned domestic subsidiaries that guarantee the Company’s obligations under the Current Cash Flow Facilities or the Current ABL Facility (including by reason of being a borrower under the Current ABL Facility on a joint and several basis with the Company or a subsidiary guarantor). The 6.125% Senior Notes are unsecured senior indebtedness and are effectively subordinated to all of the Company’s existing and future senior secured indebtedness, including indebtedness under the Current Term Loan Facility, Current Cash Flow Revolver and Current ABL Facility, and are senior in right of payment to future subordinated indebtedness of the Company.

The Company may redeem the 6.125% Senior Notes in whole or in part at any time as set forth below:

•prior to September 15, 2023, at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to but not including the redemption date, plus the applicable make-whole premium;

•prior to September 15, 2023, up to 40% of the aggregate principal amount with the proceeds of certain equity offerings at a redemption price of 106.125% plus accrued and unpaid interest, if any, to but not including the redemption date;

2522

•on or after September 15, 2023 and prior to September 15, 2024, at a price equal to 103.063% of the principal amount thereof, plus accrued and unpaid interest, if any, to but not including the redemption date;

•on or after September 15, 2024 and prior to September 15, 2025, at a price equal to 101.531% of the principal amount thereof, plus accrued and unpaid interest, if any, to but not including the redemption date; and

•on or after September 15, 2025, at a price equal to 100.000% of the principal amount thereof, plus accrued and unpaid interest, if any, to but not including the redemption date.

Redemption of 8.00% Senior Notes

On April 15, 2021, the Company redeemed the outstanding $645.0 million aggregate principal amount of the 8.00% Senior Notes due April 2026 (the “8.00% Senior Notes”) for $670.8 million using cash on hand and proceeds from the Incremental Tranche B Term Loans. The redemption resulted in a pre-tax loss on extinguishment of debt of $41.9 million during the ~~nine months~~year ended ~~October 2,~~December 31, 2021, comprising a make-whole premium of $25.8 million and a write-off of $16.1 million in unamortized deferred financing costs.

Debt Covenants

The Company’s debt agreements contain a number of covenants that, among other things, limit or restrict the ability of the Company and its subsidiaries to incur additional indebtedness; make dividends and other restricted payments; incur additional liens; consolidate, merge, sell or otherwise dispose of all or substantially all assets; make investments; transfer or sell assets; enter into restrictive agreements; change the nature of the business; and enter into certain transactions with affiliates. As of ~~October~~April 2, ~~2021,~~2022, the Company was in compliance with all covenants that were in effect on such date.

NOTE 15 — DERIVATIVES

We utilize derivative instruments, including interest rate swap agreements and foreign currency hedging contracts, to manage our exposure to interest rate risk and currency fluctuations. We only hold such instruments for economic hedging purposes, not for speculative or trading purposes. Our derivative instruments are transacted only with highly rated institutions, which reduces our exposure to credit risk in the event of nonperformance.

Interest Rate Swaps

We are exposed to interest rate risk associated with fluctuations in interest rates on our floating-rate Current Term Loan Facility. The objective in using interest rate derivatives is to manage our exposure to interest rate movements. To accomplish this objective, we have entered into interest rate swap agreements as part of our interest rate risk management strategy. Interest rate swaps involve the receipt of variable amounts from a counterparty in exchange for the company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

On a monthly basis, we net settle with our swap counterparties for the difference between the fixed rate specified in each swap agreement and the variable rate as applied to the notional amount of the swap.

In May 2019, the Company entered into four-year interest rate swaps to mitigate variability in forecasted interest payments on ~~$1,500.0~~$1,500 million of the Company’s Current Term Loan Facility. The interest rate swaps effectively converted a portion of the floating rate interest payment into a fixed rate interest payment. Three interest rate swaps each covered ofa notional amount of ~~$500.0~~$500 million. The Company designated the interest rate swaps as qualifying hedging instruments and accounted for these derivatives as cash flow hedges.

As discussed in Note 14 — Long-Term Debt, the Company refinanced its Term Loan Facility. Contemporaneously with the refinancing on April 15, 2021, we completed a series of transactions to modify our interest rate swap positions as follows: (i) we ~~de-designated~~dedesignated all existing interest rate swaps as cash flow hedges; (ii) we terminated 2 existing interest rate swaps with a notional value of $500 million each; (iii) we entered into 2 receive-fixed interest rate swaps with a notional amount of $250 million each, which are designed to offset the terms of an existing, active interest rate swap with a notional amount of $500 million; and (iv) we entered into two pay-fixed interest rate swaps with a notional amount of $750 million each, effectively blending the liability position of our existing interest rate swap agreements into the new swaps and extending the term of our hedged position to April 2026.

The amount remaining in accumulated other comprehensive loss for the ~~de-designated~~dedesignated and terminated swaps as of ~~October~~April 2, ~~2021~~2022 was approximately ~~$51.9~~$37.4 million and is being amortized as an increase to interest expense over the effective period of the original swap agreements.

The new receive-fixed interest rate swaps remain undesignated to economically offset the ~~now undesignated~~dedesignated existing, active swap. The new receive-fixed swaps and the dedesignated existing, active ~~swaps~~swap mature on July 12, 2023. Cash settlements related to ~~these~~the receive-fixed interest rate swaps ~~offset and~~ are classified as operating activities in the consolidated statements of cash flows.

2623

The new pay-fixed interest rate swaps also qualify as hybrid instruments in accordance with ASC 815, Derivatives and Hedging, consisting of a ~~loan~~financing component and an embedded at-market derivative that was designated as a cash flow hedge. The ~~loan~~financing component is accounted for at amortized cost over the life of the swap while the embedded at-market derivative is accounted for at fair value. The new swaps are indexed to one-month LIBOR and ~~will be~~are net settled on a monthly basis with the counterparty for the difference between the fixed rate of 2.0369% and 2.0340%, respectively, and the variable rate based upon one-month LIBOR (subject to a floor of 0.5%) as applied to the notional amount of the swaps. In connection with the transactions discussed above, no cash was exchanged between the Company and the counterparty. The liability of the terminated interest rate swaps as well as the inception value of the receive-fixed interest rate swap was blended into the new pay-fixed interest rate swap. The cash flows related to the portion treated as ~~debt~~a financing component are classified as financing activities while the cash flows related to the portion treated as an at-market derivative are classified as operating activities in the consolidated statements of cash flows.

The key terms of interest rate swaps are as follows (amounts in thousands):


				October 2, 2021			December 31, 2020							April 2, 2022			December 31, 2021
Effective Date	Effective Date	Fixed Rate Paid (Received)		Notional Amount		Status	Notional Amount		Status	Maturity Date	Effective Date	Fixed Rate Paid (Received)		Notional Amount		Status	Notional Amount		Status	Maturity Date
Entered into May 2019:	Entered into May 2019:										Entered into May 2019:
July 12, 2019	July 12, 2019	2.1570	%	$	—	Terminated	$	500,000	Active	July 12, 2023	July 12, 2019	2.1570	%	$	—	Terminated	$	—	Terminated	July 12, 2023
July 12, 2019	July 12, 2019	2.1560	%	—		Terminated	500,000		Active	July 12, 2023	July 12, 2019	2.1560	%	—		Terminated	—		Terminated	July 12, 2023
July 12, 2019	July 12, 2019	2.1680	%	500,000		Active	500,000		Active	July 12, 2023	July 12, 2019	2.1680	%	500,000		Active	500,000		Active	July 12, 2023

Entered into April 2021:	Entered into April 2021:										Entered into April 2021:
April 15, 2021	April 15, 2021	2.0369	%	750,000		Active	0			April 15, 2026	April 15, 2021	2.0369	%	750,000		Active	750,000		Active	April 15, 2026
April 15, 2021	April 15, 2021	2.0340	%	750,000		Active	0			April 15, 2026	April 15, 2021	2.0340	%	750,000		Active	750,000		Active	April 15, 2026
April 15, 2021	April 15, 2021	(2.1680)	%	(250,000)		Active	0			July 12, 2023	April 15, 2021	(2.1680)	%	(250,000)		Active	(250,000)		Active	July 12, 2023
April 15, 2021	April 15, 2021	(2.1680)	%	(250,000)		Active	0			July 12, 2023	April 15, 2021	(2.1680)	%	(250,000)		Active	(250,000)		Active	July 12, 2023
				$	1,500,000		$	1,500,000						$	1,500,000		$	1,500,000

~~Our~~The embedded at-market derivative portion of our interest rate swap agreements ~~excluding the portion treated as debt, are~~is recognized at fair value inon the consolidated balance ~~sheets and are~~sheets. It is valued using pricing models that rely on market observable inputs such as yield curve data, which are classified as Level 2 inputs within the fair value hierarchy.

Foreign Currency ~~Hedging~~Forward Contracts

~~In December 2020, the~~The Company ~~entered~~enters into forward contracts to hedge ~~approximately $66.0 million~~a portion of its ~~2021~~ non-functional currency inventory purchases. These forward contracts ~~were~~are established to protect the Company from variability in cash flows attributable to changes in the U.S. dollar relative to the Canadian dollar. The forward contracts are highly correlated to the changes in the U.S. dollar relative to the Canadian dollar. All of the Company’s foreign currency forward contracts are initially designated as qualifying hedging instruments and accounted for as cash flow hedges in accordance with ASC 815, Derivatives and Hedging. Unrealized gains and losses on these contracts are designated as effective or ineffective. The effective portion of such gains or losses is recorded as a component of accumulated other comprehensive income or loss, while the ineffective portion of such gains or losses is recorded as a component of cost of goods sold. Future realized gains and losses in connection with each inventory purchase will be reclassified from accumulated other comprehensive income or loss to cost of goods sold. The gains and losses on the derivative contracts that are reclassified from accumulated other comprehensive income or loss to current period earnings are included in the line item in which the hedged item is recorded in the same period the forecasted transaction affects earnings.

~~In the second quarter of 2021, the~~ The Company entered into forward contracts to hedge approximately $20.2 million of its 2022 non-functional currency inventory purchases. Similar to the December 2020 contracts described above, these contracts were established to protect the Company from variability in cash flows attributable to changes in the U.S dollar relative to the Canadian dollar. All of the Company’s foreign currency forward contracts are designated as qualifying hedging instruments and are accounted for asmay dedesignate cash flow hedges in ~~accordance with ASC 815,~~ ~~Derivatives and Hedging~~.advance of the occurrence of the forecasted transactions.

During the three ~~and nine~~ months ended ~~October~~April 2, 2022 and April 3, 2021, the Company realized a loss of approximately ~~$0.3 million~~thirty-five thousand dollars and ~~$0.9~~$0.1 million, respectively, within cost of goods sold in the consolidated statements of operations based on the foreign currency forward contracts described above. The changes in fair values of derivatives that have been designated and qualify as cash flow hedges are recorded in accumulated other comprehensive income or loss and are reclassified into cost of goods sold in the same period the hedged item affects earnings. Due to the high degree of effectiveness between the hedging instruments and the underlying exposures being hedged, fluctuations in the value of the derivative instruments are generally offset by changes in the fair value or cash flows of the underlying exposures being hedged. The changes in the fair value of derivatives that do not

qualify as effective are immediately recognized in earnings. As of ~~October~~April 2, 2022 and December 31, 2021, the Company had a hedge asset of approximately $0.2 million and $0.7 million respectively, and

a gain of approximately ~~$0.2~~$0.3 million and $0.8 million in accumulated other comprehensive loss, respectively, on the consolidated balance sheets. ~~No hedge liability or asset or deferred gain or loss in accumulated other comprehensive loss existed as of December 31, 2020 related to the forward contracts.~~

Fair Values of Derivatives on the Consolidated Balance Sheets

The fair values of our derivatives and their presentation on the consolidated balance sheets as of ~~October~~April 2, ~~2021~~2022 and December 31, ~~2020~~2021 were as follows (in thousands):


			October 2, 2021				December 31, 2020						April 2, 2022				December 31, 2021
			Assets		Liabilities		Assets		Liabilities				Assets		Liabilities		Assets		Liabilities
Derivatives not designated as hedging instruments	Derivatives not designated as hedging instruments	Financial statement line item									Derivatives not designated as hedging instruments	Financial statement line item
Interest rate swaps	Interest rate swaps	Other assets(1)	$	17,140	$	—	$	—	$	—	Interest rate swaps	Other assets(1)	$	336	$	—	$	11,543	$	—
		Other long-term liabilities(2)	—		17,140		—		—			Other long-term liabilities(2)	—		336		—		11,543
Total			$	17,140	$	17,140	$	—	$	—
													$	336	$	336	$	11,543	$	11,543

Derivatives designated as hedging instruments	Derivatives designated as hedging instruments	Financial statement line item									Derivatives designated as hedging instruments	Financial statement line item
Interest rate swaps	Interest rate swaps	Other accrued expenses(3)	$	—	$	13,127	$	—	$	—	Interest rate swaps	Other assets(3)	$	87,356	$	—	$	—	$	—
		Other long-term liabilities(4)	—		48,386		—		75,770			Other accrued expenses(3)	—		13,127		—		13,127
Foreign currency contracts		Other accrued expenses	—		—		—		—
		Other long-term liabilities	—		(202)		—		—			Other long-term liabilities(3)	—		40,067		—		28,279
Total			$	—	$	61,311	$	—	$	75,770
Foreign currency forward contracts											Foreign currency forward contracts	Prepaid expenses and other	249		—		728		—
													$	87,605	$	53,194	$	728	$	41,406

(1)The ~~balance as of October 2, 2021 of $17.1 million is related~~balances relate to a receive-fixed interest rate ~~swap~~swaps for which the fair value option has been elected.

(2)The ~~balance as of October 2, 2021 of $17.1 million is related~~balances relate to a pay-fixed May 2019 active interest rate swap which has been ~~de-designated~~dedesignated as a cash flow hedge.

(3)The ~~balance as of October 2, 2021 of $13.1 million is related~~balances relate to ~~the financing component of~~ the pay-fixed interest rate ~~swaps.~~

~~(4)The balance as of October 2, 2021 includes $48.4 million related to~~swaps, including the financing ~~component of the pay-fixed interest rate swaps.~~component.

Effect of Derivatives on the Consolidated Statements of Operations

The portion of gains or losses on the derivative instruments previously included in accumulated other comprehensive income for dedesignated hedges remains in accumulated other comprehensive income until the forecasted transaction occurs or becomes probable of not occurring. Changes in the value of derivative instruments after dedesignation are recorded in earnings and are included in the Derivatives not designated as hedging instruments section below. The effect of our derivatives and their presentation on the consolidated statements of operations for the three ~~and nine~~ months ended ~~October~~April 2, ~~2021~~2022 and ~~October~~April 3, ~~2020~~2021 were as follows (in thousands):


			Three Months Ended				Nine Months Ended						Three Months Ended
			October 2, 2021		October 3, 2020		October 2, 2021		October 3, 2020					April 2, 2022		April 3, 2021
Derivatives not designated as hedging instruments	Derivatives not designated as hedging instruments	Financial statement line item									Derivatives not designated as hedging instruments	Financial statement line item
Interest rate swaps	Interest rate swaps	Interest expense(1)	$	7,288	$	—	$	13,957	$	—	Interest rate swaps	Interest expense(1)		$	7,288	$	—
Foreign currency contracts		Cost of sales	339		—		853		—
Foreign currency forward contracts											Foreign currency forward contracts	Cost of sales		35		79
														$	7,323	$	79
Derivatives designated as hedging instruments	Derivatives designated as hedging instruments										Derivatives designated as hedging instruments
Interest rate swaps	Interest rate swaps	Interest expense	2,540		7,462		13,422		16,644		Interest rate swaps	Interest expense		2,540		7,821
			$	10,167	$	7,462	$	28,232	$	16,644				$	2,540	$	7,821

(1)~~For the three and nine months ended October 2, 2021, the entire~~The balance ~~related~~relates to the reclassification from accumulated other comprehensive loss to interest expense is due to ~~de-designation~~dedesignation from hedge accounting of all May 2019 interest rate swaps.

2825

NOTE 16 — CD&R INVESTOR GROUP

On August 14, 2009, the Company entered into an Investment Agreement (as amended, the “Investment Agreement”), by and between the Company and Clayton, Dubilier & Rice Fund VIII, L.P., a Cayman Islands exempted limited partnership (“CD&R Fund VIII”). In connection with the Investment Agreement and the Stockholders Agreement dated October 20, 2009 (the “Old Stockholders Agreement”), CD&R Fund VIII and CD&R Friends & Family Fund VIII, L.P., a Cayman Islands exempted limited partnership (“CD&R FF Fund” and, together with CD&R Fund VIII, the “CD&R Fund VIII Investor Group”) purchased convertible preferred stock of the Company, which was converted into shares of our common stock on May 14, 2013.

Ply Gem Holdings was acquired by CD&R Fund X and Atrium Intermediate Holdings, LLC, GGC BP Holdings, LLC and AIC Finance Partnership, L.P. (collectively, the “Golden Gate Investor Group”) and merged with Atrium on April 12, 2018.

On July 17, 2018, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Ply Gem, and for certain limited purposes as set forth in the Merger Agreement, Clayton, Dubilier & Rice, LLC, ~~(“CD&R”),~~ pursuant to which, at the closing of the merger, Ply Gem would be merged with and into the Company, with the Company continuing its existence as a corporation organized under the laws of the State of Delaware (the “Merger”). The Merger was consummated on November 16, 2018 pursuant to the Merger Agreement.

Pursuant to the terms of the Merger Agreement, on November 16, 2018, the Company entered into (i) a stockholders agreement (the “New Stockholders Agreement”) between the Company, and each of the CD&R Fund VIII Investor Group, CD&R Pisces Holdings, L.P., a Cayman Islands exempted limited partnership (“CD&R Pisces”, and together with the CD&R Fund VIII Investor Group, the “CD&R Investor Group”) and the Golden Gate Investor Group (together with the CD&R Investor Group, the “Investors”), pursuant to which the Company granted to the Investors certain governance, preemptive and subscription rights and (ii) a registration rights agreement (the “New Registration Rights Agreement”) between the Company and each of the Investors, pursuant to which the Company granted the Investors customary demand and piggyback registration rights, including rights to demand registrations and underwritten shelf registration statement offerings with respect to the shares of the Company’s Common Stock held by the Investors following the consummation of the Merger.

On August 25, 2020, the Company filed a shelf registration statement on Form S-3, declared effective by the SEC on September 2, 2020, registering the resale of shares of the Company’s Common Stock held by CD&R Pisces. The Company had previously registered the resale of shares of the Company’s Common Stock held by the CD&R Fund VIII Investor Group and the Golden Gate Investor Group.

Pursuant to the terms of the New Stockholders Agreement, the Company and the CD&R Fund VIII Investor Group terminated the Old Stockholders Agreement. Pursuant to the terms of the New Registration Rights Agreement, the Company and the CD&R Fund VIII Investor Group terminated the Registration Rights Agreement, dated as of October 20, 2009, by and among the Company and the CD&R Fund VIII Investor Group.

On March 5, 2022, the Company entered into an Agreement and Plan of Merger (the “CD&R Merger Agreement”), by and among Camelot Return Intermediate Holdings, LLC (“Parent”), Camelot Return Merger Sub, Inc. (“Merger Sub”). Parent and Merger Sub are subsidiaries of investment funds managed by Clayton, Dubilier & Rice (“CD&R”). Upon the terms and subject to the conditions of the CD&R Merger Agreement, among other things, Merger Sub will merge with and into the Company (the “CD&R Merger”). As a result of the CD&R Merger, the Company will cease to be publicly-traded, and investment funds managed by CD&R will become the indirect owner of all of the Company’s outstanding shares of common stock that it does not already own. The proposed transaction has been approved by a special committee of independent directors of the Company’s board of directors (the “Special Committee”) previously formed to evaluate and consider any potential or actual proposal from CD&R. The board of directors of the Company, acting on the Special Committee’s recommendation, resolved unanimously to recommend that the stockholders of the Company vote to adopt and approve the CD&R Merger Agreement. The CD&R Merger is expected to close in the second or third quarter of 2022, subject to customary closing conditions. The waiting period under the Hart-Scott-Rodino Act of 1976, as amended, applicable to the proposed CD&R transaction expired on April 18, 2022. The CD&R Merger is subject to approval by holders of a majority of the shares not owned by CD&R and its affiliates.

Additional information about the CD&R Merger Agreement and the CD&R Merger will be set forth in the Company’s Definitive Proxy Statement on Schedule 14A that will be filed with the SEC.

As of ~~October~~April 2, ~~2021~~2022 and December 31, ~~2020,~~2021, the CD&R Investor Group owned approximately ~~49.1%~~48.6% and ~~49.4%~~48.8%, respectively, of the outstanding shares of the Company’s Common ~~Stock, respectively.~~Stock.

NOTE 17 — STOCK REPURCHASE PROGRAM

~~The~~On March 7, 2018, the Company announced that its Board of Directors authorized a new stock repurchase ~~programs~~program for the repurchase of up to $50.0 million of the Company’s outstanding Common ~~Stock on October 10, 2017 and March 7, 2018, for a cumulative total of $100.0 million.~~Stock. Under ~~these~~the repurchase ~~programs,~~program, the Company

is authorized to repurchase shares at times and in amounts that it deems appropriate in accordance with all applicable securities laws and regulations. ~~Shares repurchased pursuant to the repurchase programs are usually retired.~~ There is no time limit on the duration of the ~~programs. Following repurchases made during~~program and shares repurchased pursuant to the repurchase program are usually retired.

During the three months ended ~~July 4, 2020, no authorized amount remained available under the program announced on October 10, 2017.~~

~~During the nine months ended October~~April 2, 2022 and April 3, 2021, there were no stock repurchases under the stock repurchase ~~programs. The Company repurchased 1.1 million shares for $6.4 million under the stock repurchase programs during the nine months ended October 3, 2020.~~program. As of ~~October~~April 2, ~~2021,~~2022, $49.1 million remained available for stock repurchases under the ~~program announced on March 7, 2018.~~stock repurchase program. The timing and method of any repurchases, which will depend on a variety of factors, including market conditions, are subject to results of operations, financial conditions, cash requirements and other factors, and may be suspended or discontinued at any time.

During the ~~nine~~three months ended ~~October~~April 2, ~~2021~~2022 and ~~October~~April 3, ~~2020,~~2021, the Company withheld approximately 0.2 million and 0.1 million shares, respectively, of stock to satisfy minimum tax withholding obligations arising in connection with the vesting of stock awards, which are included in treasury stock purchases in the consolidated statements of stockholders’ equity.

During the ~~nine~~three months ended ~~October~~April 2, ~~2021 and October 3, 2020,~~2022, the Company cancelled approximately 0.2 ~~million and 1.2~~ million shares that had been previously withheld to satisfy minimum tax withholding obligations arising in connection with the vesting of stock ~~awards and shares repurchased under the stock repurchase programs.~~awards. The cancellations resulted in ~~$2.9~~a $4.1 million ~~and $6.9 million decreases~~decrease in both treasury stock and additional paid in capital during the ~~nine~~three months ended ~~October~~April 2, ~~2021 and October 3, 2020, respectively.~~2022.

NOTE 18 — FAIR VALUE OF FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, restricted cash, trade accounts receivable and accounts payable approximate fair value as of ~~October~~April 2, ~~2021~~2022 and December 31, ~~2020, respectively,~~2021 because of their relatively short maturities. The carrying amounts of the indebtedness under the Current ABL Facility and Current Cash Flow Revolver approximate fair value as the interest rates are variable and reflective of market rates. At ~~October~~April 2, ~~2021,~~2022, there were no borrowings outstanding under the Current ABL Facility and no outstanding indebtedness under the Current Cash Flow Revolver. The fair values of the remaining financial instruments not currently recognized at fair value on our consolidated balance sheets at the respective period ends were (in thousands):


		October 2, 2021				December 31, 2020					April 2, 2022				December 31, 2021
		Carrying Amount		Fair Value		Carrying Amount		Fair Value			Carrying Amount		Fair Value		Carrying Amount		Fair Value
Term Loan Facility	Term Loan Facility	$	2,587,000	$	2,578,929	$	2,497,967	$	2,485,477	Term Loan Facility	$	2,574,000	$	2,490,345	$	2,580,500	$	2,570,823
8.00% Senior Notes		—		—		645,000		674,025
6.125% Senior Notes	6.125% Senior Notes	500,000		527,500		500,000		530,000		6.125% Senior Notes	500,000		465,000		500,000		531,900

The fair value of the ~~Term Loan Facility~~term loan facility was based on recent trading activities of comparable market instruments, which are level 2 inputs, and the fair ~~values~~value of the ~~8.00% and~~ 6.125% senior notes ~~were~~was based on quoted prices in active markets for the identical liabilities, which are level 1 inputs.

Fair Value Measurements

ASC Subtopic 820-10, Fair Value Measurements and Disclosures, requires us to use valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized as follows:

Level 1: Observable inputs such as quoted prices for identical assets or liabilities in active markets.

Level 2: Other inputs that are observable directly or indirectly, such as quoted prices for similar assets or liabilities or market-corroborated inputs.

Level 3: Unobservable inputs for which there is little or no market data and which require us to develop our own assumptions about how market participants would price the assets or liabilities.

The following is a description of the valuation methodologies used for assets and liabilities measured at fair value. There have been no changes in the methodologies used as of ~~October~~April 2, ~~2021~~2022 and December 31, ~~2020.~~2021.

Money market: Money market funds have original maturities of three months or less. The original cost of these assets approximates fair value due to their short-term maturity.

Mutual funds: Mutual funds are valued at the closing price reported in the active market in which the mutual fund is traded.

Deferred compensation plan liability: Deferred compensation plan liability is comprised of phantom investments in the deferred compensation plan and is valued at the closing price reported in the active markets in which the money market and mutual funds are traded.

Interest rate ~~swaps liability:~~swaps: Interest rate ~~swap liability is~~swaps are based on cash flow hedge contracts that have fixed rate structures and are measured against market-based LIBOR yield curves. These interest rate swaps ~~were~~are classified within Level 2 of the fair value hierarchy because they ~~were~~are valued using alternative pricing sources or models that utilized market observable inputs, including current and forward interest rates.

Foreign currency ~~hedges:~~forward contracts: The fair value of the foreign currency forward contracts are classified within Level 2 of the fair value hierarchy because they are estimated using industry standard valuation models using market-based observable inputs, including spot rates, forward points, interest rates and volatility ~~inputs (Level 2).~~inputs.

The following tables summarize information regarding our financial assets and liabilities that are measured at fair value on a recurring basis as of ~~October~~April 2, ~~2021~~2022 and December 31, ~~2020,~~2021, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (in thousands):


		October 2, 2021									April 2, 2022
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Assets:	Assets:									Assets:
Short-term investments in deferred compensation plan(1):	Short-term investments in deferred compensation plan(1):									Short-term investments in deferred compensation plan(1):
Money market	Money market	$	37	$	—	$	—	$	37	Money market	$	66	$	—	$	—	$	66
Mutual funds – Growth	Mutual funds – Growth	549		—		—		549		Mutual funds – Growth	159		—		—		159
Mutual funds – Blend	Mutual funds – Blend	1,380		—		—		1,380		Mutual funds – Blend	1,511		—		—		1,511
Mutual funds – Foreign blend	Mutual funds – Foreign blend	450		—		—		450		Mutual funds – Foreign blend	424		—		—		424
Mutual funds – Fixed income	Mutual funds – Fixed income	—		151		—		151		Mutual funds – Fixed income	—		141		—		141
Total short-term investments in deferred compensation plan(2)	Total short-term investments in deferred compensation plan(2)	2,416		151		—		2,567		Total short-term investments in deferred compensation plan(2)	2,160		141		—		2,301
Foreign currency forward contracts										Foreign currency forward contracts	—		249		—		249
Interest rate swap assets(3)	Interest rate swap assets(3)	—		17,140		—		17,140		Interest rate swap assets(3)	—		87,692		—		87,692
Total assets	Total assets	$	2,416	$	17,291	$	—	$	19,707	Total assets	$	2,160	$	88,082	$	—	$	90,242

Liabilities:	Liabilities:									Liabilities:
Deferred compensation plan liability(2)	Deferred compensation plan liability(2)	$	—	$	2,561	$	—	$	2,561	Deferred compensation plan liability(2)	$	—	$	2,704	$	—	$	2,704
Foreign currency hedges		—		(202)		—		(202)

Interest rate swap liabilities(4)	Interest rate swap liabilities(4)	—		78,653		—		78,653		Interest rate swap liabilities(4)	—		53,530		—		53,530
Total liabilities	Total liabilities	$	—	$	81,012	$	—	$	81,012	Total liabilities	$	—	$	56,234	$	—	$	56,234

December 31, 2020
Level 1 Level 2 Level 3 Total
Assets:
Short-term investments in deferred compensation plan(1):

Money market $ 349 $ — $ — $ 349
Mutual funds – Growth 487 — — 487
Mutual funds – Blend 1,006 — — 1,006
Mutual funds – Foreign blend 338 — — 338
Mutual funds – Fixed income — 153 — 153
Total short-term investments in deferred compensation plan(2)
2,180 153 — 2,333
Total assets $ 2,180 $ 153 $ — $ 2,333
Liabilities:
Deferred compensation plan liability(2)
$ — $ 2,339 $ — $ 2,339
Interest rate swap liabilities — 75,770 — 75,770
Total liabilities $ — $ 78,109 $ — $ 78,109


	December 31, 2021
	Level 1		Level 2		Level 3		Total
Assets:
Short-term investments in deferred compensation plan(1):
Money market	$	24	$	—	$	—	$	24
Mutual funds – Growth	557		—		—		557
Mutual funds – Blend	1,560		—		—		1,560
Mutual funds – Foreign blend	467		—		—		467
Mutual funds – Fixed income	—		151		—		151
Total short-term investments in deferred compensation plan(2)	2,608		151		—		2,759
Foreign currency forward contracts	—		728		—		728
Interest rate swap assets(3)	—		11,543		—		11,543
Total assets	$	2,608	$	12,422	$	—	$	15,030

Liabilities:
Deferred compensation plan liability(2)	$	—	$	2,759	$	—	$	2,759
Interest rate swap liabilities(4)	—		52,949		—		52,949
Total liabilities	$	—	$	55,708	$	—	$	55,708

(1)Unrealized holding gains (losses) for the ~~nine~~three months ended ~~October~~April 2, 2022 and April 3, 2021 ~~and October 3, 2020~~ were ~~$0.2~~$(0.3) million and ~~$(0.7)~~$0.1 million, respectively. These unrealized holding gains (losses) were substantially offset by changes in the deferred compensation plan liability.

(2)The Company records the short-term investments in deferred compensation plan within investments in debt and equity securities, at market, and the deferred compensation plan liability within accrued compensation and benefits on the consolidated balance sheets.

(3)The balance as of ~~October~~April 2, ~~2021~~2022 includes $87.4 million and $0.3 million related to the pay-fixed interest rate swaps and the receive-fixed interest rate swaps for which the fair value option has been elected, respectively. The balance as of ~~$17.1 million~~December 31, 2021 is related to the receive-fixed interest rate swaps for which the fair value option has been elected.

(4)The ~~balance~~balances as of ~~October~~April 2, 2022 and December 31, 2021 ~~includes $61.5~~include $53.2 million and $41.4 million, respectively, related to the ~~financing component of~~ pay-fixed interest rate swaps, and ~~$17.1~~$0.3 million and $11.5 million, respectively, related to the pay-fixed May 2019 active interest rate ~~swaps~~swap which ~~have~~has been ~~de-designated~~dedesignated as a cash flow ~~hedges.~~

The following table summarizes information regarding our liabilities that are measured at fair value on a nonrecurring basis as of October 2, 2021, segregated by level of the valuation inputs within the fair value hierarchy utilized to measure fair value (in thousands):

October 2, 2021
Level 1 Level 2 Level 3 Total
Liabilities:
Short-term steel supply agreement(1)
$ — $ — $ 9,333 $ 9,333
Total liabilities $ — $ — $ 9,333 $ 9,333

~~(1)See Note 8 —~~ ~~Assets and Liabilities Held for Sale and Divestitures~~ ~~for more information. The fair value of the supply agreement was estimated using level 3 inputs, including broker quotes and the Company’s steel procurement agreements.~~hedge.

NOTE 19 — INCOME TAXES

Under FASB ASC 740-270, Income Taxes - Interim Reporting, each interim period is considered an integral part of the annual period and tax expense is measured using an estimated annual effective tax rate. Estimates of the annual effective tax rate at the end of interim periods are, of necessity, based on evaluations of possible future events and transactions and may be subject to subsequent refinement or revision. The Company calculates its quarterly tax provision consistent with the guidance provided by ASC 740-270, whereby the Company forecasts its estimated annual effective tax rate then applies that rate to its year-to-date ordinary pre-tax book income (loss). In addition, the Company excludes jurisdictions with a projected loss for the year or the year-to-date ordinary loss where the Company cannot recognize a tax benefit from its estimated annual effective tax rate. The impact of such an exclusion could result in a higher or lower effective tax rate during a particular quarter, based upon the mix and timing of actual earnings versus annual projections. In addition to the tax resulting from applying the estimated annual effective tax rate to pre-tax book income (loss), the Company includes certain items treated as discrete events to arrive at an estimated effective tax rate. Future changes in the forecasted annual income (loss) projections, tax rate changes, or discrete tax items could result in significant adjustments to quarterly income tax expense in future periods in accordance with ASC 740-270.

For the ~~nine~~three months ended ~~October~~April 2, ~~2021,~~2022, the Company’s estimated annual effective income tax rate of ordinary forecasted pre-tax book income was approximately ~~28.5%~~28.1%, which varied from the statutory rate primarily due to state income tax expense, valuation allowances, foreign income taxes, and ~~divestitures.~~executive compensation. For the ~~nine~~three months ended ~~October~~April 2, ~~2021,~~2022, the effective tax rate was ~~28.1%~~25.1%, which varied from the annual effective tax rate due to discrete items recorded during the period, including legal settlement income received, interest recorded on unrecognized tax benefits, adjustments to state income tax rates, and stock compensation.

Valuation allowance

As of ~~October~~April 2, ~~2021,~~2022, the Company remained in a valuation allowance position, in the amount of ~~$12.1~~$14.6 million, against its deferred tax assets for certain state jurisdictions of certain entities as it is currently deemed “more likely than not” that the benefit of such net tax assets will not be utilized as the Company continues to be in a three-year cumulative loss position for these state jurisdictions. The Company will continue to monitor the positive and negative factors for these jurisdictions and make further changes to the valuation allowances as necessary.

Unrecognized tax benefits

Despite the Company’s belief that its tax return positions are consistent with applicable tax laws, the Company believes that certain positions could be challenged by taxing authorities. The Company’s tax reserves reflect the difference between the tax benefit claimed on tax returns and the amount recognized in the consolidated financial statements. These reserves have been established based on management’s assessment as to potential exposure attributable to permanent differences as well as interest and penalties applicable to both permanent and temporary differences. The tax reserves are reviewed periodically and adjusted in light of changing facts and circumstances, such as progress of tax audits, lapse of applicable statutes of limitations and changes in tax law. The Company is currently under examination by various taxing authorities. During the ~~nine~~three months ended ~~October~~April 2, ~~2021,~~2022, the tax reserves increased by approximately ~~$6.4~~$0.4 million. The increase is primarily due to ~~a new uncertain tax benefit and~~ additional interest expense related to previously recorded unrecognized tax benefits.

The liability for unrecognized tax benefits as of ~~October~~April 2, ~~2021~~2022 was approximately ~~$18.1~~$17.8 million and is recorded in other long-term liabilities in the consolidated balance sheet.

CARES Act

Under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) that was signed into law on March 27, 2020, the Company elected to defer employer ~~side~~ social security payments ~~for~~of approximately $19.9 million as of December 31, ~~2020,~~2020. In December 2021, the Company paid approximately $10 million ~~of which is~~in deferred employer social security payments and has approximately $10 million recorded in current liabilities on the consolidated balance ~~sheet. Approximately $10 million~~sheet as of ~~the deferral will be paid by December 31, 2021 and the remainder~~April 2, 2022 that will be paid by December 31, 2022.

NOTE 20 — SEGMENT INFORMATION

Operating segments are defined as components of an enterprise that engage in business activities for which discrete financial information is available and is evaluated on a regular basis by the chief operating decision maker to make decisions regarding the allocation of resources to the segment and assess the performance of the segment. The Company has 3 reportable segments: Windows, Siding and Commercial.

These operating segments follow the same accounting policies used for our consolidated financial statements. We evaluate a segment’s performance on a U.S. GAAP basis based primarily upon operating income before corporate expenses.

Corporate assets consist primarily of cash, investments, prepaid expenses, current and deferred taxes and property, plant and equipment associated with our headquarters in Cary, North Carolina and office in Houston, Texas. These items (and income and expenses related to these items) are not allocated to the operating segments. Corporate unallocated expenses primarily include share-based compensation expenses, restructuring charges, acquisition-related costs, and other expenses related to executive, legal, finance, tax, treasury, human resources, information technology and strategic sourcing, and corporate travel expenses. Additional unallocated amounts primarily include non-operating items such as interest income, interest expense, ~~loss on extinguishment of debt~~ and other income (expense).

The following table represents summary financial data attributable to the segments for the periods indicated (in thousands):
Three Months Ended Nine Months Ended
October 2,
2021 October 3,
2020 October 2,
2021 October 3,
2020
Net sales:
Windows $ 596,486 $ 501,314 $ 1,703,493 $ 1,378,039
Siding 357,870 321,898 1,036,448 848,190
Commercial 490,049 404,041 1,371,617 1,199,771
Total net sales $ 1,444,405 $ 1,227,253 $ 4,111,558 $ 3,426,000
Operating income (loss):
Windows $ 15,756 $ 37,295 $ 83,901 $ (252,794)
Siding 46,108 45,313 127,019 (92,916)
Commercial 908,458 56,137 1,003,373 109,642
Corporate (59,596) (34,766) (151,549) (101,819)
Total operating income (loss) 910,726 103,979 1,062,744 (337,887)
Unallocated other expense, net (44,593) (50,402) (189,611) (159,056)
Income (loss) before taxes $ 866,133 $ 53,577 $ 873,133 $ (496,943)
October 2,
2021 December 31,
2020
Total assets:
Windows $ 2,076,604 $ 1,717,032
Siding 2,120,543 2,123,615
Commercial 516,366 890,380
Corporate 1,017,582 747,463
Total assets $ 5,731,095 $ 5,478,490


	Three Months Ended
		April 2, 2022		April 3, 2021
Net sales:
Windows		$	702,110	$	527,263
Siding		332,990		316,391
Commercial		531,738		423,378
Total net sales		$	1,566,838	$	1,267,032
Operating income:
Windows		$	46,245	$	29,362
Siding		27,423		27,528
Commercial		80,943		41,585
Corporate		24,705		(43,267)
Total operating income		179,316		55,208
Unallocated other expense, net		(42,667)		(56,071)
Income (loss) before taxes		$	136,649	$	(863)

		April 2, 2022		December 31, 2021
Total assets:
Windows		$	2,232,057	$	2,223,098
Siding		2,083,123		2,060,275
Commercial		1,015,922		1,073,264
Corporate		700,554		470,823
Total assets		$	6,031,656	$	5,827,460

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NOTE 21 — CONTINGENCIES

As a manufacturer of products primarily for use in building construction, the Company is inherently exposed to various types of contingent claims, both asserted and unasserted, in the ordinary course of business. As a result, from time to time, the Company and/or its subsidiaries become involved in various legal proceedings or other contingent matters arising from claims or potential claims arising out of its operations and businesses that cover a wide range of matters, including, among others, environmental, contract, employment, intellectual property, securities, personal injury, property damage, product liability, warranty, and modification, adjustment or replacement of component parts or units sold, which may include product recalls. The Company insures (or self-insures) against these risks to the extent deemed prudent by its management and to the extent insurance is available. The Company regularly reviews the status of ongoing proceedings and other contingent ~~matters along with legal counsel.~~matters. Liabilities for such items are recorded when it is probable that the liability has been incurred and when the amount of the liability can be reasonably estimated. Liabilities are adjusted when additional information becomes available. Management believes that the ultimate disposition of these matters will not have a material adverse effect on the Company’s results of operations, financial position or cash flows. However, such matters are subject to many uncertainties and outcomes and are not predictable with assurance.

Further, due to the lack of adequate information and the potential impact of present regulations and any future regulations, there are certain circumstances in which no range of potential exposure may be reasonably estimated. Also, it is not possible to ascertain the ultimate legal and financial liability with respect to certain contingent liabilities, including lawsuits, and therefore no such estimate has been made as of ~~October~~April 2, ~~2021.~~2022.

Environmental

The Company’s operations are subject to various federal, state, local and foreign environmental, health and safety laws. Among other things, these laws regulate the emissions or discharge of materials into the environment; govern the use, storage, treatment, disposal and management of hazardous substances and wastes; protect the health and safety of its employees and the end-users of its products; regulate the materials used in its products; and impose liability for the costs of investigating and remediating (as well as other damages resulting from) present and past releases of hazardous substances. Violations of these laws or of any conditions contained in environmental permits could result in substantial fines or penalties, civil sanctions, injunctive relief, consent orders, or requirements to install pollution controls or other abatement ~~equipment, or civil sanctions.~~equipment.

The Company could be held liable for costs to investigate, remediate or otherwise address contamination at any real property it has ever owned, operated or used as a disposal site, or at other sites where wethe Company or its predecessors may have released hazardous materials. The Company could incur fines, penalties or sanctions or be subject to third-party claims, including indemnification claims, for property damage, personal injury or otherwise as a result of violations of (or liabilities under) environmental, health and safety laws, or in connection with releases of hazardous or other materials.

MW Manufacturers, Inc. (“MW”), a subsidiary of Ply Gem Industries, Inc., entered into a September 2011 Administrative Order on Consent with the U.S. Environmental Protection Agency (“EPA”) under the Corrective Action Program to address known releases of hazardous substances at MW’s Rocky Mount, Virginia property. A Phase I RCRA Facility Investigation (“RFI”) was submitted to the Virginia Department of Environmental Quality (“VDEQ”) in December 2015, and a Phase II RFI and the Human Health Risk Assessment and Baseline Ecological Risk Assessment were submitted in October 2018. A Limited Corrective Measures Study based on the investigations was submitted to the VDEQ for review and approval in September 2019. Upon completion of a 30-day public comment period, the VDEQ issued its Final Decision and Response to Comments approving a final remedy onin May ~~19,~~ 2021. The final remedy consists of continuing groundwater monitoring until the VDEQ’s corrective actions have been met; and implementing and complying with land use restrictions and institutional controls imposed by an environmental covenant. The Company has recorded a liability of $4.5 million for this MW site, of which $1.0 million is in other current liabilities and $3.5 million is in other long-term liabilities on the Company’s consolidated balance sheet as of ~~October~~April 2, ~~2021.~~2022.

The EPA is investigating groundwater contamination at a Superfund site in York, Nebraska, referred to as the PCE/TCE Northeast Contamination Site (“PCE/TCE Site”). Kroy Building Products, Inc. (“KBP”), a subsidiary of Ply Gem Industries, Inc., has been identified as a potentially responsible party at the site and has liability for investigation and remediation costs associated with the contamination. OnIn May ~~17,~~ 2019, KBP and an unrelated respondent ~~Kroy Industries, Inc.,~~ entered into an Administrative Settlement Agreement and Order on Consent with the EPA to conduct a Remedial Investigation/Feasibility Study (“RI/FS”) of the PCE/TCE Site. A final RI/FS Work Plan was approved by the EPA in December 2019. NaN phases of RI field sampling ~~have been~~were completed through May 2021 and ~~results are being analyzed to determine~~ a ~~monitoring~~Monitoring Well Plan was approved by the EPA in November 2021; well ~~plan and scope of additional investigation.~~installation is planned in 2022. The Company has recorded a liability of $4.4 million within other current liabilities inon its consolidated balance sheet as of ~~October~~April 2, ~~2021.~~2022. If necessary, the Company will adjust ~~our~~its remediation liability if the RI/FS scope materially changes or the EPA imposes additional investigative requirements. The Company may be able to recover a portion of costs incurred in connection with the PCE/TCE Site from other potentially responsible parties, though there is no assurance we would receive any funds.

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Based on current information, the Company is not aware of any environmental compliance obligations, claims or investigations that will have a material adverse effect on its results of operations, cash flows or financial position except as otherwise disclosed in the Company’s consolidated financial statements. However, there can be no guarantee that previously known or newly discovered matters will not result in material costs or liabilities.

Litigation

The Company believes it has valid defenses to the outstanding claims discussed below and will vigorously defend all such claims; however, litigation is subject to many uncertainties and there cannot be any assurance that the Company will ultimately prevail or, in the event of an unfavorable outcome or settlement of litigation, that the ultimate liability would not be material and would not have a material adverse effect on the business, results of operations, cash flows or financial position of the Company.

In November 2018, Aurora Plastics, LLC (“Aurora”) initiated an arbitration demand against Atrium Windows and Doors, Inc., Atrium Extrusion Systems, Inc., and North Star Manufacturing (London) Ltd. (collectively, “Atrium”) pursuant to a Third Amended and Restated Vinyl Compound and Supply Agreement dated as of December 22, 2016. A settlement was reached in this case during the fourth quarter of 2019. The Company has a ~~$3.9~~$1.6 million liability related to the settlement ~~of which $2.3 million is~~ in other current liabilities inon the Company’s consolidated balance sheet as of ~~October~~April 2, ~~2021.~~2022.

On November 14, 2018, an individual stockholder, Gary D. Voigt, filed a putative class action Complaint in the Delaware Court of Chancery against Clayton Dubilier & Rice, LLC (“CD&R”), Clayton, Dubilier & Rice Fund VIII, L.P. (“CD&R Fund VIII”), and certain directors of the Company. Voigt purported to assert claims on behalf of himself, on behalf of a class of other similarly situated stockholders of the Company, and derivatively on behalf of the Company, the nominal defendant. An Amended Complaint was filed on April 11, 2019. The Amended Complaint asserted claims for breach of fiduciary duty and unjust enrichment against CD&R Fund VIII and CD&R, and for breach of fiduciary duty against 12 director defendants in connection with the Merger. Defendants moved to dismiss the Amended Complaint and, on February 10, 2020, the court denied the motions except as to 4 of the director defendants. Voigt sought damages in an amount to be determined at trial.

On August 25, 2021, the parties to the case filed a Stipulation of Compromise and Settlement (“Stipulation”) setting forth their agreement to settle the litigation. ~~The Stipulation remains subject to court approval, and the court has scheduled a hearing to consider the Stipulation on January 19, 2022.~~ The Stipulation provides for CD&R, CD&R Fund VIII, and the 8 director defendants to cause their respective insurers to pay a total of $100 million into an escrow account that will be used to pay escrow expenses, satisfy any fee and incentive amounts awarded by the court in favor of plaintiff and plaintiff’s counsel, and distribute the remaining funds to the Company. The Stipulation further ~~provides~~provided that plaintiff’s counsel ~~intends to seek~~would apply for an award of attorneys’ fees and litigation expenses in an amount ~~no greater than~~of up to 23.5% of the $100 million payment by the insurers, and that any incentive award for the named plaintiff will be paid solely from the amount of plaintiff attorneys’ fees awarded. This Stipulation required court approval. On January 19, 2022, the Court held a hearing, verbally approved the Stipulation, and approved the plaintiff’s counsel’s application for a fee award of 23.5% of the $100 million settlement payment and the incentive award. On January 20, 2022, the Court entered an Order and Final Judgment approving the Stipulation. During the quarter ended April 2, 2022, the matter was resolved as the Company received $76.5 million in cash proceeds from the Stipulation, which was recorded in gain on legal settlements in the consolidated statement of operations.

Other contingencies

The Company’s imports of fabricated structural steel (“FSS”) from its Mexican affiliate, Building Systems de Mexico S.A. de C.V. (“BSM”) were subject to antidumping (“AD”) and countervailing duty (“CVD”) tariff proceedings before the U.S. Department of Commerce (“DOC”) and the U.S. International Trade Commission (“USITC”). The proceedings were initiated in February 2019 by the American Institute of Steel Construction (“AISC”) against FSS being imported into the USA from Mexico, Canada, and China. In 2019, the DOC issued preliminary tariff rates and in 2020 finalized CVD and AD tariff rates of 0% and 8.47%, respectively, for the Company’s imports of FSS from BSM. However, in February 2020, in a 3 to 2 vote, the USITC concluded there was no injury or threat of injury to the domestic FSS industry. In March 2020, the USITC opinion was published in the Federal Register, ceasing the Company’s requirement to pay the AD and CVD tariffs. The Company received full reimbursement for the $4.1 million in tariffs previously deposited with United States Customs and Border Protection and recorded a reduction in costs of sales during the fiscal year ended December 31, 2020. This matter was appealed by the AISC and, on September 22, 2021, the U.S. Court of International Trade (“CIT”) issued an opinion upholding the USITC’s determination that there was no injury or threat of injury to the domestic FSS industry caused by the cumulated imports of FSS from Mexico, Canada, and China. The AISC has appealed the CIT decision ~~is subject to further appeal~~ to the U.S. Court of Appeals for the Federal Circuit ~~and would have preclusive effect only with respect~~(“CAFC”). The Company will continue to ~~the proceedings involving China, because the USITC’s determination as it applies to imports~~vigorously advocate its position, that its import of FSS from ~~Mexico has been appealed~~BSM should not be subject to ~~a separate~~any CVD or AD tariffs, in all tribunals including the CAFC as well as the tribunal established pursuant to the North American Free Trade ~~Agreement. However, because the CIT decision addresses~~Agreement (“NAFTA”). The Company’s position is in agreement with, and bolstered by, the USITC’s ~~analysis of cumulated~~determination that FSS imports ~~of FSS from Mexico, Canada,~~do not cause material injury or threaten material injury to the U.S. industry and ~~China,~~ the ~~court’s opinion may be persuasive in the appeal~~CIT’s sustaining of the USITC’s ~~determination~~final negative injury determination. We have evaluated this matter in accordance with ASC 450, Contingencies, and concluded that no liability to the Company is probable and estimable as ~~it applies to imports~~ of ~~FSS from Mexico.~~April 2, 2022.

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NOTE 22 — SUBSEQUENT EVENTS

On ~~November 6, 2021,~~April 10, 2022, the Company entered into a ~~definitive agreement~~Membership Interest Purchase Agreement (the “Coil Coatings Purchase Agreement”) with BlueScope Steel North America Corporation, a Delaware corporation (“BlueScope”) and a subsidiary of BlueScope Steel Limited, to ~~acquire Union Corrugating Company Holdings, Inc. (“UCC”~~sell the Company’s metal coil coatings business to BlueScope for an aggregate purchase price of $500 million in cash, subject to certain customary adjustments (the “Coil Coatings Transaction”). ~~UCC provides metal roofing, roofing components and accessories from locations primarily in~~The Coil Coatings Transaction is subject to the ~~Central and Eastern U.S. regions. The Company expects to fund this acquisition with cash on hand. The~~satisfaction of customary closing conditions, including the expiration or termination of the ~~transaction~~waiting period under the HSR Act. Subject to the satisfaction or waiver of certain conditions and the other terms and conditions of the Coil Coatings Purchase Agreement, the Coil Coatings Transaction is expected ~~during~~to close in 2022. Pursuant to the ~~fourth quarter~~CD&R Merger Agreement, an affiliate of ~~2021, subject~~CD&R consented to ~~regulatory approval and other customary closing conditions.~~

the Company’s entry into the Coil Coatings Purchase Agreement.

3634

CORNERSTONE BUILDING BRANDS, INC.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following information should be read in conjunction with the unaudited consolidated financial statements included herein under “Item 1. Unaudited Consolidated Financial Statements” and the audited consolidated financial statements and the notes thereto and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020.~~2021.

FORWARD LOOKING STATEMENTS

This Quarterly Report includes statements concerning our expectations, beliefs, plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements that are not historical facts. These statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those expressed or implied by these statements. In some cases, our forward-looking statements can be identified by the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “objective,” “plan,” “potential,” “predict,” “projection,” “should,” “will,” “target” or other similar words. We have based our forward-looking statements on our management’s beliefs and assumptions based on information available to our management at the time the statements are made. We caution you that assumptions, beliefs, expectations, intentions and projections about future events may and often do vary materially from actual results. Therefore, we cannot assure you that actual results will not differ materially from those expressed or implied by our forward-looking statements. Accordingly, investors are cautioned not to place undue reliance on any forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, these expectations and the related statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those projected. These risks, uncertainties and other factors include, but are not limited to:

•our ability to complete the proposed CD&R Merger and the proposed Coil Coatings Transaction on the terms and timeline anticipated, or at all, and the effect of the announcement, pendency and completion of the CD&R Merger and the Coil Coatings Transaction on our ability to maintain relationships with customers and other third parties, on management’s attention to ongoing business concerns, and other risks and uncertainties related to the proposed CD&R Merger and the Coil Coatings Transaction that may affect future results;

•industry cyclicality;

•seasonality of the business and adverse weather conditions;

•challenging economic conditions affecting the residential, non-residential and repair and remodeling construction industry and markets;

•commodity price volatility and/or limited availability of raw materials, including polyvinyl chloride (“PVC”) resin, glass, aluminum, natural gas, and steel due to supply chain disruptions;

•our ability to identify and develop relationships with a sufficient number of qualified suppliers to mitigate risk in the event a significant supplier experiences a significant production or supply chain interruption;

•the increasing difficulty of consumers and builders in obtaining credit or ~~financing availability of consumers or builders;~~financing;

•increase in the macroeconomic inflationary ~~activity;~~environment;

•ability to successfully achieve price increases to offset cost increases;

•ability to successfully implement operational efficiency initiatives, including automation;

•ability to successfully integrate our acquired businesses;

•ability to attract and retain employees, including through various initiatives and actions;

•volatility in the United States (“U.S.”) and international economies and in the credit markets;

•the severity, duration and spread of the COVID-19 pandemic, as well as actions that may be taken by the Company or governmental authorities to contain the COVID-19 pandemic or to treat its ~~impact;~~impact and the resulting impact on supply chain and labor pressures;

•macroeconomic uncertainty and market volatility resulting from geopolitical concerns, including Russia’s invasion of Ukraine;

•an impairment of our goodwill and/or intangible assets;

•our ability to successfully develop new products or improve existing products;

•our ability to retain and replace key personnel;

•enforcement and obsolescence of our intellectual property rights;

•costs related to compliance with, violations of or liabilities under environmental, health and safety laws;

•competitive activity and pricing pressure in our industry;

•our ability to make strategic acquisitions accretive to earnings and dispositions at favorable prices and terms;

•our ability to fund operations, provide increased working capital necessary to support our strategy and acquisitions using available liquidity;

•our ability to carry out our restructuring plans and to fully realize the expected cost savings;

•global climate change, including ~~legal, regulatory~~compliance with new laws or ~~market responses~~regulations relating thereto;

•breaches of our information system security measures;

•damage to our computer infrastructure and software systems;

•necessary maintenance or replacements to our enterprise resource planning technologies;

•potential personal injury, property damage or product liability claims or other types of ~~litigation;~~litigation, including stockholder litigation related to the proposed CD&R Merger;

•compliance with certain laws related to our international business operations;

•increases in labor costs, labor market pressures, potential labor disputes, union organizing activity and work stoppages at our facilities or the facilities of our suppliers;

•significant changes in factors and assumptions used to measure certain of our defined benefit plan obligations and the effect of actual investment returns on pension assets;

•ability to compete effectively against competitors with substitutable products;

•additional costs from new regulations which relate to the utilization or manufacturing of our products or ~~services;~~services, including changes in building codes and standards;

•our ability to realize the anticipated benefits of acquisitions and dispositions and to use the proceeds from dispositions;

•volatility of the Company’s stock price;

•substantial governance and other rights held by the Investors;

•the effect on our common stock price caused by transactions engaged in by the Investors, our directors or executives;

•our substantial indebtedness and our ability to incur substantially more indebtedness;

•limitations that our debt agreements place on our ability to engage in certain business and financial transactions;

•our ability to obtain financing on acceptable terms;

•exchange rate fluctuations;

•downgrades of our credit ratings;

•the effect of increased interest rates on our ability to service our debt; and

•other risks detailed under the caption “Risk Factors” in this Quarterly Report on Form 10-Q, and in Part I, Item 1A in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020~~2021 (the ~~“2020~~“2021 Form 10-K”), and other filings we make with the SEC.

A forward-looking statement may include a statement of the assumptions or bases underlying the forward-looking statement. We believe that we have chosen these assumptions or bases in good faith and that they are reasonable. However, we caution you that assumed facts or bases almost always vary from actual results, and the differences between assumed facts or bases and actual results can be material, depending on the circumstances. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this report, including those described under the caption “Risk Factors” in this report and the ~~2020~~2021 Form 10-K, and other risks described in documents subsequently filed by the

Company from time to time with the SEC. We expressly disclaim any obligations to release publicly any updates or revisions to these forward-looking statements to reflect any changes in our expectations unless the securities laws require us to do so.

OVERVIEW

Cornerstone Building Brands, Inc. is the largest manufacturer of exterior building products in North America. The Company serves residential and commercial customers across new construction and the repair ~~and~~& remodel markets. Our mission is to be relentlessly committed to our customers and to create great building solutions that enable communities to grow and thrive.

We have developed and continue to implement a well-defined business strategy focused ~~on:~~on (i) driving profitable growth in new and existing markets; (ii) leveraging operational excellence across our businesses; and (iii) implementing a capital allocation framework balanced between a focus on opportunistic investment in high return initiatives and continued debt ~~repayment; and (iv) operating with an ongoing attention to sustainability.~~

repayment.

We believe that by focusing on operational excellence every day, creating a platform for future growth and investing in market-leading residential and commercial building brands, we will deliver unparalleled financial results. We design, engineer, manufacture, install and market external building products through our three operating segments: Windows, Siding, and Commercial.

Our manufacturing processes are vertically integrated, which we believe provides cost and competitive advantages. As the leading manufacturer of vinyl windows, vinyl siding, metal roofing and wall systems and metal accessories, Cornerstone Building Brands combines a diverse portfolio of products with an expansive national footprint that includes over ~~20,000~~22,000 employees at manufacturing, distribution and office locations primarily in North America.

At Cornerstone Building Brands, corporate stewardship is a responsibility that is deeply embedded in our culture. We believe that our sustainable business practices will provide us the staying power to make a real difference in countless cities and neighborhoods.

Our sales and earnings are subject to both seasonal and cyclical trends and are influenced by general economic conditions, interest rates, the price of material costs relative to other building materials, the level of residential and nonresidential construction activity, repair and remodel demand and the availability and cost of financing for construction projects. Our sales normally are lower in the first and fourth fiscal quarters of each year compared to the second and third fiscal quarters because of unfavorable weather conditions for construction and typical business planning cycles affecting construction.

~~Acquisitions and Divestitures~~

Our portfolio optimization is rooted in our core growth strategy and leverages areas where we have a competitive advantage resulting in a more focused and optimized business portfolio, strengthening our market position and financial flexibility. To deliver long-term value, we must participate in categories where meaningful growth exists. We believe this approach will enhance Cornerstone Building Brands’ value proposition, fueling both growth and value creation. Sustainable value creation is important because it allows us to deliver shareholder returns while establishing a foundation to support our long-term growth aspirations.CD&R Merger Agreement

On ~~April 30, 2021,~~March 5, 2022, the Company ~~acquired Prime Windows~~entered into an Agreement and Plan of Merger (the “CD&R Merger Agreement”), by and among Camelot Return Intermediate Holdings, LLC (“~~Prime Windows”~~Parent”), Camelot Return Merger Sub, Inc. (“Merger Sub”). Parent and Merger Sub are subsidiaries of investment funds managed by Clayton, Dubilier & Rice (“CD&R”). Upon the terms and subject to the conditions of the CD&R Merger Agreement, among other things, Merger Sub will merge with and into the Company (the “CD&R Merger”). As a result of the CD&R Merger, the Company will cease to be publicly-traded, and investment funds managed by CD&R will become the indirect owner of all of the Company’s outstanding shares of common stock that it does not already own. The proposed transaction has been approved by a special committee of independent directors of the Company’s board of directors (the “Special Committee”) ~~for total consideration~~previously formed to evaluate and consider any potential or actual proposal from CD&R. The board of ~~$93.0 million, exclusive~~directors of the Company, acting on the Special Committee’s recommendation, resolved unanimously to recommend that the stockholders of the Company vote to adopt and approve the CD&R Merger Agreement. The CD&R Merger is expected to close in the second or third quarter of 2022, subject to customary closing conditions. The waiting period under the Hart-Scott-Rodino Act of 1976, as amended, applicable to the proposed CD&R transaction expired on April 18, 2022. The transaction is subject to approval by holders of a ~~$2.0 million working capital adjustment which has~~majority of the shares not ~~been finalized as of October 2, 2021. This acquisition was funded through borrowings under~~owned by CD&R and its affiliates.

Additional information about the CD&R Merger Agreement and the CD&R Merger will be set forth in the Company’s ~~existing credit facilities. Prime Windows’ results are reported within~~Definitive Proxy Statement on Schedule 14A/that will be filed with the Windows segment as of the acquisition date. On August 20, 2021, the Company completed its acquisition of Cascade Windows, Inc. (“Cascade Windows”) for $239.5 million in cash. This acquisition was funded through cash available on the balance sheet. The Company reports Cascade Windows’ results within the Windows segment as of the acquisition date.

On August 9, 2021, the Company completed the sale of its IMP business for cash proceeds of $1.0 billion. On August 18, 2021, the Company completed the sale of its DBCI business for cash proceeds of $168.9 million. The Company previously reported the results of the IMP and DBCI businesses within the Commercial segment.SEC.

Markets We Serve

~~Our~~Our products are available across several large and attractive end markets, including residential new construction, residential repair and remodel and low-rise non-residential construction. We believe that there are favorable underlying fundamental factors that will drive long-term growth across the end markets in which we operate. We also believe ~~that~~ the ~~ongoing~~recent COVID-19 pandemic ~~while still causing economic uncertainty worldwide,~~ has driven strong demand for residential repair and remodel activity, residential new construction and select segments of the low-rise non-residential construction market, such as distribution, warehouse, healthcare and educational facilities in suburban regions. However, the COVID-19 pandemic has also caused challenges in other areas of non-residential construction, most notably in retail and commercial office facilities in densely populated urban centers, where we have minimal participation. We believe our business is well-positioned to benefit from broader societal and population trends favoring suburban regions, as employment and living preferences shift ~~toward~~towards such regions.

Cornerstone Building Brands is deeply committed to the communities where our customers and employees live, work and play. We recognize that our customers are increasingly environmentally conscious in their purchasing behavior, and we ~~aim to offer~~believe our sustainable solutions tofavorably address these evolving consumer preferences. For example, certain products in our portfolio

are high in recycled end content, virtually 100% recyclable at the end of their useful life and often manufactured to meet or exceed specified sustainability targets, such as ~~windows with~~ ENERGY STAR and LEED certifications. We recognize that efficient use of recycled materials helps to conserve natural resources and reduces environmental impact, and we are committed to ~~offering~~driving these sustainable ~~products to~~practices throughout our ~~customers.~~business.

3938

RESULTS OF OPERATIONS

The following table represents key results of operations on a consolidated basis for the periods indicated:

Three Months Ended Nine Months Ended
(Amounts in thousands) October 2,
2021 October 3,
2020 $
change % change October 2,
2021 October 3,
2020 $
change % change
Net sales $ 1,444,405 $ 1,227,253 217,152 17.7 % $ 4,111,558 $ 3,426,000 685,558 20.0 %
Gross profit 309,496 297,502 11,994 4.0 % 880,953 783,120 97,833 12.5 %
% of net sales 21.4 % 24.2 % 21.4 % 22.9 %
Selling, general and administrative expenses 161,134 137,250 23,884 17.4 % 477,820 436,575 41,245 9.4 %
% of net sales 11.2 % 11.2 % 11.6 % 12.7 %
Restructuring and impairment charges, net 971 2,918 (1,947) (66.7) % 7,461 32,164 (24,703) (76.8) %
Strategic development and acquisition related costs 22,250 7,909 14,341 181.3 % 25,502 13,550 11,952 88.2 %
Interest expense 43,731 51,519 (7,788) (15.1) % 147,688 158,738 (11,050) (7.0) %
Net income (loss) 620,535 30,516 590,019 1933.5 % 627,807 (484,658) 1,112,465 (229.5) %


	Three Months Ended
(Amounts in thousands)		April 2, 2022			April 3, 2021			$ change	% change
Net sales		$	1,566,838		$	1,267,032		299,806	23.7	%
Gross profit		333,907			259,729			74,178	28.6	%
% of net sales		21.3		%	20.5		%
Selling, general and administrative expenses		176,536			153,168			23,368	15.3	%
% of net sales		11.3		%	12.1		%
Restructuring and impairment charges, net		831			1,838			(1,007)	(54.8)	%
Strategic development and acquisition related costs		4,791			3,313			1,478	44.6	%
Interest expense		44,106			56,499			(12,393)	(21.9)	%
Provision for income taxes		34,366			792			33,574	4,239.1	%
Net income (loss)		102,283			(1,655)			103,938	(6,280.2)	%

Net sales - Consolidated net sales for the three ~~and nine~~ months ended ~~October~~April 2, ~~2021~~2022 increased by approximately ~~17.7% and 20.0%~~23.7%, ~~respectively,~~ as compared to the same period last year. The net sales growth was ~~primarily driven~~primarily-driven by favorable price actions across all segments in response to rising commodity costs and other inflationary ~~impacts. Demand for our products during the quarter was strong relative to prior year. Limited raw materials~~impacts coupled with $45.1 million impact from our suppliers, primarily steel and PVC resin, and labor shortages constrained operations and shipments. As a result, volume for the quarter was essentially flat compared to the same periods in the prior year.

~~For the nine months ended October 2, 2021,~~strategic acquisitions net ~~sales grew 20.0% compared to the same period last year with approximately 15%~~ of ~~the increase driven by our Windows and Siding segments serving the new home construction and repair and remodel end-markets with the remaining 5% increase coming~~divestitures from ~~the Commercial segment.~~portfolio optimization actions.

Gross profit % of net sales - The Company’s gross profit percentage was ~~21.4%~~21.3% for ~~both~~ the three ~~and nine~~ months ended ~~October~~April 2, ~~2021,~~2022, which was a ~~280 and 150~~80 basis point ~~decline~~increase over the three ~~and nine~~ months ended ~~October~~April 3, ~~2020, respectively. As a result of the quick pace of recovery experienced across many end-markets, there has been a rapid rise~~2021. The improvement in raw materials and many other manufacturing input costs. While we have responded by remaining price disciplined, the pace and length of time we remain in an inflationary environment can have the effect of reducing gross profit margins. We remain focused on structurally improving our highly variable cost structure with cost savings initiatives. Also contributing to the lower gross profit as a % of net sales ~~are manufacturing inefficiencies incurred as a result~~was driven by strong price mix net of ~~operating in an environment limited by shortages in~~inflation and the ~~supply~~net effect of ~~raw materials~~acquisitions and ~~labor. We continue to manage through this environment with a focus on serving our customers. Additionally, we have taken actions to improve recruiting and retention.~~divestitures made during the second half of 2021.

Selling, general, and administrative expenses increased ~~17.4% and 9.4%~~15.3% during the three ~~and nine~~ months ended ~~October~~April 2, ~~2021, respectively,~~2022 compared to the three ~~and nine~~ months ended ~~October~~April 3, ~~2020.~~2021. The increase was primarily driven by ~~return of near-term costs, such as~~sales commissions and other variable compensation ITprograms related to financial growth measures, increased wages and marketing related professional services to support market recovery and further growth. ~~Additionally, selling, general, and administrative expenses at October 3, 2020 included near-term cost savings initiatives executed in response to the COVID-19 pandemic.~~

Restructuring and impairment charges, net decreased ~~$1.9 million and $24.7~~$1.0 million during the three ~~and nine~~ months ended ~~October~~April 2, ~~2021, respectively,~~2022 compared to the three ~~and nine~~ months ended ~~October~~April 3, ~~2020,~~2021, primarily due to ~~completion~~lower severance of ~~operational and organizational actions taken in response to the COVID-19 pandemic.~~$0.8 million.

Strategic development and acquisition related costs increased ~~$14.3 million and $12.0~~$1.5 million during the ~~three and~~ ~~nine~~three months ended ~~October~~April 2, ~~2021, respectively,~~2022 compared to the three ~~and nine~~ months ended ~~October~~April 3, ~~2020, due to the timing of these activities,~~2021, primarily related to increased strategic development activity in the ~~IMP divestiture.~~current period partially offset by lower litigation costs from the Voigt lawsuit than the prior year comparable period.

Interest expense decreased ~~$7.8~~$12.4 million or ~~15.1% and $11.1 million or 7.0% in~~21.9% during the three ~~and nine~~ months ended ~~October~~April 2, ~~2021, respectively,~~2022 as compared to the three ~~and nine~~ months ended ~~October~~April 3, ~~2020,~~2021 primarily as a result of the ~~redemption~~actions taken in second quarter of 2021 (redemption of the $645 million 8.00% Senior Notes coupled with the refinancing of the Current Term Loan ~~Facility.~~Facility).

Consolidated provision (benefit) for income taxes was ~~a provision~~an expense of ~~$245.6~~$34.4 million ~~and $245.3 million~~ for the three and nine months ended October 2, 2021, respectively, compared to a provision $23.1 million and a benefit of $12.3 million for the three and nine months ended October 3, 2020, respectively. The effective tax rate for the three and nine months ended

October 2, 2021 was 28.4% and 28.1%, respectively, compared to 43.0% and 2.5% for the three and nine months ended October 3, 2020, respectively. The change in the effective tax rate was primarily driven by the divestitures and improved financial results for the three and nine months ended October 2, 2021, and the impact associated with the goodwill impairment recorded during the three months ended April ~~4, 2020.~~

~~Net income (loss)~~ ~~was $620.5~~2, 2022 compared to an expense of $0.8 million ~~or $4.82 per diluted share and $627.8 million or $4.90 per diluted share~~ for the three ~~and nine~~ months ended ~~October 2, 2021, respectively.~~

We continue to experience positive momentum from residential single-family and repair and remodel end-markets due to demand and elevated backlog levels. Single family housing starts increased approximately 24% and 29% over 2020 and 2019, respectively, on a year-to-date basis. We expect starts activity to remain strongApril 3, 2021. The change in the provision was primarily driven by an increase in pre-tax book income for the near to medium-term outlook. Repair and remodel market demand is at historic levels, and is expected to grow for the next couple of years. Additionally, we are experiencing historic backlog levels from the improving non-residential end-markets as well, particularly for component products. Non-residential starts typically lag residential starts by 18 to 24 months. Additionally, particularly over the last eightthree months the Architecture Billings Index (“ABI”), an indicator for non-residential activity, continues to be among the highest levels ever reported in the immediate post-recession periods that have been captured throughout the index’s history. As a result, we expect non-residential market activity to remain healthy inended April 2, 2022.

Segment Results of Operations

We report our segment information in the same way management internally organizes the business in assessing performance and making decisions regarding allocation of resources in accordance with ASC 280, Segment Reporting. We have determined that we have three reportable segments, organized and managed principally by the different industry sectors they serve. While the segments often operate using shared infrastructure, each reportable segment is managed to address specific customer needs in these diverse market sectors. We report all other business activities in Corporate and unallocated costs. Corporate assets consist primarily of cash, investments, prepaid expenses, current and deferred taxes and property, plant and equipment associated with our headquarters in Cary, North Carolina and office in Houston, Texas. These items (and income and expenses related to these items) are not allocated to the operating segments. Corporate unallocated expenses primarily include share-based compensation expenses, restructuring charges, acquisition costs, gain on legal settlements, and other expenses related to executive, legal, finance, tax, treasury, human resources, information technology and strategic sourcing, and

corporate travel expenses. Additional unallocated amounts primarily include non-operating items such as interest income, interest expense, loss on extinguishment of debt and other income (expense).

One of the primary measurements used by management to measure the financial performance of each segment is Adjusted EBITDA, a non-GAAP financial measure. We define Adjusted EBITDA as net income (loss), adjusted for the following items: income tax (benefit) expense; depreciation and amortization; interest expense, net; restructuring and impairment charges; strategic development and acquisition related costs; gain on ~~divestitures, non-cash charges; goodwill impairment;~~legal settlements; share-based compensation expense; non-cash gain (loss) on foreign ~~exchange transaction/translation (income) loss;~~currency transactions; other non-cash items; and other items.

The presentation of segment results below includes a reconciliation of the changes for each segment reported in accordance with U.S. GAAP to a pro forma basis to allow investors and the Company to meaningfully evaluate the percentage change on a comparable basis from period to period. The pro forma financial information is based on the historical information of Cornerstone Building Brands, which includes historical information of ~~Kleary Masonry, Inc. (“Kleary”), which the Company acquired on March 2, 2020;~~ Prime Windows LLC (“Prime Windows”), which the Company acquired on April 30, 2021; Cascade Windows, Inc. (“Cascade Windows”), which the Company acquired on August 20, 2021; ~~and~~ the insulated metals panels (“IMP”) and the roll-up sheet doors (“DBCI”) businesses, which the Company divested on August 9, 2021 and August 18, 2021, ~~respectively.~~respectively, and Union Corrugating Company Holdings, Inc. (“UCC”), which the Company acquired on December 3, 2021. The pro forma financial information does not give effect to the potential impact of current financial conditions, any anticipated synergies, operating efficiencies or cost savings that may result from the ~~Kleary,~~ Prime Windows, ~~and~~ Cascade Windows and UCC acquisitions; or any integration costs; and from the IMP and DBCI divestitures. Pro forma balances are not necessarily indicative of operating results had the ~~Kleary,~~ Prime Windows, ~~and~~ Cascade Windows and UCC acquisitions and the IMP and DBCI divestitures occurred on January 1, ~~2020~~2021 or of future results.

See Note 20 — Segment Information in the notes to the unaudited consolidated financial statements for more information on our segments.

NON-GAAP FINANCIAL MEASURES

Set forth below are certain “non-GAAP financial measures” as defined under the Securities Exchange Act of 1934. Management believes the use of such non-GAAP financial measures assists investors in understanding the ongoing operating performance of the Company by presenting the financial results between periods on a more comparable basis. Such non-GAAP financial measures should not be construed as an alternative to reported results determined in accordance with U.S. GAAP. We

have included reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and provided in accordance with U.S. GAAP.

The following tables present a comparison of net sales as reported to pro forma net sales for Cornerstone Building Brands as if the Prime Windows, Cascade Windows ~~Prime Windows~~ and ~~Kleary~~UCC acquisitions, and the IMP and DBCI divestitures had each occurred on January 1, ~~2020~~2021 rather than the respective date referenced above for each transaction:


		Three Months Ended October 2, 2021						Three Months Ended October 3, 2020							Three Months Ended April 2, 2022						Three Months Ended April 3, 2021
(Amounts in thousands)	(Amounts in thousands)	Reported		Acquisitions and Divestitures		Pro Forma		Reported		Acquisitions and Divestitures		Pro Forma		(Amounts in thousands)	Reported		Acquisitions and Divestitures		Pro Forma		Reported		Acquisitions and Divestitures		Pro Forma
Net Sales	Net Sales													Net Sales
Windows	Windows	$	596,486	$	23,577	$	620,063	$	501,314	$	54,439	$	555,753	Windows	$	702,110	$	—	$	702,110	$	527,263	$	58,421	$	585,684
Siding	Siding	357,870		—		357,870		321,898		—		321,898		Siding	332,990		—		332,990		316,391		—		316,391
Commercial	Commercial	490,049		(39,970)		450,079		404,041		(93,655)		310,386		Commercial	531,738		—		531,738		423,378		(36,439)		386,939
Total Net Sales	Total Net Sales	$	1,444,405	$	(16,393)	$	1,428,012	$	1,227,253	$	(39,216)	$	1,188,037	Total Net Sales	$	1,566,838	$	—	$	1,566,838	$	1,267,032	$	21,982	$	1,289,014

		Nine Months Ended October 2, 2021						Nine Months Ended October 3, 2020
		Reported		Acquisitions and Divestitures		Pro Forma		Reported		Acquisitions and Divestitures		Pro Forma
Net Sales
Windows		$	1,703,493	$	132,142	$	1,835,635	$	1,378,039	$	147,950	$	1,525,989
Siding		1,036,448		—		1,036,448		848,190		8,358		856,548
Commercial		1,371,617		(231,347)		1,140,270		1,199,771		(281,729)		918,042
Total Net Sales		$	4,111,558	$	(99,205)	$	4,012,353	$	3,426,000	$	(125,421)	$	3,300,579

The following tables reconcile Adjusted EBITDA and pro forma Adjusted EBITDA to operating income (loss) for the periods indicated.


Consolidated	Consolidated													Consolidated

		Three Months Ended						Nine Months Ended							Three Months Ended
(Amounts in thousands)	(Amounts in thousands)	October 2, 2021			October 3, 2020			October 2, 2021			October 3, 2020			(Amounts in thousands)		April 2, 2022			April 3, 2021
Net sales	Net sales	$	1,444,405		$	1,227,253		$	4,111,558		$	3,426,000		Net sales		$	1,566,838		$	1,267,032
Impact of acquisitions and divestitures(1)	Impact of acquisitions and divestitures(1)	(16,393)			(39,216)			(99,205)			(125,421)			Impact of acquisitions and divestitures(1)		—			21,982
Pro forma net sales	Pro forma net sales	$	1,428,012		$	1,188,037		$	4,012,353		$	3,300,579		Pro forma net sales		$	1,566,838		$	1,289,014

Operating income (loss), GAAP		$	910,726		$	103,979		$	1,062,744		$	(337,887)
Operating income, GAAP														Operating income, GAAP		$	179,316		$	55,208
Restructuring and impairment charges, net	Restructuring and impairment charges, net	971			2,918			7,461			32,321			Restructuring and impairment charges, net		831			1,838
Strategic development and acquisition related costs	Strategic development and acquisition related costs	22,250			7,909			25,502			13,550			Strategic development and acquisition related costs		4,791			3,313
Gain on divestitures		(831,252)			—			(831,252)			—
Goodwill impairment		—			—			—			503,171

Gain on legal settlements														Gain on legal settlements		(76,575)			—

Depreciation and amortization	Depreciation and amortization	71,055			71,933			216,956			212,413			Depreciation and amortization		73,932			72,615
Other (2)	Other (2)	9,547			6,588			30,337			25,089			Other (2)		11,620			6,174
Adjusted EBITDA	Adjusted EBITDA	183,297			193,327			511,748			448,657			Adjusted EBITDA		193,915			139,148

Impact of acquisitions and divestitures(1)	Impact of acquisitions and divestitures(1)	(1,710)			(17,884)			(7,953)			(41,091)			Impact of acquisitions and divestitures(1)		—			(2,093)
Pro Forma Adjusted EBITDA	Pro Forma Adjusted EBITDA	$	181,587		$	175,443		$	503,795		$	407,566		Pro Forma Adjusted EBITDA		$	193,915		$	137,055
Adjusted EBITDA as a % of Net Sales	Adjusted EBITDA as a % of Net Sales	12.7		%	15.8		%	12.4		%	13.1		%	Adjusted EBITDA as a % of Net Sales		12.4		%	11.0		%
Pro Forma Adjusted EBITDA as a % of Pro Forma Net Sales	Pro Forma Adjusted EBITDA as a % of Pro Forma Net Sales	12.7		%	14.8		%	12.6		%	12.3		%	Pro Forma Adjusted EBITDA as a % of Pro Forma Net Sales		12.4		%	10.6		%

(1)Reflects the ~~acquisition~~ impact ~~from January 1, 2020~~ of the net sales and Adjusted EBITDA of ~~Kleary through March 1, 2020,~~ Prime Windows ~~through~~LLC, Cascade Windows Inc., and Union Corrugating Company Holdings, Inc., which were acquired on April ~~29,~~30, 2021, August 20, 2021 and ~~Cascade Windows through August 19, 2021;~~December 3, 2021, respectively, and reflects the impact ~~from January 1, 2020~~ of the divestitures of the IMP and DBCI businesses through the divestiture dates of August 9, 2021 and August 18, 2021, respectively.

(2)Primarily includes ~~$8.4~~$11.5 million and ~~$16.9~~$3.3 million of share-based compensation for the three ~~and nine~~ months ended ~~October~~April 2, 2022 and April 3, 2021, respectively, and ~~$4.0 million and $12.6 million for the three and nine months ended October 3, 2020, respectively; $11.6~~$3.0 million in costs for the ~~nine~~three months ended ~~October 2,~~April 3, 2021 associated with debt refinancing transactions; and COVID-19 related costs of $0.0 million and $(0.4) million for the three and nine months ended October 2, 2021, respectively, and $2.6 million and $10.6 million for the three and nine months ended October 3, 2020, respectively.transactions.

Operating income (loss) for the three months ended ~~October~~April 2, ~~2021~~2022 increased to ~~$910.7~~$179.3 million of operating income as compared to ~~$104.0~~operating income of $55.2 million ~~for~~in the three months ended ~~October~~April 3, 2020, primarily due to the gain on the sales of the IMP and DBCI businesses of $831.3 million. Disciplined price actions more than offset inflationary impacts by approximately $69 million and were partially reduced by manufacturing inefficiencies experienced as a result of raw material constraints and labor shortages and higher SG&A expense primarily driven by return of near-term costs. Restructuring and impairment charges were also lower versus prior year periods. Strategic development charges were higher than prior year periods due primarily to the IMP divestiture. Operating income for the nine months ended October 2, 2021 ~~increased to $1,062.7 million as compared to an operating loss of $337.9 million in the nine months ended October 3, 2020~~ primarily as a result of the gain on ~~the sales of the IMP and DBCI businesses of $831.3 million and goodwill impairment of $503.2 million~~legal settlements in the ~~comparable period.~~current period of $76.6 million, incremental operating income from acquisitions, net of divestitures made in second half of 2021 (Prime, Cascade, and UCC), and strong price mix net of inflation that offset higher SG&A expenses.

Pro forma Adjusted EBITDA for the three months ended ~~October~~April 2, ~~2021~~2022 was ~~$181.6~~$193.9 million or ~~12.7%~~12.4% of pro forma net sales, ~~a decrease~~an increase of ~~210~~$56.9 million and 180 basis points from the pro forma period a year ago. ~~On a year-to-date basis, pro~~Pro forma ~~Adjusted~~adjusted EBITDA ~~as a percentage~~increased 41.5% from prior year primarily due to strong price mix net of ~~pro forma net sales increased 30 basis points versus the comparable period. The improvement was driven by strong residential demand and~~inflation of 108.1% resulting from price actions ~~offsetting~~taken to offset inflationary ~~impacts~~impacts. This was partially ~~reduced~~offset by 28.1% from lower volume, 28.0% from manufacturing inefficiencies ~~as a result of~~resulting from the challenges brought on by supply chain disruptions and labor constraints, and 10.5% from higher SG&A ~~costs.~~expenses.

Windows
Three Months Ended Nine Months Ended
(Amounts in thousands) October 2,
2021 October 3,
2020 October 2,
2021 October 3,
2020
Net Sales $ 596,486 $ 501,314 $ 1,703,493 $ 1,378,039
Impact of acquisitions(1)
23,577 54,439 132,142 147,950
Pro forma net sales $ 620,063 $ 555,753 $ 1,835,635 $ 1,525,989
Operating income (loss), GAAP $ 15,756 $ 37,295 $ 83,901 $ (252,794)
Restructuring and impairment charges, net 258 1,539 1,213 7,189
Strategic development and acquisition related costs 831 — 2,145 16
Goodwill impairment — — — 320,990
Depreciation and amortization 34,876 30,644 97,848 90,679
Other 38 1,168 (36) 6,060
Adjusted EBITDA $ 51,759 $ 70,646 $ 185,071 $ 172,140
Impact of acquisitions(1)
1,588 7,499 15,315 17,097
Pro Forma Adjusted EBITDA $ 53,347 $ 78,145 $ 200,386 $ 189,237
Adjusted EBITDA as a % of Net Sales 8.7 % 14.1 % 10.9 % 12.5 %
Pro Forma Adjusted EBITDA as a % of Pro Forma Net Sales 8.6 % 14.1 % 10.9 % 12.4 %


Windows

	Three Months Ended
(Amounts in thousands)		April 2, 2022			April 3, 2021
Net Sales		$	702,110		$	527,263
Impact of acquisitions(1)		—			58,421
Pro forma net sales		$	702,110		$	585,684

Operating income, GAAP		$	46,245		$	29,362
Restructuring and impairment charges, net		212			932
Strategic development and acquisition related costs		554			—

Depreciation and amortization		35,130			30,798
Other		238			(87)
Adjusted EBITDA		82,379			61,005

Impact of acquisitions(1)		—			6,582
Pro Forma Adjusted EBITDA		$	82,379		$	67,587
Adjusted EBITDA as a % of Net Sales		11.7		%	11.6		%
Pro Forma Adjusted EBITDA as a % of Pro Forma Net Sales		11.7		%	11.5		%

(1)Reflects the impact ~~from January 1, 2020~~ of the net sales and Adjusted EBITDA of Prime Windows ~~through April 29, 2021~~LLC and Cascade Windows ~~through~~Inc., which were acquired on April 30, 2021 and August ~~19, 2021.~~20, 2021, respectively.

Pro forma net sales for the three ~~and nine~~ months ended ~~October~~April 2, ~~2021~~2022 were ~~11.6% and 20.3%~~19.9% higher ~~respectively,~~ than pro forma net sales in the same ~~periods~~period a year ago. Disciplined price actions in response to rising commodity costs and other inflationary impacts drove ~~the~~a 22.4% increase in pro forma net sales as compared to the same ~~periods~~period last year. ~~Supply chain disruptions and constraints caused by labor shortages impacted volumes. As such, volumes~~Volumes were ~~slightly favorable compared to the third quarter 2020.~~2.5% lower with one fewer fiscal day.

Operating income (loss) for the three months ended ~~October~~April 2, ~~2021 decreased~~2022 increased to ~~$15.8~~$46.2 million of operating income as compared to operating income of ~~$37.3~~$29.4 million for the three months ended ~~October~~April 3, ~~2020,~~2021, primarily due to manufacturing inefficiencies associated with supply chain disruptions and labor shortages. Positive price mix net of inflation of $8 million was partially offset by higher SG&A costs of $6 million. Operating income for the nine months ended October 2, 2021 increased to $83.9 million as compared to an operating loss of $252.8 million for the nine month~~s ended~~ ~~October 3, 2020, primarily due to a~~

~~goodwill im~~pairment in the nine months ended October 3, 2020. Excluding the goodwill impairment, operating income improved $15.7 million or approximately 23% as a result of strong shipments in the first half of the year of $56 million coupled with positive price mix net of inflation, which more than offset the manufacturing impacts from supply chain disruptions and higher costs to serve our customers.

Pro forma Adjusted EBITDA for the three months ended ~~October~~April 2, ~~2021~~2022 was ~~$53.3~~$82.4 million or ~~8.6%~~11.7% of pro forma net sales, ~~a decrease~~an improvement of ~~550~~20 basis points from the pro forma period a year ago. Pro forma Adjusted EBITDA ~~decreased 31.7%~~increased 21.9% over the prior year quarter, primarily due to 70.1% of positive price mix net of inflation that was partially offset 39.3% from manufacturing inefficiencies, ~~discussed above. On a year-to-date basis, pro forma net sales increased 20.3%,~~7.6% from an increase in SG&A expenses, and ~~pro forma Adjusted EBITDA increased 5.9%.~~1.4% from lower volume impact.

Siding
Three Months Ended Nine Months Ended
(Amounts in thousands) October 2,
2021 October 3,
2020 October 2,
2021 October 3,
2020
Net Sales $ 357,870 $ 321,898 $ 1,036,448 $ 848,190
Impact of acquisition(1)
— — — 8,358
Pro forma net sales $ 357,870 $ 321,898 $ 1,036,448 $ 856,548
Operating income (loss), GAAP $ 46,108 $ 45,313 $ 127,019 $ (92,916)
Restructuring and impairment charges, net 133 (714) 287 2,901
Strategic development and acquisition related costs (50) 7,139 (2,894) 8,115
Goodwill impairment — — — 176,774
Depreciation and amortization 29,084 28,547 87,441 85,068
Other (45) (1,191) (64) (841)
Adjusted EBITDA 75,230 79,094 $ 211,789 $ 179,101
Impact of acquisition(1)
— — — 1,869
Pro Forma Adjusted EBITDA $ 75,230 $ 79,094 $ 211,789 $ 180,970
Adjusted EBITDA as a % of Net Sales 21.0 % 24.6 % 20.4 % 21.1 %
Pro Forma Adjusted EBITDA as a % of Pro Forma Net Sales 21.0 % 24.6 % 20.4 % 21.1 %

~~(1)Reflects the impact of net sales and Adjusted EBITDA of Kleary from January 1, 2020 through March 1, 2020.~~


Siding

	Three Months Ended
(Amounts in thousands)		April 2, 2022			April 3, 2021
Net Sales		$	332,990		$	316,391



Operating income, GAAP		$	27,423		$	27,528
Restructuring and impairment charges, net		208			141
Strategic development and acquisition related costs		—			323

Depreciation and amortization		29,062			29,148
Other		(221)			(19)
Adjusted EBITDA		$	56,472		$	57,121



Adjusted EBITDA as a % of Net Sales		17.0		%	18.1		%

Net sales for the three ~~and nine~~ months ended ~~October~~April 2, ~~2021~~2022 were ~~11.2% and 22.2%~~5.2% higher than the net sales in the same ~~periods~~period a year ago. For the quarter, price/mix increase of ~~$62 million~~21.1% more than offset lower volume ~~due to raw material and labor constraints during the quarter. On a year-to-date basis, the rapid recovery~~ of residential demand contributed 6.4% of the favorable increase, while disciplined price actions needed to offset inflationary raw material costs resulted in favorable price/mix of approximately 14% versus prior year.15.9%.

Operating income (loss) for the three months ended ~~October~~April 2, ~~2021 increased~~2022 decreased to ~~$46.1~~$27.4 million of operating income, as compared to operating income of ~~$45.3~~$27.5 million for the three months ended ~~October~~April 3, 2020, primarily due to $13 million of positive price mix net of inflation, partially offset by lower volumes and return of near-term costs in SG&A of $5 million. Lower volumes were a direct result of raw material and labor constraints during the quarter. Operating income for the nine months ended October 2, 2021 increased to $127.0 million, as compared to an operating loss of $92.9 million for the nine months ended October 3, 2020, primarily due to a goodwill impairment in the comparable period. Excluding the goodwill impairment, operating income increased 51.5% primarily due to disciplined price actions net of inflation of $30 million, favorable volume of $18 million and lower strategic development costs, offsetting higher costs in SG&A.2021.

Adjusted EBITDA for the three months ended ~~October~~April 2, ~~2021~~2022 was ~~$75.2~~$56.5 million or ~~21.0%~~17.0% of net sales, a decrease of ~~4.9%,~~1.1% compared to the same period in the prior year, primarily due to 25.9% from lower volume, ~~as mentioned above,~~4.4% from increased SG&A expenses, and 3.0% from increased manufacturing costs to serve customers and inefficiencies from supply chain and labor ~~disruptions coupled with the~~ ~~return of near-term costs in SG&A. Offsetting~~disruptions. Partially offsetting these increased costs was positive price mix net of inflation of ~~16.1%~~32.2%. ~~On a year-to-date basis, pro forma net sales increased 21.0% and Adjusted EBITDA margin decreased 70 basis points.~~


Commercial	Commercial													Commercial

		Three Months Ended						Nine Months Ended							Three Months Ended
(Amounts in thousands)	(Amounts in thousands)	October 2, 2021			October 3, 2020			October 2, 2021			October 3, 2020			(Amounts in thousands)		April 2, 2022			April 3, 2021
Net Sales	Net Sales	$	490,049		$	404,041		$	1,371,617		$	1,199,771		Net Sales		$	531,738		$	423,378
Impact of divestitures(1)		(39,970)			(93,655)			(231,347)			(281,729)
Impact of acquisition and divestitures(1)														Impact of acquisition and divestitures(1)		—			(36,439)
Pro forma net sales	Pro forma net sales	$	450,079		$	310,386		$	1,140,270		$	918,042		Pro forma net sales		$	531,738		$	386,939

Operating income, GAAP	Operating income, GAAP	$	908,458		$	56,137		$	1,003,373		$	109,642		Operating income, GAAP		$	80,943		$	41,585
Restructuring and impairment charges, net	Restructuring and impairment charges, net	2,673			1,358			5,719			20,427			Restructuring and impairment charges, net		159			672
Strategic development and acquisition related costs	Strategic development and acquisition related costs	2,263			(8)			3,095			(262)			Strategic development and acquisition related costs		—			58
Gain on divestitures		(831,252)			—			(831,252)			—
Goodwill impairment		—			—			—			5,407

Depreciation and amortization	Depreciation and amortization	7,012			11,743			29,015			33,664			Depreciation and amortization		8,168			11,360
Other	Other	396			1,108			524			3,967			Other		298			(257)
Adjusted EBITDA	Adjusted EBITDA	89,550			70,338			210,474			172,845			Adjusted EBITDA		89,568			53,418

Impact of divestitures(1)		(3,298)			(25,383)			(23,268)			(60,057)
Impact of acquisition and divestitures(1)														Impact of acquisition and divestitures(1)		—			(8,675)
Pro Forma Adjusted EBITDA	Pro Forma Adjusted EBITDA	$	86,252		$	44,955		$	187,206		$	112,788		Pro Forma Adjusted EBITDA		$	89,568		$	44,743
Adjusted EBITDA as a % of Net Sales	Adjusted EBITDA as a % of Net Sales	18.3		%	17.4		%	15.3		%	14.4		%	Adjusted EBITDA as a % of Net Sales		16.8		%	12.6		%
Pro Forma Adjusted EBITDA as a % of Pro Forma Net Sales	Pro Forma Adjusted EBITDA as a % of Pro Forma Net Sales	19.2		%	14.5		%	16.4		%	12.3		%	Pro Forma Adjusted EBITDA as a % of Pro Forma Net Sales		16.8		%	11.6		%

(1)Reflects the net adjustments of IMP and DBCI, ~~from January 1, 2020 through the divestiture dates of~~which were divested on August 9, 2021 and August 18, 2021, ~~respectively.~~respectively; and reflects the impact of the net sales and Adjusted EBITDA of Union Corrugating Company Holdings, Inc, which was acquired on December 3, 2021.

Pro forma net sales for the three ~~and nine~~ months ended ~~October~~April 2, ~~2021~~2022 were ~~45.0% and 24.2%~~37.4% higher than the same period a year ago, ~~respectively,~~ driven by disciplined price actions to mitigate rising steel costs of approximately ~~42.7% and 23.0%~~53.7%, ~~respectively. Additionally, higher~~partially offset by lower volumes ~~that resulted from recovering demand contributed to the increase.~~of 16.3%.

Operating income (loss) for the three months ended ~~October~~April 2, ~~2021~~2022 increased ~~$852.3~~to $80.9 million of operating income, as compared to operating income of $41.6 million for the three months ended ~~October~~April 3, ~~2020,~~2021. The increase was primarily due to the gain on the sales of the IMP and DBCI businesses as a result of strategic portfolio optimization actions to accelerate long-term value creation. Excluding the gain on the sales, operating income of $77.2 million increased 37.5% from the realization of price actions taken to offset rising steel and other manufacturing costs coupled with higher volume from positive end-market demand, offsetting return of near-term costs and manufacturing inefficiencies as a result of supply constraints. Operating income for the nine months ended October 2, 2021 increased $893.7 million compared to the nine months ended October 3, 2020. Excluding the gain on divestitures and the goodwill impairment incurred in the comparable period in the prior year, operating income increased 49.6% primarily due to favorable price mix net of ~~inflation.~~inflation, which more than offset the manufacturing impacts from supply chain disruptions and higher costs to serve our customers.

Pro forma Adjusted EBITDA for the three months ended ~~October~~April 2, ~~2021~~2022 was ~~$86.3~~$89.6 million or ~~19.2%~~16.8% of pro forma net sales, an improvement of ~~470~~520 basis points from the same period a year agoago. Pro forma Adjusted EBITDA increased by 100.2% primarily due to favorable price mix net of commodity and other inflation impacts of ~~$49 million,~~184.0%, partially offset by50.8% from lower volume, 18.1% from manufacturing inefficiencies caused by ~~material~~lower production levels and manufacturing labor capacity constraints, and 14.9% from higher SG&A ~~costs together totaling $16 million. On a year-to-date basis, pro forma net sales increased 24.2%, and pro forma Adjusted EBITDA increased 66.0%.~~expenses.

4543

Unallocated Operating ~~Losses~~Gain (Loss)


		Three Months Ended				Nine Months Ended					Three Months Ended
(Amounts in thousands)	(Amounts in thousands)	October 2, 2021		October 3, 2020		October 2, 2021		October 3, 2020		(Amounts in thousands)		April 2, 2022		April 3, 2021
Statements of operations data:	Statements of operations data:									Statements of operations data:
SG&A expenses	SG&A expenses	$	(40,390)	$	(33,988)	$	(128,393)	$	(96,122)	SG&A expenses		$	(47,558)	$	(40,334)
Strategic development and acquisition related costs	Strategic development and acquisition related costs	(19,206)		(778)		(23,156)		(5,697)		Strategic development and acquisition related costs		(4,237)		(2,933)
Operating loss		(59,596)		(34,766)		$	(151,549)	$	(101,819)
Gain on legal settlement										Gain on legal settlement		76,500		—
Operating gain (loss)										Operating gain (loss)		$	24,705	$	(43,267)

Unallocated operating ~~losses~~gain (loss) ~~include~~includes items that are not directly attributed to or allocated to our reporting segments. Such items include legal costs, corporate payroll, and unallocated finance and accounting expenses. The unallocated operating ~~loss~~gain for the three months ended ~~October~~April 2, ~~2021 increased by $24.8~~2022 was $24.7 million, ~~or 71.4%~~as compared to a $43.3 million unallocated operating loss during the three months ended ~~October~~April 3, ~~2020, and the unallocated operating loss for the nine months ended October 2, 2021 increased by $49.7 million or 48.8% compared to the nine months ended October 3, 2020.~~2021. The change is primarily due to a gain on a legal settlement of $76.5 million during the three months ended April 2, 2022, partially offset by increase ~~in strategic development divestiture~~driven by sales commissions and other variable compensation programs related ~~expenses as well as debt issuance costs~~to financial growth measures, increased wages, and ~~the return of near-term expenses such as bonus~~marketing related professional services to support market recovery and ~~commission costs.~~further growth. Unallocated operating ~~loss~~gain (loss) includes ~~$8.4~~$11.5 million and ~~$4.0~~$3.3 million of share-based compensation expense for the ~~three months ended October 2, 2021 and October 3, 2020, respectively, and $16.9 million and $12.6 million for the~~ ~~nine~~three months ended ~~October~~April 2, ~~2021~~2022 and ~~October~~April 3, ~~2020,~~2021, respectively.

LIQUIDITY AND CAPITAL RESOURCES

General

Our ongoing principal source of funds is cash generated from operations, supplemented by borrowings against our asset-based lending and revolving credit facility, as necessary. We typically invest our excess cash in various overnight investments that are issued or guaranteed by the U.S. federal government. Our cash, cash equivalents and restricted cash ~~decreased~~increased from ~~$680.5~~$396.7 million as of December 31, ~~2020~~2021 to ~~$679.4~~$544.2 million as of ~~October~~April 2, ~~2021.~~2022. The following table summarizes our consolidated cash flows for the ~~nine~~three months ended ~~October~~April 2, ~~2021~~2022 and ~~October~~April 3, ~~2020~~2021 (in thousands):


		Nine Months Ended					Three Months Ended
		October 2, 2021		October 3, 2020			April 2, 2022		April 3, 2021
Net cash provided by (used in) operating activities		$	(183,640)	$	236,876
Net cash provided by (used in) investing activities		785,729		(102,838)
Net cash provided by (used in) financing activities		(602,385)		396,974
Net cash provided by operating activities						Net cash provided by operating activities	$	190,106	$	20,031
Net cash used in investing activities						Net cash used in investing activities	(28,910)		(20,695)
Net cash used in financing activities						Net cash used in financing activities	(13,500)		(7,459)
Effect of exchange rate changes on cash and cash equivalents	Effect of exchange rate changes on cash and cash equivalents	(784)		507		Effect of exchange rate changes on cash and cash equivalents	(108)		585
Net increase (decrease) in cash, cash equivalents and restricted cash	Net increase (decrease) in cash, cash equivalents and restricted cash	(1,080)		531,519		Net increase (decrease) in cash, cash equivalents and restricted cash	147,588		(7,538)
Cash, cash equivalents and restricted cash at beginning of period	Cash, cash equivalents and restricted cash at beginning of period	680,478		102,307		Cash, cash equivalents and restricted cash at beginning of period	396,658		680,478
Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	679,398	$	633,826	Cash, cash equivalents and restricted cash at end of period	$	544,246	$	672,940

Operating Activities

During the first quarter, the Company generated strong cash flow from operations of $190.1 million, an increase of $170.1 million from the prior year. The ~~Company used cash in operating activities during the nine months ended October 2, 2021 to invest in~~improvement was driven by legal settlement proceeds, higher earnings generation, and effective working capital ~~items to support strong market demand.~~management.

The following table shows the impact of working capital items on cash during the ~~nine~~three months ended ~~October~~April 2, ~~2021~~2022 and ~~October~~April 3, ~~2020,~~2021, respectively (in thousands):


		Nine Months Ended							Three Months Ended
		October 2, 2021		October 3, 2020		$ Change			April 2, 2022		April 3, 2021		Change
Net cash (used in) provided by:
Net cash provided (used in) by:								Net cash provided (used in) by:
Accounts receivable	Accounts receivable	$	(137,424)	$	(84,309)	$	(53,115)	Accounts receivable	$	(23,628)	$	(47,157)	$	23,529
Inventories	Inventories	(241,068)		30,980		(272,048)		Inventories	(68,857)		(62,028)		(6,829)
Accounts payable	Accounts payable	100,402		22,669		77,733		Accounts payable	84,726		49,424		35,302
Net cash (used in) provided by working capital items		$	(278,090)	$	(30,660)	$	(247,430)
Net cash provided by (used in) working capital items								Net cash provided by (used in) working capital items	$	(7,759)	$	(59,761)	$	52,002

The ~~use of~~ cash ~~for~~generated from working capital between periods was primarily driven by the investments in net working capital during the first quarter of 2021 to support the strong demand ~~environment~~recovery from the COVID-19 pandemic and increased ~~inventory~~ valuations from rising commodity costs and other inflationary aspects. See the ~~Consolidated Statements~~consolidated statements of ~~Cash Flows~~cash flows in the unaudited consolidated financial statements for additional information.

Investing Activities

Net cash ~~provided by~~used in investing activities was ~~$785.7~~$28.9 million during the ~~nine~~three months ended ~~October~~April 2, ~~2021~~2022 compared to ~~$102.8~~$20.7 million used in investing activities during the ~~nine~~three months ended ~~October~~April 3, ~~2020. During~~2021. The increase is primarily driven by $12.1 million of additional capital investments. See the nine months ended October 2, 2021, we paid approximately $331.0 million toward acquisitions, primarily for acquisitions of Cascade Windows and Prime Windows, received proceeds of $1,187.3 million from the divestitures of our insulated metal panels and roll-up sheet doors businesses, and used $75.2 million for capital expenditures. In the nine months ended October 3, 2020, we paid approximately $41.8 million, netconsolidated statements of cash ~~acquired,~~flows in the unaudited consolidated financial statements for ~~the acquisition of Kleary and used $62.5 million for capital expenditures.~~additional information.

Financing Activities

Net cash used in financing activities was ~~$602.4~~$13.5 million during the ~~nine~~three months ended ~~October~~April 2, ~~2021~~2022 compared to ~~$397.0~~$7.5 million ~~provided by~~used in financing activities induring the ~~nine~~three months ended ~~October~~April 3, ~~2020. During~~2021. The additional outflow of cash during the ~~nine months ended October 2, 2021, we increased our Current Term Loan Facility by $108.4~~period was due to $3.3 million ~~borrowed~~of payments related to financing component of interest rate swaps and ~~then repaid $190.0~~$2.5 million ~~on our Current ABL Facility, paid $670.8 million~~of payments related to ~~redeem the 8.00% Senior Notes and paid quarterly installments of $19.4 million on the Current Term Loan Facility.~~tax withholding for share-based compensation.

~~During the nine months ended October 3, 2020,~~ ~~we issued $500.0 million in aggregate principal amount of 6.125% Senior Notes due January 2029,~~ ~~borrowed $40.0 million on our Existing ABL Facility to finance the acquisition of Kleary, borrowed an additional $305.0 million on our Existing ABL Facility~~ ~~and repaid all outstanding balances at the end of the third quarter of 2020~~, and borrowed and paid $115.0 million on our Existing Cash Flow Revolver balances. Additionally, we paid quarterly installments of $19.2 million on the Existing Term Loan and used $6.4 million to repurchase shares of our outstanding common stock under our stock repurchase programs.

Debt

Below is a reconciliation of the Company’s net debt (in thousands) as of the dates indicated. Management considers net debt to be more representative of the Company’s financial position than total debt due to the amount of cash and cash equivalents held by the Company and the ability to utilize such cash and cash equivalents to reduce debt if needed.
October 2,
2021 December 31,
2020
Asset-based revolving credit facility due April 2026 $ — $ —
Term loan facility due April 2028 2,587,000 2,497,967
Cash flow revolver due April 2026 — —
8.00% senior notes due April 2026 — 645,000
6.125% senior notes due January 2029 500,000 500,000
Total Debt 3,087,000 3,642,967
Less: Cash and cash equivalents 677,187 674,255
Net Debt $ 2,409,813 $ 2,968,712

On April 15, 2021, the Company fully redeemed its $645 million aggregate principal amount of 8.00% Senior Notes using available cash from the balance sheet and net proceeds from its extended and upsized senior term loan facility. The Company successfully upsized and extended the maturity of its $2,492 million senior term loan facility due 2025 in the form of $2,600 million in Tranche B term loans due April 12, 2028. Additionally, the Company amended and refinanced its senior cash flow based and asset-based revolving credit facilities, extending the maturities to April 12, 2026.

In connection with the new Tranche B term loans, the Company also terminated two interest rate swaps and entered into two new swaps maturing in April 2026 on an aggregate notional value of $1.5 billion. The interest rate swaps effectively convert a portion of the floating rate interest payment into a fixed rate interest payment.


	April 2, 2022		December 31, 2021
Asset-based revolving credit facility due April 2026	$	—	$	—
Term loan facility due April 2028	2,574,000		2,580,500
Cash flow revolver due April 2026	—		—
6.125% senior notes due January 2029	500,000		500,000
Total Debt	3,074,000		3,080,500
Less: Cash and cash equivalents	542,035		394,447
Net Debt	$	2,531,965	$	2,686,053

We may not be successful in refinancing, extending the maturity or otherwise amending the terms of our outstanding indebtedness in the future because of market conditions, disruptions in the debt markets, our financial performance or other reasons. Furthermore, the terms of any refinancing, extension or amendment may not be as favorable as the current terms of our indebtedness. If we are not successful in refinancing our indebtedness or extending its maturity, we and our subsidiaries could face substantial liquidity problems and may be forced to reduce or delay capital expenditures, sell assets, seek additional capital or restructure our indebtedness.

For additional information, see Note 14 — Long-Term Debt ~~and Note 15 —~~ ~~Derivatives~~in the notes to the unaudited consolidated financial statements.

Additional Liquidity Considerations

We periodically evaluate our liquidity requirements, capital needs and availability of resources in view of inventory levels, expansion plans, debt service requirements and other operating cash needs. To meet our short-term and long-term liquidity requirements, including payment of operating expenses and repayment of debt, we rely primarily on cash from operations. The following table summarizes key liquidity measures under the Current ABL Credit Agreement and the Current Cash Flow Credit Agreement in effect as of ~~October~~April 2, ~~2021~~2022 and December 31, ~~2020~~2021 (in thousands):


		October 2, 2021		December 31, 2020			April 2, 2022		December 31, 2021
Asset-based revolving credit facility due April 2026	Asset-based revolving credit facility due April 2026	$	611,000	$	611,000	Asset-based revolving credit facility due April 2026	$	611,000	$	611,000
Eligible borrowing base	Eligible borrowing base	611,000		568,000		Eligible borrowing base	611,000		611,000
Less: Borrowings	Less: Borrowings	—		—		Less: Borrowings	—		—
Less: LCs outstanding and priority payables	Less: LCs outstanding and priority payables	47,000		40,000		Less: LCs outstanding and priority payables	45,000		45,000
Net ABL availability	Net ABL availability	564,000		528,000		Net ABL availability	566,000		566,000

Plus: Cash flow revolver due April 2026	Plus: Cash flow revolver due April 2026	115,000		115,000		Plus: Cash flow revolver due April 2026	115,000		115,000
Plus: Cash and cash equivalents	Plus: Cash and cash equivalents	677,187		674,255		Plus: Cash and cash equivalents	542,035		394,447
Total Liquidity	Total Liquidity	$	1,356,187	$	1,317,255	Total Liquidity	$	1,223,035	$	1,075,447

We expect to contribute ~~$3.2 million to the defined benefit plans and $0.7~~$0.5 million to the postretirement medical and life insurance plans in the year ending December 31, ~~2021.~~2022.

On April 15, 2021, the Company fully redeemed its $645 million aggregate principal amount of 8.00% Senior Notes using available cash from the balance sheet and net proceeds from its extended and upsized senior term loan facility, which reduced total liquidity. We expect that cash generated from operations and our availability under the ABL Credit Facility and Current Cash Flow Revolver will be sufficient to provide us the ability to fund our operations and to provide the increased working capital necessary to support our strategy and fund planned capital expenditures for fiscal ~~2021~~2022 and expansion when needed. ~~The Company expects total capital expenditures to be between $90 million and $110 million during fiscal 2021.~~

Consistent with our growth strategy, we evaluate potential acquisitions that would provide additional synergies in our Windows, Siding and Commercial segments. From time to time, we may enter into letters of intent or agreements to acquire assets or companies in these ~~business lines.~~segments. The consummation of these transactions could require substantial cash payments and/or issuance of additional debt.

On April 30, 2021, the Company acquired Prime Windows. Prime Windows serves residential new construction and repair and remodel markets with energy efficient vinyl window and door products from two manufacturing facilities in the United States, expanding our manufacturing capabilities and creating new opportunities for us in the Western United States. This acquisition was funded through borrowings under the Company’s existing credit facilities.

On August 20, 2021, the Company acquired Cascade Windows. Cascade Windows serves the residential new construction and repair and remodel markets with energy efficient vinyl window and door products from various manufacturing facilities in the United States, expanding our manufacturing capabilities and creating new opportunities for us in the Western United States. This acquisition was funded with cash available on the balance sheet.

On November 6, 2021, the Company entered into a definitive agreement to acquire Union Corrugating Company Holdings, Inc. (“UCC”). UCC provides metal roofing, roofing components and accessories from locations primarily in the Central and Eastern U.S. regions. The Company expects to fund this acquisition with cash on hand. The closing of the transaction is expected during the fourth quarter of 2021, subject to regulatory approval and other customary closing conditions.

We also evaluate from time-to-time possible dispositions of assets or businesses when such assets or businesses are no longer core to our operations and do not fit into our long-term strategy. On August 9, 2021, the Company completed the sale of its insulated metal panels (“IMP”) business to Nucor Insulated Panel Group Inc. and certain of its subsidiaries (collectively, “Nucor”) in a cash transaction for $1 billion. The IMP transaction includes products sold under the Metl-Span and CENTRIA brands. On August 18, 2021, the Company completed the sale of its roll-up sheet doors business to Janus International Group, Inc. (“Janus”) in a cash transaction for $169 million. The roll-up sheet doors transaction includes products sold under the DBCI brand.

From time to time, we have used available funds to repurchase shares of our common stock under our stock repurchase ~~programs.~~program. On March 7, 2018, we announced that our Board of Directors authorized a new stock repurchase program for the repurchase of up to an aggregate of $50.0 million of our outstanding Common Stock. Under this repurchase program, we are authorized to repurchase shares at times and in amounts that we deem appropriate in accordance with all applicable securities laws and regulations. Shares repurchased are usually retired. There is no time limit on the duration of the program. During the ~~nine~~three months ended ~~October~~April 2, ~~2021,~~2022, there were no stock repurchases under the stock repurchase program. As of ~~October~~April 2, ~~2021,~~2022, approximately $49.1 million remained available for stock repurchases under the ~~program announced on March 7, 2018.~~program. In addition to repurchases of shares of our common stock under our stock repurchase program, we also withhold shares of restricted stock to satisfy minimum tax withholding obligations arising in connection with the vesting of awards of share-based compensation.

We may from time to time take steps to reduce our debt or otherwise improve our financial position. These actions could include prepayments, open market debt repurchases, negotiated repurchases, other redemptions or retirements of outstanding debt, opportunistic refinancing of debt and raising additional capital. The amount of prepayments or the amount of debt that may be refinanced, repurchased or otherwise retired, if any, will depend on market conditions, trading levels of our debt, our cash position, compliance with debt covenants and other considerations. Our affiliates may also purchase our debt from time to time through open market purchases or other transactions. In such cases, our debt may not be retired, in which case we would continue to pay interest in accordance with the terms of the debt, and we would continue to reflect the debt as outstanding on our consolidated balance sheets.

~~OFF-BALANCE SHEET ARRANGEMENTS~~

As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities (“SPEs”), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of October 2, 2021, we were not involved in any material unconsolidated SPE transactions.

~~CONTRACTUAL OBLIGATIONS~~

Our contractual obligations principally include obligations associated with our outstanding indebtedness, operating lease obligations and inventory purchase commitments. Contractual obligations did not materially change during the nine months ended October 2, 2021, except for debt related activities as disclosed in Note 14 — ~~Long-Term Debt~~ ~~in the notes to the unaudited consolidated financial statements and in Liquidity and Capital Resources —~~ ~~Financing Activities, and lease activity as disclosed in Note 9 —~~ ~~Leases~~ ~~in the notes to the unaudited consolidated financial statements.~~

CRITICAL ACCOUNTING ~~POLICIES~~ESTIMATES

Critical accounting ~~policies~~estimates are those that are most important to the portrayal of our financial position and results of operations. These ~~policies~~estimates require our most subjective judgments ~~often employing the use of estimates~~ about the effect of matters that are inherently uncertain. Our most critical accounting ~~policies~~estimates include those that pertain to accounting for acquisitions, intangible assets and goodwill; warranty; and income taxes, which are described in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020.~~2021.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 2 — Accounting Pronouncements in the notes to the unaudited consolidated financial statements for information on recent accounting pronouncements.

4947

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Prices for our raw material inputs are influenced by numerous factors beyond our control, including general economic conditions, domestically and internationally, the availability of raw materials, competition, labor costs, freight and transportation costs, production costs, import duties and other trade restrictions.

Windows and Siding Businesses

We are subject to market risk with respect to the pricing of our principal raw materials, which include PVC resin, aluminum and glass. If prices of these raw materials were to increase dramatically, we may not be able to pass such increases on to our customers and, as a result, gross margins could decline significantly. We manage the exposure to commodity pricing risk by increasing our selling prices for corresponding material cost increases, continuing to diversify our product mix, strategic buying programs and vendor partnering. The average market price for PVC resin was estimated to have increased approximately ~~59.8%~~27.2% for the ~~nine~~three months ended ~~October~~April 2, ~~2021~~2022 compared to the ~~nine~~three months ended ~~October~~April 3, ~~2020.~~2021.

Commercial Business

We are subject to market risk exposure ~~principally~~ related to volatility in the price of steel. For the ~~nine~~three months ended ~~October~~April 2, ~~2021,~~2022, material costs (predominantly steel costs) constituted approximately ~~66%~~61% of our Commercial ~~segment’s~~segment cost of sales. Our business is heavily dependent on the price and supply of steel. Our various products are fabricated from steel produced by mills to forms including bars, plates, structural shapes, sheets, hot-rolled coils and galvanized or Galvalume® — coated coils (Galvalume® is a registered trademark of BIEC International, Inc.). The steel industry is highly cyclical in nature, and steel prices have been volatile in recent years and may remain volatile in the future.

With material costs (predominantly steel costs) accounting for approximately ~~66%~~61% of our Commercial segment's cost of sales for the ~~nine~~three months ended ~~October~~April 2, ~~2021,~~2022, a one percent change in the cost of steel could have resulted in a pre-tax impact on cost of sales of approximately ~~$6.9~~$2.4 million for ~~our nine~~the three months ended ~~October~~April 2, ~~2021.~~2022. The impact to our financial results of operations of such an increase would be significantly dependent on the competitive environment and the costs of other alternative building products, which could impact our ability to pass on these higher costs.

Other Commodity Risks

In addition to market risk exposure related to the volatility in the price of ~~steel, aluminum, PVC resin, and glass,~~our raw materials, we are subject to market risk exposure related to volatility in the price of natural gas. As a result, we occasionally enter into both index-priced and fixed-price contracts for the purchase of natural gas. We have evaluated these contracts to determine whether the contracts are derivative instruments. Certain contracts that meet the criteria for characterization as a derivative instrument may be exempted from hedge accounting treatment as normal purchases and normal sales and, therefore, these forward contracts are not marked to market. At ~~October~~April 2, ~~2021,~~2022, all of our ~~forward~~ contracts for ~~commodities~~the purchase of natural gas met the scope exemption for normal purchases and normal sales.

Interest Rates

We are subject to market risk exposure related to changes in interest rates on our Current Cash Flow Facilities and Current ABL Facility, which provides for borrowings of up to $2,715.0 million on the Current Cash Flow Facilities and up to $611.0 million on the Current ABL Facility. These instruments bear interest at an agreed upon percentage point spread from either LIBOR or an ~~alternate base~~alternative rate. Assuming the Current Cash Flow Revolver is fully drawn, each quarter point increase or decrease in the interest rate would change our interest expense by approximately $6.8 million per year for the Current Cash Flow Facilities. Assuming the Current ABL Facility is fully drawn, each quarter point increase or decrease in the interest rate would change our interest expense by approximately $1.5 million per year. The fair value of our term loan credit facility at ~~October~~April 2, ~~2021~~2022 and December 31, ~~2020~~2021 was approximately $~~2,578.9~~2,490.3 million and ~~$2,485.5~~$2,570.8 million, respectively, compared to athe face value of ~~approximately $2,587.0~~$2,574.0 million and ~~$2,498.0~~$2,580.5 million, respectively. In April 2021, we entered into cash flow interest rate swap hedge contracts for a total notional amount of $1.5 billion to mitigate the exposure risk of our floating interest rate debt. The interest rate swaps effectively convert a portion of the floating rate interest payment into a fixed rate payment. ~~As of October~~At April 2, ~~2021,~~2022, our cash flow hedge swap contracts had a fair value ~~liability~~asset of ~~$61.5~~$87.4 million ~~with $13.1 million~~that is recorded in ~~accrued expenses~~other assets, net, and a fair value liability related to the ~~remainder~~financing component of the interest rate swaps of $53.2 million of which $40.1 million is recorded as a non-current liability and $13.1 million is recorded in accrued expenses on our consolidated balance sheet.

See Note 14 — Long-Term Debt and Note 15 — Derivatives in the notes to the unaudited consolidated financial statements for information on the material terms of our long-term debt and interest rate swaps.

Foreign Currency Exchange Rates

We are exposed to the effect of exchange rate fluctuations on the U.S. dollar value of foreign currency denominated operating revenue and expenses.

5048

The functional currency for our ~~Canada~~Canadian operations is the Canadian dollar. Translation adjustments resulting from translating the functional currency financial statements into U.S. dollar equivalents are reported separately in accumulated other comprehensive income (loss) in stockholders’ equity. The net foreign currency exchange ~~loss~~gain included in net income (loss) for the three ~~and nine~~ months ended ~~October~~April 2, 2022 and April 3, 2021 was ~~$(0.9) million and $(0.6) million, respectively; and~~ $0.9 million and ~~$(0.5)~~$0.3 million, ~~for the three and nine months ended October 3, 2020,~~ respectively. Net foreign currency translation adjustment, net of tax, and included in other comprehensive income (loss) for the three ~~and nine~~ months ended ~~October~~April 2, 2022 and April 3, 2021 was ~~$(6.8)~~$4.8 million and ~~$3.9~~$6.1 million, ~~respectively; and was $7.4 million and $6.4 million for the three and nine months ended October 3, 2020,~~ respectively.

The functional currency for our Mexico operations is the U.S. dollar. Adjustments resulting from the ~~re-measurement~~remeasurement of the local currency financial statements into the U.S. dollar functional currency, which uses a combination of current and historical exchange rates, are included in net income (loss) in the current period. Net foreign currency ~~re-measurement loss was $(0.4) million and $(0.5) million~~remeasurement gain (loss) for the three ~~and nine~~ months ended ~~October~~April 2, 2022 and April 3, 2021 ~~respectively;~~was $0.5 million and ~~insignificant and $(0.6)~~$(0.3) million, ~~for the three and nine months ended October 3, 2020,~~ respectively.

We have entered into foreign currency forward contracts with a financial institution ~~through May 2022~~ to hedge primarily inventory purchases in ~~Canada~~Canada. At April 2, 2022, we have a total notional amount of approximately ~~$57.5~~$38.9 million ~~in the aggregate~~hedged at fixed USD/CAD rates ranging from 1.2120 to ~~1.2726.~~1.2600 with value dates through December 2022. In the future, we may enter into additional foreign currency hedging contracts, to further mitigate the exposure risk of currency fluctuation against the Canadian dollar and/or the Mexican peso. See Note 15 — Derivatives in the notes to the unaudited consolidated financial statements for information on our currency hedges.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of ~~October~~April 2, ~~2021.~~2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding the required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Management believes that our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and based on the evaluation of our disclosure controls and procedures as of ~~October~~April 2, ~~2021,~~2022, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at such reasonable assurance level.

Internal Control over Financial Reporting

We are currently in the process of assessing the internal controls of Union Corrugating Company Holdings, Inc. (“UCC”), Cascade Windows Inc. (“Cascade Windows”) and Prime Windows LLC (“Prime Windows”) as part of the post-close acquisition integration process. UCC, Cascade Windows and Prime Windows have been excluded from our assessment of internal control over financial reporting as of ~~October~~April 2, ~~2021.~~2022. The total assets and revenues excluded from management’s assessment represent ~~3.0%~~11.8% and ~~1.3%~~6.7%, respectively, of the consolidated financial statements as of and for the ~~nine~~three months ended ~~October~~April 2, ~~2021.~~2022.

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended ~~October~~April 2, ~~2021~~2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

5149

CORNERSTONE BUILDING BRANDS, INC.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

Three complaints have been filed by purported stockholders of the Company relating to the CD&R Merger. The actions are captioned Stein v. Cornerstone Building Brands, Inc., et al., Case No. 1:22-cv-02981 (Apr. 11, 2022), filed in the United States District Court for the Southern District of New York, Hopkins v. Cornerstone Building Brands, Inc., et al., Case No. 1:22-cv-02258 (Apr. 20, 2022), filed in the United States District Court for the Eastern District of New York, and Whitfield v. Cornerstone Building Brands, Inc., et al., Case No. 2:22-cv-01547 (Apr. 20, 2022), filed in the United States District Court for the Eastern District of Pennsylvania. The complaints name the Company and the members of the Company’s board of directors as defendants and allege that the preliminary proxy statement filed with the SEC on April 7, 2022 contains alleged material misstatements and omissions in violation of Section 14(a) and Section 20(a) of the Exchange Act and Rule 14a-9 of the Exchange Act. The complaints seek, among other relief, an injunction preventing the closing of the CD&R Merger unless and until the information sought is disclosed, rescission of the merger agreement to the extent already implemented or recissory damages and attorneys’ and experts’ fees. The Company believes the claims asserted in the complaints are without merit.

Additional lawsuits may be filed against the Company, members of the Company’s board of directors or the Company’s officers in connection with the CD&R Merger, which could prevent or delay completion of the CD&R Merger and result in substantial costs to the Company, including any costs associated with indemnification.

See also Part I, Item 1, “Unaudited Consolidated Financial Statements”, Note 21 — Contingencies, which is incorporated herein by reference.

Item 1A. Risk Factors.

In addition to the information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020.~~2021. The risks disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020~~2021 and information provided elsewhere in this report, could materially affect our business, financial condition or results of operations. Additional risks and uncertainties not currently known or we currently deem to be immaterial may materially adversely affect our business, financial condition or results of operations. ~~We are providing the following information regarding changes that have occurred to our previously disclosed risk factors.~~ Except for such additional information and the risk factors set forth below, we believe there have been no other material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020.~~2021.

The ~~U.S. government’s pending rules~~consummation of the CD&R Merger is subject to a number of conditions, many of which are largely outside of the parties’ control, and, ~~regulations concerning mandatory COVID-19 vaccination~~if these conditions are not satisfied or waived on a timely basis, the CD&R Merger Agreement may be terminated and the CD&R Merger may not be completed.

The CD&R Merger is subject to certain customary closing conditions, including: (i) the approval by holders of a majority of all outstanding Shares (including those held by CD&R and its affiliates) and the approval by holders of a majority of the outstanding Shares held by the Unaffiliated Stockholders (together, the “Requisite Stockholder Approvals”); (ii) the absence of an injunction or law restraining, enjoining, rendering illegal or otherwise prohibiting consummation of the CD&R Merger; (iii) subject to customary materiality qualifiers, the accuracy of the representations and warranties contained in the CD&R Merger Agreement, including the representation that the Company has not suffered a “Material Adverse Effect” (as defined in the CD&R Merger Agreement) since January 1, 2022; and (iv) material performance by the other party of its covenants under the CD&R Merger Agreement. The failure to satisfy all of the required conditions could ~~materially and~~delay the completion of the CD&R Merger by a significant period of time or prevent it from occurring. Any delay in completing the CD&R Merger could cause the parties to not realize some or all of the benefits that are expected to be achieved if the CD&R Merger is successfully completed within the expected timeframe. There can be no assurance that the conditions to closing of the CD&R Merger will be satisfied or waived or that the CD&R Merger will be completed within the expected timeframe or at all.

Failure to complete the CD&R Merger could adversely affect ~~our~~the stock price and future business and financial ~~condition and~~ results of ~~operations.~~the Company.

~~On September 9, 2021, President Biden announced~~There can be no assurance that ~~he has directed~~ the ~~Occupational Safety~~conditions to the closing of the CD&R Merger will be satisfied or waived or that the CD&R Merger will be completed. If the CD&R Merger is not completed within the expected timeframe or at all, the ongoing business of the Company could be adversely affected and ~~Health Administration (“OSHA”) to develop an Emergency Temporary Standard (“ETS”) mandating either~~ the full vaccination against COVID-19 or weekly testing of employees for employers with 100 or more employees. OSHA issued the ETS on November 4, 2021, requiring covered employers to comply with the vaccine mandate beginning with January 4, 2022 or face substantial penalties for non-compliance. Additional, more protective vaccine mandates may be announced by the state or local jurisdictions in which our businesses operate. We are currently reviewing its provisions and potential impacts on us. Further, our suppliers mayCompany will be subject to a variety of risks and possible consequences associated with the failure to complete the Merger, including the following: (i) upon termination of the CD&R Merger Agreement under specified circumstances, the Company is required to pay Parent a termination fee of $105,000,000; (ii) the Company will incur certain transaction costs, including legal, accounting, financial advisor, filing, printing and mailing

fees, regardless of whether the CD&R Merger closes; (iii) under the CD&R Merger Agreement, the Company is subject to certain restrictions on the conduct of its business prior to the closing of the CD&R Merger, which may adversely affect its ability to execute certain of its business strategies; (iv) the Company may lose key employees during the period in which the Company and CD&R are pursuing the CD&R Merger, which may adversely affect the Company in the future if it is not able to hire and retain qualified personnel to replace departing employees; and (v) the proposed CD&R Merger, whether or ~~voluntarily impose, vaccine mandates,~~not it closes, will divert the attention of certain management and other key employees of the Company from ongoing business activities, including the pursuit of other opportunities that could be beneficial to the Company as an independent company.

If the CD&R Merger is not completed, these risks could materially affect the business and financial results of the Company and its stock price, including to the extent that the current market price of the Company’s common stock is positively affected by a market assumption that the CD&R Merger will be completed.

While the CD&R Merger is pending, the Company will be subject to business uncertainties and certain contractual restrictions that could adversely affect the business and operations of the Company.

In connection with the pending CD&R Merger, some customers, vendors or other third parties of the Company may react unfavorably, including by delaying or deferring decisions concerning their business relationships or transactions with the Company, which could adversely affect the revenues, earnings, funds from operations, cash flows and expenses of the Company, regardless of whether the CD&R Merger is completed. In addition, due to certain restrictions in the CD&R Merger Agreement on the conduct of business prior to completing the CD&R Merger, the Company may be unable (without the other party’s prior written consent), during the pendency of the CD&R Merger, to pursue strategic transactions, undertake significant capital projects, undertake certain significant financing transactions and otherwise pursue other actions, even if such actions would prove beneficial and may cause the Company to forego certain opportunities it might otherwise pursue. In addition, the pendency of the CD&R Merger may make it more difficult for the Company to effectively retain and incentivize key personnel and may cause distractions from the Company’s strategy and day-to-day operations for its current employees and management.

The Company will incur substantial transaction fees and CD&R Merger-related costs in connection with the CD&R Merger that could adversely affect the business and operations of the Company if the CD&R Merger is not completed.

The Company expects to incur non-recurring transaction fees, which include legal and advisory fees and substantial CD&R Merger-related costs associated with completing the CD&R Merger, and which could adversely affect the business operations of the Company if the CD&R Merger is not completed.

The termination fee and restrictions on solicitation contained in the CD&R Merger Agreement may discourage other companies from trying to acquire the Company.

The CD&R Merger Agreement prohibits the Company from initiating, soliciting, proposing or knowingly encouraging or knowingly facilitating any competing acquisition proposals, subject to certain limited exceptions. The CD&R Merger Agreement also contains certain termination rights, including, but not limited to, the right of the Company to terminate the CD&R Merger Agreement to accept a Superior Proposal (as defined in the CD&R Merger Agreement), subject to and in accordance with the terms and conditions of the CD&R Merger Agreement, and provides that, upon termination of the CD&R Merger Agreement by the Company to enter into an alternative acquisition agreement with respect to a Superior Proposal, the Company will be required to pay Parent a termination fee of $105,000,000 in cash. Upon termination of the CD&R Merger Agreement by the Company or Parent under specified conditions, Parent will be required to pay the Company a termination fee of $210,000,000 in cash. The termination fees and restrictions could discourage other companies from trying to acquire the Company even though those other companies might be willing to offer greater value to the Company’s stockholders than CD&R has offered in the CD&R Merger.

Litigation against the Company, CD&R, or the members of their respective boards, could prevent or delay the completion of the CD&R Merger or result in ~~disruptions in our business and supply chain.~~ the payment of damages following completion of the CD&R Merger.

It is ~~currently~~a condition to the CD&R Merger that no injunction or other order preventing the consummation of the CD&R Merger shall have been issued by any court of competent jurisdiction or other governmental authority of competent jurisdiction and remain in effect. As of the date of this Quarterly Report on Form 10-Q, a lawsuit has been filed by purported stockholders of the Company challenging the CD&R Merger or the other transactions contemplated by the CD&R Merger Agreement, which have named the Company and/or members of the the Company’s board of directors as defendants. It is possible that additional lawsuits may be filed by the Company’s stockholders challenging the CD&R Merger. The outcome of such lawsuits cannot be assured, including the amount of costs associated with defending these claims or any other liabilities that may be incurred in connection with the litigation of these claims. If plaintiffs are successful in obtaining an injunction prohibiting the parties from completing the CD&R Merger on the agreed-upon terms, such an injunction may delay the consummation of the CD&R Merger in the expected timeframe, or may prevent the CD&R Merger from being consummated at all. Whether or not ~~possible~~any plaintiff’s claim is successful, this type of litigation can result in significant costs and divert management’s attention and

resources from the closing of the CD&R Merger and ongoing business activities, which could adversely affect the operations of the Company.

Uncertainty about the CD&R Merger may adversely affect the relationships between the Company and its customers, vendors and employees, whether or not the CD&R Merger is completed.

In response to ~~predict~~the announcement of the CD&R Merger, existing or prospective customers, vendors and other third party relationships of the Company may delay, defer or cease providing goods or services, delay or defer other decisions concerning the Company, refuse to extend credit to the Company, or otherwise seek to change the terms on which they do business with ~~certainty~~ the ~~impact~~Company. Any such delays or changes to terms could materially harm the ~~executive order,~~Company’s business.

In addition, as a result of the ~~OSHA ETS,~~ andCD&R Merger, current and prospective employees could experience uncertainty about their future with the Company. These uncertainties may impair the Company’s ability to retain, recruit or motivate key management and technical, manufacturing, and other ~~vaccine mandates~~personnel.

If the CD&R Merger is not consummated by September 5, 2022, or, under certain conditions, December 13, 2022, either the Company or Parent may terminate the CD&R Merger Agreement, subject to certain exceptions.

Either the Company or Parent may terminate the CD&R Merger Agreement if the Merger has not been consummated by September 5, 2022, or if all conditions to closing other than those relating to antitrust approvals and those that by their nature are to be satisfied at the closing have been satisfied, then December 13, 2022. However, this termination right will not be available to a party if that party failed to fulfill its obligations under the CD&R Merger Agreement and that failure was the principal cause of, or directly resulted in, the failure to consummate the CD&R Merger on time. In the event the CD&R Merger Agreement is terminated by either party due to the failure of the CD&R Merger to close by September 5, 2022 (or December 13, 2022, as applicable), the Company will have ~~on our workforce. Additional vaccine mandates may be announced in jurisdictions in which we operate. Our implementation~~incurred significant costs and will have diverted significant management focus and resources from other strategic opportunities and ongoing business activities without realizing the anticipated benefits of any of these or other requirements may result in employee attrition, including attrition of critically skilled workforce, and difficulty securing future workforce needs, which could have a material adverse effect on our business, financial condition, and results of operations.the CD&R Merger.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The following table shows our purchases of our Common Stock during the three months ended ~~October~~April 2, ~~2021:~~2022:

Period
(a)
Total Number of
Shares
Purchased(1)
(b)
Average Price
Paid per Share (c)
Total Number of
Shares
Purchased as
Part of the Publicly
Announced
Program
(d)
Maximum Dollar
Value of
Shares that
May Yet be
Purchased Under
the Publicly Announced
Program(2)
(in thousands)
July 4, 2021 to July 31, 2021 — $ — — $ 49,145
August 1, 2021 to August 28, 2021 88,380 14.94 — 49,145
August 29, 2021 to October 2, 2021 — — — 49,145
Total 88,380 14.94 —


Period	(a) Total Number of Shares Purchased(1)	(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of the Publicly Announced Program	(d) Maximum Dollar Value of Shares that May Yet be Purchased Under the Publicly Announced Program(2) (in thousands)
January 1, 2022 to January 29, 2022	7,795	$	17.75	—	$	49,145
January 30, 2022 to February 26, 2022	—	—		—	49,145
February 27, 2022 to April 2, 2022	162,605	24.25		—	49,145
Total	170,400	23.95		—

(1)The total number of shares includes shares of restricted stock that were withheld to satisfy minimum tax withholding obligations arising in connection with the vesting of stock awards. The required withholding is calculated using the closing sales price on the previous business day prior to the vesting date as reported by the NYSE.

(2)On March 7, 2018, the Company announced that its Board of Directors authorized a stock repurchase program for up to an aggregate of $50.0 million of the Company’s Common Stock. Under this repurchase program, the Company is authorized to repurchase shares at times and in amounts that we deem appropriate in accordance with all applicable securities laws and regulations. Shares repurchased are usually retired. There is no time limit on the duration of the program. At ~~October~~April 2, ~~2021,~~2022, approximately $49.1 million remained available for stock repurchases under the program.

Item 6. Exhibits.

Index to Exhibits


Exhibit No.						Description
2.1						Agreement and Plan of Merger, dated as of March 5, 2022, by and among Camelot Return Intermediate Holdings, LLC, Camelot Return Merger Sub. Inc., and Cornerstone Building Brands, Inc. (filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K dated March 7, 2022 and incorporated by reference herein)
*†10.1						~~Retirement~~Membership Interest Purchase Agreement, dated April 10, 2022, by and between Cornerstone Building Brands, Inc. and ~~James S. Metcalf, dated September 20, 2021~~BlueScope Steel North America Corporation +
*†10.2						~~Employment Agreement~~Separation agreement between Cornerstone Building Brands, ~~Inc,~~Inc. and ~~Rose Lee,~~John L. Buckley, dated ~~August 3, 2021~~March 24, 2022
*31.1						Rule 13a-14(a)/15d-14(a) Certifications (Section 302 of the Sarbanes-Oxley Act of 2002)
*31.2						Rule 13a-14(a)/15d-14(a) Certifications (Section 302 of the Sarbanes-Oxley Act of 2002)
**32.1						Certifications pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code (Section 906 of the Sarbanes-Oxley Act of 2002)
**32.2						Certifications pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code (Section 906 of the Sarbanes-Oxley Act of 2002)
*101.INS						Inline XBRL Instance Document
*101.SCH						Inline XBRL Taxonomy Extension Schema Document
*101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document
*101.DEF						Inline XBRL Taxonomy Definition Linkbase Document
*101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document
*101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document
104						Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)


			*			Filed herewith
			**			Furnished herewith
			†			Management contracts or compensatory plans or arrangements
			+			Schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished supplementally to the SEC upon request.

~~SIGNATURE~~SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	CORNERSTONE BUILDING BRANDS, INC.

Date: ~~November 9, 2021~~May 3, 2022	By:	/s/ Rose Lee
		Rose Lee
		President and Chief Executive Officer


Date: ~~November 9, 2021~~May 3, 2022	By:	/s/ Jeffrey S. Lee
		Jeffrey S. Lee
		Executive Vice President, Chief Financial Officer and Chief Accounting Officer