UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________
 
Form 10-K 
__________________________
(Mark One)
ýANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 28, 2018December 31, 2019
 
or 
o
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
__________________________
ncslogorega21.jpgcnr-20191231_g1.jpg
NCI BUILDING SYSTEMS, INC.Cornerstone Building Brands, Inc.
(Exact name of registrant as specified in its charter)
__________________________


Delaware76-0127701
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)

5020 Weston ParkwaySuite 400 Cary, NCCaryNC27513
(Address of principal executive offices)(zip code)Zip Code)


Registrant’s telephone number, including area code: (888) 975-9436(866) 419-0042
__________________________


Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading SymbolName of Each Exchange on Which Registered
Common Stock, $0.01 par valueCNRNew York Stock Exchange


Securities registered pursuant to Section 12(g) of the Act: None
__________________________


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yes o No ý
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.Yes o No ý
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 o
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).Yes ý No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý
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 definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerý
Accelerated fileroý
Non-accelerated filero
¨ (Do not check if a smaller reporting company)
Smaller reporting companyo
Emerging growth companyo
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 Act).Yes o No ý
The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant on April 27, 2018June 28, 2019 was $750,262,999,$252,031,712, which aggregate market value was calculated using the closing sales price reported by the New York Stock Exchange as of the last business day of the registrant’s most recently completed second fiscal quarter.
The number of shares of common stock of the registrant outstanding on December 12, 2018February 26, 2020 was 125,347,957.126,073,241.
__________________________


DOCUMENTS INCORPORATED BY REFERENCE
Certain information required by Part III of this Annual Report is incorporated by reference from the registrant’s definitive proxy statement for its 20192020 annual meeting of shareholders to be filed with the Securities and Exchange Commission within 120 days of October 28, 2018.
December 31, 2019.



TABLE OF CONTENTS





TABLE OF CONTENTS

Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.



i




FORWARD LOOKING STATEMENTS
This Annual 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”“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 information, including any earnings guidance, if applicable.statements or information. 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 the actual results to differ materially from those projected. These risks, uncertainties and other factors include, but are not limited to:
industry cyclicality and seasonality and adverse weather conditions;
challenging economic conditions affecting the nonresidential construction industry;
downturns in the residential new construction and repair and remodeling end markets, or the economy or the availability of consumer credit;
volatility in the United States (“U.S.”) economy and abroad, generally, and in the credit markets;
changes in lawsour ability to successfully develop new products or regulations;improve existing products;
the effects of certainmanufacturing or assembly realignments;
seasonality of the business and other external domestic or international factors that we may not be able to control, including war, civil conflict, terrorism, natural disasters and public health issues;beyond our control;
our ability to obtain financing on acceptable terms;
recognition of goodwill or asset impairment charges;
commodity price volatility and/or limited availability of raw materials, including steel, PVC resin, glass and aluminum;
our ability to identify and develop relationships with a sufficient number of qualified suppliers and to avoid a significant interruption in our supply chains;
retention and replacement of key personnel;
enforcement and obsolescence of our intellectual property rights;
costs and liabilities related to compliance with, violations of or liabilities under environmental, lawshealth and environmental clean-ups;safety laws;
changes in building codes and standards;
competitive activity and pricing pressure in our industry;
volatility of the Company’s stock price;
our ability to make strategic acquisitions accretive to earnings;
our ability to carry out our restructuring plans and to fully realize the expected cost savings;
volatility in energy prices;
the adoption ofglobal climate change, legislation;including legal, regulatory or market responses thereto;
breaches of our information system security measures;
damage to our major information managementcomputer 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;
compliance with certain laws related to our international business operations;
increases in labor costs, 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 tariffsactual investment returns on steel imports;pension assets;
the cost and difficulty associated with integrating and combining acquired businesses;
1


volatility of the businesses of NCI and Ply Gem;Company’s stock price;
potential write-downs or write-offs, restructuring and impairment or other charges required in connection with the Merger;
substantial governance and other rights held by the Investors (as defined below);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;
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 Part I, Item 1A of this report.
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 Item 1A of this report. 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.


2


PART I
 
Item 1. Business.
General
NCICornerstone Building Systems,Brands, Inc. (together with its subsidiaries, unless the context requires otherwise, the “Company,” “NCI,“Cornerstone,” “we,” “us” or “our”) is onea leading North American integrated manufacturer of North America’s largest integrated manufacturersexternal building products for the commercial, residential, and marketersrepair and remodel construction industries. We design, engineer, and manufacture external building products through our three operating segments, Commercial, Siding, and Windows.
In our Commercial segment, we design, engineer, manufacture and distribute extensive lines of metal products for the nonresidential construction industry. Of the approximate $295 billion nonresidential construction industry, we primarily serve the low-rise nonresidential construction market (five stories or less) which, according to Dodge Data & Analytics (“Dodge”), represented approximately 87% of the total nonresidential construction industry during our fiscal year 2018. Our broad range of products are used primarily in new construction and in repair and retrofit activities, mostly in North America.
We design, engineer, manufacture and market what we believe is one of the most comprehensive lines of metal components and engineered building systems in the industry, withunder multiple brand names through a reputation for high quality and superior engineering and design. We go to market with well-recognized brands, which allow us to compete effectively within a broad range of end-user markets including industrial, commercial, institutional and agricultural. Our service versatility allows us to support the varying needs of our diverse customer base, which includes general contractors and sub-contractors, developers, manufacturers, distributors and a currentnationwide network of approximately 3,200 affiliated builders across North America in our Engineered Building Systemsplants and distribution centers. We offer a number of advantages over traditional construction alternatives, including shorter construction time, more efficient use of materials, lower construction costs, greater ease of expansion and lower maintenance costs. Our Commercial segment over 1,000 dealer partners for our insulated metal panel (“IMP”) products and approximately 5,500 architects. We also provideprovides metal coil coating services for commercial and construction applications, servicing both internal and external customers. We sell our products for both new construction and repair and retrofit applications.
As of October 28, 2018, we operated 36 manufacturing facilities locatedIn our Siding segment, our principal products include vinyl siding and skirting, steel siding, vinyl and aluminum soffit, aluminum trim coil, aluminum gutter coil, aluminum gutters, aluminum and steel roofing accessories, cellular PVC trim and mouldings, J-channels, wide crown molding, window and door trim, F-channels, H-molds, fascia, undersill trims, outside/inside corner posts, rain removal systems, injection molded designer accents such as shakes, shingles, scallops, shutters, vents and mounts, vinyl fence, vinyl railing, and stone veneer in the United States, Mexico and Canada, with additional sales and distribution offices throughout the United States and Canada. Our broad geographic footprint, along withThe breadth of our hub-and-spoke distribution system, allowsproduct lines and our multiple brand and price point strategy enable us to efficiently supply a broad rangetarget multiple distribution channels (wholesale and specialty distributors, retailers and manufactured housing) and end users (new construction and home repair and remodeling).
In our Windows segment, our principal products include vinyl, aluminum-clad vinyl, aluminum, wood and clad-wood windows and patio doors and steel, wood, and fiberglass entry doors that serve both the new construction and the home repair and remodeling sectors in the United States and Canada. We continue introducing new products to the portfolio which allow us to enter or further penetrate new distribution channels and customers. The breadth of customers with high-quality customer serviceour product lines and reliable deliveries.our multiple price point strategy enable us to target multiple distribution channels (wholesale and specialty distributors, retailers and manufactured housing) and end user markets (new construction and home repair and remodeling).
The CompanyNCI Building Systems, Inc. ("NCI") was founded in 1984 and reincorporated in Delaware in 1991. In 1998, we acquired Metal Building Components, Inc. (“MBCI”) and doubled our revenue base. As a result of the acquisition of MBCI, we became the largest domestic manufacturer of nonresidential metal components. In 2006, we acquired Robertson-Ceco II Corporation (“RCC”) which operates the Ceco Building Systems, Star Building Systems and Robertson Building Systems divisions and iswas a leader in the metal buildings industry. The RCC acquisition created an organization with greater product and geographic diversification, a stronger customer base and a more extensive distribution network than either company had individually, prior to the acquisition.
Since 2011, we have executed on a strategy to become the leading provider of IMPInsulated Metal Panels ("IMP") products in North America through our acquisitions of Metl-Span LLC (‘‘Metl-Span’’) in 2012 and CENTRIA, a Pennsylvania general partnership (‘‘CENTRIA’’), in 2015. We believe the IMP market remains underpenetrated in North America. IMP products possess several physical and cost-effective attributes, such as energy efficiency, that make them compelling alternatives to competing building materials, in particular due to the adoption of stricter standards and codes by numerous states in the United States that are expected to increase the use of IMP products in construction projects. Given these factors, we believe that growth within the IMP market will continue to outpace the broader metal building sector and the nonresidential construction industry as a whole.
The engineered building systems, metal components, insulated metal panels and metal coil coating businesses, and the construction industry in general, are seasonal in nature. Sales normally are lower in the first half of each fiscal year compared to the second half of each fiscal year because of unfavorable weather conditions for construction and typical business planning cycles affecting construction.
The nonresidential construction industry is highly sensitive to national and regional macroeconomic conditions. One of the primary challenges we face is that the United States economy is slowly recovering from a recession and a period of relatively low nonresidential construction activity, which began in the third quarter of 2008 and reduced demand for our products and adversely affected our business. In addition, the tightening of credit in financial markets over the same period adversely affected the ability of our customers to obtain financing for construction projects. As a result, we experienced a decrease in orders and cancellations of orders for our products.
Current market estimates continue to show uneven activity across the nonresidential construction markets. According to Dodge, low-rise nonresidential construction starts, as measured in square feet and comprising buildings of up to five stories, were down as much as approximately 7% in our fiscal 2018 as compared to our fiscal 2017. However, Dodge typically revises initial reported figures, and we expect this metric will be revised upwards over time. Leading indicators for low-rise, nonresidential construction activity indicate positive momentum into fiscal 2019.
The leading indicators that we follow and that typically have the most meaningful correlation to nonresidential low-rise construction starts are the American Institute of Architects’ (“AIA”) Architecture Mixed Use Index, Dodge residential single family starts and the Conference Board Leading Economic Index (“LEI”). Historically, there has been a very high correlation


to the Dodge low-rise nonresidential starts when the three leading indicators are combined and then seasonally adjusted. The combined forward projection of these metrics, based on a 9 to 14-month historical lag for each metric, indicates low single digit growth for new low-rise nonresidential construction starts in fiscal 2019.
On October 20, 2009, we completed a financial restructuring that resulted in a change of control of the Company. As part of the restructuring, Clayton, Dubilier & Rice Fund VIII, L.P. and CD&R Friends & Family Fund VIII, L.P. (together, the “CD&R Fund VIII Investment Group”), purchased an aggregate of 250,000 shares of a newly created class of our convertible preferred stock, designated the Series B Cumulative Convertible Participating Preferred Stock (the “Convertible Preferred Stock,” and shares thereof, the “Preferred Shares”), then representing approximately 68.4% of the voting power and Common Stock of the Company on an as-converted basis (the “Equity Investment”). On May 14, 2013, the CD&R Fund VIII Investment Group delivered a formal notice requesting the conversion of all of their Preferred Shares into shares of our Common Stock (the “Conversion”). In connection with the Conversion request, we issued the CD&R Fund VIII Investment Group 54,136,817 shares of our Common Stock, representing 72.4% of the Common Stock of the Company then outstanding. Under the terms of the Preferred Shares, no consideration was required to be paid by the CD&R Fund VIII Investment Group to the Company in connection with the Conversion of the Preferred Shares. As a result of the Conversion, the CD&R Fund VIII Investment Group no longer have rights to dividends or default dividends as specified in the Certificate of Designations for the Convertible Preferred Stock. The Conversion eliminated all the outstanding Convertible Preferred Stock and increased stockholders’ equity by nearly $620.0 million.
On June 22, 2012, we completed the acquisition of Metl-Span (the “Metl-Span Acquisition”) acquiring all of its outstanding membership interests for approximately $145.7 million in cash, which included $4.7 million of cash acquired. Upon the closing of the Metl-Span Acquisition, Metl-Span became a direct, wholly-owned subsidiary of NCI Group, Inc. Metl-Span’s operations are conducted through NCI Group, Inc. and its results are included in the results of our Metal Components Segment. The Metl-Span Acquisition strengthened our position as a leading fully integrated supplier to the nonresidential building products industry in North America, providing our customers a comprehensive suite of building products.
On January 16, 2015, NCI Group, Inc., a wholly-owned subsidiary of the Company, and Steelbuilding.com, LLC, a wholly owned subsidiary of NCI Group, Inc., completed the acquisition of CENTRIA (the “CENTRIA Acquisition”), pursuant to the terms of the Interest Purchase Agreement, dated November 7, 2014 (“Interest Purchase Agreement”) with SMST Management Corp., a Pennsylvania corporation, Riverfront Capital Fund, a Pennsylvania limited partnership, and CENTRIA. NCI acquired all of the general partnership interests of CENTRIA in exchange for $255.8 million in cash, including cash acquired of $8.7 million. The purchase price was subject to a post-closing adjustment to net working capital as provided in the Interest Purchase Agreement, which we settled during the first quarter of fiscal 2016 for additional cash consideration of approximately $2.1 million payable to the seller, which approximated the amount we previously accrued. The purchase price was funded through the issuance of $250.0 million of new indebtedness.
On February 8, 2018, the Company entered into a Term Loan Credit Agreement (the “Pre-merger Term Loan Credit Agreement”) which provided for a term loan credit facility in an original aggregate principal amount of $415.0 million (the “Pre-merger Term Loan Credit Facility”). Proceeds from borrowings under the Pre-merger Term Loan Credit Facility were used, together with cash on hand, (i) to refinance the existing term loan credit agreement, (ii) to redeem and repay the existing 8.25% senior notes due 2023 and (iii) to pay any fees, premiums and expenses incurred in connection with the refinancing. The term loans under the Pre-merger Term Loan Credit Agreement would have matured on February 7, 2025 and, prior to such date, would have amortized in nominal quarterly installments equal to one percent of the aggregate initial principal amount thereof per annum.
On February 8, 2018, the subsidiaries of the Company, NCI Group, Inc. and Robertson-Ceco II Corporation, and the Company as a guarantor, entered into an ABL Credit Agreement (the “Pre-merger ABL Credit Agreement”). The Pre-merger ABL Credit Agreement provided for an asset-based revolving credit facility (the “Pre-merger ABL Credit Facility”) which allowed aggregate maximum borrowings by the ABL borrowers of up to $150 million, letters of credit of up to $30 million and up to $20 million for swingline borrowings. Borrowing availability is determined by a monthly borrowing base collateral calculation that is based on specified percentages of the value of accounts receivable, eligible credit card receivables and eligible inventory, less certain reserves and subject to certain other adjustments. Availability is reduced by issuance of letters of credit as well as any borrowings. All borrowings under the Pre-merger ABL Credit Facility would have matured on February 8, 2023.
At a Special Meeting of the shareholders of NCI held on November 15, 2018 (the “Special Shareholder Meeting”), NCI’s shareholders approved (i) the Agreement and Plan of Merger (the “Merger Agreement”) among NCI, Ply Gem Parent, LLC (“Ply Gem”), and for certain limited purposes set forth in the Merger Agreement, Clayton, Dubilier & Rice, LLC, a Delaware limited liability company, pursuant to which, at the closing of the merger, Ply Gem was 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”) and (ii) the issuance in the Merger of 58,709,067 shares of NCI common stock, par value $0.01 per share (the “NCI Common Stock”) in the aggregate, on a pro rata basis, to the holders of all of the equity interests in Ply Gem (the “Stock Issuance”). NCI’s


shareholders also approved the three additional proposals described in the Company’s proxy statement relating to the Special Shareholder Meeting. The Merger was consummated on November 16, 2018 pursuant to the Merger Agreement.
3


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 Clayton, Dubilier & Rice Fund VIII, L.P., a Cayman Islands exempted limited partnership (“CD&R Fund VIII”), CD&R Friends & Family Fund VIII, L.P., a Cayman Islands exempted limited partnership (“CD&R FF Fund VIII”, and together with CD&R Fund VIII, 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 CD&R Fund VIII and CD&R FF Fund VIII, individually, the “CD&R Investors,” and collectively, the “CD&R Investor Group”), Atrium Intermediate Holdings, LLC, a Delaware limited liability company (“Atrium”), GGC BP Holdings, LLC, a Delaware limited liability company (“GGC”), and AIC Finance Partnership, L.P., a Cayman Islands exempted limited partnership (“AIC”, and together with Atrium and GGC, each individually, a “Golden Gate Investor,” and collectively, the “Golden Gate Investor Group,” and 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”) with 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 NCI Common Stock that are held by the Investors following the consummation of the Merger.
Pursuant to the terms of the New Stockholders Agreement, CD&R Fund VIII, CD&R FF Fund VIII and the Company terminated the Stockholders Agreement (the “Old Stockholders Agreement”), dated as of October 20, 2009, by and among the Company, CD&R Fund VIII and CD&R FF Fund VIII. Pursuant to the terms of the New Registration Rights Agreement, CD&R Fund VIII, CD&R FF Fund VIII and the Company terminated the Registration Rights Agreement (the “Old Registration Rights Agreement”), dated as of October 20, 2009, by and among the Company, CD&R Fund VIII and CD&R FF Fund VIII.
On November 16, 2018, in connection with the consummation of the Merger, the Company assumed (i) the obligations of the company formerly known as Ply Gem Midco, Inc. (“Ply Gem Midco”), a subsidiary of Ply Gem immediately prior to the consummation of the Merger, as borrower under the Current Cash Flow Credit Agreement, (ii) the obligations of Ply Gem Midco as parent borrower under the Current ABL Credit Agreement and (iii) the obligations of Ply Gem Midco as issuer under the Current Indenture (each as defined and further described in Item"Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations)Operations").
On January 12, 2019, the Company entered into a Unit Purchase Agreement (the “Purchase Agreement”) with Environmental Materials, LLC, a Delaware limited liability company (“Environmental Stoneworks” or “ESW”), the Members of Environmental Materials, LLC (the “Sellers”) and Charles P. Gallagher and Wayne C. Kocourek, solely in their capacity as the Seller Representative (as defined in the Purchase Agreement), pursuant to which, on February 20, 2019, the Company’s wholly-owned subsidiary, Ply Gem Industries, Inc., purchased from the Sellers 100% of the outstanding limited liability company interests of Environmental Stoneworks (the “Environmental Stoneworks Acquisition”). The transaction was financed through borrowings under the Company’s asset-based revolving credit facility. The Environmental Stoneworks Acquisition, when combined with the Company’s existing stone businesses, positions the Company as a market leader in stone veneer.
For additional discussion of the Company’s debt following the Merger, see “Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Our principal offices are located at 5020 Weston Parkway, Suite 400, Cary, North Carolina 27513, and our telephone number is (888) 975-9436.(866) 419-0042.
We file annual, quarterly and current reports and other information with the Securities and Exchange Commission (the “SEC”). Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, along with any amendments to those reports, are available free of charge at our corporate website at http://www.ncibuildingsystems.comwww.cornerstonebuildingbrands.com as soon as practicable after such material is electronically filed with, or furnished to the SEC. In addition, our website includes other items related to corporate governance matters, including our corporate governance guidelines, charters of various committees of our boardBoard of directorsDirectors and the code of business conduct and ethics applicable to our employees, officers and directors. You may obtain copies of these documents, free of charge, from our corporate website. However, the information on our website is not incorporated by reference into this Form 10-K.
Operating Segments
On February 22, 2018, the Company announced changes to NCI’s reportable business segments, effective January 28, 2018 for the first quarter of fiscal 2018, to align with changes in how the Company manages its business, reviews operating performance and allocates resources. During the first quarter of fiscal 2018, the Company began reporting results under four reportable segments, which are Engineered Building Systems, Metal Components, Insulated Metal Panels and Metal Coil Coating. Previously, operating results for the Insulated Metal Panel product line were included in the Metal Components segment. In addition, CENTRIA’s coil coating operations, which had been included in the Metal Components segment since the Company’s acquisition of CENTRIA in January 2015, are reported within the Metal Coil Coating segment for all periods presented herein. On August 6, 2018, NCI filed a Current Report on Form 8-K to update the segment disclosure reflecting the change inOur operating segments on a retrospective basis in its Annual Report for the year ended October 29, 2017.
Prior to the Merger our operating segments operatedoperate primarily in the nonresidentialcommercial, residential, and repair and remodeling construction market.markets. Sales and earnings are influenced by general economic conditions, commodity prices and the level of construction activity.
4


Commercial
Products
In our Commercial segment, we design, engineer, manufacture and distribute extensive lines of metal products for the nonresidential construction activity,market under multiple brand names through a nationwide network of plants and distribution centers. We offer a number of advantages over traditional construction alternatives, including shorter construction time, more efficient use of materials, lower construction costs, greater ease of expansion and lower maintenance costs. Our Commercial segment also provides metal roofcoil coating services for commercial and construction applications, servicing both internal and external customers. We sell our products for both new construction and repair and retrofit demandapplications.
Coil Coatings – Our complete line of coating finishes includes Epoxies, Acrylics, Polyesters, Silicone Modified Polyesters (SMP), Flurocarbons (PVDF), and Plastisol for light-gauge and heavy-gauge steel coil applications. As one of the availabilitylargest coil coaters in the country, Metal Coaters specializes in the toll processing of customer-owned light gauge metal to deliver coil coating solutions throughout the United States. Metal Prep is one of the largest providers of pre-painted Hot Rolled Steel in the United States and termsprovides heavy gauge coil coating solutions to the construction industry. We sell our products and processes principally to original equipment manufacturer customers who utilize pre-painted metal, including other manufacturers of financing availableengineered building systems and metal components. Our customer base also includes steel mills, metal service centers and painted coil distributors who in-turn supply various manufacturers of engineered building systems, metal components, lighting fixtures, ceiling grids, water heaters, appliances and other manufactured products.
Doors – From steel curtain roll-up and self-storage doors to complete hallway systems, our products are fabricated to meet or exceed operational requirements with little to no maintenance. Our doors are used across the country in freight terminals, commercial buildings, self-storage facilities, and more. Commercial grade steel curtain roll-up doors, self-storage doors, and hallway systems are sold directly to contractors and other customers under the brand “Doors and Buildings Components” (“DBCI”).
Insulated Metal Panels – Insulated Metal Panels act simultaneously as exterior wall, insulation, and finished interior wall, offering protection over the lifespan of a building. Insulated metal panels are panels consisting of rigid foam encased between two sheets of coated metal in a variety of modules, lengths and reveal combinations and are increasingly desirable because of their energy efficiency, noise reduction and aesthetic qualities. We design, manufacture, sell and distribute insulated metal panels for construction. Our operating segments are vertically integrateduse in various architectural, commercial, industrial and benefit from using similar basic raw materials. The manufacturingcold storage end market applications under the brand names “Metl-Span” and distribution activities of our segments are effectively“CENTRIA”.


coupled through the use of our nationwide hub-and-spoke manufacturing and distribution system, which supports and enhances our vertical integration.
EngineeredMetal Building Systems.
Products.  EngineeredSystems – Metal building systems consist of engineered structural members and panels that are fabricated and roll-formed in a factory. These systems are custom designed and engineered to meet project requirements and then shipped to a construction site complete and ready for assembly with no additional field welding required. Engineered building systems manufacturers design an integrated system that meets applicable building code and designated end use requirements. These systems consist of primary structural framing, secondary structural members (purlins and girts) and metal roof and wall systems or conventional wall materials manufactured by others, such as masonry and concrete tilt-up panels.
Engineered building systems typically consist of three systems:
Primary structural framing.  Primary structural framing, fabricated from heavy-gauge plate steel, supports the secondary structural framing, roof, walls and all externally applied loads. Through the primary framing, the force of all applied loads is structurally transferred to the foundation.
Secondary structural framing.  Secondary structural framing is designed to strengthen the primary structural framing and efficiently transfer applied loads from the roof and walls to the primary structural framing. Secondary structural framing consists of medium-gauge, roll-formed steel components called purlins and girts. Purlins are attached to the primary frame to support the roof. Girts are attached to the primary frame to support the walls.
Metal roof and wall systems.  Metal roof and wall systems not only lock out the weather but may also contribute to the structural integrity of the overall building system. Roof and wall panels are fabricated from light-gauge, roll-formed steel in many architectural configurations.
Accessory components complete the engineered building system. These components include doors, windows, specialty trims, gutters and interior partitions.
The following characteristics of engineered building systems distinguish them from other methods of construction:
Shorter construction time.  In many instances, it takes less time to construct an engineered building than other building types. In addition, because most of the work is done in the factory, the likelihood of weather interruptions is reduced.
More efficient material utilization.  The larger engineered building systems manufacturers use computer-aided analysis and design to fabricate structural members with high strength-to-weight ratios, minimizing raw materials costs.
Lower construction costs.  The in-plant manufacture of engineered building systems, coupled with automation, allows the substitution of less expensive factory labor for much of the skilled on-site construction labor otherwise required for traditional building methods.
Greater ease of expansion.  Engineered building systems can be modified quickly and economically before, during or after the building is completed to accommodate all types of expansion. Typically, an engineered building system can be expanded by removing the end or side walls, erecting new framework and adding matching wall and roof panels.
Lower maintenance costs.  Unlike wood, metal is not susceptible to deterioration from cracking, rotting or insect damage. Furthermore, factory-applied roof and siding panel coatings resist cracking, peeling, chipping, chalking and fading.
Environmentally friendly.  Our buildings utilize between 30% and 60% recycled content and our roofing and siding utilize painted surfaces with high reflectance and emissivity, which help conserve energy and reduce operating costs.
Manufacturing.  As of October 28, 2018, we operated seven facilities for manufacturing and distributing engineered building systems throughout the United States and in Monterrey, Mexico.
After we receive an order, our engineers design the engineered building system to meet the customer’s requirements and to satisfy applicable building codes and zoning requirements. To expedite this process, we use computer-aided design and engineering systems to generate engineering and erection drawings and a bill of materials for the manufacture of the engineered building system. From time to time, depending on our volume, we outsource portions of our drafting requirements to third parties.
Once the specifications and designs of the customer’s project have been finalized, the manufacturing of frames and other building systems begins at one of our frame manufacturing facilities. Fabrication of the primary structural framing consists of a process in which steel plates are punched and sheared and then routed through an automatic welding machine and sent through further fitting and welding processes. The secondary structural framing and the covering system are roll-formed steel products that are manufactured at our full manufacturing facilities as well as our components plants.
Upon completion of the manufacturing process, structural framing members and metal roof and wall systems are shipped to the job site for assembly. Since on-site construction is performed by an unaffiliated, independent general contractor, usually one


of our authorized builders, we generally are not responsible for claims by end users or owners attributable to faulty on-site construction. The time elapsed between our receipt of an order and shipment of a completed building system has typically ranged from six to twelve weeks, although delivery varies depending on engineering and drafting requirements and the length of the permitting process.
Sales, Marketing and Customers.  We are one of the largest domestic suppliers of engineered building systems. We design, engineer, manufacture and market engineered building systems and self-storage building systems for all nonresidential markets including commercial, industrial, agricultural, governmental and community.
Throughout the twentieth century, the applications of metal buildings have significantly evolved from small, portable structures that prospered during World War II into fully customizable building solutions spanning virtually every commercial low-rise end-use market.
We believe the cost of an engineered building system, excluding the cost of the land, generally represents approximately 15% to 20% of the total cost of constructing a building, which includes such elements as labor, plumbing, electricity, heating and air conditioning systems, installation and interior finish. Technological advances in products and materials, as well as significant improvements in engineering and design techniques, have led to the development of structural systems that are compatible with more traditional construction materials. Architects and designers now often combine an engineered building system with masonry, concrete, glass and wood exterior facades to meet the aesthetic requirements of end users while preserving the inherent characteristics of engineered building systems. As a result, the uses for engineered building systems now include office buildings, showrooms, retail shopping centers, banks, schools, places of worship, warehouses, factories, distribution centers, government buildings and community centers for which aesthetics and architectural features are important considerations of the end users. In addition, advances in our products such as insulated steel panel systems for roof and wall applications give buildings the desired balance of strength, thermal efficiency and aesthetic attractiveness.
We sell engineered building systems to builders, general contractors, developers and end users nationwide under the brand names “Metallic,” “Mid-West Steel Building Company,” “A & S,” “All American,” “Mesco,” “Star,” “Ceco,” “Robertson,” “Garco,” “Heritage” and “SteelBuilding.com.” We market engineered building systems through an in-house sales force to affiliated builder networks of approximately 3,200 builders. We also sell engineered building systems via direct sale to owners and end users as well as through private label companies. In addition to a traditional business-to-business channel, we sell small custom-engineered metal buildings through two other consumer-oriented marketing channels targeting end-use purchasers and small general contractors. We sell through Heritage Building Systems (“Heritage”), which is a direct-response, phone-based sales organization, and Steelbuilding.com, which allows customers to design, price and buy small metal buildings online. During fiscal 2018, our largest customer for Engineered Building Systems accounted for less than 1% of our total consolidated sales and external sales of our Engineered Building Systems segment accounted for 37.8% of total consolidated sales for the fiscal year.
The majority of our sales of engineered building systems are made through our authorized builder networks. We enter into an authorized builder agreement with independent general contractors that market our products and services to users. These agreements generally grant the builder the non-exclusive right to market our products in a specified territory. Generally, the agreement is cancelable by either party with between 30 and 60 days’ notice. The agreement does not prohibit the builder from marketing engineered building systems of other manufacturers. In some cases, we may defray a portion of the builder’s advertising costs and provide volume purchasing and other pricing incentives to encourage those businesses to deal exclusively or principally with us. The builder is required to maintain a place of business in its designated territory, provide a sales organization, conduct periodic advertising programs and perform construction, warranty and other services for customers and potential customers. An authorized builder usually is hired by an end-user to erect an engineered building system on the customer’s site and provide general contracting, subcontracting and/or other services related to the completion of the project. We sell our products to the builder, which generally includes the price of the building as a part of its overall construction contract with its customer. We rely upon maintaining a satisfactory business relationship for continuing job orders from our authorized builders.
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Metal Components.
Products.Roofing and Wall Systems - Metal components include metal roofroofing and wall systems, metal partitions, metal trim, doors and other related accessories. These products are used in new construction and in repair and retrofit applications for industrial, commercial, institutional, agricultural and rural uses. Metal components are used in a wide variety of construction applications, including purlins and girts, roofing, standing seam roofing, walls, doors, trim and other parts of traditional buildings, as well as in architectural applications and engineered building systems. Although precise market data is limited, we estimate the metal components market, includingWe sell roofing applications, to be a multi-billion dollar market. We believe that metal products have gained and continue to gain a greater share of new construction and repair and retrofit markets due to increasing acceptance and recognition of the benefits of metal products in building applications.
Our metal components consist of individual components, including secondary structural framing, metal roof and wall systems directly to regional manufacturers, contractors, subcontractors, distributors, lumberyards, cooperative buying groups and associated metal trims.other customers under the brand names “MBCI”, “American Building Components” (“ABC”), and “Metal Depots.” We sell directly to contractors or end users for use in the building industry, including the construction of metal buildings. We also stock and market metal component parts for use in the maintenance and repair of existing buildings.


Specific component products we manufacture include metal roof and wall systems, purlins, girts, partitions, header panels and related trim and screws. We are continually developing and marketing new products such as our Soundwall, Nu-Roof system and Energy Star cool roofing. We believe we offer the widest selection of metal components in the building industry. We custom produce purlins and girts for our customers and offer one of the widest selections of sizes and profiles in the United States. Metal roof and wall systems protect the rest of the structure and the contents of the building from the weather. They may also contribute to the structural integrity of the building.
Metal roofing systems have several advantages over conventional roofing systems, including the following:
Lower life cycle cost.  The total cost over the life of metal roofing systems is lower than that of conventional roofing systems for both new construction and retrofit roofing. For new construction, the cost of installing metal roofing is greater than the cost of conventional roofing. However, the longer life and lower maintenance costs of metal roofing make the cost more attractive. For retrofit roofing, although installation costs are higher for metal roofing due to the need for a sloping support system, over time the lower ongoing costs more than offset the initial cost.
Increased longevity.  Metal roofing systems generally last for a minimum of 20 years without requiring major maintenance or replacement. This compares to five to ten years for conventional roofs. The cost of leaks and roof failures associated with conventional roofing can be very high, including damage to building interiors and disruption of the functional usefulness of the building. Metal roofing prolongs the intervals between costly and time-consuming repair work.
Attractive aesthetics and design flexibility.  Metal roofing systems allow architects and builders to integrate colors and geometric design into the roofing of new and existing buildings, providing an increasingly fashionable means of enhancing a building’s aesthetics. Conventional roofing material is generally tar paper or a gravel surface, and building designers tend to conceal roofs made with these materials.
Our metal roofing products are attractive and durable. We use standing seam roof technology to replace traditional built-up and single-ply roofs as well as to provide a distinctive look to new construction.
Manufacturing.  As of October 28, 2018, we operated 14 facilities to manufacture metal components for the nonresidential construction industry, including three facilities for our door operations.
Metal component products are roll-formed or fabricated at each plant using roll-formers and other metal working equipment. In roll-forming, pre-finished coils of steel are unwound and passed through a series of progressive forming rolls that form the steel into various profiles of medium-gauge structural shapes and light-gauge roof and wall panels.
Sales, Marketing and Customers.  We are one of the largest domestic suppliers of metal components to the nonresidential building industry. We design, manufacture, sell and distribute one of the widest selections of components for a variety of new construction applications as well as for repair and retrofit uses.
We manufacture and design metal roofing systems for sales to regional metal building manufacturers, general contractors and subcontractors. We believe we have the broadest line of standing seam roofing products in the building industry. In addition, we have granted 21 non-exclusive, on-going license agreements to 18 companies, both domestic and international, relating to our standing seam roof technology.
These licenses, for a fee, are provided with MBCI’s technical know-how relating to the marketing, sales, testing, engineering, estimating, manufacturing and installation of the licensed product. The licensees buy their own roll forming equipment to manufacture the roof panels and typically buy accessories for the licensed roof system from MBCI.
We estimate that metal roofing currently accounts for less than 10% of total roofing material volume. However, metal roofing accounts for a significant portion of the overall metal components market. As a result, we believe that significant opportunities exist for metal roofing, with its advantages over conventional roofing materials, to increase its overall share of this market.
We sell metal components directly to regional manufacturers, contractors, subcontractors, distributors, lumberyards, cooperative buying groups and other customers under the brand names “MBCI”, “American Building Components” (“ABC”), “Eco-ficient” and “Metal Depots.” In addition to metal roofing systems, we manufacture roll-up doors and sell interior and exterior walk doors for use in the self-storage industry and other metal buildings. Roll-up doors, interior and exterior doors, interior partitions and walls, header panels and trim are sold directly to contractors and other customers under the brand “Doors and Buildings Components” (“DBCI”). These components also are produced for integration into self-storage and engineered building systems sold by us. In addition to a traditional business-to-business channel, we sell components through Metal Depots, which has eight retail stores throughout the United States and specifically targets end-use consumers and small general contractors.
We market our components products primarily within six market segments: commercial/industrial, architectural, standing seam roof systems, agricultural, residential and cold storage. Customers include small, medium and large contractors, specialty roofers, regional fabricators, regional engineered building fabricators, post frame contractors, material resellers and end users. Commercial
Raw materials and industrial businesses, including self-storage, are heavy userssuppliers
The principal raw material used in manufacturing of our metal components and metal buildings systems.engineered building systems is steel which we purchase from multiple steel producers. Our various products are fabricated from steel produced by mills including bars, plates, structural shapes, hot-rolled coils and galvanized or Galvalume®-coated coils (Galvalume® is a registered trademark of BIEC International, Inc.).

The price and supply of steel impacts our business. The steel industry is highly cyclical in nature, and steel prices have been volatile in recent years and may remain volatile in the future. Steel prices are influenced by numerous factors beyond our control, including general economic conditions domestically and internationally, currency fluctuations, the availability of raw materials, competition, labor costs, freight and transportation costs, production costs, import duties and other trade restrictions. Based on the cyclical nature of the steel industry, we expect steel prices will continue to be volatile.

Standing seam roof and architectural customersAlthough we have emerged as an important partthe ability to purchase steel from a number of suppliers, a production cutback by one or more of our customer base. As metal buildings become a more acceptable building alternative and aesthetics become an increasingly important consideration for end users of metal buildings,current suppliers could create challenges in meeting delivery schedules to our customers. Because we believe that architects will participate morehave periodically adjusted our contract prices, particularly in the design and purchase decisions and will use metal componentsengineered building systems segment, we have generally been able to a greater extent. Wood frame builders also purchasepass increases in our metal componentsraw material costs through distributors, lumberyards, cooperative buying groups and chain stores for various uses, including agricultural buildings.
Our metal components sales operations are organized into geographic regions. Each region is headed by a general sales manager supported by individual regional sales managers. Each local sales office is staffed by a direct sales force responsible for contacting customers and architects and a sales coordinator who supervises the sales process from the time the order is received until it is shipped and invoiced. The regional and local focusto our customers. We normally do not maintain an inventory of steel in excess of our customers requires extensive knowledgecurrent production requirements. However, from time to time, we may purchase steel in advance of local business conditions. During fiscal 2018, our largest customer for Metal Components accounted for less than 1% of our total consolidated salesannounced steel price increases.
Competition
We and external sales of our Metal Components segment accounted for 30.6% of total consolidated sales for the fiscal year.
Insulated Metal Panels.
Products. Insulated metal panels are panels consisting of rigid foam encased between two sheets of coated metal in a variety of modules, lengths and reveal combinations which are used in architectural, commercial, industrial and cold storage market applications.
Manufacturing. As of October 28, 2018, we operated eight facilities (seven in the United States and one in Canada) to manufacture IMP products.
Sales, Marketing and Customers. We design, manufacture, sell and distribute insulated metal panels for use in various Architectural, Commercial, Industrial and Cold Storage end-market applications under the brand names "Metl-Span" and "CENTRIA".
One of our strategic objectives and a major part of our “green” initiative is to expand our IMP product lines, which are increasingly desirable because of their energy efficiency, noise reduction and aesthetic qualities. Our IMP product line manufacturing facilities in the United States and Canada provide the nonresidential building products market with cost-effective and energy efficient insulated metal wall and roof panels.
Our “green” initiative enables us to capitalize on increasing consumer preferences for environmentally-friendly construction. We believe this will allow us to further service the needs of our existing customer base and to gain new customers.
As with components products, our IMP product lines service each of our six market segments: commercial/industrial, architectural, standing seam roof systems, agricultural, residential and cold storage.
During fiscal 2018, the largest customer of our Insulated Metal Panels segment accounted for less than 2% of our total consolidated sales and external sales of our Insulated Metal Panels segment represented 21.2% of total consolidated sales for the fiscal year.
Metal Coil Coating.
Products.  Metal coil coating consists of cleaning, treating and painting various flat-rolled metals, in coil form, as well as slitting and/or embossing the metal, before the metal is fabricated for use by various industrial users. Light gauge and heavy gauge metal coils that are painted, either for decorative or corrosion protection purposes, are utilized in the building industry byother manufacturers of metal components and engineered building systems. In addition, these painted metal coils are utilized by manufacturerssystems compete in the building industry with all other alternative methods of other products,building construction such as water heaters, lighting fixtures, ceiling grids, HVACtilt-wall, concrete and appliances. We clean, treatwood, single-ply and coat both heavy gauge (hot-rolled) and light gauge metal coils for our other operating segments and for third-party customers, who utilize them in a varietybuilt up, all of applications, including construction products, heating and air conditioning systems, water heaters, lighting fixtures, ceiling grids, office furniture, appliances and other products. We provide toll coating services under which the customer provides the metal coil and we provide only the coil coating service. We also provide a painted metal package under which we sell both the metal coil and the coil coating service together.
We believe that pre-painted metal coils provide manufacturers with a higher quality, environmentally cleaner andmay be perceived as more cost-effective solution to operating their own in-house painting operations. Pre-painted metal coils also offer manufacturers the opportunity to produce a broader andtraditional, more aesthetically pleasing range ofor having other advantages over our products.
Manufacturing.  As of October 28, 2018, we operated seven metal coil coating facilities locatedIn addition, competition in the United States. Two of our facilities coat hot-rolled, heavy gauge metal coils and five of our facilities coat light gauge metal coils.
Our coil coating processes have multiple stages. In the first stage, the metal surface is cleaned, and a chemical pretreatment is applied. The pretreatment is designed to promote adhesion of the paint system and enhance the corrosion resistance of the metal. After the pretreatment stage, a paint system is roll-applied to the metal surface, then baked at a high temperature to cure the coating and achieve a set of physical properties that not only make the metal more attractive, but also allows it to be formed into a manufactured product, all while maintaining the integrity of the paint system so that it can endure the final end use


requirements. After the coating system has been cured, the metal substrate is rewound into a finished metal coil and packaged for shipment. Slitting and embossing processes can also be performed on the finished coil in accordance with customer specifications, prior to shipment.
Sales, Marketing and Customers.  We process metal coils to supply substantially all the coating requirements of our own metal components and engineered building systems operating segments.market of the building industry is intense. We also processbelieve it is based primarily on:
quality;
service;
on-time delivery;
ability to provide added value in the design and engineering of buildings;
price;
speed of construction; and
personal relationships with customers.
We compete with a number of other manufacturers of metal coilscomponents, metal coil coaters, and engineered building systems for the building industry, including Nucor, Bluescope, Mueller, Kingspan, and Central States. Many of these competitors operate on a regional basis. We have two primary nationwide competitors in the engineered building systems market and three primary nationwide competitors in the metal components market. However, the metal components market is more fragmented than the engineered building systems market.
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As of December 31, 2019, we operated 37 manufacturing facilities located in the United States, Mexico and Canada, with additional sales and distribution offices throughout the United States and Canada. These facilities are used primarily for the manufacturing of metal components and engineered building systems for the building industry. We believe this broad geographic distribution gives us an advantage over our metal components and engineered building systems competitors because major elements of a customer’s decision are the speed and cost of delivery from the manufacturing facility to supply externalthe product’s ultimate destination. We operate a fleet of trucks to deliver our products to our customers in a more timely manner than most of our competitors.
Intellectual property
We have a number of different industries.United States patents, pending patent applications and other proprietary rights, including those relating to metal roofing systems, metal overhead doors, our pier and header system, our Long Bay® System and our building estimating and design system. The patents on our Long Bay® System expire in 2021. We also have several registered trademarks and pending registrations in the United States.
Seasonality
The Commercial business, and the construction industry in general, are seasonal in nature. Sales normally are lower in the first half of each fiscal year compared to the second half of each fiscal year because of unfavorable weather conditions for construction and typical business planning cycles affecting construction.
Backlog
At December 31, 2019 and December 31, 2018, the total backlog of orders, consisting of Engineered Building Systems’ and IMP orders, for our products was $608.0 million and $528.8 million, respectively. Job orders included in backlog are generally cancelable by customers at any time for any reason; however, cancellation charges may be assessed. Occasionally, orders in the backlog are not completed and shipped for reasons that include changes in the requirements of the customers and the inability of customers to obtain necessary financing or zoning variances. We marketanticipate that less than 23% of this backlog will extend beyond one year.
Siding
Products
In our metalSiding segment, our principal products include vinyl siding and skirting, steel siding, vinyl and aluminum soffit, aluminum trim coil, coating productsaluminum gutter coil, fabricated aluminum gutters, aluminum and processes understeel roofing accessories, cellular PVC trim and mouldings, J-channels, wide crown molding, window and door trim, F-channels, H-molds, fascia, undersill trims, outside/inside corner posts, rain removal systems, injection molded designer accents such as shakes, shingles, scallops, shutters, vents and mounts, vinyl fence, vinyl railing, and stone veneer in the brand names “Metal Coaters”United States and “Metal Prep”. Each of our metal coil coating facilities has an independent sales staff.
Canada. We sell our siding and accessories under our Variform®, Napco®, Mastic® Home Exteriors, Mitten®, Ply Gem/Cellwood®, and Durabuilt® brand names and under the Georgia-Pacific brand name through a private label program. Our cellular PVC Trim products are sold under our Ply Gem® Trim and processes principallyMouldings brand name. Our vinyl fencing and railing products are sold under the Ply Gem brand name. Our stone veneer products are sold under our Environmental Stoneworks, Canyon Stone and Ply Gem Stone brand names. Our gutter protection products are sold under our Leaf Relief®, Leaf Relief® Snap Tight, Leaf Smart® and Leaf Logic® brand names. The breadth of our product lines shown below and our multiple brand and price point strategy enable us to original equipment manufacturer customerstarget multiple distribution channels (wholesale and specialty distributors, retailers and manufactured housing) and end users (new construction and home repair and remodeling).
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Mastic® Home ExteriorsVariform®Napco®Cellwood ®Durabuilt®Georgia PacificMitten®Ply Gem Fence/RailPly Gem® StoneCanyon StonePly Gem® Trim and Mouldings
Environmental Stone Works (1)
Specialty/Super-Premium
Cedar Discovery®
Structure®
Home Insulation SystemTM
Heritage Cedar®™
Climaforce™
Cedar Select®
American Essence™
Cedar Dimensions™670 Series™ Hand Split
650 Series™ Shingle Siding
660 Series™ Round Cut Siding
800 Series Insulated Siding
Cedar Spectrum™Caliber™ High Performance Insulated SidingSentry Variegated Siding
Mitten 8' Rough Sawn
Shake
Fieldstone Tuscan
Fieldstone Shadow
Ledgestone
Cut Cobblestone
Cobblestone
Ridgestone
Riverstone Brick
Cascade Ledge
True Stack
Manorstone
Canyon Ledge
Castle
Cathedral
Classic
Cobblestone
Country Ledge
Fieldstone
Limestone
Manchester
River Rock
Timber Lodge
Tuscan Field Stone
Southern Ledge
Strip Ledge
Brick
Amargosa
Chiseled
Clipstone
Durata
EZ Column
Bugnato
Coral Stone
Grezzo
Imperial Panel
Luxor Panel
MArquis
Prairie
Prostack
Ripiano
Rocca
Sabia
Stepp Stone
Thin Brick
Tivoli
Travertine
True Stack
Cascade
Castle
Cathedral
Chisel Rock
Coastal Ledge
Cobble
Cut Stone
European Castle
Fieldstone
French Country
Hackett
Ledgestone
Limestone
Manor
Mountain Edge
River Rosk
Rubble
Rustic Ledge
Southern Ledgestone
Stripstone
Teton
Timber Ledge
Tuscan LEdge
Weatheredge
PremiumQuest®
Barkwood®
Liberty Elite®
Board + Batten
Designer Series™
Carvedwood 44®
Western Extreme®
Vortex Extreme™
Board & Batten
Camden Pointe®
American Splendor®
American Accents
Board & Batten™
Dimensions®
Board & Batten
480 Series™
Board & Batten
Sentry
Southern Beaded
Woodland Select™Trim Boards
Corners
Post Wraps
Mouldings
Beadboard
Skirtboard Sheets
J-Notch Trim
Post Accents
StandardOvation™
Charleston Beaded®
Nottingham®
Ashton Heights®
Victoria Harbor®
American Herald®
American Tradition
American 76 Beaded®
Progressions®
Colonial Beaded
440 Series™
450 Series™ Beaded
Forest Ridge®
Shadow Ridge®
Castle Ridge®
Somerset™ Coastal
Highland Oregon PridePly Gem®
EconomyMill Creek®
Eclipse™
Contractors Choice®American Comfort®410 Series™Vision Pro®
Chatham Ridge®
Parkside®
Oakside®
Entree

(1)The Environmental Stoneworks product line was integrated in 2019 with the February 2019 acquisition of Environmental Stoneworks.
Customers and distribution
We have a multi-channel distribution network that serves both the new construction and the home repair and remodeling sectors, which exhibit different, often counter-balancing, demand characteristics. In conjunction with our multiple brand and price point strategy, we believe our multi-channel distribution strategy enables us to increase our sales and sector penetration
8


while minimizing channel conflict. We believe our strategy reduces our dependence on any one channel, which provides us with a greater ability to sustain our financial performance through economic fluctuations.
We sell our siding and accessories to specialty distributors (one-step distribution) and to wholesale distributors (two-step distribution). Our specialty distributors sell directly to remodeling contractors and builders. Our wholesale distributors sell to retail home centers and lumberyards who, utilize pre-painted metal, including other manufacturersin turn, sell to remodeling contractors, builders and consumers. In the specialty channel, we have developed an extensive network of engineeredapproximately 800 independent distributors, serving over 22,000 contractors and builders nationwide. We are well-positioned in this channel as many of these distributors are both the largest and leading consolidators in the industry. In the wholesale channel, we are the sole supplier of vinyl siding and accessories to BlueLinx (formerly a distribution operation of the Georgia-Pacific Corporation), one of the largest building systemsproducts distributors in the United States. Through BlueLinx, our Georgia-Pacific private label vinyl siding products are sold at major retail home centers, lumberyards and metal components.manufactured housing manufacturers. A portion of our siding and accessories is also sold directly to home improvement centers. Our growing customer base of fencing and railing consists of fabricators, distributors, retail home centers and lumberyards. Our customer base of stone veneer products consists of distributors, lumberyards and retailers.We also includes steel mills, metal servicesell to builders and contractors with a distinct turnkey model that provides product and installation services. In Canada, our complete offering of vinyl siding, accessories, trim, and moldings, along with Ply Gem manufactured and third party sourced complimentary products are primarily distributed through our 18 Mitten branch locations, to retail home centers and painted coil distributors who in-turn supply variouslumberyards, and new construction and remodeling contractors.
Production and facilities
Vinyl siding, skirting, soffit and accessories are manufactured in our Martinsburg, West Virginia, Jasper, Tennessee, Stuarts Draft, Virginia, Kearney, Missouri, and Paris, Ontario facilities, while all metal products are produced in our Sidney, Ohio facility. The majority of our injection molded products such as shakes, shingles, scallops, shutters, vents and mounts are manufactured in our Gaffney, South Carolina facility. The cellular polyvinyl chloride ("PVC") trim and mouldings products are manufactured in St. Marys, West Virginia. The vinyl, metal, and injected molded plants have sufficient capacity to support planned levels of sales growth for the foreseeable future. Our fencing and railing products are currently manufactured at our York, Nebraska facility. The fencing and railing plants have sufficient capacity to support our planned sales growth for the foreseeable future. Our stone veneer products are manufactured at our Olathe, Kansas, Denver, Colorado, Mabletown, Georgia, Orwigsburg, Pennsylvania, Selingsgrove, Pennsylvania, North Branch, Minnesota and St. George, Utah facilities. Our manufacturing facilities are among the safest in all of North America with three of them having received the highest federal and/or state OSHA safety award and rating.
Raw materials and suppliers
PVC resin and aluminum are major components in the production of our siding, fencing, and stone products. PVC resin and aluminum are commodity products and are available from both domestic and international suppliers. We are one of the largest consumers of PVC resin in North America and we continue to leverage our purchasing power on this key raw material. Changes in PVC resin and aluminum prices have a direct impact on our cost of products sold. Historically, we have been able to pass on the price increases to our customers. The results of operations for individual quarters can be negatively impacted by a delay between the time of raw material cost increases and price increases that we implement in our products, or conversely can be positively impacted by a delay between the time of a raw material price decrease and competitive pricing moves that we implement accordingly.
Competition
We compete with other national and regional manufacturers of engineered building systems, metal components, lighting fixtures, ceiling grids, water heaters, appliancesvinyl siding, aluminum, cellular PVC, fencing, and stone products. We believe we are currently the largest manufacturer of vinyl siding in North America. Our vinyl siding competitors include CertainTeed, Alside, Royal Building Products and smaller regional competitors. Our aluminum accessories competitors include Rollex, Euramax, Gentek and other smaller regional competitors. Significant growth in vinyl fencing and railing has attracted many new entrants, and the sector today is fragmented with numerous competitors including U.S. Fence, Homeland, Westech, Bufftech, and Azek. Our cellular PVC trim and moulding competitors include Azek, Inteplast, Kommerling (KOMA), Wolfpac (Versatex), Tapco (Kleer), CertainTeed and Royal Building Products. Our stone veneer competitors include Boral (Cultured Stone and Eldorado Stone), Coronado Stone and smaller regional competitors. Our stone competitive advantage is that we provide a full, turnkey solution including manufacturing, distribution and installation services direct to builders and general contractors. We also compete on product quality, breadth of product offering, sales and service support. In addition to competition from other vinyl siding, fencing and stone products, our products face competition from alternative materials, such as wood, metal, fiber cement and masonry. Increases in competition from other exterior building products manufacturers and alternative building materials could cause us to lose customers and lead to net sales decreases.
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Intellectual property
We possess a wide array of intellectual property rights, including patents, trademarks, tradenames, licenses, proprietary technology and know-how and other proprietary rights. In connection with the marketing of our products, we generally obtain trademark protection for our brand names in the Siding segment. Depending on the jurisdiction, trademarks are valid as long as they are in use and/or their registrations are properly maintained and they have not become generic. Registrations of trademarks can generally be renewed indefinitely as long as the trademarks are in use. We license the Georgia-Pacific trademark for our Georgia-Pacific private label vinyl siding products sold through BlueLinx. While we do not believe the Siding segment is dependent on any one of our trademarks, we believe that our trademarks are important to the development and conduct of our business as well as the marketing of our products. We vigorously protect all of our intellectual property rights.
Seasonality
Markets for our products in the Siding segment are seasonal and can be affected by inclement weather conditions. Historically, our business has experienced increased sales in the second and third quarters of the year due to increased construction during those periods. Because a portion of our overhead and expenses are fixed throughout the year, our operating profits tend to be lower in the first and fourth quarters. Inclement weather conditions can affect the timing of when our products are applied or installed, causing delayed profit margins when such conditions exist.
We generally carry increased working capital during the first half of a fiscal year to support those months where customer demand exceeds production capacity. We believe that this is typical within the siding industry.
Backlog
Our Siding segment had a backlog of approximately $66.0 million at December 31, 2019. We expect to fill 100% of the orders during 2020 that were included in our backlog at December 31, 2019.
Windows
Products
In our Windows segment, our principal products include vinyl, aluminum-clad vinyl, aluminum, wood and clad-wood windows and patio doors and steel, wood, and fiberglass entry doors that serve both the new construction and the home repair and remodeling sectors in the United States and Canada. Our products in our Windows segment are sold under the Ply Gem® Windows, Simonton® Windows, Great Lakes® Window, Atrium Windows, American Craftsman, Silver Line, North Star, Tru Bilt and Ply Gem® Canada brands. We continue introducing new products to the portfolio which allow us to enter or further penetrate new distribution channels and customers. The breadth of our product lines shown below and our multiple price point strategy enable us to target multiple distribution channels (wholesale and specialty distributors, retailers and manufactured housing) and end user markets (new construction and home repair and remodeling).
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Ply Gem U.S. WindowsGreat Lakes WindowPly Gem CanadaSimontonAtriumNorth StarTru BiltSilver LineAmerican Craftsman
New ConstructionReplacementReplacementNew Construction & ReplacementNew ConstructionReplacementNew ConstructionReplacementReplacementReplacementNew Construction & ReplacementReplacement
Specialty/Super-PremiumMira® Premium SeriesEcoSMARTDesign Architectural Series
Signature Series
Stormbreaker Plus
VantagePointeTM 6500
8900
PremiumMira® Premium SeriesPremium SeriesComfort SmartComfort Series
Design Series
Enviro Series
ProFinish® Brickmould 600
Reflections® 5500
Daylight MaxTM
LumeraTM
Madeira
Impressions 9800
VantagePointeTM 6400
45087001000 SeriesCustom Door Series
StandardPro Series
Classic
Pro SeriesHarbor LightClassic Series
Vista Series
Brickmould 300
ProFinish® Contractor
ProFinish® Master
VantagePointeTM 6100
VantagePointeTM 6200
VantagePointeTM 6600
ClearValue
Verona
Reflections® 5050
Reflections® 5300
130
150
8300V3 (70) Series
V3 (3000) Series
V3 (8600/8700/8800) Series
V3 (5800) Series
70 (70) Series
70 (3000) Series
70 (8600/8700/8800) Series
70 (5800) Series
70 (2900) Series
EconomyBuilder Series
1500
Contractor SeriesProFinish® Builder
AsureTM
57008050V1 (1200) Series
V1 (2000/2100/2200) Series
V1 (2900) Series
V1 (5500/5700) Series
50 (1200) Series
50 (2000/2100/2200) Series
50 (5500/5700) Series

Customers and distribution
We have a multi-channel distribution and product strategy that enables us to serve both the new construction and the home repair and remodeling markets. By offering this broad product offering and industry leading service, we are able to meet the local needs of our customers on a national scale. This strategy has enabled our customer base (existing and new) to simplify their supply chain by consolidating window suppliers. Our "good, better, best" product and price point strategy allows us to increase our sales and sector penetration while minimizing channel conflict. This strategy reduces our dependence on any one channel, providing us with a greater ability to sustain our financial performance through economic fluctuations.
The new construction product lines are sold for use in new residential and light commercial construction through a highly diversified customer base, which includes independent building material dealers, regional/national lumberyard chains, builder direct/OEMs and retail home centers. Our repair and remodeling window products are primarily sold through independent home improvement dealers, one-step distributors, and big box retail outlets. Dealers typically market directly to homeowners or contractors in connection with remodeling requirements while distributors concentrate on local independent retailers.
In Canada, sales of product lines for new construction are predominantly made through direct sales to builders and contractors, while sales for repair and remodeling are made primarily through retail lumberyards, independent home improvement dealers and direct to consumers through our supply and install services.Ply Gem Canada products are distributed through twelve Ply Gem Canada distribution centers.
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Production and facilities
Our window and door products leverage a network of vertically integrated production and distribution facilities located in Virginia, Ohio, North Carolina, Georgia, Texas, California, Washington, West Virginia, Illinois, New Jersey, Ontario, Canada and Alberta, Canada. Our window manufacturing facilities have benefited from our continued investment and commitment to product development and product quality combined with increasing integration of best practices across our product offerings. In 2010, we began producing vinyl compound for our west coast facilities which improved our operating efficiency and resulted in lower production cost for these items. We continued making upgrades to the automation of our production lines.

While market conditions will dictate future capacity requirements, we have the ability to increase capacity in a cost effective manner by expanding production shifts and lines. Significant housing demand increases to historical levels may require additional capital investment in certain geographical areas to meet this increased demand. Any capacity increase may, however, initially be offset by labor inefficiencies or difficulties obtaining the appropriate labor force. Ongoing capital investments will focus on new product introductions and simplification, production automation, equipment maintenance and cost reductions.
Raw materials and suppliers
PVC compound, wood, aluminum and glass are major components in the production of our window and door products. During fiscal 2018,These products are commodity products available from both domestic and international suppliers. Historically, changes in PVC compound, aluminum billet, glass and wood cutstock prices have had the most significant impact on our material cost of products sold in our Windows segment. We are one of the largest customerconsumers of PVC resin in North America and we continue to leverage our purchasing power on this key raw material. The PVC resin compound that is used in our window lineal production is produced internally. The leveraging of our Metal Coil Coating segment accounted for approximately 1%PVC resin buying power and our PVC resin compounding capabilities benefits all of our totalwindow companies. Our window plants have consolidated glass purchases to take advantage of strategic sourcing savings opportunities. In addition, we have continued to vertically integrate aluminum extrusion in our window plants.
Competition
The window and patio door sector remains fragmented, comprised primarily of local and regional manufacturers with limited product offerings. The sector’s competitors in the United States include national brands, such as Jeld-Wen, Pella, MI Home Products and Andersen, and other regional brands, including Weathershield and others. Competitors in Canada include Jeld-Wen, All Weather, Durabuilt, Vinylbilt and numerous regional brands. We generally compete on service, product performance, product offering, sales and external salessupport. We believe all of our Metal Coil Coatingproducts are competitively priced and that we are one of the only manufacturers to serve all end markets and price points.
Intellectual property
We possess a wide array of intellectual property rights, including patents, trademarks, tradenames, licenses, proprietary technology and know-how and other proprietary rights. In connection with the marketing of our products, we generally obtain trademark protection for our brand names in the Windows segment. Depending on the jurisdiction, trademarks are valid as long as they are in use and/or their registrations are properly maintained and they have not become generic. Registrations of trademarks can generally be renewed indefinitely as long as the trademarks are in use. While we do not believe the Windows segment represented 10.4%is dependent on any one of total consolidatedour trademarks, we believe that our trademarks are important to the Windows segment and the development and conduct of our business as well as the marketing of our products. We vigorously protect all of our intellectual property rights.
Seasonality
Markets for our products in the Windows segment are seasonal and can be affected by inclement weather conditions. Historically, our business has experienced increased sales forin the fiscal year.second and third quarters of the year due to increased construction during those periods. Accordingly, our working capital is typically higher in the second and third quarters as well. Because much of our overhead and expense are fixed throughout the year, our operating profits tend to be lower in the first and fourth quarters. Inclement weather conditions can affect the timing of when our products are applied or installed, causing lower profit margins when such conditions exist.
Because we have successfully implemented lean manufacturing techniques and many of our windows and doors are made to order, inventories in our Windows segment do not change significantly with seasonal demand.
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Backlog
Our Windows segment had a backlog of approximately $100.9 million at December 31, 2019. We expect to fill 100% of the orders during 2020 that were included in our backlog at December 31, 2019.
Business Strategy
Cornerstone Building Brands is relentlessly committed to our customers and to creating great building solutions that enable communities to grow and thrive. By focusing on operational excellence every day, creating a platform for future growth and investing in market-leading residential and commercial building brands, we deliver unparalleled financial results. We intendwant to play an essential role in our communities where people live, work and play to enable those communities to grow and thrive.
The Company's strategy has several primary elements:
Profitable Growth.The Company intends to expand into new and existing markets by leveraging its customer relationships and full portfolio of leading products. We believe we have a meaningful opportunity for organic growth through product line extension, innovation of new systems and cross selling of products to deepen penetration across our business, enhancecustomer channels. Using a highly collaborative selling approach, the Company intends to grow in attractive market sectors, emphasizing those spaces that are highly fragmented, demand high service and value the reliability and efficiency offered by Cornerstone Building Brand products.
Operational Excellence.Cornerstone Building Brands operates with a relentless drive for exceptional results and a passion for superior execution. The Company embraces a continuous improvement culture that is charged with increasing efficiency, optimizing costs, eliminating waste, encouraging organizational agility and building greater brand equity to fuel growth. This requires the Company’s ongoing commitment to attract, retain and develop the best talent. This also includes making investments in automation within our market positionmanufacturing facilities, transforming the way work gets done, and increase our sales and profitability by focusing on the implementation of a number of key initiatives thatdeploying capital in ways we believe will help us grow and reduce costs. Our current strategy focuses primarily on organic initiatives, but also considersdrive the use of opportunistic acquisitionsgreatest returns for our shareholders over the long-term.
Capital Deployment to achieve our growth objectives:
Corporate-Wide Initiatives.  We will continue our focus on leveraging technology, automation and supply chain efficiencies to be one of the lowest cost producers, reduce engineering, selling, general and administrative (“ESG&A”) expenses and improve plant utilization through expanded use of our integrated business model and facility re-alignment. To further distinguish the value of our products and services, our manufacturing platform has been reorganized into a single, integrated organization, to rapidly incorporate the benefits of lean manufacturing best practices and efficiencies across all of our facilities.
Engineered Building Systems Segment.  We intend to enhance the performance of our differentiated brands by aligning our operations to achieve the best total value building solution, delivered complete and on-time, every time. We areDrive Shareholder Value.The Company is intently focused on providing industry leading cycle times, servicethe highest returns for shareholders through its capital allocation framework, which includes: (1) investing in the core business through capital expenditures and quality, while improving customer satisfaction.
Metal Components Segment.  We intendother organic growth initiatives; (2) pursuing strategic acquisitions to maintain our leading positions in thesebroaden its portfolio and capabilities across the residential and commercial markets, and seek opportunities to profitably expand our customer base by providing industry leading customer service.
Insulated Metal Panels Segment.  We intend to drive growth in sales of high-margin IMP product lines through all legacy commercial channels.
Metal Coil Coating Segment.  Through diversification of our external customer base and national footprint, we plan to grow non-construction sales aswith a supply chain partner to national manufacturers. We will continue to leverage efficiency improvements to be one of the lowest cost producers.
The combination of NCI and Ply Gem, headquartered in Cary, NC, establishes a leadingfocus on adjacent exterior building products manufacturer with a broad rangeand related services; and (3) targeting long-term net debt leverage of products2.0x to residential and commercial customers for both new construction and repair & remodel. With a portfolio2.5x. As part of key products which includes windows, doors, siding, metal wall and roof systems, engineered commercial buildings, insulated metal panels, stone and other adjacent products,this framework, the Company has more than 20,000 employees across 80 manufacturing, distribution and office locations throughout North America.may also restructure, reposition or divest underperforming product lines or assets.
Restructuring
We continue to execute on our plans to improve cost efficiency through the optimization of our combined manufacturing plant footprint and the elimination of certain fixed and indirect ESGSG&A costs. During the fiscal year ended October 28, 2018,December 31, 2019, we incurred restructuring charges of $1.5 million, including $1.3 million, $1.3 million and $0.1 million in the Engineered Building Systems, Insulated Metal Panels and Corporate segments, respectively, partially offset by a net gain of $1.2 million on sales of facilities in our Metal Components segment. Restructuring charges are recorded for these plans as they become estimable and probable.$18.1 million. See Note 5Restructuring in the notes to the consolidated financial statements for additional information.
Raw Materials
The principal raw material used in manufacturing of our metal components and engineered building systems is steel which we purchase from multiple steel producers. Our various products are fabricated from steel produced by mills including bars, plates, structural shapes, hot-rolled coils and galvanized or Galvalume®-coated coils (Galvalume® is a registered trademark of BIEC International, Inc.).


Our raw materials on hand increased to $205.9 million at October 28, 2018 from $150.9 million at October 29, 2017 due to rising input costs and to support higher levels of business activity in fiscal 2018.
The price and supply of steel impacts our business. The steel industry is highly cyclical in nature, and steel prices have been volatile in recent years and may remain volatile in the future. Steel prices are influenced by numerous factors beyond our control, including general economic conditions domestically and internationally, currency fluctuations, the availability of raw materials, competition, labor costs, freight and transportation costs, production costs, import duties and other trade restrictions. Based on the cyclical nature of the steel industry, we expect steel prices will continue to be volatile.
Although we have the ability to purchase steel from a number of suppliers, a production cutback by one or more of our current suppliers could create challenges in meeting delivery schedules to our customers. Because we have periodically adjusted our contract prices, particularly in the engineered building systems segment, we have generally been able to pass increases in our raw material costs through to our customers. We normally do not maintain an inventory of steel in excess of our current production requirements. However, from time to time, we may purchase steel in advance of announced steel price increases. For additional information about the risks of our raw material supply and pricing, see “Item 1A. Risk Factors” and Item 7A. Quantitative and Qualitative Disclosures About Market Risk — Steel Prices.”
Backlog
At October 28, 2018 and October 29, 2017, the total backlog of orders, consisting of Engineered Building Systems’ and IMP orders, for our products we believe to be firm was $557.0 million and $545.6 million, respectively. Job orders included in backlog are generally cancelable by customers at any time for any reason; however, cancellation charges may be assessed. Occasionally, orders in the backlog are not completed and shipped for reasons that include changes in the requirements of the customers and the inability of customers to obtain necessary financing or zoning variances. We anticipate that less than 16% of this backlog will extend beyond one year.
Competition
We and other manufacturers of metal components and engineered building systems compete in the building industry with all other alternative methods of building construction such as tilt-wall, concrete and wood, single-ply and built up, all of which may be perceived as more traditional, more aesthetically pleasing or having other advantages over our products.
In addition, competition in the metal components and engineered building systems market of the building industry is intense. We believe it is based primarily on:
quality;
service;
on-time delivery;
ability to provide added value in the design and engineering of buildings;
price;
speed of construction; and
personal relationships with customers.
We compete with a number of other manufacturers of metal components and engineered building systems for the building industry, ranging from small local firms to large national firms. Many of these competitors operate on a regional basis. We have two primary nationwide competitors in the engineered building systems market and three primary nationwide competitors in the metal components market. However, the metal components market is more fragmented than the engineered building systems market.
As of October 28, 2018, we operated 36 manufacturing facilities located in the United States, Mexico and Canada, with additional sales and distribution offices throughout the United States and Canada. These facilities are used primarily for the manufacturing of metal components and engineered building systems for the building industry. We believe this broad geographic distribution gives us an advantage over our metal components and engineered building systems competitors because major elements of a customer’s decision are the speed and cost of delivery from the manufacturing facility to the product’s ultimate destination. We operate a fleet of trucks to deliver our products to our customers in a more timely manner than most of our competitors.
We compete with a number of other providers of metal coil coating services to manufacturers of metal components and engineered building systems for the building industry, ranging from small local firms to large national firms. Most of these competitors operate on a regional basis. Competition in the metal coil coating industry is intense and is based primarily on quality, service, delivery and price.


Consolidation
Over the last several years, there has been a consolidation of competitors within the industries of the Engineered Building Systems, Metal Components, Insulated Metal Panelsengineered building systems, metal components, insulated metal panels, metal coil coating, and Metal Coil Coating segments,windows, which include many small local and regional firms. We believe that these industries will continue to consolidate, driven by the needs of manufacturers to increase anticipated long-term manufacturing capacity, achieve greater process integration, add geographic diversity to meet customers’ product and delivery needs, improve production efficiency and manage costs. The vinyl siding industry has already largely consolidated with four companies comprising approximately 90% of the market. When beneficial to our long-term goals and strategy, we have sought to consolidate our business operations with other companies. The resulting synergies from these consolidation efforts have allowed us to reduce costs while continuing to serve our customers’ needs. For more information, see “Acquisitions” below.
In addition to the consolidation of competitors within the industries of the engineered building systems, metal components and metal coil coating segments, in recent years there has been consolidation between those industries and steel producers. Several of our competitors have been acquired by steel producers, and further similar acquisitions are possible. For a discussion of the possible effects on us of such consolidations, see “Item 1A. Risk Factors.”
Acquisitions
We have a history of making strategic acquisitions within our industry, including the Metl-Span Acquisition, the CENTRIA Acquisition, the Merger and the Merger,ESW Acquisition, and we regularly evaluate growth opportunities both through acquisitions and internal investment. We believe that there remain opportunities for growth through consolidation in the metal buildingsCommercial, Siding and componentsWindows segments, and our goal is to continue to grow organically and through opportunistic strategic acquisitions.acquisitions that meet our strict criteria.
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Consistent with our growth strategy, we frequently engage in discussions with potential sellers regarding the possible purchase by us of businesses, assets and operations that are strategic and complementary to our existing operations. Such assets and operations include engineered building systems and metal components, but may also include assets that are closely related to, or intertwined with, these business lines, and enable us to leverage our asset base, knowledge base and skill sets. Such acquisition efforts may involve participation by us in processes that have been made public, involve a number of potential buyers and are commonly referred to as “auction” processes, as well as situations in which we believe we are the only party or one of the very limited number of potential buyers in negotiations with the potential seller. These acquisition efforts often involve assets that, if acquired, would have a material effect on our financial condition and results of operations.
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.
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, transfer or sell assets, make acquisitions and engage in mergers. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Debt.”
Environmental Matters, Health and Safety Matters
The operation of our business isOur operations are subject to stringent and complex laws and regulations pertaining to health, safety and the environment. As an owner or operator of manufacturing facilities, we must comply with these laws and regulations at thevarious federal, state, local and tribal levels. Theseforeign 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 regulationsmanagement of hazardous substances and wastes, protect the health and safety of our employees and the end-users of our products, regulate the materials used in our 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 can impactresult in substantial fines or restrict our business activities in many ways, such as:penalties, injunctive relief, requirements to install pollution or other controls or equipment, and civil sanctions.
requiring investigativeWe could be held liable for costs to investigate, remediate or remedial action to mitigateotherwise address contamination at any real property we have ever owned, operated or contain certain environmental conditions thatused as a disposal site, or at other sites where we or predecessors may have been historicallyreleased hazardous materials. We could incur fines, penalties or sanctions or be subject to third-party claims, including indemnification claims, for property damage, personal injury or otherwise caused by our operationsas a result of violations of (or liabilities under) environmental, health and safety laws, or practices, or by former owners or operators at properties we have acquired; or
restricting the operationsin connection with releases of facilities found to be out of compliance with environmental laws and regulations, permitshazardous or other legal authorizations issued pursuant to suchmaterials.
Changes in or new interpretations of existing laws, regulations or regulations.
The trend in environmental regulation is to place more restrictions and requirements on activities that potentially impact human health and welfareenforcement policies, the discovery of previously unknown contamination, or the environment. As a result, there can be no assurance as to the amount or timing of future expenditures for environmental compliance or corrective actions, and actual future expenditures may differ from what we presently anticipate. However, we strategically anticipate future regulatory requirements that might be imposed and plan accordingly to meet and maintain compliance. We do so with the goal of minimizing the associated costs of compliance without affecting our ability to comply.
Failure to comply with environmental laws and regulations may trigger a variety of administrative, civil or criminal enforcement actions, including the assessment of monetary penalties, the imposition of investigativeother environmental liabilities or remedial requirements,obligations in the future including additional investigation, remediation or other obligations with respect to our products or business activities or the issuanceimposition of orders limiting currentnew permit requirements may lead to additional costs that could have a material adverse effect on our business, financial condition or futureresults of operations. Certain
Compliance with federal, state, local and foreign environmental, statutes impose strict, jointhealth and several liability for costs requiredsafety laws requires us to clean upincur capital expenditures and restore sites where hazardous substances or industrial wastes have been mismanaged


or otherwise released. Moreover, neighboring landowners or other third parties may file claims for personal injury and property damage allegedly caused by the release of substances or contaminants into the environment.
increases our operating costs. We do not believe that compliance with federal, state, local or tribal environmental, health and safety laws, including existing requirements to investigate and regulationsremediate contamination, will have a material adverse effect on our business, financial position or results of operations. In addition, we believe that the various environmental compliance activities we are presently engaged in are not expected to materially interrupt or diminish our operational ability to manufacture our products. We cannot assure, however, that future events, such as changes in existing laws or regulations, the promulgation of new laws or regulations, or the development or discovery of new facts or conditions related to our operations will not cause us to incur significant costs.manufacturing processes.
The following are representative environmental, health and safety requirements relating to our business:operations:
Air Emissions. Our operations are subject to the federal Clean Air Act Amendments of 1990, or CAAA, and comparable state laws and regulations.laws. These laws and regulations govern emissions of air pollutants from industrial stationary sources, (suchsuch as our manufacturing facilities)facilities, and impose various permitting, air pollution control, emissions monitoring, recordkeeping and reporting requirements. Such laws and regulations may require us to obtain pre-approval for constructing or modifying our facilities in ways that have the potential to produce new or increased air emissions;emissions, obtain and comply with operating permits that limit air emissions or restrict certain operating parameters;parameters, or employ best available control technologies to reduce or minimize emissions from our facilities.
Our failure to comply with these requirements could subject us to monetary penalties, injunctions, restrictions on operations, or potential administrative, civil or criminal enforcement actions. We may be required to incur certain capital expenditures in the future forpurchase air pollution control equipment in conjunctionorder to comply with obtainingair emissions laws.
Greenhouse Gases. Concern over the effects of global climate change has led to federal, state and complying with pre-construction authorizationsinternational legislative and regulatory efforts to limit greenhouse gas, or operating permits. WeGHG, emissions. While GHG regulations do not believe thatcurrently affect our operations will be materially adversely affected by such requirements.
Greenhouse Gases.  Morefacilities, more stringent federal, regional, state and foreign laws and regulations relating to global climate change and greenhouse gases, or GHGs,GHG emissions may be adopted in the futurefuture. These laws and regulations could impact our facilities, raw material suppliers, the transportation and distribution of our products, and our customers,customers’ businesses, which could reduce demand for our products or cause us to incur additional capital, operating costs or reducedother costs. Until the timing, scope and extent of any future legislation or regulation becomes known, we cannot predict its effect on our business. In addition, global climate change may increase the frequency or intensity of extreme weather events, such as storms, floods, extreme temperatures and other events that could affect our facilities, raw material suppliers, the transportation and distribution of our products, and demand for our products.
On December 15, 2009, the federal Environmental Protection Agency, or EPA, published its findings that emissions of carbon dioxide, methane, and other GHGs present an endangerment to public health, the economy and the environment because emissions of such gases, according to the EPA, contribute to the warming of the earth’s atmosphere and other climate changes. These findings allowed the EPA to adopt and implement regulations and permit programs that would restrict emissions of GHGs under existing provisions of the federal CAAA.
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The EPA adopted regulations that would require a reduction in emissions of GHGs and could trigger permit review for GHGs produced from certain industrial stationary sources. In June 2010, the EPA adopted the Prevention of Significant Deterioration (“PSD”) and Title V Greenhouse Gas Tailoring Rule, which phases in permitting requirements for stationary sources of GHGs beginning January 2, 2011. This rule “tailors” these permitting programs to apply to certain significant stationary sources of GHG emissions in using a multistep process, with the largest sources first subjected to permitting. In June 2014, the Supreme Court restricted applicability of the Tailoring Rule to GHG-emitting stationary sources that also emit conventional non-GHG National Ambient Air Quality Standard criteria pollutants at levels greater than PSD and Title V threshold amounts.
Although it is not possible to accurately predict how new GHG rules and policies would impact our business, any new federal, regional or state restrictions on emissions of carbon dioxide or other GHGs that may be imposed in areas where we conduct business could result in increased compliance costs or additional operating restrictions. Such restrictions could potentially make our products more expensive and reduce their demand.
Hazardous and Solid Industrial Waste. Our operations generate industrial solid wastes, including some hazardous wastes that are subject to the federal Resource Conservation and Recovery Act, or RCRA, and comparable state laws. RCRA imposes requirements for the handling, storage, treatment and disposal of hazardous waste. Industrial wastes we generate in our manufacturing processes, such as paint waste, spent solvents and used chemicals, may be regulated as hazardous waste, although RCRA has provisions to exempt some of our wastes from classification as hazardous waste. However, our non-hazardous or exempted industrial wastes are still regulated under state law or the less stringent industrial solid waste requirements of RCRA.
RCRA Corrective Action Program. Certain facilities may be subject to the Corrective Action Program under the Solid Waste Disposal Act, as amended by RCRA, and the Hazardous and Solid Waste Amendments (Corrective Action Program). The Corrective Action Program is designed to ensure that certain facilities subject to RCRA have investigated and remediated releases of hazardous substances at their property.
MW Manufacturers Inc. (MW), a subsidiary of Ply Gem Industries, Inc., entered into a September 2011 Administrative Order on Consent with the 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 (LCMS) based on the investigations was submitted to the VDEQ for review and approval in September 2019. We do not believe thathave recorded a liability of $4.5 million for this MW site within other long-term liabilities in our operations will be materially adversely affected by such requirements.consolidated balance sheets as of December 31, 2019.
Site Remediation.CERCLA. The Comprehensive Environmental Response, Compensation and Liability Act, of 1980,or CERCLA (commonly known as amended, or CERCLA,Superfund), and comparable state laws impose liability, without regard to fault or the legality of the original conduct, on certain classes of persons responsible for the releasereleases of hazardous substances into the environment. Such classes of personsThese include the current and past owners or operators of sites where a hazardous substance wassubstances were released, and companies that disposed or arranged for disposal of hazardous substances at off-site locations such as landfills. During our normal operations, we use materials and generate industrial solid wastes that fall within the definition of a “hazardous substance.”


CERCLA authorizes the EPA and, in somecertain cases, third parties to take actions in response to threats to the public health and welfare or the environment and to seek to recover from the responsible parties the costs incurred for remedial cleanup activities or other corrective actions. Under CERCLA, we could be subject to joint and several liability for the full or partial costs of cleaning up and restoring sites where hazardous substances historically generated by us have been released; damages to natural resources; and the costs of risk assessment studies and contamination containment measures.remediation costs.
We currently own or lease, and historically owned or leased, numerous properties that for many decades have been used forextensive histories of industrial manufacturing operations. Hazardous substances or industrial wastes may have been mismanaged, disposed of or released on, under or under thefrom these properties, owned or leased by us, or on, under or underfrom other locations where suchhazardous wastes have been transported for disposal. In addition, somedisposed. Some of these properties have been owned or operated by third parties or previous owners whose management, disposal or release ofwho may have released hazardous substances or wastes were not under our control. These properties and the substances disposed or released on them may be subject to CERCLA, RCRA and analogous state laws.
Under such laws,for which we could have liability. We could be required to remove hazardous substances or previously disposed of industrial wastes (including wastes disposed by prior owners or operators); to investigate or remediate contaminated property, (including contaminated soil and groundwater, whether from prior owners or operators or other historic activities or releases); or perform remedial closure activities, or assess and remediate volatile chemical vapors migrating from soil or groundwater into overlying buildings. Our liability for investigating and remediating contamination could be joint and several and could include damages for impacts to limitnatural resources.
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 (PRP) at the site and has liability for investigation and remediation costs associated with the contamination. On 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 submitted to EPA in November 2019 and approved in December 2019. RI Phase I field work is scheduled to be conducted in 2020. We have recorded a liability of $4.6 million for the PCE/TCE Site within other long-term liabilities in our consolidated balance sheets as of December 31, 2019. We will adjust our remediation liability in future periods, if necessary, as the RI/FS progresses or prevent future contamination. Moreover, neighboring landowners andif additional requirements are imposed. We may be able to recover a portion of costs incurred in connection with the PCE/TCE Site from other affected parties, may file claims for personal injury and property damage allegedly caused by the release of hazardous substances into the environment.though there is no assurance we would receive any funds.
Wastewater Discharges. Our operations are subject to the federal Water Pollution Control Act, of 1972, as amended, also known as the Clean Water Act, or CWA, and analogous state laws and regulations.laws. These laws and regulations impose requirements and strict controls regarding the discharge of pollutants from industrial activity into waters of the United States. Such laws and regulations may require that we obtain and comply with categorical industrialstormwater runoff and wastewater discharge standards and pretreatment or dischargeobtain permits containing limits on various water pollutant discharge parameters.
Our failurelimiting our discharges of pollutants. Failure to comply with CWA requirements could subject us to monetary penalties, injunctions, restrictions on operations, and potential, administrative civil or criminalcivil enforcement actions. We may be required to incur certain capital expenditures in the future for wastewater discharge or stormwater runoff treatment technology relating to maintaining compliancecomply with wastewater permits and water quality standards. Any unauthorized release of pollutants to waters of the United States from our facilities could result in administrative, civil or criminal penalties as well as associated corrective action obligations. We do not believe that our operations will be materially adversely affected by these requirements.
Employee Health and Safety. We are subject to the requirements of the Occupational Safety and Health Act, or OSHA, and comparable state laws that regulate the protection of the health and safety of our workers. In addition, the OSHA hazard communication standard requires that information about hazardous materials used or produced by our operations be maintainedAmong other things, we are required to maintain and ismake available to our employees, state and local government authorities, and citizens. We do not expect thatothers information about hazardous materials used or produced by our operations will be materially adversely affected by these requirements.operations.
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Zoning and Building Code Requirements
The engineered building systems and components we manufacture must meet zoning, building code and uplift requirements adopted by local governmental agencies. We believe that our products are in substantial compliance with applicable zoning, code and uplift requirements. Compliance does not have a material adverse effect on our business.
Patents, Licenses and Proprietary Rights
We have a number of United States patents, pending patent applications and other proprietary rights, including those relating to metal roofing systems, metal overhead doors, our pier and header system, our Long Bay® System and our building estimating and design system. The patents on our Long Bay® System expire in 2021. We also have several registered trademarks and pending registrations in the United States.
Research and Development Costs
Total expenditures for research and development were $14.2 million, $3.5 million $4.3 million and $3.7$4.3 million for fiscal years 2019, 2018 2017 and 2016,2017, respectively. We incur research and development costs to develop new products, improve existing products and improve safety factors of our products in the metal components segment. These products include building and roofing systems, insulated panels, clips, purlins and fasteners.products.
Employees
As of October 28, 2018,December 31, 2019, we have approximately 5,30020,100 employees, of whom approximately 4,10017,200 are manufacturing and engineering personnel. We regard our employee relations as satisfactory. Approximately 13%12% of our workforce including the employees at our subsidiary in Mexico, are represented by a collective bargaining agreement or union. As ofunion, which primarily includes the date of the consummation of the Merger, Ply Gem employed approximately 15,600 employees across 39 facilitiesat our subsidiary in Mexico, our plant in Calgary, Alberta and our North America.

Brunswick, New Jersey plant.

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Item 1A. Risk Factors.
Risks related to our businessindustry and economic and market conditions
Our industry is cyclical and highly sensitive to macroeconomic conditions. Our industry is currently experiencing a prolonged downturn which, if sustained, willNegative economic events including, but not limited to, recessions, lower consumer confidence, high interest rates, inflation, and lower new construction home starts may materially and adversely affect the outlook for our business, liquidity and results of operations.
The nonresidential construction industry is highly sensitive to national and regional macroeconomic conditions. The United States and global economies are currently undergoing a period of unprecedented volatility, which is having an adverse effect on our business.
Current market estimates continue to show uneven activity across the nonresidential construction markets. According to Dodge Data & Analytics, Inc. ("Dodge"), low-rise nonresidential construction starts, as measured in square feet and comprising buildings of up to five stories, were down as much as approximately 7%5% in our fiscal 20182019 as compared to our fiscal 2017. However, Dodge typically revises initial reported figures,2018.
In addition to commercial and residential market indicators, we expect this metric may be revised upwards over time. Leading indicatorsalso depend to a significant extent upon the levels of home repair and remodeling and new construction spending for low-rise, nonresidential construction activity indicate positive momentum into 2019.
The leading indicators that we followour residential businesses, which declined significantly beginning in 2008 and that typically havecontinued through 2013 with recovery commencing in 2014. Housing levels in 2019 remained slightly lower relative to historical averages, despite the most meaningful correlation to nonresidential low-rise construction startsrecovery the last few years, and are the AIA Architecture Mixed Use Index, Dodge Residential single family startsaffected by such factors as interest rates, inflation, consumer confidence, unemployment and the LEI. Historically, there has beenavailability of consumer credit.
Our performance is also dependent upon consumers having the ability to finance home repair and remodeling projects and/or the purchase of new homes. The ability of consumers to finance these purchases is affected by such factors as new and existing home prices, homeowners’ equity values, interest rates and home foreclosures, which in turn could result in a very high correlationtightening of lending standards by financial institutions and reduce the ability of some consumers to finance home purchases or repair and remodeling expenditures. Trends such as declining home values, increased home foreclosures and tightening of credit standards by lending institutions, negatively impacted the Dodge low-rise nonresidential starts whenhome repair and remodeling and the three leading indicators are combined and then seasonally adjusted. The combined forward projectionnew construction sectors during the recession which began in 2008. Despite the recent abatement of these metrics, based on a 9 to 14-month historical lag for each metric, indicates low single digit growth for new low-rise nonresidential construction starts in 2019, with the majoritynegative market factors, any recurrence or worsening of that growth occurring in the second half ofthese items may adversely affect our fiscal year.financial condition and operating results.
However, continuedHistorically, any uncertainty about current economic conditions has had a negative effect on our business, and will continue to pose a risk to our business as our customers may postpone spending in response to tighter credit, negative financial news and/or declines in income or asset values, which could have a material negative effect on the demand for our products. Other factors that could influence demand include fuel and other energy costs, conditions in the nonresidential real estate markets, labor and healthcare costs, access to credit, tariffs, and other macroeconomic factors. From time to time, our industry has also been adversely affected in various parts of the country by declines in nonresidential construction starts, including but not limited to, high vacancy rates, changes in tax laws affecting the real estate industry, high interest rates and the unavailability of financing. Sales of our products may be adversely affected by continued weakness in demand for our products within particular customer groups, or a continued decline in the general construction industry or particular geographic regions. These and other economic factors could have a material adverse effect on demand for our products and on our financial condition and operating results.
We cannot predict the timing or severity of any future economic or industry downturns.downturns or adverse weather conditions. A prolonged economic downturn or negative weather patterns, particularly in states where many of our sales are made, would have a material adverse effect on our results of operations and financial condition, including potential asset impairments.condition.
The ongoing uncertaintyUncertainty and volatility in the financial markets and the state of the worldwide economic recoveryconditions may adversely affect our operating results.
The markets in which we compete are sensitive to general business and economic conditions in the United States and worldwide, including availability of credit, interest rates, fluctuations in capital, credit and mortgage markets and business and consumer confidence. Additionally, political issues in the United States resulting in discord, conflict or lack of compromise between the legislative and executive branches of the U.S. government may affect the national debt, debt ceiling limit, tax reform or federal government budget, which could in turn adversely affect our results of operations. Adverse developments in global financial markets and general business and economic conditions, including through recession, downturn or otherwise, could have a material adverse effect on our business, financial condition, results of operations and cash flows, including our ability and the ability of our customers and suppliers to access capital. There was a significant decline in economic growth, both in the United States and worldwide, that began in the second half of 2007 and continued through 2009. In addition, volatility and disruption in the capital markets during that period reached unprecedented levels, with stock markets falling dramatically and credit becoming very expensive or unavailable to many companies without regard to those companies’ underlying financial strength. Although there have been some indications of stabilization in the general economy and certain industries and markets in which we operate, thereThere can be no guarantee that any improvement in these areas will continue or be sustained.
Changes in legislation, regulation
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Risks related to our business
An inability to successfully develop new products or improve existing products could negatively impact our ability to attract new customers and/or retain existing customers, including our significant customers.
Our success depends on meeting consumer needs and government policy may have a material effect on the Company’s business in the future.
While it is not possible to predict whether and when any such changes will occur, changes at the local, state or federal level could significantly impact the Company’s business. For example, the Company’s business activity levels are heavily influenced by the U.S. domestic economy andanticipating changes in administration policies may resultconsumer preferences with successful new products and product improvements. We aim to introduce products and new or improved production processes proactively to offset obsolescence and decreases in changes in tax rates and/or prevailing interest rates, which could either stimulate or contract activity levels insales of existing products. While we devote significant focus to the domestic economy. More specifically, the Company has had a production facility in Mexico for approximately 20 years and purchases a material amountdevelopment of manufacturednew products, from this


subsidiary. For example, in fiscal 2018, the Company imported approximately $75 million of metal building products from the Company’s Mexican subsidiary. Specific legislative and regulatory proposals discussed during and after the election that could have a material impact on us include, but are not limited to, certain modifications to international trade policy.  Any such changes, if unmitigated by changes in our supply chain, may make it more difficult and/or more expensive for us and, thus, could have a material adverse effect on the Company’s results of operations and limit our growth.
Our business may be impacted by external factors that we may not be ablesuccessful in product development and our new products may not be commercially successful. In addition, it is possible that competitors may improve their products more rapidly or effectively, which could adversely affect our sales. Furthermore, market demand may decline as a result of consumer preferences trending away from our categories or trending down within our brands or product categories, which could adversely impact our results of operations, cash flows and financial condition.
Our Windows and Siding segments depend on a core group of significant customers for a substantial portion of net sales and we expect this to control.
War, civil conflict, terrorism, natural disasters and public health issues including domesticcontinue for the foreseeable future. The loss of, or international pandemic have caused anda significant adverse change in our relationships with our largest customers, or loss of market position of any major customer, whether because of an inability to successfully develop new products or improve existing products, or otherwise, could cause damagea material decrease in net sales. The loss of, or disruptiona reduction in orders from, any significant customers, losses arising from customers’ disputes regarding shipments, fees, merchandise condition or performance or related matters, or an inability to domestic or international commerce by creating economic or political uncertainties. Additionally,collect accounts receivable from any volatility in the financial marketsmajor customer could negativelyadversely impact our business. These eventsnet income and cash flow. In addition, revenue from customers that have accounted for significant revenue in past periods, individually or as a group, may not continue, or if continued, may not reach or exceed historical levels in any period.
Manufacturing or assembly realignments may result in a decrease in our short-term earnings, until the expected cost reductions are achieved, due to the costs of implementation.
We continually review our manufacturing and assembly operations and sourcing capabilities. Effects of periodic manufacturing realignment, cost savings programs, and labor ramp-up costs could result in a decrease in demand for our products, make it difficult short-term earnings until the expected cost reductions are achieved and/or impossible to deliver orders to customers or receive materials from suppliers, affectproduction volumes stabilize. Such programs may include the availability or pricingconsolidation and integration of energy sources or result in other severe consequences that may orfacilities, functions, systems and procedures. Such actions may not be predictable. As a result, our business, financial conditionaccomplished as quickly as anticipated and results of operations could be materially adversely affected.
We may have future capital needs andthe expected cost reductions may not be able to obtain additional financing on acceptable terms.
Although we believe that our current cash position and the additional committed funding available under the Current ABL Credit Facility and the Current Cash Flow Revolver is sufficient for our current operations, any reductions in our available borrowing capacity,achieved or our inability to renew or replace our debt facilities, when required or when business conditions warrant, could have a material adverse effect on our business, financial condition and results of operations. The economic conditions, credit market conditions and economic climate affecting our industry, as well as other factors, may constrain our financing abilities. Our ability to secure additional financing, if available, and to satisfy our financial obligations under indebtedness outstanding from time to time will depend upon our future operating performance, the availability of credit generally, economic conditions and financial, business and other factors, many of which are beyond our control. The market conditions and the macroeconomic conditions that affect our industry could have a material adverse effect on our ability to secure financing on favorable terms, if at all.
We may be unable to secure additional financing or financing on favorable terms or our operating cash flow may be insufficient to satisfy our financial obligations under the indebtedness outstanding from time to time. Furthermore, if financing is not available when needed, or is available on unfavorable terms, we may be unable to take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on our business, financial condition and results of operations. If we raise additional funds through further issuances of equity, convertible debt securities or other securities convertible into equity, our existing stockholders could suffer significant dilution.sustained.
Our ability to access future financing also may be dependent on regulatory restrictions applicable to banks and other institutions subject to U.S. federal banking regulations, even if the market would otherwise be willing to provide such financing.
We have obligations incident to being a public company, including with respect to the requirements of and related rules under the Sarbanes-Oxley Act of 2002. Fulfilling these obligations is expensive and time-consuming, and any delays or difficulties in satisfying these obligations could have a material adverse effect on our future results of operations.
We completed our initial public offering in fiscal 1992. As a public company, we are subject to the reporting and corporate governance requirements, New York Stock Exchange (“NYSE”) listing standards and the Sarbanes-Oxley Act of 2002 that apply to issuers of listed equity, which imposes certain compliance costs and obligations upon us. Being a public company entails higher auditing, accounting and legal fees and expenses, investor relations expenses, directors’ fees and director and officer liability insurance costs, registrar and transfer agent fees and listing fees, as well as other expenses, than for a non-public company.
In addition, changes in regulatory requirements, such as the reporting requirements relating to conflict minerals originating in the Democratic Republic of Congo or adjoining countries included in the Dodd-Frank Act, or evolving interpretations of existing regulatory requirements, may result in increased compliance cost, capital expenditures and other financial obligations that could adversely affect our business or financial results.
We may recognize goodwill or other intangible asset impairment charges.
Future triggering events, such as declines in our cash flow projections, may cause impairments of our goodwill or intangible assets based on factors such as our stock price, projected cash flows, assumptions used, control premiums or other variables.
For example, we completed our annual impairment assessment of goodwill and indefinite lived intangibles in the fourth quarter of fiscal 2017 and recorded a $6.0 million impairment charge related to the goodwill associated with a reporting unit within the Metal Coil Coating segment.


Our businesses are seasonal, and our results of operations during our first two fiscal quarters may be adversely affected by weather conditions.conditions and other external factors beyond our control.
The engineered building systems, metal components and metal coil coating businesses, and the construction industry in general,Markets for our products are seasonal and can be affected by inclement weather conditions. Historically, our business has experienced increased sales in nature. Sales normallythe second and third quarters of the year due to increased construction during those periods. Because much of our overhead and operating expenses are spread ratably throughout the year, our operating profits tend to be lower in the first half of each fiscal year compared to the second half of the fiscal year because of unfavorable weather conditions for construction and typical business planning cycles affecting construction. This seasonality adversely affects our results of operations for the first two fiscalfourth quarters. Prolonged severeInclement weather conditions can delayaffect the timing of when our products are applied or installed, causing reduced profit margins when such conditions exist. For example, unseasonably cold weather or extraordinary amounts of rainfall may decrease construction projectsactivity.
Further, other external factors beyond our control could cause disruptions at any of our facilities, including maintenance outages; prolonged power failures or reductions; a breakdown, failure or substandard performance of any equipment or other operational problems; disruptions in the transportation infrastructure, including railroad tracks, bridges, tunnels or roads; fires, floods, hurricanes, earthquakes or other catastrophic disasters; pandemics, such as Coronavirus; or an act of terrorism. Any prolonged disruption in operations at any of our facilities could cause a significant loss in production. As a result, we could incur significantly higher costs and otherwiselonger lead times associated with distributing our products to customers during the time that it takes for us to reopen or replace a damaged facility, which could cause our customers to purchase from our competitors either temporarily or permanently. If any of these events were to occur, it could adversely affect our business.business, financial condition, cash flows and results of operations
Price volatility and supply constraints in the steel marketfor raw materials could prevent us from meeting delivery schedules to our customers or reduce our profit margins.
Our business is heavily dependent on the price and supply of steel. Theraw materials including steel, industry is highly cyclical in nature,PVC resin, aluminum and steelglass. Raw material prices have been volatile in recent years and may remain volatile in the future. SteelRaw material prices are influenced by numerous factors beyond our control, including general economic conditions domestically and internationally, currency fluctuations, the availability of raw materials, competition, labor costs, freight and transportation costs, production costs, tariffs, import duties and other trade restrictions. GivenFor example, in 2018, the levelTrump administration implemented new tariffs on imports of steel industry consolidation,and aluminum into the anticipated additional domestic market capacity, generally low inventories in the industry and slow economic recovery, aUnited States.
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A sudden increase in demand for steel, PVC resin, aluminum or glass could affect our ability to purchase steelsuch raw materials and result in rapidly increasing steel prices.
We normally do not maintain an inventory of steelhave historically been able to substantially pass on significant cost increases in excess ofraw materials through price increases to our current production requirements. However, from time to time,customers, however we may purchase steel in advance of announced steel price increases. In addition, it is our current practice to purchase all steel inventory that has been ordered but is not in our possession. If demand for our products declines, our inventory may increase. We can give you no assurance that steel will remain available, that prices will not continue to be volatile or that we will be able to purchase steel on favorable or commercially reasonable terms. While most of our sales contracts have escalation clauses that allow us, under certain circumstances, to pass along all or a portion of increases in the price of steel after the date of the contract but prior to delivery, we may, for competitive or other reasons, not be able to pass such price increases along. Ifdo so in the future. Further, if the available supply of steelany of the raw materials we use declines, we could experience price increases that we are not able to pass on to our customers, a deterioration of service from our suppliers or interruptions or delays that may cause us not to meet delivery schedules to our customers. Any of these problems could adversely affect our results of operations and financial condition. For more information aboutWe can give you no assurance that steel, pricing trendsPVC resin, aluminum or glass will remain available, that prices will not continue to be volatile or that we will be able to purchase these raw materials on favorable or commercially reasonable terms.
Further, we use energy in recent years, see “Item 1. Business — Raw Materials”the manufacturing and “Item 7A. Quantitativetransportation of our products. In particular, our manufacturing plants use considerable amounts of electricity and Qualitative Disclosures about Market Risk — Steel Prices.”natural gas. Consequently, our operating costs typically increase if energy costs rise. During periods of higher energy costs, we may not be able to recover our operating cost increases through price increases without reducing demand for our products. To the extent we are not able to recover these cost increases through price increases or otherwise, our profitability and cash flow will be adversely impacted. We partially hedge our exposure to higher prices through fixed forward positions.
We rely on third-party suppliers for materials in addition to steel, PVC resin, aluminum and glass, and if we fail to identify and develop relationships with a sufficient number of qualified suppliers, or if there is a significant interruption in our supply chains, our business and results of operations could be adversely affected.
In addition to steel, PVC resin, aluminum and glass, our operations require other raw materials from third-party suppliers. We generally have multiple sources of supply for our raw materials, however, in some cases, materials are provided by a single supplier. The loss of, or substantial decrease in the availability of, products from our suppliers, or the loss of a key supplier, could adversely impact our financial condition and results of operations. In addition, supply interruptions could arise from shortages of raw materials, labor disputes or weather conditions affecting products or shipments or other factors beyond our control. Short- and long-term disruptions in our supply chain would result in a need to maintain higher inventory levels as we replace similar product, a higher cost of product and ultimately a decrease in our revenues and profitability. To the extent our suppliers experience disruptions, there is a risk for delivery delays, production delays, production issues or delivery of non-conforming products by our suppliers. Even where these risks do not materialize, we may incur costs as we prepare contingency plans to address such risks. In addition, disruptions in transportation lines could delay our receipt of raw materials. If our supply of raw materials is disrupted or our delivery times extended, our results of operations and financial condition could be materially adversely affected. Furthermore, some of our third-party suppliers may not be able to handle commodity cost volatility or changing volumes while still performing up to our specifications. Short-term changes in the cost of these materials, some of which are subject to significant fluctuations, are sometimes, but not always passed on to our customers. Our inability to pass on material price increases to our customers could adversely impact our financial condition, operating results and cash flows.
Failure to retain or replace key personnel could hurt our operations.
Our success depends to a significant degree upon the efforts, contributions and abilities of our senior management, plant managers and other highly skilled personnel, including our sales executives. These executives and managers have many accumulated years of experience in our industry and have developed personal relationships with our customers that are important to our business. If we do not retain the services of our key personnel or if we fail to adequately plan for the succession of such individuals, our customer relationships, results of operations and financial condition may be adversely affected.


If we are unable to enforce our intellectual property rights, or if such intellectual property rights become obsolete, our competitive position could be adversely affected.
As a company that manufactures and markets branded products, we rely heavily on trademark and service mark protection to protect our brands. We utilizealso have issued patents and rely on trade secret and copyright protection for certain of our technologies. These protections may not adequately safeguard our intellectual property and we may incur significant costs to defend our intellectual property rights, which may harm our operating results. There is a variety ofrisk that third parties, including our current competitors, will infringe on our intellectual property rights, in which case we would have to defend these rights. There is also a risk that third parties, including our services. current competitors, will claim that our products infringe on their intellectual property rights. These third parties may bring infringement claims against us or our customers, which may harm our operating results.
We also rely on third party license agreements for certain trademarks and technologies we employ. There is a risk that third parties may modify or terminate such licenses, which may harm our operating results. While these license agreements generally provide that the licensors will indemnify us, subject to certain limitations, for certain infringement liabilities, our ability to seek indemnification from the respective licensors is limited by various factors, including the financial condition of the licensor as well as by the terms and limits of such indemnities or obligations. As a result, there can be no assurance that we could receive any indemnification from licensors, and any related infringement liabilities, costs or penalties could have a numbermaterial adverse effect on our financial condition and results of United States copyrights, patents, foreign patents, pending patent and copyright applications and other proprietary rights, including those relating to metal roofing systems, metal overhead doors, our pier and header system, our Long Bay® System and our building estimating and design system. CENTRIA also has a number of U.S. patents, including for its composite joinery apparatus. We and CENTRIA also have a number of registered trademarks and pending registrations in the United States. In addition, CENTRIA has exclusively licensed certain metal building cladding technology from Proclad Enterprises Ltd., which, under certain circumstances, may be converted to a non-exclusive license. We view this portfolio of owned and licensed process and design technologies as one of our competitive strengths. We may not be able to successfully preserve these intellectual property rights in the future and these rights could be invalidated, circumvented, or challenged.operations.
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There can be no assurance that the efforts we have taken to protect our proprietary rights will be sufficient or effective, that any pending or future patent and trademark applications will lead to issued patents and registered trademarks in all instances, that others will not develop or patent similar or superior technologies, products or services, or that our patents, trademarks and other intellectual property will not be challenged, invalidated, misappropriated or infringed by others. If we are unable to protect and maintain our intellectual property rights, including those acquired from CENTRIA, or if there are any successful intellectual property challenges or infringement proceedings against us, including in connection with intellectual property of CENTRIA, our business and revenue could be materially and adversely affected.
We may also be subject to future claims and legal proceedings regarding alleged infringement by us of the patents, trademarks and other intellectual property rights of third parties. If there is a claim against us for infringement, misappropriation, misuse or other violation of third-party intellectual property rights, and we are unable to obtain sufficient rights or develop non-infringing intellectual property or otherwise alter our business practices on a timely or cost-efficient basis, our business and competitive position may be adversely affected.
We incur costs to comply with environmental laws and have liabilities for environmental investigations, cleanups and claims.
During the normal operation of our manufacturing facilities, we emit and discharge pollutants into the environment, handle and use hazardous substances, and generate and dispose of industrial wastes. We also own and operate, or have in the past owned and operated, real and leased property that has been historically used for industrial purposes. We incur costs and liabilities to comply with environmental laws and regulations that apply to our operations and properties. We maycould incur significant additional costs as those lawsa result of compliance with, violations of or liabilities under applicable environmental, health and regulations, or their enforcement, change in the future; or if we discover a release of hazardous substances, industrial wastes or other contamination into the environment, historical or otherwise, caused by our manufacturing operations or historical predecessors.safety laws.
Our manufacturing facilitiesoperations are subject to stringent and complexvarious federal, state, local and tribalforeign environmental, health and safety laws. Among other things, these laws and regulations. These include (i)regulate the federal Clean Air Act and comparable state laws and regulations that impose requirements related to air emissions; (ii)emission or discharge of materials into the federal Clean Water Act and comparable state laws and regulations that impose requirements related to wastewater and stormwater discharges; (iii)environment, govern the federal Resource Conservation and Recovery Act and comparable state laws that impose requirements for theuse, storage, treatment, handlingdisposal and disposalmanagement of industrialhazardous substances and wastes, fromprotect the health and safety of our facilities;employees and (iv) the Comprehensive Environmental Response, Compensationend-users of our products, regulate the materials used in our products and Liability Act of 1980 and comparable state laws that impose liability for the investigationcosts of investigating and cleanupremediating, and other damages resulting from, present and past releases of hazardous substancessubstances. Violations of these laws or industrial wastes that may have been releasedof any conditions contained in environmental permits can result in substantial fines or penalties, injunctive relief, requirements to install pollution or other controls or equipment, civil and criminal sanctions, permit revocations and facility shutdowns. We could be held liable for the costs to investigate, remediate or otherwise address contamination at properties currently or previously owned or operated by us, or at locations whereany real property we have sent industrial wasteever owned, operated or used as a disposal site or other sites at which we or predecessors released hazardous materials. We also could incur fines, penalties or sanctions or be subject to third-party claims, including indemnification claims, for disposal.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. In addition, changes in, or new interpretations of, existing laws, regulations or enforcement policies, the discovery of previously unknown contamination, or the imposition of other environmental liabilities or obligations in the future, including additional investigation, remediation or other obligations with respect to our products or business activities or the imposition of new permit requirements, may lead to additional costs that could have a material adverse effect on our business, financial condition or results of operations.
FailureChanges in building codes and standards could increase the cost of our products, lower the demand for our products, or otherwise adversely affect our business.
Our products and markets are subject to complyextensive and complex local, state, federal, and foreign statutes, ordinances, rules, and regulations. These mandates, including building design and safety and construction standards and zoning requirements, affect the cost, selection, and quality requirements of building components like windows and siding.
These statutes, ordinances, rules, and regulations often provide broad discretion to governmental authorities as to the types and quality specifications of products used in new residential and non-residential construction and home renovations and improvement projects, and governmental authorities can impose different standards. Compliance with these lawsstandards and changes in such statutes, ordinances, rules, and regulations may triggerincrease the costs of manufacturing our products or may reduce the demand for certain of our products in the affected geographical areas or product markets. Conversely, a varietydecrease in product safety standards could reduce demand for our more modern products if less expensive alternatives that did not meet higher standards became available for use in that market. All or any of administrative, civil and criminal enforcement measures, including the assessment of monetary penalties; the imposition of investigative or remedial requirements; personal injury, property or natural resource damages claims; and the issuance of orders limiting current or future operations. For more information about thethese changes could have a material adverse effect of environmental laws and regulations on our business, see “Item 1. Business - Environmental Matters.”financial condition, and results of operations.
The industries in which we operate are highly competitive.
We compete with all other alternative methods of building construction, which may be viewed as more traditional, more aesthetically pleasing or having other advantages over our products. In addition, competition in the metal components and metal buildingsconstruction markets of the building industry and in the metal coil coating segment is intense. It is based primarily on:
on quality;
service;
on-time delivery;
delivery and project completion; ability to provide added value in the design and engineering of buildings;


price;
speed of construction in buildings and components; and
personal relationships with customers.
WeIn our Commercial segment, we compete with a number of other manufacturers of metal components and engineered building systems and providers of coil coating services ranging from small local firms to large national firms. In addition, we and other manufacturers of metal components and engineered building systems compete with alternative methods of building construction. If these alternative building methods compete successfully against us, such competition could adversely affect us.
In addition, several of our competitors have been acquired by steel producers. Competitors owned by steel producers may have a competitive advantage on raw materials that we do not enjoy. Steel producers may prioritize deliveries of raw materials to such competitors or provide them with more favorable pricing, both of which could enable them to offer products to customers at lower prices or accelerated delivery schedules.
Our stock price has been
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In our Siding and Windows segments, we compete with other national and regional manufacturers of exterior building products. Some of these companies are larger and have greater financial resources than we do. Accordingly, these competitors may continuebe better equipped to be volatile.
The trading price of our Common Stock has fluctuated in the past and is subject to significant fluctuations in response to the following factors, some of which are beyond our control:
variations in quarterly operating results;
deviations in our earnings from publicly disclosed forward-looking guidance;
variability in our revenues;
withstand changes in earnings estimates by analysts;
our announcements of significant contracts, acquisitions, strategic partnerships or joint ventures;
general conditions in the industries in which we operate and may have significantly greater operating and financial flexibility than we do. Competitors could take a greater share of sales and cause us to lose business from our customers. Additionally, our products face competition from alternative materials, such as wood, metal, componentsfiber cement, masonry and engineeredcomposites in siding, and wood, composites and fiberglass in windows. An increase in competition from other exterior building systems industries;products manufacturers and alternative building materials could cause us to lose our customers and lead to net sales decreases.
uncertainty about current global economic conditions;
sales of our Common Stock by our significant stockholders;
fluctuations in stock market priceWe face risks related to past and volume; and
other general economic conditions.
During fiscal 2018, our stock price on the NYSE ranged from a high of $23.35 per share to a low of $12.30 per share. In recent years, the stock market in general has experienced extreme price and volume fluctuations that have affected the market price for many companies in industries similar to ours. Some of these fluctuations have been unrelated to the operating performance of the affected companies. These market fluctuations may decrease the market price of our Common Stock in the future.
Acquisitions may be unsuccessful if we incorrectly predict operating results or are unable to identify and complete future acquisitions and integrate acquired assets or businesses.that could adversely affect our results of operations.
We have a history of expansion through acquisitions, and we believe that if our industry continues to consolidate, our future success may depend, in part, on our ability to successfully complete acquisitions. Growing through acquisitions and managing that growth will require us to continue to invest in operational, financial and management information systems and to attract, retain, motivate and effectively manage our employees. Pursuing and integrating acquisitions involves a number of risks, including:
the risk of incorrect assumptions or estimates regarding the future results of the acquired business or expected cost reductions or other synergies expected to be realized as a result of acquiring the business;
diversion of management’s attention from existing operations;
unexpected losses of key employees, customers and suppliers of the acquired business;
integrating the financial, technological and management standards, processes, procedures and controls of the acquired business with those of our existing operations; and
increasing the scope, geographic diversity and complexity of our operations.operations; and
Althoughpotential litigation or other claims arising from the majority of our growth strategy is organic in nature, if we do pursue opportunistic acquisitions, weacquisition.
We can provide no assurance that we will be successful in identifying or completing any future acquisitions or that any businesses or assets that we


are able to acquire will be successfully integrated into our existing business. We cannot predict the effect, if any, that any announcement or consummation of an acquisition would have on the trading prices of our common stock.
Acquisitions subject us to numerous risks that could adversely affect our results of operations.
If we pursue further acquisitions, depending on conditions in the acquisition market, it may be difficult or impossible for us to identify businesses or operations for acquisition, or we may not be able to make acquisitions on terms that we consider economically acceptable. Even if we are able to identify suitable acquisition opportunities, our acquisition strategy depends upon, among other things, our ability to obtain financing and, in some cases, regulatory approvals, including under the Hart-Scott-Rodino Act.
OurThe incurrence of additional debt, contingent liabilities and expenses in connection with any future acquisitions could have a material adverse effect on our financial condition and results of operations. Furthermore,Further, we cannot predict the effect, if any, that any announcement or consummation of an acquisition would have on the trading price of our financial position and results of operations may fluctuate significantly from period to period based on whether significant acquisitions are completed in particular periods. Competition for acquisitions is intense and may increase the cost of, or cause us to refrain from, completing acquisitions. Common Stock.
In addition, we may be subject to claims arising from the operations of businesses from periods prior to the dates we acquired them. These claims or liabilities could be significant. Our ability to seek indemnification from the former owners for these claims or liabilities is limited by various factors, including the specific limitations contained in the respective acquisition agreements and the financial ability of the former owners to satisfy such claims or liabilities. If we are unable to consummateenforce any acquisition once announced andindemnification rights we may have against the former owners or if the former owners are unable to satisfy their obligations for any reason, including because of their current financial position, or if we do not have any right to indemnification, we could be held liable for termination fees.the costs or obligations associated with such claims or liabilities, which could adversely affect our operating performance
Restructuring our operations may harm our profitability, financial condition and results of operations. Our ability to fully achieve the estimated cost savings is uncertain.
We have developed plans to improve cost efficiency and optimize our combined manufacturing plant footprint considering our recent acquisitions and restructuring efforts. Future charges related to the plans may harm our profitability in the periods incurred. Additionally, if we were to incur unexpected charges related to the plans, our financial condition and results of operations may suffer.
Implementation of these plans carry significant risks, including:
actual or perceived disruption of service or reduction in service levels to our customers;
failure to preserve supplier relationships and distribution, sales and other important relationships and to resolve conflicts that may arisearise;
potential adverse effects on our internal control environment and an inability to preserve adequate internal controls;
diversion of management attention from ongoing business activities and other strategic objectives; and
failure to maintain employee morale and retain key employees.
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Because of these and other factors, we cannot predict whether we will fully realize the cost savings from these plans. If we do not fully realize the expected cost savings from these plans, our business and results of operations may be negatively affected. Also, if we were to experience any adverse changes to our business, additional restructuring activities may be required in the future.
Volatility in energy prices may impact our operating costs, and weWe may be unablesignificantly affected by global climate change or by legal, regulatory or market responses to pass any resulting increasesglobal climate change.
Concern over the effects of global climate change has led to our customers infederal, state and international legislative and regulatory efforts to limit greenhouse gas, or GHG, emissions. In the form of higher prices for our products.
Volatility in energy prices may increase our operating costs and may reduce our profitability and cash flows if we are unablepast, the United States Congress has considered various bills to pass any resulting increases to our customers. We use energy inregulate GHG emissions. Though the manufacture and transport of our products. In particular, our manufacturing plants use considerable amounts of electricity and natural gas. Consequently, our operating costs typically increase if energy costs rise. During periods of higher energy costs, we maylegislation did not be able to recover our operating cost increases through price increases without reducing demand for our products. Tobecome law, the extent we are not able to recover these cost increases through price increases or otherwise, our profitability and cash flow will be adversely impacted. We partially hedge our exposure to higher prices via fixed forward positions.
The adoption ofU.S. Congress could pass climate change legislation in the future. In addition, in the past, the United States Environmental Protection Agency, or regulations restrictingEPA, took steps to regulate GHG emissions, of greenhouse gases could increase our operating costs or reduce demand for our products.
though at this time the EPA is not actively regulating GHG emissions. More stringent federal, regional, state and foreign laws and regulations relating to global climate change and greenhouse gases, or GHGs,GHG emissions may be adopted in the futurefuture. These laws and regulations could impact our facilities, raw material suppliers, the transportation and distribution of our products, and our customers, whichand could reduce demand for our products or cause us to incur additional capital, operating costs or reducedother costs. Until the timing, scope and extent of any future legislation or regulation becomes known, we cannot predict its effect on our business. In addition, global climate change may increase the frequency or intensity of extreme weather events, such as storms, floods, heat waves, and other events that could affect our facilities and demand for our products.
On December 15, 2009, the federal Environmental Protection Agency, or EPA, published its findings that emissions of carbon dioxide, methane, and other GHGs present an endangerment to public health, the economy and the environment because emissions of such gases, according to the EPA, contribute to the warming We are mindful of the earth’s atmosphereharmful effects of global climate change and other climate changes. These findings allowed the EPAare taking steps to adopt and implement regulations and permit programs that would restrict emissions of GHGs under existing provisions of the federal CAA.


Although it is not possible to accurately predict how newminimize our GHG rules and policy would impact our business, any new federal, regional or state restrictions on emissions of carbon dioxide or other GHGs that may be imposed in areas where we conduct business could result in increased compliance costs or additional operating restrictions. Such restrictions could potentially make our products more expensive and reduce their demand.emissions.
Breaches of our information system security measures could disrupt our internal operations.
We are dependent upon information technology for the distribution of information internally and also to our customers and suppliers. This information technology is subject to theft, damage or interruption from a variety of sources, including but not limited to malicious computer viruses, security breaches and defects in design. Various measuresPurchase of our products may involve the transmission and/or storage of data, including in certain instances customers’ business and personally identifiable information. Thus, maintaining the security of computers, computer networks and data storage resources is a critical issue for us and our customers, as security breaches could result in vulnerabilities and loss of and/or unauthorized access to confidential information. We have been implementedin the past faced, and may in the future face attempts by hackers, cybercriminals or others with authorized access to manage our risks relatedsystems to misappropriate our proprietary information system and networktechnology, interrupt our business, and/or gain unauthorized access to confidential information. The reliability and security of our information technology infrastructure and software, and our ability to expand and continually update technologies in response to our changing needs is critical to our business. To the extent that any disruptions butor security breaches result in a system failureloss or breachdamage to our data, it could cause harm to our reputation or brand. This could lead some customers to stop purchasing our products and reduce or delay future purchases of our products or the use of competing products; lead to state or federal enforcement action, which could result in fines, penalties and/or other liabilities and which may cause us to incur legal fees and costs; and/or result in additional costs associated with responding to a cyberattack. Increased regulation regarding cyber security may increase our costs of compliance, including fines and penalties, as well as costs of cyber security audits. Any of these measuresactions could negativelymaterially adversely impact our operationsbusiness and financial results.results of operations.
We have invested in industry appropriate protections and monitoring practices of our data and information technology to reduce these risks and continue to monitor our systems on an ongoing basis for any current or potential threats. There can be no assurance, however, that our efforts will prevent breakdowns or breaches to our third party providers’ databases or systems that could adversely affect our business.
Damage to our computer infrastructure and software systems could harm our business.
The unavailability of any of our primary information management systems for any significant period of time could have an adverse effect on our operations. In particular, our ability to deliver products to our customers when needed, collect our receivables and manage inventory levels successfully largely depend on the efficient operation of our computer hardware and software systems. Through information management systems, we provide inventory availability to our sales and operating personnel, improve customer service through better order and product reference data and monitor operating results. Difficulties associated with upgrades, installations of major software or hardware, and integration with new systems could lead to business interruptions that could harm our reputation, increase our operating costs and decrease our profitability. In addition, these systems are vulnerable to, among other things, damage or interruption from power loss, computer system and network failures, loss of telecommunications services, operator negligence, physical and electronic loss of data, or security breaches and computer viruses.
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We have contracted with third-party service providers that provide us with redundant data center services in the event that our major information management systems are damaged. The backup data centers and other protective measures we take could prove to be inadequate. Our inability to restore data completely and accurately could lead to inaccurate and/or untimely filings of our periodic reports with the SEC, tax filings with the Internal Revenue Service (“IRS”) or other required filings, all of which could have a significant negative impact on our corporate reputation and could negatively impact our stock price or result in fines or penalties that could impact our financial results.
Our enterprise resource planning technologies will require maintenance or replacement in order to allow us to continue to operate and manage critical aspects of our business.
We rely heavily on enterprise resource planning technologies (“ERP Systems”) from third parties in order to operate and manage critical internal functions of our business, including accounting, order management, procurement, and transactional entry and approval. Certain of our ERP Systems are no longer supported by their vendor, are reaching the end of their useful life or are in need of significant updates to adequately perform the functions we require. We have limited access to support for older software versions and may be unable to repair the hardware required to run certain ERP Systems on a timely basis due to the unavailability of replacement parts. In addition, we face operational vulnerabilities due to limited access to software patches and software updates on any software that is no longer supported by their vendor. We are planning hardware and software upgrades to our ERP Systems and are in discussions with third-party vendors regarding system updates.
If our ERP Systems become unavailable due to extended outages or interruptions, or because they are no longer available on commercially reasonable terms, our operational efficiency could be harmed and we may face increased replacement costs. We may also face extended recovery time in the event of a system failure due to lack of resources to troubleshoot and resolve such issues. Our ability to manage our operations could be interrupted and our order management processes and customer support functions could be impaired until equivalent services are identified, obtained and implemented on commercially reasonable terms, all of which could adversely affect our business, results of operations and financial condition.
Our operations are subjectWe risk liabilities and losses due to hazards that may cause personal injury, or property damage thereby subjecting us to liabilities and possible losses,or product liability claims, which may not be covered by insurance.
Our workers are subject to the usual hazards associated with work in manufacturing environments. Operating hazards can cause personal injury and loss of life, as well as damage to or destruction of business personal property, and possible environmental impairment. We are subject to either deductible or self-insured retention (SIR) amounts, per claim or occurrence, under our Property/Casualty insurance programs, as well as an individual stop-loss limit per claim under our group medical insurance plan. We maintain insurance coverage to transfer risk, with aggregate and per-occurrence limits and deductible or retention levels that we believe are consistent with industry practice. The transfer of risk through insurance cannot guarantee that coverage will be available for every loss or liability that we may incur in our operations.
Exposures that could create insured (or uninsured) liabilities are difficult to assess and quantify due to unknown factors, including but not limited to injury frequency and severity, natural disasters, terrorism threats, third-party liability, and claims


that are incurred but not reported (“IBNR”). Although we engage third-party actuarial professionals to assist us in determining our probable future loss exposure, it is possible that claims or costs could exceed our estimates or our insurance limits, or could be uninsurable. In such instances we might be required to use working capital to satisfy these losses rather than to maintain or expand our operations, which could materially and adversely affect our operating results and our financial condition.
DueFurther, we face an inherent business risk of exposure to product liability claims, including class action claims and warranties, in the international natureevent that the use of any of our business,products results in personal injury or property damage. In the event that any of our products are defective or prove to be defective, among other things, we may be responsible for damages related to any defective products and may be required to cease production, recall or redesign such products. Because of the long useful life of our products, it is possible that latent defects might not appear for several years. Any insurance we maintain may not continue to be available on acceptable terms or such coverage may not be adequate for liabilities actually incurred. Further, any claim or product discontinuance, recall or redesign could be adversely affected by violations of certain laws.result in adverse publicity against us, which could cause sales to decline, or increase warranty costs.
We face risks related to our international operations.
In addition to the United States, we operate our business in Canada and Mexico and make sales in certain other jurisdictions. The policiesOur operations in Canada generated approximately 7.0% of our business mandate compliancerevenues in 2019. As such, our net sales, earnings and cash flow are exposed to risk from changes in foreign exchange rates, which can be difficult to mitigate. Depending on the direction of changes relative to the U.S. dollar, Canadian dollar values can increase or decrease the reported values of our net assets and results of operations. We hedge this foreign currency exposure by evaluating the usage of certain derivative instruments which hedge certain, but not all, underlying economic exposures
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Our international operations require us to comply with certain U.S. and international laws, such as import/export laws and regulations, anti-boycott laws, economic sanctions, laws and regulations, the U.S. Foreign Corrupt Practices Act and similar anti-bribery laws. We operate in parts of the world, including Mexico, that have experienced governmental corruption to some degree and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices. We cannot provide assurance that our internal controls and procedures will always prevent reckless or criminal acts by our employees or agents, or that the operations of acquired businesses will have been conducted in accordance with our policies and applicable regulations. If we are found to be liable for violations of these laws (either due to our own acts, out of inadvertence or due to the acts or inadvertence of others), we could suffer criminal or civil penalties or other sanctions, including limitations on our ability to conduct our business, which could have a material and adverse effect on our results of operations, financial condition and cash flows.
Recently enacted tariffs on steel importsIncreases in labor costs, potential labor disputes, union organizing activity and work stoppages at ourfacilities or the facilities of our suppliers could delay or impede our production,reduce sales of our products and increase our costs.
Our financial performance is affected by the availability of qualified personnel and the cost of labor. As of December 31, 2019, approximately 12% of our employees were represented by labor unions. We are subject to the risk that strikes or other types of conflicts with personnel may arise or that we may become a subject of union organizing activity. Furthermore, some of our direct and indirect suppliers have unionized work forces. Strikes, work stoppages or slowdowns experienced by these suppliers could result in increased steel pricesslowdowns or closures of facilities where components of our products are manufactured. Any interruption in the production or delivery of our products could reduce sales of our products and increase our costs. Our ability to attract and retain qualified manufacturing personnel to operate our manufacturing plants efficiently is critical to our financial performance. Any labor shortage will create operating inefficiencies that could adversely affectimpact our financial performance.
Significant changes in factors and assumptions used to measure our defined benefit plan obligations, actual investment returns on pension assets and other factors could negatively impact our operating results and cash flows.
The recognition of operations.
In 2018,costs and liabilities associated with our pension plans for financial reporting purposes is affected by assumptions made by management and used by actuaries engaged by us to calculate the Trump administration implemented new tariffs on importsbenefit obligations and the expenses recognized for these plans. The inputs used in developing the required estimates are calculated using a number of steel into the United States. As the implementationassumptions, which represent management’s best estimate of tariffs is ongoing, more tariffs may be added in the future. The new tariffs may provide domestic steel producersassumptions that have the flexibilitymost significant impact on reported results are the discount rate, the estimated long-term return on plan assets for the funded plans, retirement rates, and mortality rates. These assumptions are generally updated annually.
In recent years, the declining interest rates and changes to increase their prices, at least to a level where their products would still be priced below foreign competitors oncemortality assumptions have negatively impacted the tariffs are taken into account. The new tariffs could result in both increased steel prices and a decreased available supply of steel. We may not be able to pass such price increases on to our customers and may not be able to secure adequate alternative sources of steel on a timely basis. Either of these occurrences could adversely affect our results of operations and financial condition.
Risks related to the Ply Gem business
On November 16, 2018, the date we consummated the Merger, the businesses and operations of Ply Gem became partfunded status of our operationspension plans. In addition, volatile asset performance, most notably since 2008, has also negatively impacted the funded status of our pension plans. Funding requirements for our pension plans may become more significant. If our cash flows and willcapital resources are insufficient to fund our pension plan obligations, we could be reflected inforced to reduce or delay investments and capital expenditures, seek additional capital, or restructure or refinance our consolidated financial results from that day forward. The businesses of Ply Gem and NCI are subject to substantially similar risks and uncertainties and, as a result, Ply Gem’s businesses are and will be subject to many of the risks described above. For additional information about risks related to Ply Gem’s business, see “Other Risk Factors of Ply Gem” set forth in the Company’s Proxy Statement relating to the Special Shareholder Meeting, filed with the SEC on October 17, 2018.indebtedness.
Risks related to the Merger
CombiningFully integrating Ply Gem’s business following the businesses of NCI and Ply GemMerger may be more difficult, costly and time-consuming than expected, which may adversely affect the Company’sour results of operations and negatively affect the value of NCI common stock.our Common Stock.
TheWhile the Company’s Management ismanagement has made progress in the process of integrating NCI’s and Ply Gem’s respective businesses.business with our pre-Merger business, integration efforts are still underway. The combination of two independent businesses is a complex, costly and time-consuming process and the Company’s management may face significant, ongoing challenges in implementing such integration, many of which may be beyond the control of management, including, without limitation:
latent impacts resulting from the diversion of NCI’s and Ply Gem’s respective management teams’ attention from ongoing business concerns as a result of the devotion of management’s attention to the Merger and performance shortfalls at one or both of the companies;
ongoing diversion of the attention of management from the operation of the Company’s business as a result of the intended business separations;
difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects;
the possibility of faulty assumptions underlying expectations regarding the integration process;
unanticipated issues in integrating accounting, information technology, communications programs, financial procedures and operations, and other systems, procedures and policies;
difficulties in managing a larger surviving corporation, addressing differences in business culture and retaining key personnel;
unanticipated changes in applicable laws and regulations;


coordinating geographically separate organizations; and
unforeseen expenses or delays associated with the Merger.
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Some of these factors will beare outside of the control of the Company, and any one of them could result in increased costs and diversion of management’s time and energy, as well as decreases in the amount of expected revenue, thatwhich could materially impact the business, financial conditions and results of operations of the combined business.Company. The integration process and other disruptions resulting from the Merger may also adversely affect the Company’s relationships with employees, suppliers, customers, distributors, licensors and others with whom NCI and Ply Gem havethe pre-Merger businesses had business or other dealings,dealings.
Risks related to our Common Stock and difficultiessignificant stockholders
Our stock price has been and may continue to be volatile.
The trading price of our Common Stock has fluctuated in integrating the businessespast and is subject to significant fluctuations in response to the following factors, some of NCIwhich are beyond our control:
variations in quarterly operating results;
deviations in our earnings from publicly disclosed forward-looking guidance;
variability in our revenues;
changes in earnings estimates by analysts;
our announcements of significant contracts, acquisitions, strategic partnerships or joint ventures;
uncertainty about current global economic conditions;
sales of our Common Stock by our significant stockholders;
fluctuations in stock market price and Ply Gem could harmvolume; and
other general economic conditions.
During 2019, our stock price on the reputationNYSE ranged from a high of $9.30 per share to a low of $3.75 per share. In recent years, the stock market in general has experienced extreme price and volume fluctuations that have affected the market price for many companies in industries similar to ours. Some of these fluctuations have been unrelated to the operating performance of the Company.
Ifaffected companies. These market fluctuations may decrease the Company is not able to successfully combine the businessesmarket price of NCI and Ply Gem in an efficient, cost-effective and timely manner, the anticipated benefits and cost savings of the Merger may not be realized fully, or at all, or may take longer to realize than expected, and the value of NCIour Common Stock in the revenues, levels of expenses and results of operations may be affected adversely. If the Company is not able to adequately address integration challenges, the Company may be unable to successfully integrate NCI’s and Ply Gem’s operations or realize the anticipated benefits of the Merger.future.
In connection with the Merger, we may be required to take write-downs or write-offs, restructuring and impairment or other charges that could negatively affect our business, assets, liabilities, prospects, outlook, financial condition and results of operations.
Although Ply Gem and the Company have conducted extensive due diligence on each other in connection with the Merger, we cannot assure that this diligence revealed all material issues that may be present, that it would be possible to uncover all material issues throughThe CD&R Investors own a customarysignificant amount of due diligence, or that factors outside of our control will not later arise. Unexpected risks may ariseCommon Stock and previously known risks may materialize in a manner not consistent with our preliminary risk analysis. Further, as a result of the Merger, purchase accounting, and the proposed operation of the Company, as the surviving corporation going forward, we may be required to take write-offs or write-downs, restructuring and impairment or other charges. As a result, we may be forced to write-down or write-off assets, restructure its operations, or incur impairment or other charges that could negatively affect our business, assets, liabilities, prospects, outlook, financial condition and results of operations.
Pursuant to the Merger Agreement, we entered into a stockholders agreement with each of the Investors pursuant to which the CD&R Investors will have substantial governance and other rights setting forth certain terms and conditions regarding the ownership of the CD&R Investors’ shares of NCI Common Stock.
Pursuant to the terms of the Merger Agreement, on November 16, 2018, the Company entered into the New Stockholders Agreement with each of the Investors.
Pursuantpursuant to the New Stockholders Agreement, among other matters, the CD&R Investor Group is entitled to nominate for election, fill vacancies and appoint five out of twelve initial members of NCI’s board of directors and, thereafter, so long as the CD&R Investor Group beneficially owns at least 7.5% of the outstanding shares of NCI Common Stock, to nominate for election, fill vacancies and appoint replacements for a number of Board members in proportion to the CD&R Investor Group’s percentage beneficial ownership of outstanding NCI Common Stock, but never to exceed one less than the number of independent, non-CD&R-affiliated directors serving on the Board. The New Stockholders Agreement contains voting agreements between the Company and each of the Investors, including the requirement that each Investor shall vote all of the shares of Common Stock that it beneficially owns (a) in favor of all director nominees, other than CD&R Investor Nominees or director nominees proposed by a Golden Gate Investor, nominated by the Board for election by the stockholders of the Company in accordance with the terms of the New Stockholders Agreement and the Sixth Amended and Restated By-laws of the Company, (b) as recommended by the Board, on any and all (i) proposals relating to or concerning compensation or equity incentives for directors, officers or employees of the Company adopted in the ordinary course of business consistent with past practice, (ii) proposals by stockholders of the Company, other than a proposal by a CD&R Investor or a Golden Gate Investor, and (iii) proposals the subject matter of which is a CD&R Investor Consent Action (as defined in the New Stockholders Agreement), provided that, in respect of clauses (i) and (iii) only, that the Board’s recommendation is consistent with the CD&R Investor Group’s exercise of its consent rights provided in the New Stockholders Agreement, and (c) not in favor of any transaction constituting, or that would result in, a Change of Control (as defined in the New Stockholders Agreement) that has not been approved by a majority of the Independent Non-CD&R Investor Directors (as defined in the New Stockholders Agreement), if the per share consideration to be received by any CD&R Investor or Golden Gate Investor in connection with such transaction is not equal to, and in the same form as, the per-share consideration to be received by the shareholders not affiliated with the Investors.Agreement.
The CD&R Investor Group collectively ownsowned approximately 49.6%49.1% of theour outstanding NCI common stockCommon Stock as of November 16, 2018.December 31, 2019. As a significant stockholder, the CD&R Investors could significantly influence the outcome of matters requiring a stockholder vote, including the election of directors, the adoption of any amendment to NCI’sour certificate of incorporation or bylaws and the approval of mergers and other significant corporate transactions. Their influence over NCICornerstone may have the effect of delaying or preventing a change of control or may adversely affect the voting and other rights of other stockholders.


Further, the CD&R Investor Group has substantial governance and other rights pursuant to the New Stockholders Agreement, including the ability, for so long as it beneficially owns at least 7.5% of our outstanding shares of Common Stock, to nominate for election, fill vacancies and appoint replacements for a number of Board members in proportion to the CD&R Investor Group’s percentage beneficial ownership of our outstanding Common Stock, but never to exceed one less than the number of independent, non-CD&R-affiliated directors serving on the Board.
Transactions engaged in by the CD&R Investors, the Golden Gate Investors or our directors or executives involving our Common Stock may have an adverse effect on the price of our stock.Common Stock.
PursuantWe are party to the terms of the New Registration Rights Agreement, the Company grantedwhich grants the Investors customary demand and piggyback registration rights, including rights to demand registrations and underwrittenrights. We filed two shelf registration statement offerings with respect to the shares of NCI Common Stock that are heldstatements on Form S-3, declared effective by the Investors following the consummation of the Merger.
OnSEC on April 8, 2016 the SEC declared effective our shelf registration statement on Form S-3 which registeredand February 28, 2019, registering the resale of the shares of our Common Stock held by the CD&R Fund VIII Investor Group. Pursuant to the New Registration Rights Agreement, the Company is required to use its reasonable best efforts to file a registration statement on Form S-3 or any comparable or successor form or forms or any similar short-form registration statement prior to February 14, 2019 with respect toGroup and the Golden Gate Investors.Investors, respectively. At any time after May 16, 2020, CD&R Pisces may request in writing that the Company effect the registration under and in accordance with the provisions of the Securities Act of 1933, all or any part of the shares of NCI Common Stock that CD&R Pisces beneficially owns.
Upon the consummation
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As of the Merger, as of November 16, 2018,December 31, 2019, the CD&R Fund VIII Investor Group, CD&R Pisces and the Golden Gate Investor Group each owned approximately 18.3%18.1%, 31.3%31.0% and 13.4%13.3%, respectively, of theour issued and outstanding NCI Common Stock.
Future sales of our shares by these stockholders could have the effect of lowering our stock price. The perceived risk associated with the possible sale of a large number of shares by these stockholders could cause some of our stockholders to sell their stock, thus causing the price of our stock to decline. In addition, actual or anticipated downward pressure on our stock price due to actual or anticipated sales of stock by our directors or officers could cause other institutions or individuals to engage in short sales of our Common Stock, which may further cause the price of our stock to decline.
From time to time our directors, executive officers, or any of the Investors may sell shares of our Common Stock on the open market or otherwise, for a variety of reasons, which may be related or unrelated to the performance of our business. These sales will be publicly disclosed in filings made with the SEC. Our stockholders may perceive these sales as a reflection on management’s view of the business which may result in a drop in the price of our stock or cause some stockholders to sell their shares of our Common Stock.
Risks related to our indebtedness
We have substantial debt and may incur substantial additional debt, which could adversely affect our financial health, reduce our profitability, limit our ability to obtain financing in the future and pursue certain business opportunities and make payments on our indebtedness.
We have substantial indebtedness. As of October 28, 2018, we had total indebtedness of approximately $412.9 million. Following the consummation of the Merger, on November 16, 2018December 31, 2019, we had total indebtedness of approximately $3.2 billion.
The amount of our debt or other similar obligations could have important consequences for us, including, but not limited to:
a substantial portion of our cash flow from operations must be dedicated to the payment of principal and interest on our indebtedness, thereby reducing the funds available to us for other purposes;
our ability to obtain additional financing for working capital, capital expenditures, acquisitions, debt service requirements or general corporate purposes and our ability to satisfy our obligations with respect to our outstanding indebtedness may be impaired in the future;
we are exposed to the risk of increased interest rates because a portion of our borrowings is at variable rates of interest;
we may be at a competitive disadvantage compared to our competitors with less debt or with comparable debt at more favorable interest rates and that,who, as a result, may be better positioned to withstand economic downturns;
our ability to refinance indebtedness may be limited or the associated costs may increase;
our ability to engage in acquisitions without raising additional equity or obtaining additional debt financing may be impaired in the future;
it may be more difficult for us to satisfy our obligations to our creditors, resulting in possible defaults on and acceleration of such indebtedness;
we may be more vulnerable to general adverse economic and industry conditions; and


our flexibility to adjust to changing market conditions and our ability to withstand competitive pressures could be limited, or we may be prevented from making capital investments that are necessary or important to our operations, in general, growth strategy andor efforts to improve operating margins of our business units.
If we cannot service our debt, we will be forced to take actions such as reducing or delaying acquisitions and/or capital expenditures, selling assets, restructuring or refinancing our debt or seeking additional equity capital. We can give you no assurance that we can do any of these things on satisfactory terms or at all.
Further, the terms of the Current Cash Flow Credit Agreement, the Current ABL Credit Agreement and the Current Indenture provide us and our subsidiaries with the flexibility to incur a substantial amount of additional secured or unsecured indebtedness in the future if we or our subsidiaries are in compliance with certain incurrence ratios set forth therein. Any such incurrence of additional indebtedness may increase the risks created by our current substantial indebtedness. As of December 31, 2019, we were able to borrow up to approximately $425.9 million under the Current ABL Facility. All of these borrowings under the Current ABL Facility would be secured.
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The Current Indenture, the Current Cash Flow Credit Agreement and the Current ABL Credit Agreement contain restrictions and limitations that could significantly impact our ability and the ability of most of our subsidiaries to engage in certain business and financial transactions.
Current Indenture
The Current Indenture, (asthe Current Cash Flow Credit Agreement and the Current ABL Credit Agreement (each as defined in Item 7, Management’s"Management’s Discussion and Analysis of Financial Condition and Results of Operations) containsOperations") contain restrictive covenants that, among other things, limit our ability and the ability of our restricted subsidiaries to:
incur additional indebtedness or issue certain preferred shares;
pay dividends, redeem stock or make other distributions in respect of capital stock;
repurchase, prepay or redeem the 8.00% Senior Notes (as defined in Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations") and subordinated indebtedness;
make investments;
createincur additional liens;
transfer or sell assets;
create restrictions on the ability of our restricted subsidiaries to pay dividends to us or make other intercompany transfers;
make negative pledges;
consolidate, merge, sell or otherwise dispose of all or substantially all of our assets;
enter into certain transactions with our affiliates; and
designate subsidiaries as unrestricted subsidiaries.
Current Cash Flow Credit Agreement and Current ABL Credit Agreement
The Current Cash Flow Credit Agreement and the Current ABL Credit Agreement (each as defined in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations) contain a number of covenants that limit our ability and the ability of our restricted subsidiaries to:
incur additional indebtedness or issue certain preferred shares;
pay dividends, redeem stock or make other distributions in respect of capital stock;
repurchase, prepay or redeem the 8.00% Senior Notes (as defined in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations) and subordinated indebtedness;
make investments;
incur additional liens;
transfer or sell assets;
create restrictions on the ability of our restricted subsidiaries to pay dividends to us or make other intercompany transfers;
make negative pledges;
consolidate, merge, sell or otherwise dispose of all or substantially all of our assets;
enter into certain transactions with our affiliates; and
designate subsidiaries as unrestricted subsidiaries.
In addition, the Current Cash Flow Revolver (as defined in Item 7, Management’s"Management’s Discussion and Analysis of Financial Condition and Results of Operations) will under certain circumstances requireOperations") requires us to maintain a maximum total secured leverage ratio under certain circumstances, and the Current ABL Facility (as defined in Item 7, Management’s"Management’s Discussion and Analysis of Financial Condition and


Results of Operations) will under certain circumstances requireOperations") requires us to maintain a minimum consolidated fixed charge coverage ratio.ratio under certain circumstances. The Current ABL Credit Agreement will also containcontains other covenants customary for asset-based facilities of this nature. Our ability to borrow additional amounts under the Current Cash Flow Revolver and the Current ABL Facility depends upon satisfaction of these covenants. Events beyond our control can affect our ability to meet these covenants.
We are required to make mandatory pre-payments under the Current Cash Flow Credit Agreement and the Current ABL Credit Agreement upon the occurrence of certain events, including the sale of assets and the issuance of debt, in each case subject to certain limitations and conditions set forth in the Current Cash Flow Credit Agreement and the Current ABL Credit Agreement.
In addition, under certain circumstances and subject to the limitations set forth in the Current Cash Flow Credit Agreement, the Current Term Loan Facility (as defined in Item 7. Management’s"Management’s Discussion and Analysis of Financial Condition and Result of Operations)Operations") may require us to make prepayments of the term loans to the extent we generate excess positive cash flow each fiscal year, beginning with the fiscal year endingended December 31, 2019.
Any future financing arrangements entered into by us may also contain similar covenants and restrictions. As a result of these covenants and restrictions, we may be limited in our ability to plan for or react to market conditions or to meet extraordinary capital needs or otherwise could restrictrestricted in our activities. These covenants and restrictions could also adversely affect our ability to finance our future operations or capital needs or to engage in other business activities that would be in our interest.
Our failure to comply with obligations under the Current Cash Flow Credit Agreement, the Current ABL Credit Agreement or the Current Indenture, as well as others contained in any future debt instruments from time to time, may result in an event of default under the Current Cash Flow Credit Agreement, the Current ABL Credit Agreement or the Current Indenture, as applicable. A default, if not cured or waived, may permit acceleration of our indebtedness. If our indebtedness is accelerated, we cannot be certain that we will have sufficient funds available to pay the accelerated indebtedness or that we will have the ability to refinance the accelerated indebtedness on terms favorable to us or at all. If we are forced to refinance these borrowings on less favorable terms or cannot refinance these borrowings, our business, results of operations, financial condition and cash flows could be adversely affected.
Despite our indebtedness levels, we
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We may have future capital needs and our subsidiaries may not be able to incur substantially more indebtedness, which may increaseobtain additional financing on acceptable terms or at all.
Although we believe that our current cash position and the risks to our financial condition created by our substantial indebtedness.
The terms of the Current Cash Flow Credit Agreement,additional committed funding available under the Current ABL Credit Agreement and the Current Indenture provide us and our subsidiaries with the flexibility to incur a substantial amount of indebtedness in the future, which indebtedness may be secured or unsecured. As of October 28, 2018, we had total indebtedness of approximately $412.9 million. Following the consummation of the Merger, on November 16, 2018 we had total indebtedness of approximately $3.2 billion. In particular, if we or our subsidiaries are in compliance with certain incurrence ratios set forth in the Current Cash Flow Credit Agreement, the Current ABL Credit Facility and the Current Indenture, we may be able to incur substantial additional indebtedness. Any such incurrence of additional indebtedness may increase the risks created by our current substantial indebtedness. As of October 28, 2018, we were able to borrow up to approximately $141.0 million under the Pre-merger ABL Credit Facility. All of these borrowings under the Pre-merger ABL Credit Facility would be secured. At November 16, 2018, following the consummation of the Merger, there were no amounts drawn on the Current Cash Flow Revolver is sufficient for our current operations, any reductions in our available borrowing capacity, or our inability to renew or replace our debt facilities, when required or when business conditions warrant, could have a material adverse effect on our business, financial condition and results of operations. Our ability to secure additional financing or financing on favorable terms and to satisfy our financial obligations under indebtedness outstanding from time to time will depend upon our future operating performance, the Current ABL Credit Facility.availability of credit generally, economic and market conditions and financial, business and other factors, many of which are beyond our control.
If financing is not available when needed, or is available on unfavorable terms, we may be unable to take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on our business, financial condition and results of operations. If we raise additional funds through further issuances of equity, convertible debt securities or other securities convertible into equity, our existing stockholders could suffer significant dilution.
Our credit ratings are important to our cost of capital. The major debt rating agencies routinely evaluate our debt based on a number of factors, which include financial strength and business risk as well as transparency with rating agencies and timeliness of financial reporting. A downgrade in our debt rating could result in increased interest and other expenses on our existing variable interest rate debt, and could result in increased interest and other financing expenses on future borrowings. Downgrades in our debt rating could also restrict our access to capital markets and affect the value and marketability of our outstanding notes.
Our ability to access future financing also may be dependent on regulatory restrictions applicable to banks and other institutions subject to U.S. federal banking regulations, even if the market would otherwise be willing to provide such financing.
An increase in interest rates would increase the cost of servicing our debt and could reduce our profitability, decrease our liquidity and impact our solvency.
To the extent LIBOR exceeds 0.00%, our indebtedness under the Current Cash Flow Facilities (as defined in Item 7, Management’s"Management’s Discussion and Analysis of Financial Condition and Results of Operations)Operations") and the Current ABL facilityFacility will bear interest at variable rates, and our future indebtedness may bear interest at variable rates. As a result, increases in interest rates could increase the cost of servicing such debt and materially reduce our profitability and cash flows. As of November 16, 2018,December 31, 2019, assuming all Current ABL Facility revolving loans were fully drawn, each one percent change in interest rates would result in approximately a $31.7 million million change in annual interest expense on the Current Term Loan Facility and the Current ABL Facility. The impact of such an increase would be more significant for us than it would be for some other companies because of our substantial debt.




28


Item 1B. Unresolved Staff Comments.
There are no unresolved staff comments outstanding with the Securities and Exchange Commission at this time.
Item 2. Properties.
AsOur corporate headquarters is located in Cary, North Carolina. We own and lease properties in the United States, Canada, Costa Rica and Mexico. The following table lists our principal manufacturing and warehousing facilities as of October 28, 2018, we conducted manufacturing operations at the following facilities:December 31, 2019:
FacilityProductsSquare FeetOwned or
LeasedProduct type/Usage
Domestic:Commercial Segment:
Chandler, ArizonaDoors and related metal components37,000Leased
Tolleson, Arizona
Metal components(1)
70,551Owned
Sheridan, ArkansasInsulated metal panels215,000Owned
Atwater, California
Engineered building systems(2)
219,870Owned
Rancho Cucamonga, CaliforniaMetal coil coating98,137Owned
Adel, Georgia
Metal components(1)
78,809Owned
Lithia Springs, Georgia
Metal components(3)
118,446Owned
Douglasville, GeorgiaDoors and related metal components87,811Owned
Marietta, GeorgiaMetal coil coating205,000Leased/Owned
Mattoon, IllinoisInsulated metal panels124,800Owned
Shelbyville, Indiana
Metal components(1)
70,200Owned
Shelbyville, IndianaInsulated metal panels108,300Leased
Monticello, Iowa
Engineered building systems(4)
231,966Owned
Mount Pleasant, Iowa
Engineered building systems(4)
218,500Owned
Frankfort, KentuckyInsulated metal panels270,000Owned
Hernando, Mississippi
Metal components(1)
129,682Owned
Omaha, Nebraska
Metal components(5)
56,716Owned
Las Vegas, NevadaInsulated metal panels126,400Leased
Rome, New York
Metal components(5)
53,700Owned
Cambridge, OhioMetal coil coating200,000Owned
Middletown, OhioMetal coil coating170,000Owned
Oklahoma City, Oklahoma
Metal components(5)
59,400Leased
Ambridge, PennsylvaniaMetal coil coating32,000Leased
Elizabethton, Tennessee
Engineered building systems(4)
228,113Owned
Lexington, Tennessee
Engineered building systems(6)
140,504Owned
Memphis, TennesseeMetal coil coating65,895Owned
Houston, Texas
Metal components(3)
264,641Owned
Houston, TexasMetal coil coating40,000Owned
Houston, Texas
Engineered building systems(4)(7)
615,064Owned
Houston, TexasDoors and related metal components42,572Owned
Lewisville, TexasInsulated metal panels91,800Owned
Lubbock, Texas
Metal components(1)
95,376Owned
Salt Lake City, Utah
Metal components(3)
84,800Owned
Prince George, VirginiaInsulated metal panels101,400Owned
Foreign:
Monterrey, Mexico
Engineered building systems(6)
246,196Owned
Hamilton, Ontario, CanadaInsulated metal panels100,000Leased
(1)Sheridan, ArkansasSecondary structures andInsulated metal roof and wall systems.panels
Atwater, CaliforniaMetal building products
Lithia Springs, GeorgiaMetal building products
Marietta, GeorgiaMetal coil coating
Mattoon, IllinoisInsulated metal panels
Shelbyville, Indiana(1)
Insulated metal panels
Monticello, IowaMetal building products
Mount Pleasant, IowaMetal building products
Frankfort, KentuckyInsulated metal panels
Hernando, MississippiMetal building products
Jackson, MississippiMetal coil coating
Las Vegas, Nevada(1)
Insulated metal panels
Cambridge, OhioMetal coil coating
Middletown, OhioMetal coil coating
Elizabethton, TennesseeMetal building products
Lexington, TennesseeMetal building products
Houston, Texas(2)
Metal building products
Prince George, VirginiaInsulated metal panels
Hamilton, Ontario, Canada(1)
Insulated metal panels
Monterrey, MexicoMetal building products
Siding Segment:
(2)
Kearney, Missouri(1)
End walls, secondary structuresVinyl siding and metal roofother (trim)
Kansas City, Missouri(1)
Warehousing
Sidney, OhioMetal
Gaffney, South CarolinaInjection molded
Gaffney, South Carolina(1)
Warehousing
Jasper, TennesseeVinyl siding
Harrisonburg, Virginia(1)
Warehousing
Stuarts Draft, VirginiaVinyl siding
Martinsburg, West Virginia(1)
Vinyl siding
Martinsburg, West Virginia(1)
Warehousing
Brantford, Ontario, Canada(1)
Warehousing
Paris, Ontario, CanadaVinyl siding
Windows Segment:
Corona, California(1)
Vinyl windows
Sacramento, California(1)
Vinyl windows
Vacaville, California(1)
Vinyl windows
Lithia Springs, Georgia(1)
Vinyl windows and wall systems for components and engineered building systems.warehousing
Peachtree City, Georgia(1)
Vinyl windows
Lansing, Illinois(1)
Vinyl windows
Paris, IllinoisVinyl windows
Paris, Illinois(1)
Warehousing
Middlesex, New Jersey(1)
Vinyl windows
North Brunswick, New Jersey(1)
Vinyl windows
Welcome, North Carolina(1)
Vinyl windows
Marion, Ohio(1)
Vinyl windows
29


(3)
Walbridge, Ohio(1)
Full components product range.Vinyl windows and warehousing
Bryan, Texas(1)
Vinyl & Aluminum windows
Dallas, Texas(1)
Vinyl & Aluminum windows
Rocky Mount, Virginia(1)(2)
Vinyl & Aluminum windows and other (doors) and warehousing
Auburn, Washington(1)
Vinyl windows
Ellenboro, West VirginiaVinyl windows
Pennsboro, West VirginiaVinyl windows
St. Marys, West VirginiaVinyl windows and other (trim)
Vienna, West Virginia(1)
Warehousing
Calgary, Alberta, Canada(1)
Vinyl & Aluminum windows and other (doors) and warehousing
St. Thomas, Ontario, CanadaVinyl windows
(1) Location is leased as of December 31, 2019
(4)(2) Location has multiple principal facilitiesPrimary structures, secondary structures and metal roof and wall systems for engineered building systems.


(5)Metal roof and wall systems.
(6)Primary structures for engineered building systems.
(7)Structural steel.
We also operate eight Metal Depots facilities in our Metal Components segment that sell our products directly to the public. We also maintain several drafting office facilities in various states. We have short-term leases for these additional facilities. We believe that our present facilities are adequate for our current and projected operations.
Additionally, we own approximately seven acres of land in Houston, Texas and have a 60,000 square foot facility that is used as our principal executive and administrative offices. We also own approximately ten acres of land at another location in Houston adjacent to one of our manufacturing facilities.
The Ply Gem business acquired in the Merger operates 36 manufacturing facilities across the United States and Canada. Ply Gem’s Canadian manufacturing facilities are supported by a network of 26 distribution facilities.
Item 3. Legal Proceedings.
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 NCI.the Company. Voigt purports to assert claims on behalf of himself, on behalf of a class of other similarly situated stockholders of NCI,the Company, and derivatively on behalf of NCI,the Company, the nominal defendant. An Amended Complaint was filed on April 11, 2019. The complaintAmended Complaint asserts claims for breach of fiduciary duty and unjust enrichment against CD&R Fund VIII and CD&R, and for breach of fiduciary duty against thetwelve director defendants in connection with the Merger. Voigt seeks damages in an amount to be determined at trial. NCIDefendants moved to dismiss the Amended Complaint and, on February 10, 2020, the court denied the motions except as to four of the director defendants. Defendants are due to answer on April 3, 2020. The Company intends to vigorously defend the litigation.
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 which resulted in the Company having a $11.2 million liability as of December 31, 2019, of which $3.6 million is held within other current liabilities with the remaining in long-term liabilities in the consolidated balance sheets.
As a manufacturer of products primarily for use in nonresidential and residential building construction, we are 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, we and/or our subsidiaries become involved in various legal proceedings or other contingent matters arising from claims, or potential claims. We insure against these risks to the extent deemed prudent by our management and to the extent insurance is available. Many of these insurance policies contain deductibles or self-insured retentions in amounts we deem prudent and for which we are responsible for payment. In determining the amount of self-insurance, it is our policy to self-insure those losses that are predictable, measurable and recurring in nature, such as claims for general liability. The Company regularly reviews the status of on-going proceedings and other contingent matters along with legal counsel. 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 are not predictable with assurance.


30


PART II
 
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
PRICE RANGE OF COMMON STOCK
Our Common Stock is listed on the NYSE under the symbol “NCS.“CNR.” As of December 12, 2018,February 26, 2020, there were 5541 holders of record and an estimated 7,8667,060 beneficial owners of our Common Stock. The following table sets forth the quarterly high and low sale prices of our Common Stock, as reported by the NYSE, for the prior two fiscal years.years and the transition period ended December 31, 2018. We have never paid dividends on our Common Stock and the terms of the agreements governing our indebtedness either limit or restrict our ability to do so.
Fiscal Year 2019 Quarter EndedFiscal Year 2019 Quarter EndedHighLow
March 30March 30$8.69  $5.80  
June 29June 29$6.70  $4.20  
September 28September 28$6.37  $3.75  
December 31December 31$9.30  $5.46  
Transition Period EndedTransition Period EndedHighLow
December 31, 2018December 31, 2018$13.82  $6.66  
Fiscal Year 2018 Quarter Ended High LowFiscal Year 2018 Quarter EndedHighLow
January 28 $21.20
 $15.45
January 28$21.20  $15.45  
April 29 $18.95
 $15.60
April 29$18.95  $15.60  
July 29 $23.35
 $15.15
July 29$23.35  $15.15  
October 28 $17.25
 $12.30
October 28$17.25  $12.30  
    
Fiscal Year 2017 Quarter Ended High Low
January 29 $18.10
 $13.80
April 30 $17.85
 $15.40
July 30 $18.60
 $16.25
October 29 $18.13
 $13.05
ISSUER PURCHASES OF EQUITY SECURITIES
The following table shows our purchases of our Common Stock during the fourth quarter of fiscal 2019:
Period
Total Number  of Shares Purchased(1)
Average 
Price Paid
per Share
Total Number of
Shares Purchased
 as Part of Publicly Announced
Programs
Maximum Dollar Value of Shares that May Yet be Purchased Under Publicly Announced Programs(2)
September 29, 2019 to October 26, 2019400  $6.44  —  $55,573  
October 27, 2019 to November 23, 2019124,524  $6.92  —  $55,573  
November 24, 2019 to December 31, 201997,209  $8.63  —  $55,573  
Total222,133  $7.67  —  

(1)The total number of shares purchased includes shares of restricted stock that were withheld to satisfy minimum tax withholding obligations arising in connection with the vesting of awards of restricted stock. 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 October 10, 2017 and March 7, 2018, the Company announced that its Board of Directors authorized new stock repurchase programs for up to an aggregate of $50.0 million and $50.0 million, respectively, of the Company’s Common Stock.Stock for a cumulative total of $100.0 million. Under these repurchase programs, the Company is authorized to repurchase shares, if at all, 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 these programs. During the fourth quarter of fiscal 2018, the Company did not have any stock repurchase activity. As of October 28, 2018,December 31, 2019, approximately $55.6 million remained available for stock repurchases under the programs announced on October 10, 2017 and March 7, 2018.

31



STOCK PERFORMANCE CHART
The following chart compares the yearly percentage change in the cumulative stockholder return on our Common Stock from November 1, 20132, 2014 to the end of the fiscal year ended October 28, 2018December 31, 2019 with the cumulative total return on the (i) S&P SmallCap 600 Index and (ii) S&P Smallcap Building Products peer group. The comparison assumes $100 was invested on November 1, 20132, 2014 in our Common Stock and in each of the foregoing indices and assumes reinvestment of dividends.
chart-47e38bf2817a57c1a0e.jpgcnr-20191231_g2.jpg
In accordance with the rules and regulations of the SEC, the above stock performance chart shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulations 14A or 14C of the Securities Exchange Act of 1934 (the “Exchange Act”) or to the liabilities of Section 18 of the Exchange Act and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent we specifically incorporate it by reference into such filing.


32


Item 6. Selected Financial Data.
The selected financial data for each of the three fiscal years ended December 31, 2019, October 28, 2018 and October 29, 2017 and October 30, 2016 has been derived from the audited consolidated financial statements included elsewhere herein. The selected financial data for the fiscal years ended October 30, 2016 and November 1, 2015 and November 2, 2014 and certain consolidated balance sheet data as of October 29, 2017, October 30, 2016, and November 1, 2015 and November 2, 2014 have been derived from audited consolidated financial statements not included herein. The following data should be read in conjunction with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited consolidated financial statements and the notes thereto included under “Item 8. Financial Statements and Supplementary Data.”
2018 2017 2016 2015 201420192018201720162015
(In thousands, except per share data)(In thousands, except per share data)
Sales$2,000,577
 $1,770,278
 $1,684,928
 $1,563,693
 $1,370,540
 Sales$4,889,747  $2,000,577  $1,770,278  $1,684,928  $1,563,693  
Net income$63,106
(1) 
 $54,724
(2) 
 $51,027
(3) 
 $17,818
(4) 
 $11,185
(5) 
Net income applicable to common shares$62,694
(1) 
 $54,399
(2) 
 $50,638
(3) 
 $17,646
(4) 
 $11,085
(5) 
Net income (loss)Net income (loss)$(15,390) 
(1)
$63,106  
(3)
$54,724  
(4)
$51,027  
(5)
$17,818  
(6)
Net income (loss) applicable to common sharesNet income (loss) applicable to common shares$(15,390) 
(1)
$62,694  
(3)
$54,399  
(4)
$50,638  
(5)
$17,646  
(6)
Earnings per common share:          Earnings per common share:
Basic$0.95
(1) 
 $0.77
(2) 
 $0.70
(3) 
 $0.24
(4) 
 $0.15
(5) 
Basic$(0.12) 
(1)
$0.95  
(3)
$0.77  
(4)
$0.70  
(5)
$0.24  
(6)
Diluted$0.94
(1) 
 $0.77
(2) 
 $0.70
(3) 
 $0.24
(4) 
 $0.15
(5) 
Diluted$(0.12) 
(1)
$0.94  
(3)
$0.77  
(4)
$0.70  
(5)
$0.24  
(6)
Cash flow from operating activities$82,463
 $63,874
 $68,479
 $105,785
 $34,104
 Cash flow from operating activities$229,608  $82,463  $63,874  $68,479  $105,785  
Total assets$1,110,375
 $1,031,112
 $1,025,396
 $1,049,317
 $739,025
 Total assets$5,564,346  
(2)
$1,110,375  $1,031,112  $1,025,396  $1,049,317  
Total debt$407,226
 $387,290
 $396,051
 $434,542
 $233,709
 Total debt$3,182,524  $407,226  $387,290  $396,051  $434,542  
Stockholders’ equity$330,265
 $305,247
 $281,317
 $271,976
 $246,542
 Stockholders’ equity$935,318  $330,265  $305,247  $281,317  $271,976  
Diluted average common shares66,362
 70,778
 72,857
 73,923
 74,709
 Diluted average common shares125,576  66,362  70,778  72,857  73,923  
Note: The Company calculated the after-tax amounts below by applying the applicable statutory tax rate for the respective period to each applicable item.
(1)
Includes loss on extinguishment of debt of $21.9 million ($15.9 million after tax), loss on disposition of business of $5.7 million ($4.1 million after tax), restructuring charges of $1.9 million ($1.4 million after tax), strategic development and acquisition related costs of $17.2 million ($12.4 million after tax), gain on insurance recovery of $4.7 million ($3.4 million after tax), and a charge of $4.6 million ($3.3 million after tax) related to the acceleration of retirement benefits of our former CEO.
(2)
Includes loss on sale of assets of $0.1 million ($0.1 million after tax), restructuring charges of $5.3 million ($3.2 million after tax), strategic development and acquisition related costs of $2.0 million ($1.2 million after tax), loss on goodwill impairment of $6.0 million ($3.7 million after tax), gain on insurance recovery of $9.7 million ($5.9 million after tax), and unreimbursed business interruption costs of $0.5 million ($0.3 million after tax).
(3)
Includes gain on sale of assets and asset recovery of $1.6 million ($1.0 million after tax), restructuring charges of $4.3 million ($2.6 million after tax), strategic development and acquisition related costs of $2.7 million ($1.6 million after tax), and gain from bargain purchase of $1.9 million (non-taxable).
(4)Includes gain on legal settlements of $3.8 million ($2.3 million after tax), strategic development and acquisition related costs of $4.2 million ($2.6 million after tax), restructuring charges of $11.3 million ($6.9 million after tax), fair value adjustments to inventory of $2.4 million ($1.5 million after tax), and amortization of acquisition fair value adjustments of $8.4 million ($5.1 million after tax).
(5)Includes gain on insurance recovery of $1.3 million ($0.8 million after tax), secondary offering costs of $0.8 million ($0.5 million after tax), foreign exchange losses of $1.1 million ($0.7 million after tax), strategic development and acquisition related costs of $5.0 million ($3.1 million after tax) and reversal of Canadian deferred tax valuation allowance of $2.7 million in fiscal 2014.

(1)Includes restructuring charges of $18.1 million ($13.4 million after tax), strategic development and acquisition related costs of $50.2 million ($37.1 million after tax), and a non-cash charge of purchase price allocated to inventory of $16.2 million. Includes results of the Ply Gem merger for the full year, from January 1, 2019 and the ESW acquisition from February 20, 2019.

(2)Includes the adoption of ASU 2016-02, Leases, which resulted in the recognition of additional operating liabilities of $304.1 million with corresponding right-of-use (“ROU”) assets at adoption.
(3)Includes loss on extinguishment of debt of $21.9 million ($15.9 million after tax), loss on disposition of business of $5.7 million ($4.1 million after tax), restructuring charges of $1.9 million ($1.4 million after tax), strategic development and acquisition related costs of $17.2 million ($12.4 million after tax), gain on insurance recovery of $4.7 million ($3.4 million after tax), and a charge of $4.6 million ($3.3 million after tax) related to the acceleration of retirement benefits of our former CEO.
(4)Includes loss on sale of assets of $0.1 million ($0.1 million after tax), restructuring charges of $5.3 million ($3.2 million after tax), strategic development and acquisition related costs of $2.0 million ($1.2 million after tax), loss on goodwill impairment of $6.0 million ($3.7 million after tax), gain on insurance recovery of $9.7 million ($5.9 million after tax), and unreimbursed business interruption costs of $0.5 million ($0.3 million after tax).
(5)Includes gain on sale of assets and asset recovery of $1.6 million ($1.0 million after tax), restructuring charges of $4.3 million ($2.6 million after tax), strategic development and acquisition related costs of $2.7 million ($1.6 million after tax), and gain from bargain purchase of $1.9 million (non-taxable).
(6)Includes gain on legal settlements of $3.8 million ($2.3 million after tax), strategic development and acquisition related costs of $4.2 million ($2.6 million after tax), restructuring charges of $11.3 million ($6.9 million after tax), fair value adjustments to inventory of $2.4 million ($1.5 million after tax), and amortization of acquisition fair value adjustments of $8.4 million ($5.1 million after tax).

33


Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
OVERVIEW
We are oneEffective May 23, 2019, NCI Building Systems, Inc. changed its name to Cornerstone Building Brands, Inc. (together with its subsidiaries, unless the context requires otherwise, the “Company,” “Cornerstone,” “NCI,” “we,” “us” or “our”). In connection with the name change, the Company changed its NYSE trading symbol from “NCS” to “CNR”.
Cornerstone Building Brands, Inc. is a leading North American integrated manufacturer of North America’s largest integrated manufacturers and marketers of metalexternal building products for the nonresidentialcommercial, residential, and repair and remodeling construction industry.industries. We design, engineer, manufacture and market engineeredexternal building systems, metal componentsproducts through our three operating segments, Commercial, Siding, and insulated metal panels primarily for nonresidential construction use. WeWindows.
In our Commercial segment, we manufacture and distribute extensive lines of metal products for the nonresidential construction market under multiple brand names through a nationwide network of plants and distribution centers. We sell our products for both new construction and repair and retrofit applications. We also provide metal coil coating services for commercial and construction applications, servicing both internal and external customers. 
Engineered building systems offer a number of advantages over traditional construction alternatives, including shorter construction time, more efficient use of materials, lower construction costs, greater ease of expansion and lower maintenance costs. Similarly,Our Commercial segment also provides metal componentscoil coating services for commercial and insulated metal panels offer builders, designers, architectsconstruction applications, servicing both internal and end-users several advantages, including lower long-term costs, longer life, attractive aestheticsexternal customers. We sell our products for both new construction and design flexibility.repair and retrofit applications.
In our Siding segment, our principal products include vinyl siding and skirting, steel siding, vinyl and aluminum soffit, aluminum trim coil, aluminum gutter coil, aluminum gutters, aluminum and steel roofing accessories, cellular PVC trim and mouldings, J-channels, wide crown molding, window and door trim, F-channels, H-molds, fascia, undersill trims, outside/inside corner posts, rain removal systems, injection molded designer accents such as shakes, shingles, scallops, shutters, vents and mounts, vinyl fence, vinyl railing, and stone veneer in the United States and Canada. The breadth of our product lines and our multiple brand and price point strategy enable us to target multiple distribution channels (wholesale and specialty distributors, retailers and manufactured housing) and end users (new construction and home repair and remodeling).
In our Windows segment, our principal products include vinyl, aluminum-clad vinyl, aluminum, wood and clad-wood windows and patio doors and steel, wood, and fiberglass entry doors that serve both the new construction and the home repair and remodeling sectors in the United States and Canada. We continue introducing new products to the portfolio which allow us to enter or further penetrate new distribution channels and customers. The breadth of our product lines and our multiple price point strategy enable us to target multiple distribution channels (wholesale and specialty distributors, retailers and manufactured housing) and end user markets (new construction and home repair and remodeling).
We use a 52/53 week year withassess performance across our fiscal year end onoperating segments by analyzing and evaluating, among other indicators, gross profit and operating income, as well as whether each segment has achieved its projected sales goals. In assessing our overall financial performance, we regard growth in earnings, as the Sunday closest to October 31.key indicator of shareholder value. 
Reporting Periods
On November 16, 2018, the boardCompany’s Board of directors of the CompanyDirectors approved a change to the Company’sCompany's fiscal year end from a 52/53 week year with the Company’s fiscal year end on the Sunday closest to October 31 to a fiscalcalendar year of the 12 monthtwelve-month period offrom January 1 to December 31 of each calendar31. The Company elected to change its fiscal year to commenceend in connection with the Merger to align both Companies’ fiscal year ending December 31, 2019. Theends. As a result of this change, the Company will filefiled a transition reportTransition Report on Form 10-Q on or before February 11, 2019 that will coverincluded the financial information for the transition period from October 29, 2018 to December 31, 2018, which period is referred to herein as the "Transition Period". References in this Annual Report on Form 10-K to “fiscal year 2018” or “fiscal 2018” refer to the period from October 30, 2017 through October 28, 2018.
We assess performance across our operating segments by analyzingThe Company’s current fiscal quarters are based on a four-four-five week calendar with periods ending on the Saturday of the last week in the quarter except for December 31st which will always be the year-end date. Therefore, the financial results of certain fiscal quarters may not be comparable to prior fiscal quarters.
Environmental Stoneworks Acquisition
On January 12, 2019, the Company entered into a Unit Purchase Agreement (the “Purchase Agreement”) with Environmental Materials, LLC, a Delaware limited liability company (“Environmental Stoneworks” or “ESW”), the Members of Environmental Materials, LLC (the “Sellers”) and evaluating, among other indicators, gross profit, operating incomeCharles P. Gallagher and whether or not each segment has achieved its projected sales goals. In assessing our overall financial performance, we regard returnWayne C. Kocourek, solely in their capacity as the Seller Representative (as defined in the Purchase Agreement), pursuant to which, on adjusted operating assets, as well as growth in earnings, as key indicatorsFebruary 20, 2019, the Company’s wholly-owned subsidiary, Ply Gem Industries, Inc., purchased from the Sellers 100% of shareholder value.the outstanding limited liability company interests of Environmental Stoneworks (the “Environmental Stoneworks Acquisition”) for total consideration of $182.6 million, subject to post-closing adjustments. The transaction was financed through borrowings under the Company’s asset-based revolving credit facility.
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Merger with Ply Gem
At the Special Shareholder Meeting on November 15, 2018, NCI’s shareholders approved (i) the Merger Agreement and (ii) the Stock Issuance. NCI’s shareholders also approved the three additional proposals described in the Company’s proxy statement relating to the Special Shareholder Meeting. 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) the New Stockholders Agreement between the Company and each of the Investors, pursuant to which the Company granted to the Investors certain governance, preemptive and subscription rights and (ii) the New Registration Rights Agreement with 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 NCI Common Stock that are held by the Investors following the consummation of the Merger. Pursuant to the terms of the New Stockholders Agreement, the Company and the CD&R Fund VIII Investor Group terminated the Old Stockholders Agreement and the Old Registration Rights Agreement.
On November 16, 2018, in connection with the consummation of the Merger, the Company assumed (i) the obligations of Ply Gem Midco, a subsidiary of Ply Gem immediately prior to the consummation of the Merger, as borrower under the Current Cash Flow Credit Agreement, (ii) the obligations of Ply Gem Midco as parent borrower under the Current ABL Credit Agreement and (iii) the obligations of Ply Gem Midco as issuer under the Current Indenture.
On April 12, 2018, Ply Gem Midco entered into a Cash Flow Credit Agreement (the “Current Cash Flow Credit Agreement”), by and among Ply Gem Midco, JPMorgan Chase Bank, N.A., as administrative agent and collateral agent (the “Cash Flow Agent”), and the several banks and other financial institutions from time to time party thereto. As of November 16, 2018, immediately prior to the Merger, the Current Cash Flow Credit Agreement provided for (i) a term loan facility (the “Current Term Loan Facility”) in an original aggregate principal amount of $1,755.0 million and (ii) a cash flow-based revolving credit facility (the “Current Cash Flow Revolver” and together with the Current Term Loan Facility, the “Current Cash Flow Facilities”) of up to $115.0 million. On November 16, 2018, Ply Gem Midco entered into a Lender Joinder Agreement, by and among Ply Gem Midco, the additional commitment lender party thereto and the Cash Flow Agent, which amended the Current Cash Flow Credit Agreement in order to, among other things, increase the aggregate principal amount of the Current Term Loan Facility by $805.0 million (the “Incremental Term Loans”). Proceeds of the Incremental Term Loans 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 (each as defined below) and (c) repay $325.0 million of borrowings outstanding under the Current ABL Facility (as defined below). 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 Current Cash Flow Facilities, and NCI became the Borrower (as defined in the Current Cash Flow Credit Agreement)


under the Current Cash Flow Facilities. The Current Term Loan Facility amortizes in nominal quarterly installments equal to one percent of the aggregate initial principal amount thereof per annum, with the remaining balance payable upon final maturity of the Current Term Loan Facility on April 12, 2025. There are no amortization payments under the Current Cash Flow Revolver, and all borrowings under the Current Cash Flow Revolver mature on April 12, 2023. At November 16, 2018, following consummation of the Merger, there was $2,555.6 million outstanding under the Current Term Loan Facility and there were no amounts drawn on the Current Cash Flow Revolver.
35


On April 12, 2018, Ply Gem Midco and certain subsidiaries of Ply Gem Midco entered into an ABL Credit Agreement (the “Current ABL Credit Agreement”), by and among Ply Gem Midco, the subsidiary borrowers from time to time party thereto, UBS AG, Stamford Branch, as administrative agent and collateral agent (the “ABL Agent”), and the several banks and other financial institutions from time to time party thereto, which provided for an asset-based revolving credit facility (the “Current 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”). On October 15, 2018, Ply Gem Midco entered into Amendment No. 2 to the Current ABL Credit Agreement, by and among Ply Gem Midco, the incremental lender party thereto and the ABL Agent, which amended the Current ABL Credit Agreement in order to, among other things, increase the aggregate commitments under the Current ABL Facility by $36.0 million to $396.0 million overall, and with the (x) 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 Amendment No. 4 to the Current ABL Credit Agreement, by and among Ply Gem Midco, the incremental lenders party thereto and the ABL Agent, which amended the Current ABL Credit Agreement in order to, among other things, increase the aggregate commitments under the Current ABL Facility by $215.0 million (the “Incremental ABL Commitments”) to $611.0 million overall, and with the (x) 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, NCI and Ply Gem Midco entered into a joinder agreement with respect to the Current ABL Facility, and NCI became the Parent Borrower (as defined in the Current ABL Credit Agreement) under the Current ABL Facility. The Company and, at the Company’s option, certain of the Company’s subsidiaries are the borrowers under the Current ABL Facility. As of November 16, 2018, and following consummation of the Merger, (a) Ply Gem Industries, Inc., Atrium Windows and Doors, Inc., NCI Group, Inc. and Robertson-Ceco II Corporation were U.S. subsidiary borrowers under the Current ABL Facility, and (b) Gienow Canada Inc., Mitten Inc., North Star Manufacturing (London) Ltd. and Robertson Building Systems Limited were Canadian borrowers under the Current ABL Facility. All borrowings under the Current ABL Facility mature on April 12, 2023. At November 16, 2018, following consummation of the Merger, there were no amounts drawn and $24.7 million of letters of credit issued under the Current ABL Facility.
On April 12, 2018, Ply Gem Midco issued $645.0 million aggregate principal amount of 8.00% Senior Notes due 2026 (the “8.00% Senior Notes”). The 8.00% Senior Notes were issued pursuant to an Indenture, dated as of April 12, 2018 (as supplemented from time to time, the “Current Indenture”), by and among Ply Gem Midco, as issuer, the subsidiary guarantors from time to time party thereto and Wilmington Trust, National Association, as trustee. On November 16, 2018, in connection with the consummation of the Merger, the Company entered into a supplemental indenture and assumed the obligations of Ply Gem Midco as issuer under the Current Indenture and the 8.00% Senior Notes. The 8.00% Senior Notes bear interest at 8.00% per annum and will mature on April 15, 2026. Interest is payable semi-annually in arrears on April 15 and October 15.
On November 16, 2018, in connection with the incurrence by Ply Gem Midco of the Incremental Term Loans and the obtaining by Ply Gem Midco of the Incremental ABL Commitments, following consummation of the Merger, the Company (a) terminated all outstanding commitments and repaid all outstanding amounts under the Term Loan Credit Agreement, dated as of February 8, 2018 (the “Pre-merger Term Loan Credit Agreement”), by and among the Company, as borrower, the several banks and other financial institutions from time to time party thereto and Credit Suisse AG, Cayman Islands Branch, as administrative agent and collateral agent, and (b) terminated all outstanding commitments and repaid all outstanding amounts under the ABL Credit Agreement, dated as of February 8, 2018 (the “Pre-merger ABL Credit Agreement”), by and among NCI Group, Inc. and Robertson-Ceco II Corporation, as borrowers, the Company, as a guarantor, the other borrowers from time to time party thereto, the several banks and other financial institutions from time to time party thereto and Wells Fargo Bank, National Association, as administrative agent and collateral agent. Outstanding letters of credit under the Pre-merger ABL Credit Agreement were cash collateralized.
In connection with the termination and repayment of the Pre-merger Term Loan Credit Agreement and the Pre-merger ABL Credit Agreement, the Company also terminated (i) the Term Loan Guarantee and Collateral Agreement, dated as of February 8, 2018, made by the Company and certain of its subsidiaries, in favor of Credit Suisse AG, Cayman Islands Branch, as Collateral Agent, (ii) the ABL Guarantee and Collateral Agreement, dated as of February 8, 2018, made by the Company and certain of its subsidiaries, in favor of Wells Fargo Bank, National Association, as Collateral Agent, and (iii) the Intercreditor Agreement,


dated as of February 8, 2018, between Credit Suisse AG, Cayman Islands Branch and Wells Fargo Bank, National Association, and acknowledged by the Company and certain of its subsidiariessubsidiaries.
The
36


Fiscal 2019 Summary
During 2019, significant progress was made on key strategic initiatives through the year. Led by commercial discipline, the Company incurred approximately $15.3 millionwas able to capture price to offset inflationary pressures in material, labor and freight. Leveraging our continuous improvement culture, the Company delivered synergies and cost savings above target. We expanded our manufacturing footprint and broadened our distribution channel network through the successful integrations of acquisition expenses during fiscal 2018 related to the Merger, primarilySilver Line, Atrium, and Environmental Stoneworks acquisitions. These acquisitions were value-enhancing for various third-party consultingus reinforcing our leadership position in vinyl windows and due-diligence services, and investment bankers’ fees, which are recorded in strategic development and acquisition related costsproviding the Company with a significant share in the Company’s consolidated statements of operations.
Changefastest growing residential cladding market through stone veneer. As a result, we were able to improve margins and generate strong operating cash flow that enabled us to reduce debt and continue to invest in Operating Segments
On February 22, 2018, the Company announced changes to NCI’s reportable business segments, effective January 28, 2018 for the first quarter of fiscal 2018, to align with changes in how the Company manages its business, reviews operating performance and allocates resources. During the first quarter of fiscal 2018, the Company began reporting results under four reportable segments, which are Engineered Building Systems, Metal Components, Insulated Metal Panels and Metal Coil Coating. Previously, operating results for the Insulated Metal Panel product line were included in the Metal Components segment. In addition, CENTRIA’s coil coating operations, which had been included in the Metal Components segment since the Company’s acquisition of CENTRIA in January 2015, are now reported within the Metal Coil Coating segment. Prior periods have been recasted to conform to the current segment presentation.
Fiscal 2018 Overvieworganic growth opportunities.
Our fiscal 20182019 financial performance showed year-over-year improvement in revenue, net sales, and operating income, and Adjusted EBITDA, while our gross marginsmargin percentage declined 80 basis points over the same period. All of these changes were due to the inclusion of Ply Gem for all of fiscal 2019. This improved financial performance was achieved despite challenging market conditions, including rising input costs and seasonally wet weather conditions primarily in Texas and the Southeast during the fourth quarter. During fiscal 2018,2019, we effectively captured Merger synergies and cost initiatives of $109.4 million consisting predominantly of procurement savings, manufacturing efficiencies and back office expense reductions while effectively integrating the Company realizedlegacy NCI and Ply Gem businesses and management teams into one consolidated Cornerstone. In addition to these organizational changes, we were able to maintain our cost and price discipline during 2019 which contributed to the benefitsfavorable financial and operational performance. Ultimately, these initiatives resulted in favorable financial performance culminating in operating cash flows of $229.6 million, an increase of $147.1 million from the focus on commercial discipline in the pass-through of material and other input costs and the Company’s ongoing cost reduction initiatives.prior year.
Consolidated revenues increased by approximately 13.0%144.4% from the prior fiscal year. The year-over-year improvementnet sales increase was primarily driven by continued commercial disciplinethe inclusion of Ply Gem’s net sales of $2,875.2 million in the pass-through of higher costs in a rising cost environment across each of our segments and underlying volume growth in2019 fiscal year as the Engineered Building Systems and Insulated Metal Panel segments. Each segment achievedMerger was consumated after the 2018 fiscal year over year external revenue growth.end. The following table summarizes net sales by major category for 2019.
Year Ended December 31, 2019
Commercial Net Sales Disaggregation:
Metal building products$1,249,757 
Insulated metal panels441,441 
Metal coil coating156,695 
Total$1,847,893 
Siding Net Sales Disaggregation:
Vinyl siding$525,005 
Metal263,018 
Injection molded66,578 
Stone92,228 
Other products & services164,578 
Total$1,111,407 
Windows Net Sales Disaggregation:
Vinyl windows$1,838,796 
Aluminum windows53,622 
Other38,029 
Total$1,930,447 
Total Net Sales:$4,889,747 
Consolidated gross margin in fiscal 20182019 decreased by 4080 basis points from the prior fiscal year to 23.1%22.3%. Lower marginsThe gross profit percentage decrease can be attributed to the inventory fair value step-ups associated with the Merger of $14.4 million and the ESW Acquisition of $1.8 million as well as the inclusion of Ply Gem’s gross margin results in the current periodyear 2019, which were driven primarily by higher freight and manufacturing costs, bothlower than the legacy Commercial business.
37


Operating income of which experienced significant inflationary pressures during fiscal 2018. These were largely mitigated during$214.7 million for the second halfyear ended December 31, 2019 represented an increase of $88.8 million relative to the fiscal year through commercial discipline.ended October 28, 2018. The operating income increase was due to the inclusion of $106.3 million of Ply Gem operating income that was partially offset by restructuring and acquisition costs relating to the Merger of $50.5 million.
Consolidated engineering, selling, general and administrative expenses for fiscal 2018 includesincluded a $4.6 million charge related to the acceleration of retirement benefits of our former CEO. Excluding the fiscal 2018 effects of the acceleration of CEO retirement benefits, as a percentage of sales, engineering, selling, general and administrative expenses for fiscal 2019 decreased by 150230 basis points to 15.1%12.8% compared to the prior fiscal year, predominantly the result of our strategic initiatives and restructuring activities.
Net income increaseddecreased by $8.4$78.5 million to $63.1$(15.4) million for fiscal 2018,2019, compared to $54.7$63.1 million in the prior year. Diluted earnings per share was $0.94, while adjusted net income per diluted common share was $1.45. Adjusted EBITDA increased to $201.6 million representing an approximate 20.4% increase over the prior year.$(0.12). Net income was negatively impacted by certain special items including a $21.9$207.5 million loss ($15.9 million, after taxes) on extinguishment of debt and a $6.7 million loss ($4.8 million, after taxes) on the sale of the China manufacturing facilityincreased interest expense associated with a reporting unit withinour indebtedness, increased amortization expense of $167.9 million related to the Insulated Metal Panels segment, offset by a $4.7Merger, $68.2 million gain ($3.4of restructuring and acquisition costs related to the Merger, and $16.2 million after taxes) on insurance recovery.of inventory fair value step-ups that negatively impacted cost of goods sold.
Due to the strong operating cash flow we reinvested $47.8$121.1 million in to capital expenditures, an increase of $25.8$73.3 million over prior year, primarily to support organic growth initiatives, automation and advanced manufacturing. We also used $46.7 million to repurchase shares of our Common Stock in fiscal 2018. Our net debt leverage ratio (net debt/EBITDA) at the end of the fourth quarter improved to 1.8x, compared to 2.0x at the end of the prior year fourth quarter.
Overall, we delivered net income, Adjusted EBITDA, diluted earnings per share and adjusted diluted earnings per share in fiscal 2018 that exceeded the prior year’s results. We remain focused on increasing our operating leverage and manufacturing efficiency by continuing to pursue our cost and efficiency initiatives. Our objective is to continue to execute on our strategic initiatives in order to increase market penetration and deliver top-line growth above nonresidential market growth during fiscal 2019 in both our legacy businesses and our IMP products through our multiple sales channels.
Industry Conditions
Commercial
Our sales and earnings are subject to both seasonal and cyclical trends and are influenced by general economic conditions, interest rates, the price of steel relative to other building materials, the level of nonresidential construction activity, roof repair and retrofit demand and the availability and cost of financing for construction projects. Our sales in the Commercial segment normally are lower in the first


half of each fiscal year compared to the second half because of unfavorable weather conditions for construction and typical business planning cycles affecting construction.
The nonresidential construction industry is highly sensitive to national and regional macroeconomic conditions. Following a significant downturn in 2008 and 2009, the current recovery of low-rise construction has been uneven and slow but is now showing some signs of steady growth. We believe that the economy is recovering and that the nonresidential construction industry will return to mid-cycle levels of activity over the next several years.
38


The graph below shows the annual nonresidential new construction starts, measured in square feet, since 1968 as compiled and reported by Dodge:Dodge Data & Analytics, Inc. ("Dodge"):
dodge2018q4a.jpgcnr-20191231_g3.jpg
Current market estimates continue to show uneven activity across the nonresidential construction markets. According to Dodge, low-rise nonresidential construction starts, as measured in square feet and comprising buildings of up to five stories, were down as much ascontracted approximately 7%5% in our fiscal 20182019 as compared to 2018, while our fiscal 2017. However, Dodge typically revises initial reported figures, and we expect this metric will be revised upwards over time. Leading indicators forvolumes declined further than 5%. Products within our addressable market grew at a rate slower than other alternative products within the low-rise nonresidential construction activity indicate positive momentum into fiscal 2019.market.
The leading indicators that we follow and that typically have the most meaningful correlation to nonresidential low-rise construction starts are the American Institute of Architects’ (“AIA”) Architecture Mixed Use Index, Dodge Residential single family starts and the Conference Board Leading Economic Index (“LEI”). Historically, there has been a very high correlation to the Dodge low-rise nonresidential starts when the three leading indicators are combined and then seasonally adjusted. The combined forward projection of these metrics, based
Residential (Siding and Windows)
Our residential building products are typically installed on a 9new construction home 90 to 14-month historical120 days after the start of the home, therefore, there is a lag between the timing of the single-family housing start date and the time in which our products are installed on a home. From an industry perspective, we evaluate the new construction environment by reviewing the U.S. Census Bureau single family housing start statistics to assess the performance of the new construction market for each metric, indicates lowa normal period. For the year ended December 31, 2019, we evaluated U.S. Census Bureau single digit growthfamily housing starts in the period from September 2018 to August 2019 to assess the demand impacts for low-riseour products for the year ended December 31, 2019 noting that single family housing starts decreased 3.5% on a lag effected basis due to a general softening in overall economic conditions specifically for new construction. We also examine where these single-family housing starts occur geographically as the Northeast, which decreased 7.6%, and Midwest, which decreased 7.8%, are significant vinyl siding concentrated areas relative to the South and the West. For Canada, we evaluate the Canada Mortgage and Housing Corporate statistics which showed housing starts decreasing 14.4% for the year ended December 31, 2019 compared to 2018.
39


The graph below shows the seasonally adjusted annual single family residential new construction starts in fiscal 2019.as of each year end since 1968 as compiled and reported by U.S. Census Bureau:
We normally docnr-20191231_g4.jpg
In addition to new construction, we also evaluate the repair and remodeling market to assess residential market conditions by evaluating the Leading Indicator of Remodeling Activity (“LIRA”). For the year ended December 31, 2019, LIRA reflected that the trailing 12 months of remodeling activity increased 5.9% from 2018. While LIRA is a remodeling economic indicator as it tracks all remodeling activity including kitchen, bathroom and low ticket remodeling, it is not maintain an inventory of steel in excessa specific metric for our residential businesses measuring solely windows and siding remodeling growth. Therefore, we utilize this index as a trend indicator for our repair and remodeling business.
Finally, we assess our performance relative to our competitors and the overall siding industry by evaluating the marketing indicators produced by the Vinyl Siding Institute ("VSI"), a third party which summarizes vinyl siding unit sales for the industry. For the year ended December 31, 2019, the VSI reported that siding units increased 3.3% for the industry. Overall, our Siding segment, including stone, is weighted to the repair and remodeling market with approximately 53% of our current production requirements. However, from timenet sales being attributed to time,repair and remodeling with the remaining 47% attributed to the new construction market. Historically, we may purchase steel in advance of announced steel price increases. We can give no assurance that steel will be readily available or that prices will not continue to be volatile. While mostevaluate our net sales performance within the Windows segment by evaluating our net sales for the new construction market and the repair and remodeling market. Overall, our Windows segment is relatively balanced with approximately 50% of our net sales contracts have escalation clauses that allow us, under certain circumstances,attributed to pass along all or a portion of increases innew construction with the price of steel after the date of the contract but prior to delivery, for competitive or other reasons we may not be able to pass such price increases along. If the available supply of steel declines, we could experience price increases that we are not able to pass onremaining 50% attributed to the end users, a deterioration of service from our suppliers or interruptions or delays that may cause us not to meet delivery schedules to our customers. Any of these problems could adversely affect our results of operationsrepair and financial condition. For additional discussion, please see “Item 7A. Quantitative and Qualitative Disclosures About Market Risk — Steel Prices.”

remodeling market.

40


RESULTS OF OPERATIONS
This section of the Form 10-K generally discusses fiscal 2019 and fiscal 2018 items and year-over-year comparisons between fiscal 2019 and fiscal 2018. Discussions of fiscal 2017 items and year-over-year comparisons between fiscal 2018 and fiscal 2017 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of NCI’s Annual Report on Form 10-K for the fiscal year ended October 28, 2018 as recasted in Exhibit 99.4 to our current report on Form 8-K, filed with the SEC on February 19, 2019 to reflect changes to NCI's reportable business segments and to apply retrospectively the adoption of the Financial Accounting Standards Board Accounting Standards Update ("ASU") 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force), which the Company adopted during the transition period ended December 31, 2018. Exhibit 99.4 to our current report on Form 8-K filed with the SEC on February 19, 2019 is incorporated by reference herein.
The following table presents, as a percentage of sales, certain selected consolidated financial data for the periods indicated:
Fiscal Year ended
December 31,
2019
October 28,
2018
October 29,
2017
Sales100.0 %100.0 %100.0 %
Cost of sales77.7  76.9  76.5  
Gross profit22.3  23.1  23.5  
Selling, general and administrative expenses12.8  15.4  16.6  
Intangible asset amortization3.6  0.5  0.5  
Goodwill impairment—  —  0.3  
Restructuring and impairment charges, net0.4  0.1  0.3  
Strategic development and acquisition related costs1.0  0.9  0.1  
Loss on disposition of business—  0.3  —  
Gain on insurance recovery—  (0.2) (0.6) 
Income from operations4.4  6.3  6.2  
Interest income—  —  —  
Interest expense(4.7) (1.1) (1.6) 
Foreign exchange gain (loss)—  —  —  
Loss on extinguishment of debt—  (1.1) —  
Other income, net—  —  0.1  
Income before income taxes(0.2) 4.2  4.7  
Provision (benefit) for income taxes0.1  1.0  1.6  
Net income (loss)(0.3)%3.2 %3.1 %

41


 Fiscal year ended
 October 28,
2018
 October 29,
2017
 October 30,
2016
Sales100.0 % 100.0 % 100.0 %
Cost of sales76.9
 76.5
 74.6
Gross profit23.1
 23.5
 25.4
Engineering, selling, general and administrative expenses15.4
 16.6
 18.0
Intangible asset amortization0.5
 0.5
 0.6
Goodwill impairment
 0.3
 
Restructuring and impairment charges, net0.1
 0.3
 0.3
Strategic development and acquisition related costs0.9
 0.1
 0.2
Loss on disposition of business0.3
 
 
Gain on insurance recovery(0.2) (0.6) 
Income from operations7.1
 6.2
 6.5
Interest income0.0
 0.0
 0.0
Interest expense(1.1) (1.6) (1.8)
Foreign exchange (loss) gain0.0
 0.0
 (0.1)
Gain from bargain purchase
 
 0.1
Loss on extinguishment of debt(1.1) 
 
Other income, net0.0
 0.1
 0.0
Income before income taxes4.2
 4.7
 4.7
Provision for income taxes1.0
 1.6
 1.7
Net income3.2 % 3.1 % 3.0 %


SUPPLEMENTARY OPERATING SEGMENT INFORMATION
Operating segments are defined as components of an enterprise that engage in business activities and byfor which discrete financial information is available that is evaluated on a regular basis by the chief operating decision maker to make decisions about how to allocate resources to the segment and assess the performance of the segment. For fiscal 2018, we had fourWe have three operating segments: (i) Engineered Building Systems;Commercial, (ii) Metal Components;Siding, and (iii) Insulated Metal Panels; and (iv) Metal Coil Coating. AllWindows. Our operating segments operate primarily in the nonresidentialcommercial and residential new construction, market.and repair and remodeling construction markets. Sales and earnings are influenced by general economic conditions, the level of residential and nonresidential construction activity, metal roof repaircommodity costs, such as steel, aluminum, and retrofit demandPVC, other input costs such as labor and freight, and the availability and terms of financing available for construction. Our operating segments are vertically integrated and benefit from using similar basic raw materials enabling us to leverage our supply chain. The Metal Coil Coating segment consists of cleaning, treating, painting and slitting continuous steel coils before the steel is fabricated for use by construction and industrial users. The Metal Components segment products include metal roof and wall panels, doors, metal partitions, metal trim, insulated panels and other related accessories. The Insulated Metal Panels segment produces panels consisting of rigid foam encased between two sheets of coated metal in a variety of modules, lengths and reveal combinations which are used in architectural, commercial, industrial and cold storage market applications. The Engineered Building Systems segment includes the manufacturing of main frames, Long-Bay® Systems and value-added engineering and drafting, which are typically not part of Metal Components or Metal Coil Coating products or services. The manufacturing and distribution activities of our segments are effectively coupled through the use of our nationwide hub-and-spoke manufacturing and distribution system, which supports and enhances our vertical integration. The operating segments follow the same accounting policies used for our consolidated financial statements.
We evaluate a segment’s performance based primarily upon operating income before corporate expenses. Intersegment sales are recorded based on standard material costs plus a standard markup to cover labor and overhead and consist of: (i) hot-rolled, light gauge painted and slit material and other services provided by the Metal Coil Coating segment to the Engineered Building Systems, Metal Components and Insulated Metal Panels segments; (ii) building components provided by the Metal Components and Insulated Metal Panels segment to the Engineered Building Systems segment; and (iii) structural framing provided by the Engineered Building Systems segment to the Metal Components segment.
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 include share-based compensation expenses, and executive, legal, finance, tax, treasury, human resources, information technology purchasing, marketingand strategic sourcing, and corporate travel expenses. Additional unallocated amounts primarily include interest income, interest expense and other income (expense). See Note 20Operating SegmentsSegment Information in the notes to the consolidated financial statements for more information on our segments.


The following table represents total sales, external sales and operating income (loss) attributable to these operating segments for the periods indicated (in thousands, except percentages):
Fiscal Year Ended
December 31,
2019
%October 28,
2018
%October 29,
2017
%
Net sales:      
Commercial$1,847,893  37.8  $2,000,577  100.0  $1,770,278  100.0  
Siding1,111,407  22.7  —  —  —  —  
Windows1,930,447  39.5  —  —  —  —  
Total net sales$4,889,747  100.0  $2,000,577  100.0  $1,770,278  100.0  
Operating income (loss):      
Commercial$201,073  $230,365  $189,547  
Siding66,273  —  —  
Windows92,538  —  —  
Corporate(145,148) (104,445) (79,767) 
Total operating income$214,736  $125,920  $109,780  
Unallocated other expense, net(225,351) (42,825) (26,642) 
Income (loss) before income taxes$(10,615) $83,095  $83,138  

42

 2018 % 2017 % 2016 %
Total sales:           
Engineered Building Systems$798,299
 39.9
 $693,980
 39.2
 $672,235
 39.9
Metal Components689,344
 34.5
 636,661
 36.0
 586,690
 34.8
Insulated Metal Panels504,413
 25.2
 441,404
 24.9
 396,327
 23.5
Metal Coil Coating417,296
 20.9
 368,880
 20.8
 346,348
 20.6
Intersegment sales(408,775) (20.5) (370,647) (20.9) (316,672) (18.8)
Total net sales$2,000,577
 100.0
 $1,770,278
 100.0
 $1,684,928
 100.0
External sales:  
     
     
  
Engineered Building Systems$755,353
 37.8
 $659,863
 37.3
 $652,471
 38.7
Metal Components612,645
 30.6
 544,669
 30.8
 495,020
 29.4
Insulated Metal Panels424,762
 21.2
 372,304
 21.0
 347,771
 20.6
Metal Coil Coating207,817
 10.4
 193,442
 10.9
 189,666
 11.3
Total net sales$2,000,577
 100.0
 $1,770,278
 100.0
 $1,684,928
 100.0
Operating income (loss):  
     
     
  
Engineered Building Systems$66,689
   $41,388
   $62,046
  
Metal Components87,593
   78,768
   70,742
  
Insulated Metal Panels47,495
   47,932
   24,620
  
Metal Coil Coating28,588
   21,459
   32,422
  
Corporate(104,445)   (79,767)   (81,051)  
Total operating income$125,920
   $109,780
   $108,779
  
Unallocated other expense(42,825)   (26,642)   (29,815)  
Income before income taxes$83,095
   $83,138
   $78,964
  



RESULTS OF OPERATIONS FOR FISCAL 20182019 COMPARED TO FISCAL 20172018
ConsolidatedCommercial
Fiscal Year Ended
(Amounts in thousands)December 31, 2019October 28, 2018
Statement of operations data:
Net sales$1,847,893  100.0 %$2,000,577  100.0 %
Gross profit457,747  24.8 %462,682  23.1 %
SG&A expense (including acquisition costs)245,397  13.3 %221,737  11.1 %
Amortization of intangible assets11,277  0.6 %9,648  0.5 %
Loss on disposition of business, net—  — %5,673  0.3 %
Gain on insurance recovery—  — %(4,741) (0.2)%
Operating income201,073  10.9 %230,365  11.5 %
Net sales increased by 13.0%,for the year ended December 31, 2019 were $1,847.9 million, a decrease of $152.7 million, or $230.3 million for fiscal 2018, compared to fiscal 2017.7.6% from the year ended October 28, 2018. The year-over-year improvementdecrease in net sales was primarilymostly driven by continued commercial disciplinelower tonnage volumes due to market hesitation in late 2018 through the pass-through of higher costs in a rising cost environment across each of our segments and underlying volume growth in the Engineered Building Systems and Insulated Metal Panel segments. Each segment achieved year over year external revenue growth.
Consolidated cost of sales increased by 13.6%, or $183.7 million for fiscal 2018, compared to fiscal 2017. This increase resulted primarily from higher input costs, including transportation, materials and skilled labor.
Gross margin was 23.1% for fiscal 2018 compared to 23.5% for fiscal 2017. The lower margin in the current period was primarily driven by higher freight and manufacturing costs, both of which experienced significant inflationary pressures during fiscal 2018. These factors were largely mitigated during the secondfirst half of 2019. Rising steel prices in early-mid 2018 motivated customers to accelerate delivery of products ahead of price increases. This was compounded by the fiscalfact that the price of steel was increasing at a faster rate than other alternative materials like hardwood and concrete. While our addressable market lost market share to these other products, we maintained price discipline and gained market share within our addressable market.
Gross profit for the year through commercial discipline.
Engineered Building Systems sales increased 15.0%,ended December 31, 2019 was $457.7 million, a decrease of $4.9 million or $104.3 million to $798.3 million in fiscal 2018, compared to $694.0 million in fiscal 2017. The increase in sales is a result of commercial discipline, the pass through of higher materials costs, and to a lesser extent, higher internal and external volumes. Sales to third parties for fiscal 2018 increased $95.5 million to $755.4 million from $659.9 million in the prior fiscal year.
Operating income of the Engineered Building Systems segment increased to $66.7 million in fiscal 2018 compared to $41.4 million in the prior fiscal year. The $25.3 million increase resulted primarily1.1% from the increased revenue discussed above, as well as better leverage of engineering, selling, general and administrative expenses resulting from the execution of prior year cost reduction initiatives.
Metal Components sales increased 8.3%, or $52.7 million to $689.3 million in fiscal 2018, compared to $636.7 million in fiscal 2017.ended October 28, 2018. The increase was primarily driven by higher external volumes and the pass-through of increasing materials costs, offset by a decrease in internal volume based on a shift in internal production strategy, which moved a portion of fabrication from Metal Components to the Engineered Buildings Systems segment. Sales to third parties for fiscal 2018 increased $68.0 million to $612.6 million from $544.7 million in the prior fiscal year.
Operating income of the Metal Components segment increased to $87.6 million in fiscal 2018, compared to $78.8 million in the prior fiscal year. The $8.8 million increasegross profit was driven primarily by commercial discipline and improved operatinglower leverage across theof fixed cost structure on higheras a result of the lower tonnage volumes partially offset by higher transportation costs.
Insulated Metal Panelsselling prices. As a percentage of net sales, increased 14.3% gross profit was 24.8%, or $63.0 million to $504.4 million in fiscal 2018, compared to $441.4 million in fiscal 2017. Sales to third parties for fiscal 2018 increased $52.5 million to $424.8 millionan increase of 170 basis points from $372.3 million in the prior fiscal year due to continued high demand, predominantly within our cold storage and industrial, commercial, and institutional products. In addition, theended October 28, 2018. The increase in sales was also driven by a $10.6 million, or 13.2%, increase in internal sales, primarily through the Engineered Building Systems and Metal Components divisions as we continue to execute on our adjacency initiatives.
Operating income of the Insulated Metal Panels segment decreased to $47.5 million in fiscal 2018, compared to $47.9 million in the prior fiscal year. The $0.4 million decrease was driven by a $6.7combination of price discipline, cost reduction initiatives and supply chain/procurement initiatives that have driven more discounts and rebates into material costs.
Selling, general and administrative expenses were $245.4 million, loss recognized onan increase of $23.7 million or 10.7% from the sale of the China manufacturing facility and impacts from a changeyear ended October 28, 2018. The increase is driven in product mix during the current year. In addition, prior period operating income includes $9.2part by $21.8 million of gain on insurance recoverygeneral and administrative costs that are allocated to the Commercial segment that were previously categorized as unallocated corporate costs prior to the Merger. After adjusting for settlements on damaged or destroyed plantthe incremental general and equipment whereasadministrative costs, the increase was driven by investments in fiscal 2018 we recorded a gaintalent and technology within our insulated metal panel and pre-engineered buildings businesses partially offset by the impact of $4.7cost initiatives that have been implemented.
Amortization expense for the year ended December 31, 2019 was $11.3 million, as we reached final settlement on this matter. Largely offsetting these factors were increased fiscal 2018 volume and better leveragean increase of our fixed cost structure.
Metal Coil Coating sales increased by 13.1%, or $48.4 million to $417.3 million in fiscal 2018, compared to $368.9 million in the prior year. Sales to third parties increased $14.4 million to $207.8$1.6 million from $193.4 million in the prior fiscal year primarilyended October 28, 2018. The amortization expense is higher due to the pass-throughamortization of increasing material costs. In addition, the increase in sales was also driven by a $34.0 million, or 16.3%, increase in internal sales.trade names which were previously classified as indefinite lived.
Operating income of the Metal Coil Coating segment increased to $28.6 million in fiscal 2018, compared to $21.5 million in the prior fiscal year. The $7.1 million increase was primarily due to the increase in package product sales and lower engineering, selling, general and administrative expenses resulting from the execution of prior year cost reduction initiatives. In addition, fiscal 2017 included a $6.0 million goodwill impairment, discussed below.
Consolidated engineering, selling, general and administrative expenses increased to $307.1 million in fiscal 2018, compared to $293.1 million in the prior fiscal year. The $14.0 million increase is related to higher current year revenue, as well as a $4.6 million charge related to the acceleration of retirement benefits of our former CEO. Excluding the effects of the acceleration of CEO retirement benefits, as a percentage of sales, engineering, selling, general and administrative expenses were 15.1% for fiscal 2018 as compared to 16.6% for fiscal 2017.
Consolidated intangible asset amortization remained consistent at $9.6 million during fiscal 2018 and fiscal 2017.


Goodwill impairment for fiscal 2017 of $6.0 million was related to the coil coating operations of CENTRIA within our Metal Coil Coating segment. There was no corresponding impairment for fiscal 2018.
Consolidated restructuring charges forfiscal 2018 and 2017 were $1.9 million and $5.3 million, respectively. Each period generally includes severance-related costs, related to our actions taken to streamline our management and engineering and drafting activities, and also to optimize our overall manufacturing structure and footprint. In fiscal 2017, we incurred severance-related charges including in connection with the closure of three facilities, included in our Engineered Building Systems segment, Metal Components segment, and Insulated Metal Panels segment. The current fiscal year charges are offset by a $0.6 million gain on the sale of a facility that was previously designated as “held for sale”.
Consolidated strategic development and acquisition related costs were $17.2 million during fiscal 2018, compared to $2.0 million in the prior fiscal year. These non-operational costs include external legal, financial and due diligence costs incurred to deliver on our strategic initiatives.
Loss on disposition of business for fiscalthe year ended October 28, 2018 was $5.7 million. During the second quarter of fiscal 2018 we recorded a loss of $6.7 million on the sale of our China manufacturing facility included inand during the Insulated Metal Panels segment and alsothird quarter of fiscal 2018 we recorded a $1.0 million gain related to the disposal of a non-strategic product line previously consolidated within the Insulated Metal Panels segment.line. There was no corresponding loss forin fiscal 2017.2019.
Consolidated gainGain on insurance recoveryfor fiscalthe year ended October 28, 2018 and 2017 werewas $4.7 million and $9.7 million, respectively, which related to settlementsproceeds from a final settlement with our insurers for property damage at one of our facilities. There was no corresponding gain in fiscal 2019.
Siding
Fiscal Year Ended
(Amounts in thousands)December 31, 2019October 28, 2018
Statement of operations data:
Net sales$1,111,407  100.0 %$—  — %
Gross profit277,583  25.0 %—  — %
SG&A expense (including acquisition costs)111,770  10.1 %—  — %
Amortization of intangible assets99,540  9.0 %—  — %
Operating income66,273  6.0 %—  — %
43


Net sales for the year ended December 31, 2019 were $1,111.4 million. Net sales for the year ended December 31, 2019 were favorablyimpacted by the inclusion of $150.5 million for the ESW Acquisition, which closed on February 20, 2019. Excluding ESW, our net sales were $960.9 million for the year ended December 31, 2019. Our net sales for the U.S. and Canadian markets were approximately $1,037.1 million and $74.3 million, respectively, for the year ended December 31, 2019. For the year ended December 31, 2019, foreign currency negatively impacted our net sales by $2.4 million. As summarized by the VSI, our unit U.S. net sales for the year ended December 31, 2019 were relatively flat compared to twothe year ended December 31, 2018 resulting in a market share of approximately 37.2% based on the unit data provided by the VSI.For Canada, our market share was approximately 33.2% of the Canadian vinyl siding market.The Canadian economy continues to be challenged with lower consumer spending driving slower economic growth and development.
Gross profit for the year ended December 31, 2019 was $277.6 million.Gross profit was negatively impacted $14.4 million by the non-cashinventory fair value step-up associated with the Merger and by $1.9 million for the non-cash inventory fair value step-up associated with the ESW acquisition that closed on February 20, 2019 both of which increased costs of goods sold during the year ended December 31, 2019. Gross profit for the year ended December 31, 2019 includes ESW gross profit of $34.1 million. Excluding ESW and the impact of these inventory step-ups, our gross profit would have been $259.7 million for the year ended December 31, 2019. We historically pass along increases in raw material input costs to our customers but normally there is a lag period of approximately 90-120 days between the impact of higher raw material costs and customer pricing actions. For our Siding segment, we focus predominantly on PVC resin, which increased 2.0%, and aluminum (Midwest Ingot) which decreased 13.5% during the year ended December 31, 2019 compared to the year ended December 31, 2018.In addition to raw material costs, we closely monitor labor and freight costs. Labor costs have trended higher recently given the shortage of manufacturing labor personnel and wage inflation pressure. For the year ended December 31, 2019, foreign currency negatively impacted our gross profit by $0.7 million.
As a percentage of net sales, our gross profit percentage was 27.0% excluding ESW and the fair value step-up. Our net sales and profitability are normally higher during the second and third quarters due to weather seasonality which increases building activity in both the new construction and repair and remodeling markets. With increased production volumes during the late spring and summer months, our gross profit trends higher during the second and third quarters.
Selling, general, and administrative expenses were $111.8 million for the year ended December 31, 2019 including $28.5 million of SG&Aexpenses attributed to ESW.Included within SG&A expenses are sales and marketing expenses, research and development costs, and legal and professional fees and non-manufacturing personnel costs. As a percentage of net sales, SG&A expenses were 8.7% for the year ended December 31, 2019 excluding ESW.
Amortization expense for the year ended December 31, 2019 was $99.5 million or 9.0% of net sales. The amortization expense is directlyattributed to the Merger and the ESW acquisition and the resulting fair values assigned to our intangible assets including trade names and customer lists which both have finite amortization periods.
Windows
Fiscal Year Ended
(Amounts in thousands)December 31, 2019October 28, 2018
Statement of operations data:
Net sales$1,930,447  100.0 %$—  — %
Gross profit353,089  18.3 %—  — %
SG&A expense (including acquisition costs)193,791  10.0 %—  — %
Amortization of intangible assets66,760  3.5 %—  — %
Operating income92,538  4.8 %—  — %
Net sales for the year ended December 31, 2019 were $1,930.4 million. Net sales for the year ended December 31, 2019 included netsales of $419.4 million and $402.3 million for Silver Line and Atrium, respectively. The Silver Line acquisition was completed on October 14, 2018 while the Atrium acquisition was completed on April 12, 2018 with both entities’ net sales included for the Company within the Windows segment for the year ended December 31, 2019. Excluding these 2018 acquisitions, our net sales would have been $1,108.7 million for the year ended December 31, 2019. Our net sales for the U.S. and Canadian markets were approximately $1,741.7 million and $188.7 million, respectively, for the year ended December 31, 2019. For the year ended December 31, 2019, foreign currency negatively impacted our net sales by $4.1 million.
44


Gross profit for the year ended December 31, 2019 was $353.1 million.Gross profit for the year ended December 31, 2019 includesSilver Line gross profit of $47.4 million and Atrium gross profit of $98.5 million.The Silver Line acquisition was completed on October 14, 2018 while the Atrium acquisition was completed on April 12, 2018 with both entities’ gross profit included for the Company within the Windows segment for the year ended December 31, 2019. Excluding the impact of the Silver Line and Atrium gross profit, our gross profit would have been $207.2 million for the year ended December 31, 2019. Historically, our gross profit is impacted by raw material costs, specifically PVC resin, aluminum, and glass.PVC resin increased 2.0%, aluminum (Midwest Ingot) decreased 13.5%, and glass increased 1.5% during the year ended December 31, 2019 compared to the year ended December 31, 2018.We pass along increases in raw material input costs to our customers but normally there is a lag period of approximately 90-120 days between the impact of higher raw material costs and customer pricing actions. In addition to raw material costs, we closely monitor labor and freight costs. Labor costs have trended higher recently given the shortage of manufacturing labor personnel and wage inflation pressure. For the year ended December 31, 2019, foreign currency negatively impacted our gross profit by $1.2 million.
As a percentage of net sales, our gross profit percentage was 18.7% excluding Silver Line and Atrium gross profit. We focused our efforts during 2019 on improving our gross profit margins by investing in automation projects at our manufacturing facilities, maintaining our price discipline in certain competitive markets, and focusing on our customer needs and service proposition and integrating our manufacturing facilities and product profiles.These efforts enabled us to achieve the Metal Components18.7% gross profit percentage for the year ended December 31, 2019.
Selling, general, and Insulated Metal Panels segment.administrative expenses were $193.8 million for the year ended December 31, 2019. SG&A expenses for the year ended December 31, 2019 includes $19.7 million and $41.9 million of Silver Line and Atrium SG&A expenses, respectively. Excluding the impact of Silver Line and Atrium, SG&A expenses would have been $132.2 million. Included within SG&A expenses are sales and marketing expenses, research and development costs, and legal and professional fees and non-manufacturing personnel costs. As a percentage of net sales, SG&A expenses were 11.9% for the year ended December 31, 2019 excluding Silver Line and Atrium as we normally gain leverage on the fixed component of SG&A expenses during the second and third quarters.
Consolidated interestAmortization expense decreasedfor the year ended December 31, 2019 was $66.8 million, or 3.5% of net sales. The amortization expense is directly attributed to theMerger and the fair values assigned to our intangible assets including trade names and customer lists which both have finite amortization periods.
Unallocated Operating Earnings (Losses), Interest, and Provision (Benefit) for Income Taxes
Fiscal Year Ended
(Amounts in thousands)December 31, 2019October 28, 2018
Statement of operations data:
SG&A expense$(125,281) $(87,281) 
Acquisition related expenses(19,867) (17,164) 
Operating loss(145,148) (104,445) 
Interest expense(229,262) (21,808) 
Interest income674  140  
Currency translation gain (loss)2,054  (244) 
Loss on debt extinguishment—  (21,875) 
Other income, net1,183  962  
Income tax provision (benefit)4,775  19,989  
Unallocated operating losses include 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 for the year ended December 31, 2019 increased $40.7 million or 39.0% compared to the year ended October 28, 2018 due primarily to the addition of the Ply Gem corporate cost center, increased stock-based compensation expense and $50.2 million of costs associated with the Merger and other strategic acquisition costs.
Interest expense increased to $229.3 million for the year ended December 31, 2019 compared to $21.8 million for fiscal 2018, compared to $28.9 million for fiscal 2017.the year ended October 28, 2018. The decreaseinterest expense increase is primarily due to debt obligations assumed in the redemptionMerger. Following the consummation of the Merger, our 8.25% Senior Notesconsolidated debt balance increased to $3.2 billion at December 31, 2019 as compared to $407.2 million at October 28, 2018.
45


Foreign exchange gain (loss) for the year ended December 31, 2019 was a $2.1 million gain, compared to a loss of $0.2 million for the year ended October 28, 2018, due to exchange rate fluctuations in the Canadian dollar and lower variable rates onMexican peso relative to the Pre-merger Term Loan Credit Facility, both results of activities to strengthen our capital structure that were completed in February 2018.U.S. dollar.
Loss on debt extinguishment for fiscal 2018 was $21.9 million. There was no corresponding amount recorded in fiscal 2017.million for the year ended October 28, 2018. During our second quarter of fiscalthe year ended October 28, 2018, we recognized a pretax loss, primarily on the extinguishment of our 8.25% senior notes due 2023, of $21.9 million, of which approximately $15.5 million represented the call premium paid on the redemption of the notes. There was no corresponding loss in fiscal 2019.
Consolidated foreign exchange gain (loss)provision (benefit) for income taxes was a lossan expense of $0.2 million for fiscal 2018, compared to a gain of $0.5$4.8 million for the prior year primarily dueended December 31, 2019 compared to the fluctuations in the exchange rate between the Canadian dollar and U.S. dollar in the current period.
Consolidated provision for income taxes wasan expense of $20.0 million for fiscal 2018, compared to $28.4 million for the prior fiscal year primarily as a result of higher pre-tax income in fiscal 2017.ended October 28, 2018. The effective tax rate for fiscal 2018the year ended December 31, 2019 was 24.1%45.0% compared to 34.2%24.1% for fiscal 2017.the year ended October 28, 2018. The change in the effective tax rate was primarily driven by the continuing effects associated with the enactment of the U.S. Tax Reform.
Diluted income per common share improved to $0.94 per diluted common shareCuts and Jobs Act, limitations on the deduction for fiscal 2018, compared to $0.77 per diluted common share for fiscal 2017. The improvement in diluted income per common share was primarily due to the $8.3 million increase in net income applicable to common shares resulting from the factors described above in this section and share repurchases executed during fiscal 2018.
RESULTS OF OPERATIONS FOR FISCAL 2017 COMPARED TO FISCAL 2016
Consolidated sales increased by 5.1%, or $85.4 million for fiscal 2017, compared to fiscal 2016. The increase was driven by continued commercial discipline in the pass-through of higher costs in a rising steel price environment predominantly in the Engineered Building Systems and Metal Components segments despite overall tonnage volumes being lower year over year.
Consolidated cost of sales increased by 7.6%, or $95.4 million for fiscal 2017, compared to fiscal 2016. This increase was the result of rising raw materials costs during fiscal 2017 as compared to declining materials costs in fiscal 2016.
Gross margin was 23.5% for fiscal 2017 compared to 25.4% for fiscal 2016. The decrease in gross margin was primarily a result of lower volumes in the Engineered Building Systems segment, uneven production flow and increased transportation costs.
Engineered Building Systems sales increased 3.2%, or $21.7 million to $694.0 million in fiscal 2017, compared to $672.2 million in fiscal 2016. The increase in sales is a result of commercial discipline,interest expense partially offset by lower volumes in the fourth quarter of fiscal 2017, primarily driven by hurricane related disruptions. Sales to third parties for fiscal 2017 increased $7.4 million to $659.9 million from $652.5 million in the prior fiscal year.


Operating incomeimpact of the Engineered Building Systems segment decreased to $41.4 million in fiscal 2017 compared to $62.0 million in the prior fiscal year. The $20.7 million decrease resulted from rapidly rising steel costs during the current year as compared to the prior fiscal year, combined with the disruptive impact of hurricanes during the fourth quarter of fiscal 2017.
Metal Components sales increased 8.5%, or $50.0 million to $636.7 million in fiscal 2017, compared to $586.7 million in fiscal 2016. The increase in sales was primarily driven by higher external volumes and the execution of commercial discipline. Sales to third parties for fiscal 2017 increased $49.6 million to $544.7 million from $495.0 million in the prior fiscal year.
Operating incomereversal of the Metal Components segment increased to $78.8 million in fiscal 2017, compared to $70.7 million in the prior fiscal year. The $8.0 million increase was driven by the increased sales discussed in the immediately preceding paragraph.Canadian valuation allowance for $3.9 million.
Insulated Metal Panels sales increased 11.4%, or $45.1 million to $441.4 million in fiscal 2017, compared to $396.3 million in fiscal 2016. The increase in sales was primarily driven by commercial discipline and improved product mix.
Operating income of the Insulated Metal Panels segment increased to $47.9 million in fiscal 2017, compared to $24.6 million in the prior fiscal year. The $23.3 million increase was driven predominantly due to a higher mix of higher margin architectural products.
Metal Coil Coating sales increased by 6.5%, or $22.5 million to $368.9 million in fiscal 2017, compared to $346.3 million in the prior year. The increase in sales was primarily the result of pass through of higher steel prices through its coil package products. Metal Coil Coating third-party sales increased $3.8 million to $193.4 million from $189.7 million in the prior fiscal year and accounted for 10.9% of total consolidated third-party sales for fiscal 2017.
Operating income of the Metal Coil Coating segment decreased to $21.5 million in fiscal 2017, compared to $32.4 million in the prior fiscal year. The $11.0 million decrease was driven by lower manufacturing efficiency due to lower volumes and higher material costs in fiscal 2017.
Consolidated engineering, selling, general and administrative expenses decreased to $293.1 million in fiscal 2017, compared to $302.6 million in the prior fiscal year. As a percentage of sales, engineering, selling, general and administrative expenses were 16.6% for fiscal 2017 as compared to 18.0% for fiscal 2016. The $9.4 million decrease in expenses was primarily due to the cost reductions resulting from execution of strategic initiatives.
Consolidated intangible asset amortization remained consistent at $9.6 million during fiscal 2017 and fiscal 2016.
Goodwill impairment for fiscal 2017 of $6.0 million was related to the coil coating operations of CENTRIA within our Metal Coil Coating segment.
Consolidated restructuring charges forfiscal 2017 were $5.3 million. These charges relate to our efforts to streamline our management, engineering and drafting and manufacturing structures as well as to optimize our manufacturing footprint. We incurred severance-related charges associated with these activities, including in connection with the closure of three facilities, included in our Engineered Building Systems segment, Metal Components segment, and Insulated Metal Panels segment in fiscal 2017.
Consolidated strategic development and acquisition related costs decreased to $2.0 million during fiscal 2017, compared to $2.7 million in the prior fiscal year. These non-operational costs include external legal, financial and due diligence costs incurred to deliver on our strategic initiatives.
Consolidated interest expense decreased to $28.9 million for fiscal 2017, compared to $31.0 million for fiscal 2016. The decrease is primarily a result of voluntary principal prepayments the Company made on its term loan during fiscal 2017 and 2016.
Consolidated foreign exchange gain (loss) was a gain of $0.5 million for fiscal 2017, compared to a loss of $1.4 million for the prior year primarily due to the fluctuations in the exchange rate between the Canadian dollar and U.S. dollar in the current period.
Consolidated provision for income taxes was $28.4 million for fiscal 2017, compared to $27.9 million for the prior fiscal year, primarily as a result of higher pre-tax income in fiscal 2017. The effective tax rate for fiscal 2017 was 34.2% compared to 35.4% for fiscal 2016.
Diluted income per common share improved to $0.77 per diluted common share for fiscal 2017, compared to $0.70 per diluted common share for fiscal 2016. The improvement in diluted income per common share was primarily due to the $3.8 million increase in net income applicable to common shares resulting from the factors described above in this section and share repurchases executed during fiscal 2017.


LIQUIDITY AND CAPITAL RESOURCES
General
Our cash, and cash equivalents decreasedand restricted cash increased from $65.7$54.5 million to $54.3$102.3 million during the transition period ended December 31, 2018 and fiscal 2018.2019. The following table summarizes our consolidated cash flows for fiscal 2019 and 2018, and fiscal 2017the Transition Period (in thousands):
 Fiscal Year Ended
 October 28,
2018
 October 29,
2017
Net cash provided by operating activities$82,463
 $63,874
Net cash used in investing activities(38,174) (10,284)
Net cash used in financing activities(55,582) (53,529)
Effect of exchange rate changes on cash and cash equivalents(93) 194
Net (decrease) increase in cash and cash equivalents(11,386) 255
Cash and cash equivalents at beginning of period65,658
 65,403
Cash and cash equivalents at end of period$54,272
 $65,658
Fiscal Year Ended
December 31,
2019
October 28,
2018
October 29,2018 - December 31, 2018
Net cash provided by operating activities$229,608  $82,463  $11,099  
Net cash provided by (used in) investing activities(294,758) (38,174) 73,492  
Net cash provided by (used in) financing activities17,540  (55,473) 9,161  
Effect of exchange rate changes on cash and cash equivalents2,310  (93) (662) 
Net increase (decrease) in cash, cash equivalents and restricted cash(45,300) (11,277) 93,090  
Cash, cash equivalents and restricted cash at beginning of period147,607  65,794  54,517  
Cash, cash equivalents and restricted cash at end of period$102,307  $54,517  $147,607  
Operating Activities
Our business is both seasonal and cyclical and cash flows from operating activities may fluctuate during the year and from year to year due to economic conditions. We generally rely on cash as well as short-term borrowings, when needed, to meet cyclical and seasonal increases in working capital needs. These needs generally rise during periods of increased economic activity or increasing raw material prices due to higher levels of inventory and accounts receivable. During economic slowdowns, or periods of decreasingWorking capital needs also fluctuate based on raw material costs, working capital needs generally decrease as a result of the reduction of inventories and accounts receivable.prices.
Net cash provided by operating activities was $229.6 million during fiscal 2019 compared to $82.5 million during fiscal 2018 comparedand $11.1 million provided during the Transition Period. The change in cash flow provided by operations is due to $63.9 million during fiscal 2017. The changethe inclusion of current period operations from Ply Gem subsequent to the Merger on November 16, 2018 and decreasing inventory that was driven by an increase in earningsimproved purchasing and lower input costs, partially offset by certain acquisition costs related to the Merger. The improved cash flow from operations during fiscal 2019 is due to the inclusion of current period operations from Ply Gem and ESW subsequent to the Merger and normal seasonal trends in the current fiscal year as compared to the prior fiscal year, offset by net cash used fortiming of working capital as described below.capital.
Net cash used in accounts receivable was $38.2 million for fiscal 2019 compared to $35.4 million for the fiscal year ended October 28, 2018 compared to $19.6 million for the fiscal year ended October 29, 2017.2018. The increasechange in accounts receivable asperiod over period relates to seasonal trends in working capital and timing of October 28, 2018 as compared tocollections given the priorchange in fiscal year was primarily the result of strong revenue growth during the current period.year. Our trailing 90-days sales outstanding (“DSO”) was approximately 41.2 days at December 31, 2019 as compared to 39.3 days and 35.2 days at December 31, 2018 and October 28, 2018, as compared to 35.1 days at October 29, 2017.respectively.
The change in cash flows relating to inventory for fiscal 2019 was an increase of $91.8 million compared to a decrease of $58.5 million for fiscal 2018. The change in inventory period over period relates to lower commodity pricing and improved purchasing combined with increases in net payment discounts from the addition of Ply Gem and ESW in fiscal year ended October 28, 2018 was $47.1 million and resulted primarily from higher inventory purchases to support higher sales and the continued increase in material costs, particularly steel.2019. Our trailing 90-days inventory on-hand (“DIO”) wasimproved to 42.7 days at December 31, 2019 as compared to 54.1 days and 54.9 days at December 31, 2018 and October 28, 2018, as compared to 51.5 days at October 29, 2017.respectively.
46


Net cash provided byused in accounts payable was $21.1 million for fiscal 2019 compared to $24.5 million provided for the fiscal year ended October 28, 2018 compared to $4.9 million for the fiscal year ended October 29, 2017.2018. Our vendor payments can fluctuate significantly based on the timing of disbursements, inventory purchases and vendor payment terms.terms and the inclusion of the cash provided by accounts payable from Ply Gem in fiscal 2019. Our trailing 90-days payable outstanding (“DPO”) at December 31, 2019 was 20.8 days as compared to 24.0 days and 33.4 days at December 31, 2018 and October 28, 2018, was 33.4 days compared to 32.5 days at October 29, 2017.respectively.
Net cash provided byused in accrued expenses was $16.3$40.4 million for the fiscal year ended October 28, 20182019 compared to $12.3$16.3 million net cash used inprovided by accrued expenses for the fiscal year ended October 29, 2017.28, 2018. The change was primarily driven by timing of interest payments and compensation payments.
Investing Activities
Cash used in investing activities increasedwas $294.8 million during fiscal 2019 compared to $38.2 million used during fiscal 2018 compared to $10.3and $73.5 million provided during the Transition Period. During fiscal 2019, we paid approximately $179.2 million, net of cash acquired, for the acquisition of Environmental Stoneworks and during the Transition Period we had $87.1 million of net cash received from the acquisition of Ply Gem. We used in the prior fiscal year. In fiscal 2018, we used$121.1 million, $47.8 million and $13.6 million for capital expenditures, sold a business in China, resulting in a net use of $4.4 million of cashduring fiscal 2019 and sold a non-strategic product line in our Insulated Metal Panels segment for $3.0 million. Additionally, we sold one manufacturing facility in our Engineered Building Systems segment2018, and two manufacturing facilities in our Metal Components segment for total cash consideration of $6.3 million and we received insurance proceeds of $4.7 million as reimbursement for new assets acquired for a facility in the Insulated Metal Panels segment that experienced a fire in June 2016. In fiscal 2017, we used $22.1 million for capital expenditures. These cash outflows were partially offset by $8.6 million in cash proceeds from insurance for an involuntary loss on conversion at two of our facilities and $3.2 million in cash received from the sale of assets previously classified as held for sale.


Transition Period, respectively.
Financing Activities
Cash provided by financing activities was $17.5 million in fiscal 2019 compared $55.5 million used in financing activities was $55.6 million in fiscal 2018 compared $53.5and $9.2 million provided by financing activities in the priorTransition Period. During fiscal year. 2019, we borrowed $200.0 million to finance the ESW Acquisition and repaid all but $70.0 million of that amount, paid $25.6 million on quarterly installments on our Current Term Loan, made a $24.9 million payment on the tax receivable agreement and used $1.9 million for the purchases of shares related to restricted stock that were withheld to satisfy minimum tax withholding obligations arising in connection with the vesting of restricted stock awards and units.
During the Transition Period, we repaid $325.0 million on the Current ABL Facility, used $4.1 million for the purchases of shares related to restricted stock that were withheld to satisfy minimum tax withholding obligations arising in connection with the vesting of restricted stock awards and units. Net cash provided in the repayment of the pre-Merger Term Loan Credit Agreement and refinancing of long-term debt in connection with the Merger, including payments of financing costs was $366.4 million. We also made a $22.5 million payment on the tax receivable agreement and a $3.5 million payment for settlements of our appraisal share liability. Finally, we made a $0.7 million payment for contingent consideration that was originally accrued in purchase accounting in 2015 in connection with Ply Gem’s acquisition of Canyon Stone.
During fiscal 2018, we borrowed periodically under our ABL Facility and repaid all of that amount during the period, used $51.8 million to repurchase shares of our outstanding common stock under programs approved by the Board of Directors on September 8, 2016 and October 10, 2017 and for the purchases of shares related to restricted stock that were withheld to satisfy minimum tax withholding obligations arising in connection with the vesting of restricted stock awards and units. Net cash used in the redemption of our Senior Notes and refinancing of long-term debt, including payments of financing cost; as well as payments on the refinanced term loan was $3.2 million. We received $1.3 million in cash proceeds from the exercises of stock options.
During fiscal 2017 we used $43.6 million to repurchase shares of our Common Stock under our authorized stock repurchase programs and for the purchases of shares related to restricted stock that were withheld to satisfy minimum tax withholding obligations arising in connection with the vesting of restricted stock awards and units. In addition, we used $10.2 million to make voluntary principal prepayments on borrowings under the credit agreement that governed our then-outstanding term loans Credit Agreement and we received $1.7 million in cash proceeds from the exercises of stock options.
We invest our excess cash in various overnight investments which are issued or guaranteed by the federal government.
Equity Investment
On August 14, 2009, the Companywe entered into an Investment Agreement (as amended, the “Investment Agreement”), by and between the Companyus 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. (collectively,, 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 ours, which was later converted tointo shares of our Common Stockcommon stock on May 14, 2013.
OnIn January 2014, the CD&R Fund VIII Investor Group completed a registered underwritten offering, in which the CD&R Fund VIII Investor Group offered 8.5 million shares of Common Stock at a price to the public of $18.00 per share (the “2014 Secondary Offering”). The underwriters also exercised their option to purchase 1.275 million additional shares of Common Stock. In addition, the Companywe entered into an agreement with the CD&R Fund VIII Investor Group to repurchase 1.15 million shares of itsour Common Stock at thea price per share equal to the price per share paid by the underwriters to the CD&R Fund VIII Investor Group in the underwritten offering (the “2014 Stock Repurchase”). The 2014 Stock Repurchase, which was completed at the same time as the 2014 Secondary Offering, represented a private, non-underwritten transaction between NCI and the CD&R Fund VIII Investor Group that was approved and recommended by the Affiliate Transactions Committee of our boardBoard of directors.Directors.
47


On July 25, 2016, the CD&R Fund VIII Investor Group completed a registered underwritten offering, in which the CD&R Fund VIII Investor Group offered 9.0 million shares of our Common Stock at a price to the public of $16.15 per share (the “2016 Secondary Offering”). The underwriters also exercised their option to purchase 1.35 million additional shares of our Common Stock from the CD&R Fund VIII Investor Group. The aggregate offering price for the 10.35 million shares sold in the 2016 Secondary Offering was approximately $160.1 million, net of underwriting discounts and commissions. The CD&R Fund VIII Investor Group received all of the proceeds from the 2016 Secondary Offering and no shares in the 2016 Secondary Offering were sold by the Companyus or any of itsour officers or directors (although certain of our directors are affiliated with the CD&R Fund VIII Investor Group). In connection with the 2016 Secondary Offering and 2016 Stock Repurchase (as defined below), we incurred approximately $0.7 million in expenses, which were included in engineering, selling, general and administrative expenses in the consolidated statements of operations for the fiscal year ended October 30, 2016.
On July 18, 2016, the Companywe entered into an agreement with the CD&R Fund VIII Investor Group to repurchase approximately 2.9 million shares of our Common Stock at the price per share equal to the price per share paid by the underwriters to the CD&R Fund VIII Investor Group in the underwritten offering (the “2016 Stock Repurchase”). The 2016 Stock Repurchase, which was completed concurrently with the 2016 Secondary Offering, represented a private, non-underwritten transaction between the Companyus and the CD&R Fund VIII Investor Group that was approved and recommended by the Affiliate Transactions Committee of our boardBoard of directors. See Note 18 — Stock Repurchase Program.Directors.
On December 11, 2017, the CD&R Fund VIII Investor Group completed a registered underwritten offering of 7,150,000 shares of the Company’sour Common Stock at a price to the public of $19.36 per share (the “2017 Secondary Offering”). Pursuant to the underwriting agreement, at the CD&R Fund VIII Investor Group request, the Companywe purchased 1.15 million of the 7.15 million shares of theour Common Stock from the underwriters in the 2017 Secondary Offering at a price per share equal to the price at which the underwriters purchased the shares from the CD&R Fund VIII Investor Group. The total amount the Companywe spent on these repurchases was $22.3 million.
At October 28,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 (the “Ply Gem-Atrium Merger”).
Pursuant to the terms of the Merger Agreement, on November 16, 2018, we entered into (i) a stockholders agreement (the “New Stockholders Agreement”) between us, and October 29, 2017,each of the CD&R Fund VIII Investor Group, owned approximately 34.4%CD&R Pisces Holdings, L.P., a Cayman Islands exempted limited partnership (“CD&R Pisces”, and 43.8%, respectively, oftogether with the outstanding shares of our Common Stock.


On November 16, 2018,CD&R Fund VIII Investor Group, the Company entered into (i)“CD&R Investor Group”) and the New Stockholders Agreement betweenGolden Gate Investor Group (together with the Company and each ofCD&R Investor Group, the Investors,“Investors”), pursuant to which the Companywe granted to the Investors certain governance, preemptive and subscription rights and (ii) the Newa registration rights agreement (the “New Registration Rights Agreement withAgreement”) between us and each of the Investors, pursuant to which the Companywe 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 NCIour Common Stock that are held by the Investors following the consummation of the Merger. Pursuant to the terms of the New Stockholders Agreement, the Company
At December 31, 2019 and the CD&R Fund VIII Investor Group terminated the Old Stockholders Agreement and the Old Registration Rights Agreement.
In addition, pursuant to Section 3.1(c)(i) of the New Stockholders Agreement, the CD&R Investor Group is entitled to nominate for election, fill vacancies and appoint five out of twelve initial members of NCI’s board of directors following consummation of the Merger and, thereafter, so long as2018, the CD&R Investor Group beneficially owns at least 7.5%owned approximately 49.1% and 49.4%, respectively, of the outstanding shares of NCIour Common Stock, to nominate for election, fill vacanciesStock.
Debt
Our outstanding indebtedness will mature in 2023 (Current ABL Facility and appoint replacements for a number of Board membersCurrent Cash Flow Revolver), 2025 (Current Term Loan Facility), and 2026 (8.00% Senior Notes). We may not be successful in proportion torefinancing, extending the CD&R Investor Group’s percentage beneficial ownership of outstanding NCI Common Stock, but never to exceed one less than the number of independent, non-CD&R-affiliated directors serving on the Board.
The New Stockholders Agreement contains voting agreements between the Company and each of the Investors, including the requirement that each Investor shall vote all of the shares of Common Stock that it beneficially owns (a) in favor of all director nominees, other than CD&R Investor Nomineesmaturity or director nominees proposed by a Golden Gate Investor, nominated by the Board for election by the stockholders of the Company in accordance withotherwise amending the terms of such indebtedness because of market conditions, disruptions in the New Stockholders Agreementdebt 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 the Sixth Amendedour subsidiaries could face substantial liquidity problems and Restated By-lawsmay be forced to reduce or delay capital expenditures, sell assets, seek additional capital or restructure our indebtedness. Following consummation of the Company, (b) as recommended byMerger, the Board, on any and all (i) proposals relating to or concerning compensation or equity incentives for directors, officers or employees of the Company adopted in the ordinary course of business consistent with past practice, (ii) proposals by stockholders of the Company, other than a proposal by a CD&R Investor or a Golden Gate Investor, and (iii) proposals the subject matter of which is a CD&R Investor Consent Action (as defined in the New Stockholders Agreement), provided that, in respect of clauses (i) and (iii) only, that the Board’s recommendation is consistent with the CD&R Investor Group’s exercise of its consent rights provided in the New Stockholders Agreement, and (c) not in favor of any transaction constituting, or that would result in, a Change of Control (as defined in the New Stockholders Agreement) that has not been approved by a majority of the Independent Non-CD&R Investor Directors (as defined in the New Stockholders Agreement), if the per share consideration to be received by any CD&R Investor or Golden Gate Investor in connection with such transaction is not equal to, and in the same form as, the per-share consideration to be received by the shareholders not affiliated with the Investors.
Debt
On February 8, 2018, the Company entered into aCurrent Term Loan Credit Agreement (the “Pre-merger Term Loan Credit Agreement”) and ABL Credit Agreement (the “Pre-merger ABL Credit Agreement”), the proceeds of which, together, were used to redeem the 8.25% senior notes and to refinance the Company’s then existing term loan credit facility and the Company’s then existing asset-based revolving credit facility.
The Pre-merger Term Loan Credit AgreementFacility provided for an aggregate principal amount of $415.0 million (the “Pre-merger Term Loan Credit Facility”). Proceeds from borrowings under the Pre-merger Term Loan Credit Facility were used, together with cash on hand, (i)$2,560.0 million. We have also entered into certain interest rate swap agreements to refinance the existing term loan credit agreement, (ii) to redeem and repay the Notes (the foregoing, collectively, the “Refinancing”) and (iii) to pay any fees, premiums and expenses incurred in connection with the Refinancing.reduce our variable interest rate risk.
The Pre-mergerCurrent ABL Credit Agreement providedprovides for an asset-based revolving credit facility which allowedallows aggregate maximum borrowings by the ABL Borrowersborrowers of up to $150.0 million (the “Pre-merger ABL Credit Facility”).$611.0 million. As set forth in the Pre-mergerCurrent ABL Credit Agreement, extensions of credit under the Pre-mergerCurrent ABL Credit Facility are limited bysubject to a monthly borrowing base calculated periodicallycalculation that is based on specified percentages of the value of eligible inventory, eligible accounts receivable and eligible credit card receivables, and eligible inventory, less certain reserves and subject to certain other adjustments. Availability isunder the Current ABL Facility will be reduced by issuance of letters of credit as well as any borrowings.borrowings outstanding thereunder.
48


As of October 28, 2018,December 31, 2019, we had an aggregate principal amount of $412.9$3,238.6 million of outstanding indebtedness, comprising $412.9$70.0 million of borrowings under the Current ABL Facility, $2,523.6 million of borrowings under our Pre-mergerCurrent Term Loan Credit Facility.Facility and $645.0 million of 8.00% Senior Notes outstanding. We had no revolving loans outstanding under the Pre-merger ABL Credit Facility.Current Cash Flow Revolver. Our excess availability under the Pre-mergerCurrent ABL Credit Facility was $141.0$425.9 million as of October 28, 2018.December 31, 2019. In addition, standby letters of credit related to certain insurance policies totaling approximately $9.0$30.2 million were outstanding but undrawn under the Pre-merger ABL Credit Facility.
For additional information, see Note 1112Long-Term Debt and Note Payable in the notes to the consolidated financial statements.
In connection with the merger with Ply Gem, on November 16, 2018 we assumed the outstanding debt obligations of Ply Gem and repaid in full amounts outstanding under the Pre-merger Term Loan Credit Agreement and the Pre-merger ABL Credit


Agreement. For additional information, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more information on our indebtedness following the Merger.
Cash Flow
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-short-term and long-term liquidity requirements, including payment of operating expenses and repayingrepayment of debt, we rely primarily on cash from operations. Beyond cash generated from operations, $141.0$425.9 million is available with our Pre-mergerCurrent ABL Credit Facility at October 28, 2018December 31, 2019, $115.0 million is available with our Current Cash Flow Revolver and we have aan unrestricted cash balance of $54.3$98.4 million as of October 28, 2018. FollowingDecember 31, 2019.
We expect to contribute $5.2 million to the consummation of the Merger, we have a U.S. ABL FacilityDefined Benefit Plans in fiscal 2020 and a Canadian ABL Facility, which together have an aggregate capacity of approximately $611$0.8 million and a Cash Flow Revolver of up to $115 million, none of which was drawn as of November 16, 2018.OPEB Plans in fiscal 2020.
We expect that for the next 12 months, cash generated from operations and our Pre-mergeravailability under the ABL Credit Facility 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 of approximately 2.0%-2.5% of net sales for fiscal 20192020 and expansion when needed.
We expectOur corporate strategy evaluates potential acquisitions that would provide additional synergies in our Commercial, Siding and Windows segments. From time to contribute $1.2 milliontime, we may enter into letters of intent or agreements to our defined benefit plansacquire assets or companies in fiscal 2019.these business lines. The consummation of these transactions could require substantial cash payments and/or issuance of additional debt.
During fiscal 2018From time to time, we repurchased an aggregate of $46.7 millionhave used available funds to repurchase shares of our Common Stockcommon stock under theour stock repurchase programs authorized in September 8, 2016 andprograms. On October 10, 2017. On2017 and March 7, 2018, the Companywe announced that itsour Board of Directors authorized new stock repurchase programs for the repurchase of up to an aggregate of $50.0 million and an additional $50.0 million, respectively, of our outstanding Common Stock for a cumulative total of $100.0 million. At October 28, 2018,Under these repurchase programs, we are authorized to repurchase shares, if at all, 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 programs. During fiscal 2019 and the Transition Period, there were no repurchases under the stock repurchase programs. As of December 31, 2019, approximately $55.6 million remained available for stock repurchases, all under the stock repurchase programs authorizedannounced on October 10, 2017 and March 7, 2018. WeIn addition to repurchases of shares of our common stock under our stock repurchase program, we also withheldwithhold shares of restricted stock to satisfy minimum tax withholding obligations arising in connection with the vesting of awards of restricted stock related to our 2003 Long-Term Stock Incentive Plan.
The CompanyWe may repurchase or otherwise retire the Company’s debt andfrom time to time take other steps to reduce the Company’sour debt or otherwise improve the Company’sour financial position. These actions could include prepayments, open market debt repurchases, negotiated repurchases, other redemptions or retirements of outstanding debt, and opportunistic refinancing of debt.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 the Company’sour debt, the Company’sour cash position, compliance with debt covenants and other considerations.
Affiliates of the Company Our affiliates may also purchase the Company’sour debt from time to time through open market purchases or other transactions. In such cases, the Company’sour debt may not be retired, in which case the Companywe would continue to pay interest in accordance with the terms of the debt, and the Companywe would continue to reflect the debt as outstanding in itson our consolidated balance sheets.
In connection with the Merger, on November 16, 2018, we assumed the outstanding debt obligations of Ply Gem and repaid in full amounts outstanding under the Pre-merger Term Loan Credit Agreement and the Pre-merger ABL Credit Agreement. For additional information, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more information on our indebtedness following the Merger.


NON-GAAP MEASURES
Set forth below are certain non-GAAP measures which include adjusted operating income (loss), adjusted EBITDA, adjusted net income per diluted common share and adjusted net income applicable to common shares. We define adjusted operating income (loss) as operating income (loss) adjusted for items broadly consisting of selected items which management does not consider representative of our ongoing operations. We define adjusted EBITDA as net income (loss) before interest expense, income tax expense (benefit) and depreciation and amortization, adjusted for items broadly consisting of selected items which management does not consider representative of our ongoing operations and certain non-cash items of the Company. Such measurements are not prepared in accordance with U.S. GAAP and should not be construed as an alternative to reported results determined in accordance with U.S. GAAP. Management believes the use of such non-GAAP measures on a consolidated and operating segment basis assists investors in understanding the ongoing operating performance by presenting the financial results between periods on a more comparable basis. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating these measures, you should be aware that in the future we may incur expenses that are the same as, or similar to, some of the adjustments in these non-GAAP measures. In addition, certain financial covenants related to our term loan and asset-based lending credit agreements are based on similar non-GAAP measures. The non-GAAP information provided is unique to the Company and may not be consistent with the methodologies used by other companies.
The following tables reconcile adjusted net income per diluted common share to net income per diluted common share and adjusted net income applicable to common shares to net income applicable to common shares for the periods indicated (in thousands):
 Fiscal Three Months Ended Fiscal Year Ended
 October 28,
2018
 October 29,
2017
 October 28,
2018
 October 29,
2017
Net income per diluted common share, GAAP basis$0.41
 $0.25
 $0.94
 $0.77
Loss on extinguishment of debt
 
 0.33
 
Loss on disposition of business
 
 0.08
 
Goodwill impairment
 0.09
 
 0.08
Restructuring and impairment charges, net0.01
 0.02
 0.03
 0.07
Strategic development and acquisition related costs0.18
 0.00
 0.26
 0.03
Acceleration of CEO retirement benefits
 
 0.07
 
Gain on insurance recovery
 
 (0.07) (0.14)
Other, net
 0.00
 0.00
 0.01
Tax effect of applicable non-GAAP adjustments(1)
(0.05) (0.04) (0.19) (0.02)
Adjusted net income per diluted common share$0.55
 $0.32
 $1.45
 $0.80
 Fiscal Three Months Ended Fiscal Year Ended
 October 28,
2018
 October 29,
2017
 October 28,
2018
 October 29,
2017
Net income applicable to common shares, GAAP basis$27,417
 $17,412
 $62,694
 $54,399
Loss on extinguishment of debt
 
 21,875
 
Loss on disposition of business
 
 5,673
 
Goodwill impairment
 6,000
 
 6,000
Restructuring and impairment charges, net769
 1,710
 1,912
 5,297
Strategic development and acquisition related costs11,661
 193
 17,164
 1,971
Acceleration of CEO retirement benefits
 
 4,600
 
Gain on insurance recovery
 
 (4,741) (9,749)
Other, net
 28
 (323) 591
Tax effect of applicable non-GAAP adjustments(1)
(3,418) (3,093) (12,783) (1,603)
Adjusted net income applicable to common shares$36,429
 $22,250
 $96,071
 $56,906
(1)The Company calculated the tax effect of non-GAAP adjustments by applying the combined federal and state applicable statutory tax rate for the period to each applicable non-GAAP item.


The following tables reconcile adjusted operating income (loss) and adjusted EBITDA to operating income (loss) for the periods indicated below:
Consolidated
   
(In thousands) Fiscal Three Months Ended Fiscal Year Ended
  January 28,
2018
April 29,
2018
July 29,
2018
October 28,
2018
 October 28,
2018
Total Net Sales $421,349
$457,069
$548,525
$573,634
 $2,000,577
        
Operating Income, GAAP 12,898
18,956
54,501
39,565
 125,920
Restructuring and impairment charges, net 1,094
488
(439)769
 1,912
Strategic development and acquisition related costs 727
1,134
3,642
11,661
 17,164
Loss (gain) on disposition of business 
6,686
(1,013)
 5,673
Acceleration of CEO retirement benefits 4,600



 4,600
Gain on insurance recovery 

(4,741)
 (4,741)
Adjusted Operating Income 19,319
27,264
51,950
51,995
 150,528
        
Other income and expense 928
(34)87
(261) 720
Depreciation and amortization 10,358
10,442
10,174
11,351
 42,325
Share-based compensation expense 2,270
1,998
1,041
2,729
 8,038
Adjusted EBITDA $32,875
$39,670
$63,252
$65,814
 $201,611
        
Year over year growth, Total Net Sales 7.6%8.7%16.9%17.4% 13.0%
Operating Income Margin 3.1%4.1%9.9%6.9% 6.3%
Adjusted Operating Income Margin 4.6%6.0%9.5%9.1% 7.5%
Adjusted EBITDA Margin 7.8%8.7%11.5%11.5% 10.1%
        
  Fiscal Three Months Ended Fiscal Year Ended
  January 29,
2017
April 30,
2017
July 30,
2017
October 29,
2017
 October 29,
2017
Total Net Sales $391,703
$420,464
$469,385
$488,726
 $1,770,278
        
Operating Income, GAAP 9,886
32,472
34,097
33,325
 109,780
Restructuring and impairment charges, net 2,264
315
1,009
1,709
 5,297
Strategic development and acquisition related costs 357
124
1,297
193
 1,971
Loss on sale of assets and asset recovery 
137


 137
Gain on insurance recovery 
(9,601)(148)
 (9,749)
Unreimbursed business interruption costs 
191
235
28
 454
Goodwill impairment 


6,000
 6,000
Adjusted Operating Income 12,507
23,638
36,490
41,255
 113,890
        
Other income and expense 309
449
1,322
(62) 2,018
Depreciation and amortization 10,315
10,062
10,278
10,664
 41,319
Share-based compensation expense 3,042
2,820
2,284
2,084
 10,230
Adjusted EBITDA $26,173
$36,969
$50,374
$53,941
 $167,457
        
Operating Income Margin 2.5%7.7%7.3%6.8% 6.2%
Adjusted Operating Income Margin 3.2%5.6%7.8%8.4% 6.4%
Adjusted EBITDA Margin 6.7%8.8%10.7%11.0% 9.5%


Engineered Building Systems
   
(In thousands) Fiscal Three Months Ended Fiscal Year Ended
  January 28,
2018
April 29,
2018
July 29,
2018
October 28,
2018
 October 28,
2018
Total Sales $156,964
$167,240
$230,098
$243,997
 $798,299
External Sales 148,288
157,136
218,614
231,315
 755,353
        
Operating Income, GAAP 8,263
9,271
24,296
24,859
 66,689
Restructuring and impairment charges, net 1,136
280
(464)397
 1,349
Strategic development and acquisition related costs 173



 173
Adjusted Operating Income 9,572
9,551
23,832
25,256
 68,211
        
Other income and expense 733
(88)(179)(156) 310
Depreciation and amortization 2,077
2,323
1,905
2,322
 8,627
Adjusted EBITDA $12,382
$11,786
$25,558
$27,422
 $77,148
        
Year over year growth, Total sales 3.8%2.8%19.9%29.7% 15.0%
Year over year growth, External Sales 2.3%1.7%20.0%29.8% 14.5%
Operating Income Margin 5.3%5.5%10.6%10.2% 8.4%
Adjusted Operating Income Margin 6.1%5.7%10.4%10.4% 8.5%
Adjusted EBITDA Margin 7.9%7.0%11.1%11.2% 9.7%
        
  Fiscal Three Months Ended Fiscal Year Ended
  January 29,
2017
April 30,
2017
July 30,
2017
October 29,
2017
 October 29,
2017
Total Sales $151,263
$162,624
$191,910
$188,183
 $693,980
External Sales 145,021
154,456
182,164
178,222
 659,863
        
Operating Income, GAAP 6,503
6,894
14,948
13,043
 41,388
Restructuring and impairment charges, net 1,910
186
941
695
 3,732
Loss on sale of assets and asset recovery 
137


 137
Adjusted Operating Income 8,413
7,217
15,889
13,738
 45,257
        
Other income and expense (41)(125)1,291
(694) 431
Depreciation and amortization 2,276
2,285
2,255
2,198
 9,014
Adjusted EBITDA $10,648
$9,377
$19,435
$15,242
 $54,702
        
Operating Income Margin 4.3%4.2%7.8%6.9% 6.0%
Adjusted Operating Income Margin 5.6%4.4%8.3%7.3% 6.5%
Adjusted EBITDA Margin 7.0%5.8%10.1%8.1% 7.9%



Metal Components
   
(In thousands) Fiscal Three Months Ended Fiscal Year Ended
  January 28,
2018
April 29,
2018
July 29,
2018
October 28,
2018
 October 28,
2018
Total Sales $146,832
$168,456
$186,421
$187,635
 $689,344
External Sales 127,528
147,661
165,697
171,759
 612,645
        
Operating Income, GAAP 17,089
22,082
28,688
19,734
 87,593
Restructuring and impairment charges, net (1,403)120
25

 (1,258)
Adjusted Operating Income 15,686
22,202
28,713
19,734
 86,335
        
Other income and expense 53
67
54
82
 256
Depreciation and amortization 1,576
1,444
1,357
1,440
 5,817
Adjusted EBITDA $17,315
$23,713
$30,124
$21,256
 $92,408
        
Year over year growth, Total sales 9.4%8.8%12.1%3.5% 8.3%
Year over year growth, External Sales 10.4%10.8%17.8%10.7% 12.5%
Operating Income Margin 11.6%13.1%15.4%10.5% 12.7%
Adjusted Operating Income Margin 10.7%13.2%15.4%10.5% 12.5%
Adjusted EBITDA Margin 11.8%14.1%16.2%11.3% 13.4%
        
  Fiscal Three Months Ended Fiscal Year Ended
  January 29,
2017
April 30,
2017
July 30,
2017
October 29,
2017
 October 29,
2017
Total Sales $134,173
$154,895
$166,305
$181,288
 $636,661
External Sales 115,557
133,290
140,639
155,183
 544,669
        
Operating Income, GAAP 12,376
19,997
23,276
23,119
 78,768
Restructuring and impairment charges, net 305
129
60
69
 563
Gain on insurance recovery 
(420)(148)
 (568)
Adjusted Operating Income 12,681
19,706
23,188
23,188
 78,763
        
Other income and expense 28
52
55
84
 219
Depreciation and amortization 1,334
1,302
1,266
1,422
 5,324
Adjusted EBITDA $14,043
$21,060
$24,509
$24,694
 $84,306
        
Operating Income Margin 9.2%12.9%14.0%12.8% 12.4%
Adjusted Operating Income Margin 9.5%12.7%13.9%12.8% 12.4%
Adjusted EBITDA Margin 10.5%13.6%14.7%13.6% 13.2%


Insulated Metal Panels
   
(In thousands) Fiscal Three Months Ended Fiscal Year Ended
  January 28,
2018
April 29,
2018
July 29,
2018
October 28,
2018
 October 28,
2018
Total Sales $110,794
$113,413
$133,740
$146,466
 $504,413
External Sales 97,513
99,792
106,605
120,852
 424,762
        
Operating Income, GAAP 7,071
1,540
17,859
21,025
 47,495
Restructuring and impairment charges, net 1,284
88

372
 1,744
Strategic development and acquisition related costs 300
61

(23) 338
Loss (gain) on disposition of business 
6,686
(1,013)
 5,673
Gain on insurance recovery 

(4,741)
 (4,741)
Adjusted Operating Income 8,655
8,375
12,105
21,374
 50,509
        
Other income and expense (273)223
(51)92
 (9)
Depreciation and amortization 4,388
4,335
4,324
4,557
 17,604
Adjusted EBITDA $12,770
$12,933
$16,378
$26,023
 $68,104
        
Year over year growth, Total sales 16.4%10.2%11.7%18.6% 14.3%
Year over year growth, External Sales 18.3%15.0%8.8%15.0% 14.1%
Operating Income Margin 6.4%1.4%13.4%14.4% 9.4%
Adjusted Operating Income Margin 7.8%7.4%9.1%14.6% 10.0%
Adjusted EBITDA Margin 11.5%11.4%12.2%17.8% 13.5%
        
  Fiscal Three Months Ended Fiscal Year Ended
  January 29,
2017
April 30,
2017
July 30,
2017
October 29,
2017
 October 29,
2017
Total Sales $95,195
$102,937
$119,730
$123,542
 $441,404
External Sales 82,441
86,773
98,026
105,064
 372,304
        
Operating Income, GAAP 2,192
19,377
11,468
14,895
 47,932
Restructuring and impairment charges, net 

8
683
 691
Strategic development and acquisition related costs 


90
 90
Gain on insurance recovery 
(9,181)

 (9,181)
Unreimbursed business interruption costs 
191
235
28
 454
Adjusted Operating Income 2,192
10,387
11,711
15,696
 39,986
        
Other income and expense 35
340
(211)356
 520
Depreciation and amortization 4,392
4,258
4,516
4,742
 17,908
Adjusted EBITDA $6,619
$14,985
$16,016
$20,794
 $58,414
        
Operating Income Margin 2.3%18.8%9.6%12.1% 10.9%
Adjusted Operating Income Margin 2.3%10.1%9.8%12.7% 9.1%
Adjusted EBITDA Margin 7.0%14.6%13.4%16.8% 13.2%


Metal Coil Coating
   
(In thousands) Fiscal Three Months Ended Fiscal Year Ended
  January 28,
2018
April 29,
2018
July 29,
2018
October 28,
2018
 October 28,
2018
Total Sales $88,343
$95,190
$116,440
$117,323
 $417,296
External Sales 48,020
52,480
57,609
49,708
 207,817
        
Operating Income, GAAP 5,376
7,129
9,121
6,962
 28,588
Adjusted Operating Income 5,376
7,129
9,121
6,962
 28,588
        
Depreciation and amortization 2,058
2,085
2,097
2,248
 8,488
Adjusted EBITDA $7,434
$9,214
$11,218
$9,210
 $37,076
        
Year over year growth, Total sales 0.0 %9.8%22.2%19.0 % 13.1%
Year over year growth, External Sales (1.4)%14.2%18.6%(1.1)% 7.4%
Operating Income Margin 6.1 %7.5%7.8%5.9 % 6.9%
Adjusted Operating Income Margin 6.1 %7.5%7.8%5.9 % 6.9%
Adjusted EBITDA Margin 8.4 %9.7%9.6%7.9 % 8.9%
        
  Fiscal Three Months Ended Fiscal Year Ended
  January 29,
2017
April 30,
2017
July 30,
2017
October 29,
2017
 October 29,
2017
Total Sales $88,340
$86,729
$95,261
$98,550
 $368,880
External Sales 48,684
45,945
48,556
50,257
 193,442
        
Operating Income, GAAP 6,706
6,227
7,107
1,419
 21,459
Goodwill impairment 


6,000
 6,000
Adjusted Operating Income 6,706
6,227
7,107
7,419
 27,459
        
Other income and expense 31



 31
Depreciation and amortization 2,106
2,009
2,063
2,065
 8,243
Adjusted EBITDA $8,843
$8,236
$9,170
$9,484
 $35,733
        
Operating Income Margin 7.6 %7.2%7.5%1.4 % 5.8%
Adjusted Operating Income Margin 7.6 %7.2%7.5%7.5 % 7.4%
Adjusted EBITDA Margin 10.0 %9.5%9.6%9.6 % 9.7%


Corporate
   
(In thousands) Fiscal Three Months Ended Fiscal Year Ended
  January 28,
2018
April 29,
2018
July 29,
2018
October 28,
2018
 October 28,
2018
Operating Loss, GAAP $(24,901)$(21,066)$(25,463)$(33,015) $(104,445)
Restructuring and impairment charges, net 77



 77
Strategic development and acquisition related costs 254
1,073
3,642
11,684
 16,653
Acceleration of CEO retirement benefits 4,600



 4,600
Adjusted Operating Loss (19,970)(19,993)(21,821)(21,331) (83,115)
        
Other income and expense 415
(236)263
(279) 163
Depreciation and amortization 259
255
491
784
 1,789
Share-based compensation expense 2,270
1,998
1,041
2,729
 8,038
Adjusted EBITDA $(17,026)$(17,976)$(20,026)$(18,097) $(73,125)
        
  Fiscal Three Months Ended Fiscal Year Ended
  January 29,
2017
April 30,
2017
July 30,
2017
October 29,
2017
 October 29,
2017
Operating Loss, GAAP $(17,891)$(20,023)$(22,702)$(19,151) $(79,767)
Restructuring and impairment charges, net 49


262
 311
Strategic development and acquisition related costs 357
124
1,297
103
 1,881
Adjusted Operating Loss (17,485)(19,899)(21,405)(18,786) (77,575)
        
Other income and expense 256
182
187
192
 817
Depreciation and amortization 207
208
178
237
 830
Share-based compensation expense 3,042
2,820
2,284
2,084
 10,230
Adjusted EBITDA $(13,980)$(16,689)$(18,756)$(16,273) $(65,698)
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 28, 2018,December 31, 2019, we were not involved in any unconsolidated SPE transactions.
49


CONTRACTUAL OBLIGATIONS
The following table shows our contractual obligations as of October 28, 2018December 31, 2019 (in thousands):
  Payments due by period
Contractual Obligation Total Less than
1 year
 1 – 3 years 3 – 5 years More than
5 years
Total debt(1)
 $412,925
 $4,150
 $8,300
 $8,300
 $392,175
Interest payments on debt(2)
 107,578
 17,398
 34,268
 33,564
 22,348
Operating leases 44,998
 13,951
 14,425
 8,929
 7,693
Projected pension obligations(3)
 19,578
 754
 3,929
 5,061
 9,834
Total contractual obligations $585,079
 $36,253
 $60,922
 $55,854
 $432,050
(1)Reflects amounts outstanding under the Pre-merger Term Loan Credit Facility and the Pre-merger ABL Credit Facility which were paid off in full upon consummation of the Merger. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more information on our indebtedness following the Merger.
(2)Interest payments were calculated based on rates in effect at October 28, 2018 for variable rate obligations.
(3)Amounts represent our estimate of the minimum funding requirements as determined by government regulations. Amounts are subject to change based on numerous assumptions, including the performance of the assets in the plans and bond rates.

Payments due by period
Contractual ObligationTotalLess than
1 year
1 – 3 years3 – 5 yearsMore than
5 years
Total debt(1)
$3,238,587  $25,600  $121,200  $51,200  $3,040,587  
Interest payments on debt(2)
1,046,018  191,776  374,803  369,186  110,253  
Operating leases379,852  89,649  143,016  64,842  82,345  
Projected pension obligations(3)
69,140  7,304  14,462  14,138  33,236  
Purchase obligations(4)
107,743  107,743  —  —  —  
Total contractual obligations$4,841,340  $422,072  $653,481  $499,366  $3,266,421  

(1)Reflects amounts outstanding under the Current ABL Facility, Current Term Loan Facility and the 8.00% Senior Notes and excludes any amounts potentially due under the excess cash flow provisions within the Current Term Loan Facility. Amounts currently drawn on the Current ABL Facility are reflected in the "3-5 years" column consistent with the non-current classification on the consolidated balance sheets. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more information on our indebtedness following the Merger.
(2)Interest payments were calculated based on rates in effect at December 31, 2019 for variable rate obligations.
(3)Amounts represent our estimate of the minimum funding requirements as determined by government regulations. Amounts are subject to change based on numerous assumptions, including the performance of the assets in the plans and bond rates. Includes obligations with respect to the Company’s Defined Benefit Plans and the other post-employment benefit (“OPEB”) Plans.Plan.
(4)Purchase obligations are defined as purchase agreements that are enforceable and legally binding and that specify all significant terms, including quantity, price and the approximate timing of the transaction. These obligations are related primarily to inventory purchases under two 2020 contracts that were finalized during 2019.
CONTINGENT LIABILITIES AND COMMITMENTS
Our insurance carriers require us to secure standby letters of credit as a collateral requirement for our projected exposure to future period claims growth and loss development which includes IBNR claims. For all insurance carriers, the total standby letters of credit are approximately $30.2 million and $9.0 million at December 31, 2019 and $10.0 million at October 28, 2018, and October 29, 2017, respectively.
CRITICAL ACCOUNTING POLICIES
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those estimates that may have a significant effect on our financial condition and results of operations. Our significant accounting policies are disclosed in Note 2 to our consolidated financial statements. The following discussion of critical accounting policies addresses those policies that are both important to the portrayal of our financial condition and results of operations and require significant judgment and estimates. We base our estimates and judgment on historical experience and on various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
Revenue recognition. We recognize revenuesrevenue when allobligations under the terms of contracts with our customers are satisfied; generally, this occurs upon shipment or when control is transferred. Revenue is measured as the following conditionsamount of consideration expected to be received in exchange for transferring the goods. In addition, revenue is deferred when cash payments are met: persuasive evidencereceived or due in advance of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collectability is reasonably assured. Generally, these criteria are met at the time product is shipped or services are complete.performance. In instances where an order is partially shipped, we recognize revenue based on the relative sales value of the materials shipped. Provisions are made upon the sale for estimated product returns. Costs associated with shipping and handling our products are included in cost of sales.
50


Insurance accruals. We have a self-funded Administrative Services Only (“ASO”) arrangement for our employee group health insurance. We purchase individual stop-loss protection to cap our medical claims liability at $355,000$500,000 per claim. Each reporting period, we record the costs of our health insurance plan, including paid claims, an estimate of the change in in IBNR claims, taxes and administrative fees, when applicable, (collectively the “Plan Costs”) as general and administrative expenses and cost of sales in our consolidated statements of operations. The estimated IBNR claims are based upon (i) a recent average level of paid claims under the plan, (ii) an estimated claims lag factor and (iii) an estimated claims growth factor to provide for those claims that have been incurred but not yet paid. We have deductible programs for our Workers Compensation/Employer Liability and Auto Liability insurance policies, and a self-insured retention (“SIR”) arrangement for our General Liability insurance policy. The Workers Compensation deductible is $250,000 per occurrence. The Property and Auto Liability deductibles are $500,000 and $250,000, respectively, per occurrence. The General Liability has a self-insured retention of $1,000,000 per occurrence. For workers’ compensation costs, we monitor the number of accidents and the severity of such accidents to develop appropriate estimates for expected costs to provide both medical care and indemnity benefits, when applicable, for the period of time that an employee is incapacitated and unable to work. These accruals are developed using third-party insurance adjuster reserve estimates of the expected cost for medical treatment, and length of time an employee will be unable to work based on industry statistics for the cost of similar disabilities and statutory impairment ratings. For general liability and automobile claims, accruals are developed based on third-party insurance adjuster reserve estimates of the expected cost to resolve each claim, including damages and defense costs, based on legal and industry trends, and the nature and severity of the claim. Accruals also include estimates for IBNR claims, and taxes and administrative fees, when applicable. This statistical information is trended by a third-party actuary to provide estimates of future expected costs based on loss development factors derived from our period-to-period growth of our claims costs to full maturity (ultimate), versus original estimates.
We believe that the assumptions and information used to develop these accruals provide the best basis for these estimates because, as a general matter, the accruals historically have proved to be reasonable and accurate. However, significant changes in expected medical and health care costs, negative changes in the severity of previously reported claims or changes in laws that govern the administration of these plans could have an impact on the determination of the amount of these accruals in future periods. Our methodology for determining the amount of health insurance accrual considers claims growth and claims lag, which is the length of time between the incurred date and processing date. For
Warranty.The Company sells a number of products and offers a number of warranties. The specific terms and conditions of these warranties vary depending on the health insurance accrual,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 change of 10% aboveweathertightness 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 outstanding claims would result in a financial impact of $0.2 million.to be recognized.
Share-Based Compensation. Under FASB Accounting Standards Codification (“ASC”) Topic 718, Compensation — Stock Compensation, the fair value and compensation expense of each option award is estimated as of the date of grant using a Black-Scholes-Merton option pricing formula. The fair value and compensation expense of the performance share units (“PSUs”) grant is estimated based on the Company’s stock price as of the date of grant using a Monte Carlo simulation. Expected volatility is based on historical volatility of our stock over a preceding period commensurate with the expected term of the option. The


expected volatility considers factors such as the volatility of our share price, implied volatility of our share price, length of time our shares have been publicly traded, appropriate and regular intervals for price observations and our corporate and capital structure. With the adoption of ASU 2016-09 in the first quarter of fiscal 2018, we account for forfeitures of outstanding but unvested grants in the period they occur. For the fiscal year ended October 29, 2017, the forfeiture rate in our calculation of share-based compensation expense was based on historical experience and was estimated at 5.0% for our non-officers and 0% for our officers. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Expected dividend yield was not considered in the option pricing formula since we historically have not paid dividends on our common shares and have no current plans to do so in the future. We granted an immaterial amount of options during the fiscal years ended October 29, 2017 and October 30, 2016. We did not grant stock options during the fiscal year ended October 28, 2018.
Long-term incentive awards granted to our senior executives generally have a three-year performance period. Long-term incentive awards include restricted stock units and PSUs representing 40% and 60% of the total value, respectively. The restricted stock units vest upon continued employment. Vesting of the PSUs is contingent upon continued employment and the achievement of targets with respect to the following metrics, as defined by management: (1) cumulative free cash flow (weighted 40%); (2) cumulative earnings per share (weighted 40%); and (3) total shareholder return (weighted 20%), in each case during the performance period. At the end of the performance period, the number of actual shares to be awarded varies between 0% and 200% of target amounts. The PSUs vest pro rata if an executive’s employment terminates prior to the end of the performance period due to death, disability, or termination by the Company without cause or by the executive for good reason. If an executive’s employment terminates for any other reason prior to the end of the performance period, all outstanding unvested PSUs, whether earned or unearned, will be forfeited and cancelled. If a change in control occurs prior to the end of the performance period, the PSU payout will be calculated and paid assuming that the maximum benefit had been achieved. If an executive’s employment terminates due to death or disability while any of the restricted stock is unvested, then all of the unvested restricted stock will become vested. If an executive’s employment is terminated by the Company without cause or after reaching normal retirement age, the unvested restricted stock will be forfeited. If a change in control occurs prior to the end of the performance period, the restricted stock will fully vest. The fair value of the awards is based on the Company’s stock price as of the date of grant. During the fiscal years 2018, 2017 and 2016, we granted PSUs with fair values of approximately $3.8 million, $4.6 million and $4.7 million, respectively, to the Company’s senior executives.
51


Long-term incentive awards granted to our key employees generally have a three-year performance period. Long-term incentive awards are granted 50% in restricted stock units and 50% in PSUs. Vesting of PSUs is contingent upon continued employment and the achievement of free cash flow and earnings per share targets, as defined by management, over a three-year period. At the end of the performance period, the number of actual shares to be awarded varies between 0% and 150% of target amounts. However, a minimum of 50% of the awards will vest upon continued employment over the three-year period if the minimum targets are not met. The PSUs vest earlier upon death, disability or a change in control. A portion of the awards also vests upon termination without cause or after reaching normal retirement age prior to the vesting date, as defined by the agreements governing such awards. The fair value of Performance Share Awards is based on the Company’s stock price as of the date of grant. During the fiscal years ended October 28, 2018, October 29, 2017 and October 30, 2016, we granted Performance Share Awards with an equity fair value of $2.8 million, $2.0 million and $2.4 million, respectively. The PSUs granted in December 2017, 2016 and 2015 to our senior executives cliff vest at the end of the three-year performance period. For the PSUs granted in December 2014 to our senior executives, one-half vested on December 15, 2016 and one-half vested on December 15, 2017.
We granted 0.4 million, 0.3 million and 0.3 million restricted shares during the fiscal years ended October 28, 2018, October 29, 2017 and October 30, 2016, respectively. The restricted stock units granted in December 2017, 2016 and 2015 to our senior executives vest one-third annually. For the restricted stock units granted in December 2014 to our senior executives, two-thirds vested on December 15, 2016 and one-third vested on December 15, 2017.
The compensation cost related to share-based awards is recognized over the requisite service period. The requisite service period is generally the period during which an employee is required to provide service in exchange for the award. For awards with performance conditions, the amount of share-based compensation expense recognized is based upon the probable outcome of the performance conditions, as defined and determined by management. Our option awards and restricted stock awards are subject to graded vesting over a service period, which is typically three or four years. We generally recognize compensation cost for these awards on a straight-line basis over the requisite service period for the entire award. In addition, certain of our awards provide for accelerated vesting upon qualified retirement. We recognize compensation cost for such awards over the period from grant date to the date the employee first becomes eligible for retirement.
Income taxes. The determination of our provision for income taxes requires significant judgment, the use of estimates and the interpretation and application of complex tax laws. The amount recorded in our consolidated financial statements reflects estimates of final amounts due to timing of completion and filing of actual income tax returns. Estimates are required with respect to, among other things, the appropriate state income tax rates used in the various states in which we and our subsidiaries are required to file, the potential utilization of operating and capital loss carry-forwards for federal, state, and foreign income tax purposes and valuation allowances required, if any, for tax assets that may not be realized in the future. We establish reserves when, despite our belief that our tax return positions are fully supportable, certain positions could be challenged, and the positions may not be fully sustained. Our provision for income taxes reflects a combination of income earned and taxed in the various U.S. federal and state, Canadian federal and provincial, Mexican federal, and other jurisdictions. Jurisdictional tax law changes, increases or decreases in permanent differences between book and tax items, accruals or


adjustments of accruals for tax contingencies or valuation allowances, and the change in the mix of earnings from these taxing jurisdictions all affect the overall effective tax rate.
As of October 28, 2018,December 31, 2019, the $1.8$60.9 million net operating loss and tax credit carryforward included $0.1$32.6 million for U.S federal losses, $11.6 million for U.S. state loss carryforwardslosses and $1.7$16.7 million for foreign loss carryforward. Thelosses. A portion of the state net operating loss carryforwards will expire in 2019 to 2029 years,2020, if unused and the foreign loss carryforward will startbegin to expire in fiscal 2028, if unused.
Accounting for acquisitions, intangible assets and goodwill. Accounting for the acquisition of a business requires the allocation of the purchase price to the various assets and liabilities of the acquired business. For most assets and liabilities, purchase price allocation is accomplished by recording the asset or liability at its estimated fair value. The most difficult estimations of individual fair values are those involving property, plant and equipment and identifiable intangible assets. We use all available information to make these fair value determinations and, for major business acquisitions, typically engage an outside appraisal firm to assist in the fair value determination of the acquired long-lived assets.
The Company has approximately $148.3$1,669.6 million of goodwill as of October 28, 2018,December 31, 2019, of which approximately $14.3$148.3 million pertains to our Engineered Building SystemsCommercial segment, $7.1$807.3 million pertains to our Metal ComponentsSiding segment, $121.5and $714.0 million pertains to our Insulated Metal Panels segment and $5.4 million pertains to our Metal Coil Coating segment. The Company also has $13.5 million of other intangible assets with indefinite lives as of October 28, 2018 pertaining to our Engineered Building SystemsWindows segment. We perform an annual impairment assessment of goodwill and indefinite-lived intangibles. Additionally, we assess goodwill and indefinite-lived intangibles for impairment whenever events or changes in circumstances indicate that the fair values may be below the carrying values of such assets. Unforeseen events, changes in circumstances and market conditions and material differences in the value of intangible assets due to changes in estimates of future cash flows could negatively affect the fair value of our assets and result in a non-cash impairment charge. Some factors considered important that could trigger an impairment review include the following: significant underperformance relative to expected historical or projected future operating results, significant changes in the manner of our use of the acquired assets or the strategy for our overall business and significant sustained negative industry or economic trends.
The fair value of our reporting units is based on a blend of estimated discounted cash flows and publicly traded company multiplesmultiples. A significant reduction in projected sales and transaction multiples.earnings which would lead to a reduction in future cash flows could indicate potential impairment. The results from each of these models are then weighted and combined into a single estimate of fair value for our reporting units. Estimated discounted cash flows are based on projected sales and related cost of sales. Publicly traded company multiples and acquisition multiples are derived from information on traded shares and analysis of recent acquisitions in the marketplace, respectively, for companies with operations similar to ours. The primary assumptions used in these various models include earnings multiples of acquisitions in a comparable industry, future cash flow estimates of each of the reporting units, weighted average cost of capital, working capital and capital expenditure requirements. During fiscal 2017, management early adopted the new accounting principle that simplified the test for goodwill impairment by eliminating the second step of the goodwill test. Management does not believe the estimates used in the analysis are reasonably likely to change materially in the future, but we will continue to assess the estimates in the future based on the expectations of the reporting units. Changes in assumptions used in the fair value calculation could result in an estimated reporting unit fair value that is below the carrying value, which may result in an impairment of goodwill.
We completed our annual goodwill impairment test as of July 30, 2018September 29, 2019 for each of our reporting units. We have the option of performing an assessment of certain qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying value or proceeding directly to a quantitative impairment test. We elected to apply the qualitativequantitative assessment for the goodwill inimpairment test for our reporting units within each of our operating segments as of July 30, 2018. Additionally,September 29, 2019.
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A summary of the key assumptions utilized in the goodwill impairment analysis at September 29, 2019, as it relates to the fair values and the sensitivities for these assumptions follows:
As of September 29, 2019
Engineered Building SystemsMetal ComponentsInsulated Metal PanelsMetal Coil CoatingSidingWindows
Assumptions:
Income Approach:
    Terminal growth rate3.0 %3.0 %3.0 %3.0 %3.0 %3.5 %
    Discount rate14.0 %14.0 %14.5 %13.0 %10.5 %15.0 %
Market approach:
    Control premiums5.0 %5.0 %5.0 %5.0 %— %— %
Sensitivities
(amounts in thousands)
Estimated fair value decrease in the event of a 1% decrease in the terminal year growth$20,700  $24,100  $22,600  $7,200  $178,300  $73,100  
Estimated fair value decrease in the event of a 1% decrease in the discount rate35,00040,30038,70012,100251,000124,100
Estimated fair value decrease in the event of a 1% decrease in the control premium4,1004,6004,8001,400n/an/a
Overall, we appliedutilize the qualitative assessmentsame key assumptions in preparing the prospective financial information (“PFI”) utilized in the discounted cash flow test for our indefinite-lived intangiblethe reporting units. However, each reporting unit is impacted differently by industry trends, how market factors are influencing the reporting units’ expected performance, competition, and other unique business factors as mentioned above.
(amounts in thousands)As of September 29, 2019
Estimated Engineered Building Systems reporting unit fair value increase (decrease) in the event of a 10% increase in the weighting of the market multiples method
$1,200 
Estimated Metal Components reporting unit fair value increase (decrease) in the event of a 10% increase in the weighting of the market multiples method
$(1,900)
Estimated Insulated Metal Panels reporting unit fair value increase (decrease) in the event of a 10% increase in the weighting of the market multiples method
$1,000 
Estimated Metal Coil Coating reporting unit fair value increase (decrease) in the event of a 10% increase in the weighting of the market multiples method
$700 
Estimated Windows reporting unit fair value increase (decrease) in the event of a 10% increase in the weighting of the market multiples method
$(700)
Estimated Siding reporting unit fair value increase (decrease) in the event of a 10% increase in the weighting of the market multiples method
$(6,100)
The Company’s annual goodwill impairment tests performed as of July 30, 2018. Under the qualitative assessment, various events and circumstances (or factors) that would affect the estimated fair valueSeptember 29, 2019 indicated no impairment. The Company's estimate of a reporting unit are identified (similar to impairment indicators above). These factors are then classified by the type of impact they would have on the estimated fair value using positive, neutral, and negative categories based on current business conditions. Additionally, an assessment of the level of impact that a particular factor would have on the estimated fair value is determined using relative weightings. Additionally, the Company considers the results of the most recent quantitative impairment test completed for a reporting unit and compares the weighted average cost of capital (WACC), publicly traded company multiples and observable and recent transaction multiples between the current and prior years for a reporting unit. Based on our assessment of these tests, we do not believe it is more likely than not that the fair value of theseits Engineered Building Systems, Metal Components, Insulated Metal Panels, Metal Coil Coaters, Siding and Windows reporting units exceeded their 2019 carrying values by approximately 244%, 206%, 57%, 8%, 12% and 3%, respectively.
We provide no assurance that: (1) valuation multiples will not decline, (2) discount rates will not increase, or (3) the indefinite-lived intangible assets are less than their respective carrying amounts.earnings, book values or projected earnings and cash flows of our reporting units will not decline. We will continue to analyze changes to these assumptions in future periods. We will continue to evaluate goodwill during future periods and future declines in the residential housing and remodeling markets and nonresidential markets as well as good economic conditions could result in future goodwill impairments.
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Allowance for doubtful accounts. Our allowance for doubtful accounts reflects reserves for customer receivables to reduce receivables to amounts expected to be collected. Management uses significant judgment in estimating uncollectible amounts. In estimating uncollectible accounts, management considers factors such as current overall economic conditions, industry-specific economic conditions, historical customer performance and anticipated customer performance. While we believe these processes effectively address our exposure for doubtful accounts and credit losses have historically been within expectations, changes in the economy, industry, or specific customer conditions may require adjustments to the allowance for doubtful accounts.


In fiscal 2019, 2018 2017 and 2016,2017, we established new reserves (net of recoveries of previously written off balances) for doubtful accounts of $2.0 million, $(0.5) million $1.9 million and $1.3$1.9 million, respectively. In fiscal years 2019, 2018 2017 and 2016,2017, we wrote off uncollectible accounts, net of recoveries, of $2.8 million, $1.6 million $1.0 million and $1.6$1.0 million, respectively, all of which had been previously reserved.
Inventory valuation. In determining the valuation of inventory, we record an allowance for obsolete inventory using the specific identification method for steel coils and other raw materials.our inventory. Management also reviews the carrying value of inventory for lower of cost or net realizable value. Our primary raw material ismaterials are steel coils which have historically shown significant price volatility.volatility as well as PVC resin, glass and aluminum. We generally manufacture to customers’ orders, and thus maintain raw materials with a variety of ultimate end uses. We record a lower of cost or net realizable value charge to cost of sales when the net realizable value (selling price less estimated cost of disposal), based on our intended end usage, is below our estimated product cost at completion. Estimated net realizable value is based upon assumptions of targeted inventory turn rates, future demand, anticipated finished goods sales prices, management strategy and market conditions for steel.steel, PVC resin, aluminum and glass. If projected end usage or projected sales prices change significantly from management’s current estimates or actual market conditions are less favorable than those projected by management, inventory write-downs may be required.
Property, plant and equipment valuation. We assess the recoverability of the carrying amount of property, plant and equipment for assets held and used at the lowest level asset grouping for which cash flows can be separately identified, which may be at an individual asset level, plant level or divisional level depending on the intended use of the related asset, if certain events or changes in circumstances indicate that the carrying value of such asset groups may not be recoverable and the undiscounted cash flows estimated to be generated by those asset groups are less than the carrying amount of those asset groups. Events and circumstances which indicate an impairment include (a) a significant decrease in the market value of the asset groups; (b) a significant change in the extent or manner in which an asset group is being used or in its physical condition; (c) a significant change in our business conditions; (d) an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of an asset group; (e) a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection that demonstrates continuing losses associated with the use of an asset group; or (f) a current expectation that, more likely than not, an asset group will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. We assess our asset groups for any indicators of impairment on at least a quarterly basis.
If we determine that the carrying value of an asset group is not recoverable based on expected undiscounted future cash flows, excluding interest charges, we record an impairment loss equal to the excess of the carrying amount of the asset group over its fair value. The fair value of asset groups is determined based on prices of similar assets adjusted for their remaining useful life.
Contingencies. We establish reserves for estimated loss contingencies when we believe a loss is probable and the amount of the loss can be reasonably estimated. Our contingent liability reserves are related primarily to litigation and environmental matters. Legal costs for uninsured claims are accrued as part of the ultimate settlement. Revisions to contingent liability reserves are reflected in operations in the period in which there are changes in facts and circumstances that affect our previous assumptions with respect to the likelihood or amount of loss. Reserves for contingent liabilities are based upon our assumptions and estimates regarding the probable outcome of the matter. We estimate the probable cost by evaluating historical precedent as well as the specific facts relating to each particular contingency (including the opinion of outside advisors, professionals and experts). Should the outcome differ from our assumptions and estimates or other events result in a material adjustment to the accrued estimated reserves, revisions to the estimated reserves for contingent liabilities would be required and would be recognized in the period the new information becomes known.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 3Accounting Pronouncements in the notes to the consolidated financial statements for information on recent accounting pronouncements.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Steel PricesCommercial Business
We are subject to market risk exposure related to volatility in the price of steel. For the fiscal year ended October 28, 2018,December 31, 2019, material costs (predominantly steel costs) constituted approximately 66%63% of our Commercial 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. Steel prices 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. Based on the cyclical nature of the steel industry, we expect steel prices will continue to be volatile.
Although we have the ability to purchase steel from a number of suppliers, a production cutback by one or more of our current suppliers could create challenges in meeting delivery schedules to our customers. Because we have periodically adjusted our contract prices, particularly in the Engineered Building Systems segment, we have generally been able to pass increases in our raw material costs through to our customers.
We normally do not maintain an inventory of steel in excess of our current production requirements. However, from time to time, we may purchase steel in advance of announced steel price increases. In addition, it is our current practice to purchase all steel inventory that has been ordered but is not in our possession. Therefore, our inventory may increase if demand for our products declines. We can give no assurance that steel will remain available or that prices will not continue to be volatile.
With material costs (predominantly steel costs) accounting for approximately 66%63% of our Commercial segment cost of sales for fiscal 2018,2019, a one percent change in the cost of steel could have resulted in a pre-tax impact on cost of sales of approximately $10.1$8.8 million for our fiscal year ended October 28, 2018.December 31, 2019. 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.
Siding and Windows 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 2.0% for the fiscal year ended December 31, 2019 compared to the twelve months ended December 31, 2018.
Other Commodity Risks
In addition to market risk exposure related to the volatility in the price of steel, 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 28, 2018,December 31, 2019, all our contracts for the purchase of natural gas met the scope exemption for normal purchases and normal sales.
Ply Gem is also subject to significant market risk with respect to the pricing of principal raw materials, which include PVC resin, aluminum, glass and wood. 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.
Interest Rates
We are subject to market risk exposure related to changes in interest rates on our Pre-merger Term Loan Credit Facility and Pre-mergerCurrent ABL Credit Facility. These instruments bear interest at an agreed upon percentage point spread from either the prime interest rate or LIBOR. Under our Pre-merger Term Loan Credit Facility, we may, at our option, fix the interest rate for certain borrowings based on a spread over LIBOR for 30 days to six months. At October 28, 2018,December 31, 2019, we had $412.9$2,523.6 million outstanding under our Pre-merger Term Loan Credit Facility. Based on this balance, an immediate change ofa one percent change in the interest rate would cause a change in interest expense of approximately $4.1$25.2 million on an annual basis. The fair value of our term loan credit facilityTerm Loan Credit Facility at October 28,December 31, 2019 and December 31, 2018 and October 29, 2017 was approximately $412.4$2,514.9 million and $144.1$2,319.8 million, respectively, compared to the face value of $412.9$2,523.6 million and $144.1$2,549.2 million, respectively. During the year ended December 31, 2019, we entered into cash flow interest rate swap hedge contracts for $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. At December 31, 2019, our cash flow hedge contracts had a fair value liability of $30.0 million and is recorded as a non-current liability as of December 31, 2019 in our consolidated balance sheets.
See Note 1112 — Long-Term Debt and Note Payable in the notes to the consolidated financial statements for more information on the material terms of our long-term debt.
The table below presents scheduled debt maturities and related weighted average interest rates for each of the fiscal years relating to debt obligations as of October 28, 2018. Weighted average variable rates are based on an adjusted LIBOR rates at October 28, 2018, plus applicable margins.
 
Scheduled Maturity Date(1)
 Fair Value
 Fiscal Year 2019 Fiscal Year 2020 Fiscal Year 2021 Fiscal Year 2022 Fiscal Year 2023 Thereafter Total 10/28/2018
 (In thousands, except interest rate percentages)
Total Debt:                
Variable Rate$4,150
 $4,150
 $4,150
 $4,150
 $4,150
 $392,175
 $412,925
 $412,409
(2) 
Average interest rate4.24% 4.24% 4.24% 4.24% 4.24% 4.24% 4.24%   
(1)Expected maturity date amounts are based on the face value of debt and do not reflect fair market value of the debt. Amounts reflect maturity dates under the Pre-merger Term Loans which were repaid in full on November 16, 2018. See “Item 7.


Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a description of our new debt facilities.
(2)Based on recent trading activities of comparable market instruments.
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. The functional currency for our Mexico operations is the U.S. dollar. Adjustments resulting from the re-measurement 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
55


currency re-measurement lossesgains (losses) were $0.3$0.9 million, $(0.3) million and $0.8$(0.1) million for the fiscal years ended October 29,2019 and 2017, and October 30, 2016,the transition period ended December 31, 2018, respectively. For the fiscal year ended October 28, 2018, the net foreign currency re-measurement gain (loss) was insignificant.
The functional currency for our 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 in stockholders’ equity. The net foreign currency exchange gains (losses) gains included in net income (loss) for the fiscal years ended October 28,2019, 2018 October 29,and 2017, and October 30, 2016the transition period ended December 31, 2018, were $1.2 million, $(0.2) million, $0.8 million and $(0.6)$(1.6) million, respectively. Net foreign currency translation adjustment, net of tax, and included in other comprehensive income (loss) was $3.2 million, $(0.1) million, $0.2 million and $(0.3)$(4.2) million for the fiscal years ended October 28,2019, 2018 October 29,and 2017, and October 30, 2016,the transition period ended December 31, 2018, respectively.
On January 29, 2018, we closedLabor Force Risk
Our manufacturing process is highly engineered but involves manual assembly, fabrication, and manufacturing processes. We believe that our success depends upon our ability to employ, train, and retain qualified personnel with the ability to design, utilize, and enhance these services and products. In addition, our ability to expand our operations depends in part on our ability to increase our labor force as the sale of CENTRIA International LLC, which owned our China manufacturing facilityresidential and are therefore no longer exposednonresidential construction markets continue to fluctuationsrecover and minimize labor inefficiencies. A significant increase in the foreign currency exchange rate betweenwages paid by competing employers could result in a reduction of our labor force, increases in the U.S. dollarwage rates that we must pay, or both. If either of these events were to occur, our cost structure could increase, our margins could decrease, and Chinese yuan. The functional currency for our China operations was the Chinese yuan. The net foreign currency translation adjustment was insignificant for the fiscal years ended October 28, 2018 and October 29, 2017.

any growth potential could be impaired.

56


Item 8. Financial Statements and Supplementary Data.
INDEX TO FINANCIAL STATEMENTS
Financial Statements:



57


MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of NCICornerstone Building Systems,Brands, Inc. (the “Company” or “our”) is responsible for establishing and maintaining adequate internal control over financial reporting for the Company as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company’s internal control system was designed to provide reasonable assurance to the Company’s management and boardBoard of directorsDirectors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
Internal control over financial reporting includes the controls themselves, monitoring (including internal auditing practices), and actions taken to correct deficiencies as identified.
Internal control over financial reporting has inherent limitations and may not prevent or detect misstatements. The design of an internal control system is also based in part upon assumptions and judgments made by management about the likelihood of future events, and there can be no assurance that an internal control will be effective under all potential future conditions. Therefore, even those systems determined to be effective can provide only reasonable, not absolute, assurance with respect to the financial statement preparation and presentation. Further, because of changes in conditions, the effectiveness of internal control over financial reporting may vary over time.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of October 28, 2018.December 31, 2019. In making this assessment, management used the criteria for internal control over financial reporting described in Internal Control — Integrated Framework by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Management’s assessment included an evaluation of the design of the Company’s internal control over financial reporting and testing of the operating effectiveness of its internal control over financial reporting. Management reviewed the results of its assessment with the Audit Committee of the Company’s Board of Directors. Based on this assessment, management has concluded that, as of October 28, 2018,December 31, 2019, the Company’s internal control over financial reporting was effective.
Ernst & YoungGrant Thornton LLP, the independent registered public accounting firm that has audited the Company’s consolidated financial statements, has audited the effectiveness of the Company’s internal control over financial reporting as of October 28, 2018,December 31, 2019, as stated in their report included elsewhere herein.


58


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of NCIand Shareholders
Cornerstone Building Systems,Brands, Inc.


Opinion on Internal Control over Financial Reporting
We have audited NCI Building Systems, Inc.the internal control over financial reporting of Cornerstone Building Brands, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of October 28, 2018,December 31, 2019, based on criteria established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria)(“COSO”). In our opinion, NCI Building Systems, Inc. (the Company)the Company maintained, in all material respects, effective internal control over financial reporting as of October 28, 2018,December 31, 2019, based on criteria established in the COSO criteria.2013 Internal Control‑Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB)(“PCAOB”), the consolidated balance sheetsfinancial statements of NCI Building Systems, Inc.,the Company as of October 28, 2018 and October 29, 2017,for the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the periodyear ended October 28, 2018, and the related notesDecember 31, 2019, and our report dated December 19, 2018March 3, 2020 expressed an unqualified opinion thereon.on those financial statements.
Basis for Opinionopinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on internal control.Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitationslimitations of Internal Control Over Financial Reportinginternal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & YoungGRANT THORNTON LLP


Houston, Texas
December 19, 2018

Raleigh, North Carolina

March 3, 2020

59


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of NCIand Shareholders
Cornerstone Building Systems,Brands, Inc.


Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of NCICornerstone Building Systems,Brands, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income (loss), changes in stockholders’ equity, and cash flows for the year ended December 31, 2019 and for the period from October 28,29, 2018 to December 31, 2018, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for the year ended December 31, 2019 and for the period from October 29, 2017,2018 to December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 3, 2020 expressed an unqualified opinion.
Change in accounting principle
As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases in 2019 due to the adoption of Accounting Standards Update 2016-02, Leases (Topic 842).
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the relatedapplicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ GRANT THORNTON LLP

We have served as the Company’s auditor since 2018.

Raleigh, North Carolina
March 3, 2020
60


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Cornerstone Building Brands, Inc. (formerly named NCI Building Systems, Inc.)

Opinion on the Financial Statements
We have audited the accompanying consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows of Cornerstone Building Brands, Inc. (formerly named NCI Building Systems, Inc. (the “Company”)) for each of the threetwo years in the period ended October 28, 2018, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial positionresults of the Company at October 28, 2018 and October 29, 2017, and the results of itsCompany’s operations and its cash flows for each of the threetwo years in the period ended October 28, 2018, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of October 28, 2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated December 19, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP


We have served as the Company’s auditor since 1991.from 1991 to 2019.

Houston, Texas
December 19, 2018,

except with respect to the effects of the change in the composition of reportable segments, change in the income statement presentation of service cost and other components for defined benefit pension and other postretirement benefit plans, and change in presentation of restricted cash in the statement of cash flows as discussed in Notes 1, 3, and 20 as to which the date is February 19, 2019

61


CORNERSTONE BUILDING BRANDS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
NCI BUILDING SYSTEMS, INC.(In thousands, except per share data)
Fiscal Year Ended
October 28,
2018
 October 29,
2017
 October 30,
2016
Year Ended
(In thousands, except per share data)December 31,
2019
October 28,
2018
October 29,
2017
October 29, 2018 -
December 31, 2018
Sales$2,000,577
 $1,770,278
 $1,684,928
Sales$4,889,747  $2,000,577  $1,770,278  $559,870  
Cost of sales1,537,895
 1,354,214
 1,257,038
Cost of sales3,801,328  1,537,895  1,354,214  475,780  
Gross profit462,682
 416,064
 427,890
Gross profit1,088,419  462,682  416,064  84,090  
Engineering, selling, general and administrative expenses307,106
 293,145
 302,551
Selling, general and administrative expensesSelling, general and administrative expenses627,861  307,106  293,145  95,783  
Intangible asset amortization9,648
 9,620
 9,638
Intangible asset amortization177,577  9,648  9,620  20,132  
Goodwill impairment
 6,000
 
Goodwill impairment—  —  6,000  —  
Restructuring and impairment charges, net1,912
 5,297
 4,252
Restructuring and impairment charges, net18,060  1,912  5,297  1,253  
Strategic development and acquisition related costs17,164
 1,971
 2,670
Strategic development and acquisition related costs50,185  17,164  1,971  29,094  
Loss on disposition of business5,673
 
 
Loss on disposition of business—  5,673  —  1,244  
Gain on insurance recovery(4,741) (9,749) 
Gain on insurance recovery—  (4,741) (9,749) —  
Income from operations125,920
 109,780
 108,779
Income (loss) from operationsIncome (loss) from operations214,736  125,920  109,780  (63,416) 
Interest income140
 238
 146
Interest income674  140  238  68  
Interest expense(21,808) (28,899) (31,019)Interest expense(229,262) (21,808) (28,899) (28,556) 
Foreign exchange (loss) gain(244) 547
 (1,401)
Gain from bargain purchase
 
 1,864
Foreign exchange gain (loss)Foreign exchange gain (loss)2,054  (244) 547  (1,713) 
Loss on extinguishment of debt(21,875) 
 
Loss on extinguishment of debt—  (21,875) —  (3,284) 
Other income, net962
 1,472
 595
Other income, net1,183  962  1,472  44  
Income before income taxes83,095
 83,138
 78,964
Provision for income taxes19,989
 28,414
 27,937
Net income$63,106
 $54,724
 $51,027
Income (loss) before income taxesIncome (loss) before income taxes(10,615) 83,095  83,138  (96,857) 
Provision (benefit) for income taxesProvision (benefit) for income taxes4,775  19,989  28,414  (20,667) 
Net income (loss)Net income (loss)$(15,390) $63,106  $54,724  $(76,190) 
Net income allocated to participating securities(412) (325) (389)Net income allocated to participating securities—  (412) (325) —  
Net income applicable to common shares$62,694
 $54,399
 $50,638
Income per common share:     
Net income (loss) applicable to common sharesNet income (loss) applicable to common shares$(15,390) $62,694  $54,399  $(76,190) 
Income (loss) per common share:Income (loss) per common share:
Basic$0.95
 $0.77
 $0.70
Basic$(0.12) $0.95  $0.77  $(0.71) 
Diluted$0.94
 $0.77
 $0.70
Diluted$(0.12) $0.94  $0.77  $(0.71) 
Weighted average number of common shares outstanding:     Weighted average number of common shares outstanding:
Basic66,260
 70,629
 72,411
Basic125,576  66,260  70,629  107,813  
Diluted66,362
 70,778
 72,857
Diluted125,576  66,362  70,778  107,813  
See accompanying notes to the consolidated financial statements.


62


CORNERSTONE BUILDING BRANDS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
NCI BUILDING SYSTEMS, INC.(In thousands)
 Fiscal Year Ended
 October 28,
2018
 October 29,
2017
 October 30,
2016
 (In thousands)
Comprehensive income:     
Net income$63,106
 $54,724
 $51,027
Other comprehensive income (loss), net of tax:     
Foreign exchange translation (losses) gains and other (net of income tax of $0 in 2018, 2017 and 2016)(93) 198
 (325)
Unrecognized actuarial gains (losses) on pension obligation (net of income tax of ($322), ($1,805), and $1,245 in 2018, 2017 and 2016, respectively)916
 2,824
 (1,948)
Other comprehensive income (loss)823
 3,022
 (2,273)
Comprehensive income$63,929
 $57,746
 $48,754
Year Ended
December 31,
2019
October 28,
2018
October 29,
2017
October 29, 2018 -
December 31, 2018
Comprehensive income (loss):
Net income (loss)$(15,390) $63,106  $54,724  $(76,190) 
Other comprehensive income (loss), net of tax:
Foreign exchange translation gains (losses)3,211  (93) 198  (4,212) 
Unrealized loss on derivative instruments, net of income tax of $7,176, $0, $0 and $0, respectively(22,812) —  —  (549) 
Unrecognized actuarial gains (losses) on pension obligation, net of income tax of $513, $(322), $(1,805) and $138, respectively(1,984) 916  2,824  656  
Other comprehensive income (loss)(21,585) 823  3,022  (4,105) 
Comprehensive income (loss)$(36,975) $63,929  $57,746  $(80,295) 
See accompanying notes to the consolidated financial statements.


CONSOLIDATED BALANCE SHEETS
NCI BUILDING SYSTEMS, INC.
63


October 28,
2018
 October 29,
2017
CORNERSTONE BUILDING BRANDS, INC.CORNERSTONE BUILDING BRANDS, INC.
CONSOLIDATED BALANCE SHEETSCONSOLIDATED BALANCE SHEETS
(In thousands, except share data)(In thousands, except share data)
(In thousands, except share data)December 31,
2019
December 31,
2018
ASSETS   ASSETS
Current assets:   Current assets:
Cash and cash equivalents$54,272
 $65,658
Cash and cash equivalents$98,386  $143,847  
Restricted cash245
 136
Restricted cash3,921  3,760  
Accounts receivable, net233,297
 199,897
Accounts receivable, net491,740  438,505  
Inventories, net254,531
 198,296
Inventories, net439,194  536,675  
Income taxes receivable1,012
 3,617
Income taxes receivable48,466  1,027  
Investments in debt and equity securities, at market5,285
 6,481
Investments in debt and equity securities, at market3,776  3,414  
Prepaid expenses and other34,821
 31,359
Prepaid expenses and other78,516  69,291  
Assets held for sale7,272
 5,582
Assets held for sale1,750  7,272  
Total current assets590,735
 511,026
Total current assets1,165,749  1,203,791  
Property, plant and equipment, net236,240
 226,995
Property, plant and equipment, net652,841  614,007  
Lease right-of-use assetsLease right-of-use assets316,155  —  
Goodwill148,291
 148,291
Goodwill1,669,594  1,640,211  
Intangible assets, net127,529
 137,148
Intangible assets, net1,740,700  1,669,901  
Deferred income taxes982
 2,544
Deferred income taxes7,510  1,198  
Other assets, net6,598
 5,108
Other assets, net11,797  12,079  
Total assets$1,110,375

$1,031,112
Total assets$5,564,346  $5,141,187  
LIABILITIES AND STOCKHOLDERS’ EQUITY   LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:   Current liabilities:
Current portion of long-term debt$4,150
 $
Current portion of long-term debt$25,600  $25,600  
Note payable497
 440
Payable pursuant to a tax receivable agreementPayable pursuant to a tax receivable agreement—  24,760  
Accounts payable170,663
 147,772
Accounts payable205,629  220,857  
Accrued compensation and benefits65,136
 59,189
Accrued compensation and benefits92,130  72,630  
Accrued interest1,684
 6,414
Accrued interest19,070  41,185  
Accrued income taxes11,685
 
Current portion of lease liabilitiesCurrent portion of lease liabilities72,428  —  
Other accrued expenses81,884
 76,897
Other accrued expenses233,687  265,138  
Total current liabilities335,699
 290,712
Total current liabilities648,544  650,170  
Long-term debt, net of deferred financing costs of $5,699 and $6,857 on October 28, 2018 and October 29, 2017, respectively403,076
 387,290
Long-term debtLong-term debt3,156,924  3,085,163  
Deferred income taxes2,250
 4,297
Deferred income taxes291,987  295,675  
Long-term lease liabilitiesLong-term lease liabilities243,780  —  
Other long-term liabilities39,085
 43,566
Other long-term liabilities287,793  150,197  
Total long-term liabilities444,411
 435,153
Total long-term liabilities3,980,484  3,531,035  
Stockholders’ equity:  
   
Stockholders’ equity:    
Common stock, $.01 par value, 100,000,000 shares authorized; 66,264,654 and 68,677,684 shares issued in 2018 and 2017, respectively; and 66,203,841 and 68,386,556 shares outstanding in 2018 and 2017, respectively663
 687
Common stock, $0.01 par value, 200,000,000 shares authorized; 126,110,000 and 125,583,159 shares issued at December 31, 2019 and 2018, respectively; and 126,054,487 and 125,472,260 shares outstanding at December 31, 2019 and 2018, respectivelyCommon stock, $0.01 par value, 200,000,000 shares authorized; 126,110,000 and 125,583,159 shares issued at December 31, 2019 and 2018, respectively; and 126,054,487 and 125,472,260 shares outstanding at December 31, 2019 and 2018, respectively1,261  1,256  
Additional paid-in capital523,788
 562,277
Additional paid-in capital1,248,787  1,237,056  
Accumulated deficit(186,291) (248,046)Accumulated deficit(281,229) (265,839) 
Accumulated other comprehensive loss, net(6,708) (7,531)Accumulated other comprehensive loss, net(32,398) (10,813) 
Treasury stock, at cost (60,813 and 291,128 shares in 2018 and 2017, respectively)(1,187) (2,140)
Treasury stock, at cost; 55,513 and 110,899 shares at December 31, 2019 and 2018, respectivelyTreasury stock, at cost; 55,513 and 110,899 shares at December 31, 2019 and 2018, respectively(1,103) (1,678) 
Total stockholders’ equity330,265
 305,247
Total stockholders’ equity935,318  959,982  
Total liabilities and stockholders’ equity$1,110,375
 $1,031,112
Total liabilities and stockholders’ equity$5,564,346  $5,141,187  
See accompanying notes to the consolidated financial statements.


CONSOLIDATED STATEMENTS OF CASH FLOWS
NCI BUILDING SYSTEMS, INC.
64


Fiscal Year Ended
CORNERSTONE BUILDING BRANDS, INC.CORNERSTONE BUILDING BRANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWSCONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)(In thousands)
October 28,
2018
 October 29,
2017
 October 30,
2016
Year Ended
(In thousands)December 31,
2019
October 28,
2018
October 29,
2017
October 29, 2018 -
December 31, 2018
Cash flows from operating activities:     Cash flows from operating activities:
Net income$63,106
 $54,724
 $51,027
Adjustments to reconcile net income to net cash from operating activities:     
Net income (loss)Net income (loss)$(15,390) $63,106  $54,724  $(76,190) 
Adjustments to reconcile net income (loss) to net cash from operating activities:Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation and amortization42,325
 41,318
 41,924
Depreciation and amortization263,764  42,325  41,318  30,936  
Amortization of deferred financing costs1,501
 1,819
 1,908
Non-cash interest expenseNon-cash interest expense8,504  1,501  1,819  1,472  
Loss on extinguishment of debt21,875
 
 
Loss on extinguishment of debt—  21,875  —  3,284  
Share-based compensation expense11,638
 10,230
 10,892
Share-based compensation expense14,078  11,638  10,230  4,457  
Loss on disposition of business, net5,092
 
 
Loss on disposition of business, net—  5,092  —  —  
(Gains) losses on assets, net(502) 1,371
 (2,673)
Gain on insurance recoveryGain on insurance recovery—  (4,741) (9,749) —  
Non-cash fair value premium on purchased inventoryNon-cash fair value premium on purchased inventory16,249  —  —  21,617  
Losses (gains) on asset sales, netLosses (gains) on asset sales, net321  (502) 1,371  —  
Goodwill impairment
 6,000
 
Goodwill impairment—  —  6,000  —  
Gain on insurance recovery(4,741) (9,749) 
Provision for doubtful accounts(491) 1,948
 1,343
Provision for doubtful accounts2,035  (491) 1,948  (786) 
(Benefit) provision for deferred income taxes(889) 866
 1,318
Changes in operating assets and liabilities, net of effect of acquisitions and dispositions:     
Deferred income taxesDeferred income taxes(6,085) (889) 866  (21,719) 
Changes in operating assets and liabilities, net of effect of acquisitions:Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable(35,397) (19,582) (18,141)Accounts receivable(38,242) (35,397) (19,582) 141,668  
Inventories(58,534) (11,473) (29,054)Inventories91,822  (58,534) (11,473) 98  
Income taxes2,605
 (2,637) (1,953)Income taxes(32,719) 2,605  (2,637) (11,107) 
Prepaid expenses and other(5,479) (2,271) 671
Prepaid expenses and other(10,279) (5,479) (2,271) 18,749  
Accounts payable24,465
 4,858
 (1,598)Accounts payable(21,141) 24,465  4,858  (88,493) 
Accrued expenses16,284
 (12,320) 12,656
Accrued expenses(40,403) 16,284  (12,320) (13,963) 
Other, net(395) (1,228) 159
Other, net(2,906) (395) (1,228) 1,076  
Net cash provided by operating activities82,463
 63,874
 68,479
Net cash provided by operating activities229,608  82,463  63,874  11,099  
Cash flows from investing activities:     Cash flows from investing activities:
Acquisitions, net of cash acquired
 
 (4,343)Acquisitions, net of cash acquired(179,184) —  —  87,078  
Capital expenditures(47,827) (22,074) (21,024)Capital expenditures(121,085) (47,827) (22,074) (13,586) 
Proceeds from sale of property, plant and equipment6,338
 3,197
 5,417
Proceeds from sale of property, plant and equipment5,511  6,338  3,197  —  
Business disposition, net(1,426) 
 
Business disposition, net—  (1,426) —  —  
Proceeds from insurance4,741
 8,593
 10,000
Proceeds from insurance—  4,741  8,593  —  
Net cash used in investing activities(38,174) (10,284) (9,950)
Net cash provided by (used in) investing activitiesNet cash provided by (used in) investing activities(294,758) (38,174) (10,284) 73,492  
Cash flows from financing activities:  
   
   
Cash flows from financing activities:      
(Deposit) refund of restricted cash(109) 173
 370
Proceeds from stock options exercised1,279
 1,651
 12,612
Proceeds from stock options exercised—  1,279  1,651  —  
Proceeds from ABL facility100,000
 35,000
 
Proceeds from ABL facility290,000  100,000  35,000  —  
Payments on ABL facility(100,000) (35,000) 
Payments on ABL facility(220,000) (100,000) (35,000) (325,000) 
Proceeds from term loan415,000
 
 
Proceeds from term loan—  415,000  —  802,987  
Payments on term loan(146,221) (10,180) (40,000)Payments on term loan(25,620) (146,221) (10,180) (419,330) 
Payments on senior notes(265,470) 
 
Payments on senior notes—  (265,470) —  —  
Payments on note payable(1,742) (1,570) (1,430)Payments on note payable—  (1,742) (1,570) (497) 
Payments of financing costs(6,546) 
 
Payments of financing costs—  (6,546) —  (17,217) 
Payments related to tax withholding for share-based compensation(5,068) (2,389) (1,141)Payments related to tax withholding for share-based compensation(1,934) (5,068) (2,389) (4,128) 
Purchases of treasury stock(46,705) (41,214) (62,874)Purchases of treasury stock—  (46,705) (41,214) —  
Net cash used in financing activities(55,582) (53,529) (92,463)
Payment of debt extinguishment costsPayment of debt extinguishment costs—  —  —  (919) 
Cash paid for settlement of appraisal sharesCash paid for settlement of appraisal shares—  —  —  (3,531) 
Payments on tax receivable agreementPayments on tax receivable agreement(24,906) —  —  (22,504) 
Payments on contingent considerationPayments on contingent consideration—  —  —  (700) 
Net cash provided by (used in) financing activitiesNet cash provided by (used in) financing activities17,540  (55,473) (53,702) 9,161  
Effect of exchange rate changes on cash and cash equivalents(93) 194
 (325)Effect of exchange rate changes on cash and cash equivalents2,310  (93) 194  (662) 
Net (decrease) increase in cash and cash equivalents(11,386) 255
 (34,259)
Cash and cash equivalents at beginning of period65,658
 65,403
 99,662
Cash and cash equivalents at end of period$54,272
 $65,658
 $65,403
Net increase (decrease) in cash, cash equivalents and restricted cashNet increase (decrease) in cash, cash equivalents and restricted cash(45,300) (11,277) 81  93,090  
Cash, cash equivalents and restricted cash at beginning of periodCash, cash equivalents and restricted cash at beginning of period147,607  65,794  65,713  54,517  
Cash, cash equivalents and restricted cash at end of periodCash, cash equivalents and restricted cash at end of period$102,307  $54,517  $65,794  $147,607  
Supplemental disclosure of cash flow information:     Supplemental disclosure of cash flow information:
Interest paid, net of amounts capitalized$24,841
 $27,659
 $28,063
Interest paid, net of amounts capitalized$240,063  $24,841  $27,659  $4,147  
Taxes paid, net of amounts refunded$5,972
 $28,980
 $36,073
Taxes paid, net of amounts refunded (excluding tax receivable agreement payments)Taxes paid, net of amounts refunded (excluding tax receivable agreement payments)$51,001  $5,972  $28,980  $2,488  
See accompanying notes to the consolidated financial statements.


CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
NCI BUILDING SYSTEMS, INC.
65


CORNERSTONE BUILDING BRANDS, INC.CORNERSTONE BUILDING BRANDS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITYCONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share data)(In thousands, except share data)
Common StockAdditional
Paid-In
Capital
Retained
Earnings
(Deficit)
Accumulated
Other
Comprehensive
Income (Loss)
Treasury StockStockholders’
Equity
Common Stock 
Additional
Paid-In
Capital
 
Retained
Earnings
(Deficit)
 
Accumulated
Other
Comprehensive
(Loss) Income
 Treasury Stock 
Stockholders’
Equity
SharesAmountSharesAmount
Shares Amount Shares Amount 
(In thousands, except share data)
Balance, November 1, 201574,529,750
 $745
 $640,767
 $(353,733) $(8,280) (447,426) $(7,523) $271,976
Treasury stock purchases
 
 
 
 
 (4,589,576) (64,015) (64,015)
Retirement of treasury shares(4,423,564) (44) (62,235) 
 
 4,423,564
 62,279
 
Issuance of restricted stock56,868
 
 
 
 
 (161,633) 
 
Stock options exercised1,418,219
 14
 12,598
 
 
 
 
 12,612
Excess tax shortfall from share-based compensation arrangements
 
 (289) 
 
 
 
 (289)
Foreign exchange translation losses and other, net of taxes
 
 
 
 (325) 
 
 (325)
Deferred compensation obligation
 
 1,387
 
 
 
 
 1,387
Unrecognized actuarial losses on pension obligations
 
 
 
 (1,948) 
 
 (1,948)
Share-based compensation
 
 10,892
 
 
 
 
 10,892
Net income
 
 
 51,027
 
 
 
 51,027
Balance, October 30, 201671,581,273
 $715
 $603,120
 $(302,706) $(10,553) (775,071) $(9,259) $281,317
Balance, October 30, 201671,581,273  $715  $603,120  $(302,706) $(10,553) (775,071) $(9,259) $281,317  
Treasury stock purchases
 
 
 
 
 (2,957,838) (43,603) (43,603)Treasury stock purchases—  —  —  —  —  (2,957,838) (43,603) (43,603) 
Retirement of treasury shares(3,443,448) (34) (50,553) 
 
 3,443,448
 50,587
 
Retirement of treasury shares(3,443,448) (34) (50,553) —  —  3,443,448  50,587  —  
Issuance of restricted stock356,701
 4
 (4) 
 
 (19,806) 
 
Issuance of restricted stock356,701   (4) —  —  (19,806) —  —  
Stock options exercised182,923
 2
 1,651
 
 
 
 
 1,653
Stock options exercised182,923   1,651  —  —  —  —  1,653  
Excess tax benefits from share-based compensation arrangements
 
 1,515
 
 
 
 
 1,515
Excess tax benefits from share-based compensation arrangements—  —  1,515  —  —  —  —  1,515  
Foreign exchange translation gains and other, net of taxes
 
 (3,547) (64) 198
 
 
 (3,413)Foreign exchange translation gains and other, net of taxes—  —  (3,547) (64) 198  —  —  (3,413) 
Deferred compensation obligation235
 
 (135) 
 
 18,139
 135
 
Deferred compensation obligation235  —  (135) —  —  18,139  135  —  
Unrecognized actuarial gains on pension obligations
 
 
 
 2,824
 
 
 2,824
Unrecognized actuarial gains on pension obligations—  —  —  —  2,824  —  —  2,824  
Share-based compensation
 
 10,230
 
 
 
 
 10,230
Share-based compensation—  —  10,230  —  —  —  —  10,230  
Net income
 
 
 54,724
 
 
 
 54,724
Net income—  —  —  54,724  —  —  —  54,724  
Balance, October 29, 201768,677,684
 $687
 $562,277
 $(248,046) $(7,531) (291,128) $(2,140) $305,247
Balance, October 29, 201768,677,684  $687  $562,277  $(248,046) $(7,531) (291,128) $(2,140) $305,247  
Treasury stock purchases
 
 
 
 
 (2,938,974) (51,773) (51,773)Treasury stock purchases—  —  —  —  —  (2,938,974) (51,773) (51,773) 
Retirement of treasury shares(2,938,974) (29) (51,743) 
 
 2,938,974
 51,772
 
Retirement of treasury shares(2,938,974) (29) (51,743) —  —  2,938,974  51,772  —  
Issuance of restricted stock410,520
 4
 (4) 
 
 181,439
 
 
Issuance of restricted stock410,520   (4) —  —  181,439  —  —  
Stock options exercised115,424
 1
 1,278
 
 
 
 
 1,279
Stock options exercised115,424   1,278  —  —  —  —  1,279  
Foreign exchange translation losses and other, net of taxes
 
 (55) 
 (93) 
 
 (148)Foreign exchange translation losses and other, net of taxes—  —  (55) —  (93) —  —  (148) 
Deferred compensation obligation
 
 (954) 
 
 48,876
 954
 
Deferred compensation obligation—  —  (954) —  —  48,876  954  —  
Unrecognized actuarial gains on pension obligations
 
 
 
 916
 
 
 916
Unrecognized actuarial gains on pension obligations—  —  —  —  916  —  —  916  
Share-based compensation
 
 11,638
 
 
 
 
 11,638
Share-based compensation—  —  11,638  —  —  —  —  11,638  
Cumulative effect of accounting change
 
 1,351
 (1,351) 
 
 
 
Cumulative effect of accounting change—  —  1,351  (1,351) —  —  —  —  
Net income
 
 
 63,106
 
 
 
 63,106
Net income—  —  —  63,106  —  —  —  63,106  
Balance, October 28, 201866,264,654
 $663
 $523,788
 $(186,291) $(6,708) (60,813) $(1,187) $330,265
Balance, October 28, 201866,264,654  $663  $523,788  $(186,291) $(6,708) (60,813) $(1,187) $330,265  
Treasury stock purchasesTreasury stock purchases—  —  —  —  —  (347,040) (4,128) (4,128) 
Retirement of treasury sharesRetirement of treasury shares(296,954) (3) (3,634) —  —  296,954  3,637  —  
Issuance of restricted stockIssuance of restricted stock977,226  10  (10) —  —  —  —  —  
Issuance of common stock for the Ply Gem mergerIssuance of common stock for the Ply Gem merger58,638,233  586  712,455  —  —  —  —  713,041  
Other comprehensive lossOther comprehensive loss—  —  —  —  (4,105) —  —  (4,105) 
Share-based compensationShare-based compensation—  —  4,457  —  —  —  —  4,457  
Cumulative effect of accounting changeCumulative effect of accounting change—  —  —  (3,358) —  —  —  (3,358) 
Net lossNet loss—  —  —  (76,190) —  —  —  (76,190) 
Balance, December 31, 2018Balance, December 31, 2018125,583,159  $1,256  $1,237,056  $(265,839) $(10,813) (110,899) $(1,678) $959,982  
Treasury stock purchasesTreasury stock purchases—  —  —  —  —  (256,857) (1,934) (1,934) 
Retirement of treasury sharesRetirement of treasury shares(306,531) (3) (2,420) —  —  306,531  2,423  —  
Issuance of restricted stockIssuance of restricted stock819,641   (8) —  —  —  —  —  
Issuance of common stock for the Ply Gem mergerIssuance of common stock for the Ply Gem merger13,731  —  167  —  —  —  —  167  
Other comprehensive lossOther comprehensive loss—  —  —  —  (21,585) —  —  (21,585) 
Deferred compensation obligationDeferred compensation obligation—  —  (86) —  —  5,712  86  —  
Share-based compensationShare-based compensation—  —  14,078  —  —  —  —  14,078  
Net lossNet loss—  —  —  (15,390) —  —  —  (15,390) 
Balance, December 31, 2019Balance, December 31, 2019126,110,000  $1,261  $1,248,787  $(281,229) $(32,398) (55,513) $(1,103) $935,318  
See accompanying notes to the consolidated financial statements.
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CORNERSTONE BUILDING BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NCI BUILDING SYSTEMS, INC.



1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
Change of Name
Effective May 23, 2019, NCI Building Systems, Inc. changed its name to Cornerstone Building Brands, Inc. (together with its subsidiaries, unless otherwise indicated, the “Company,” “Cornerstone,” “NCI”, “we,” “us” or “our”). In connection with the name change, the Company changed its NYSE trading symbol from “NCS” to “CNR”.
Nature of Business
NCICornerstone Building Systems,Brands, Inc. (together with its subsidiaries, unless otherwise indicated,is a leading manufacturer of external building products in North America. Headquartered in Cary, North Carolina, the “Company,” “we,” “us” or “our”) is one of North America’s largest integrated manufacturersCompany serves residential and marketers of metal products for the nonresidential construction industry. We provide metal coil coating services and design, engineer, manufacture and market metal components and engineered building systems primarily used in nonresidential construction. We manufacture and distribute extensive lines of metal products for the nonresidential construction market under multiple brand names through a broad network of manufacturing facilities and distribution centers. We sell our products primarily for use incommercial customers across new construction activities and also inthe repair and retrofit activities, mostly in North America.
We have four operating segments: Engineered Building Systems, Metal Components, Insulated Metal Panels and Metal Coil Coating. Operating segments are defined as components of an enterprise that engage in business activities and for which discrete financial information is available that is evaluated on a regular basis by the chief operating decision maker to make decisions about how to allocate resources to the segment and assess the performance of the segment. We market the products in each of our operating segments nationwide primarily through a direct sales force and, in the case of our Engineered Building Systems segment, through authorized builder networks.& remodel markets.
Basis of Presentation
Our consolidated financial statements include the accounts of the Company and all majority-owned subsidiaries. All intercompany accounts, transactions and profits arising from consolidated entities have been eliminated in consolidation.
Fiscal Year
We use a 52/53 week fiscal year ending on the Sunday closest to October 31. The year end for fiscal 2018 is October 28, 2018. Fiscal years 2018, 2017, and 2016 were 52-week fiscal years.Reporting Periods
On November 16, 2018, the boardCompany’s Board of directors of the CompanyDirectors approved a change to the Company’s fiscal year end from a 52/53 week year with the Company’s fiscal year end on the Sunday closest to October 31 to a fiscalcalendar year of the 12 monthtwelve-month period offrom January 1 to December 31 of each calendar31. The Company elected to change its fiscal year to commenceend in connection with the Merger (as defined below) to align the Company’s fiscal year ending December 31, 2019. Theend with Ply Gem’s (as defined below). As a result of this change, the Company will filefiled a transition reportTransition Report on Form 10-Q on or before February 11, 2019 that will coverincluded the financial information for the transition period from October 29, 2018 to December 31, 2018.2018, which period is referred to herein as the “Transition Period”. The financial statements contained herein are being filed as part of an Annual Report on Form 10-K for the period from January 1, 2019 through December 31, 2019. The results of operations for the 52-week years ended October 28, 2018 and October 29, 2017 are presented herein as the comparable periods to the calendar year ended December 31, 2019. The Company did not recast the consolidated financial statements for the periods from January 1, 2018 through December 31, 2018 or January 1, 2017 through December 31, 2017 because the financial reporting processes in place at that time included certain procedures that were completed only on an annual basis. Consequently, to recast this period would have been impractical.
All references herein to "fiscal year 2019" or "fiscal 2019" refer to the calendar year ended December 31, 2019. In addition, all references herein to "fiscal year 2018" or "fiscal 2018" refer to the 52-week year ended October 28, 2018, and all references herein to "fiscal year 2017" or "fiscal 2017" refer to the 52-week year ended October 29, 2017.
Change in Operating Segments
During the Transition Period, the Company began reporting results under 3 reportable segments: (i) Commercial; (ii) Siding; and (iii) Windows, to align with how the Company manages its business, reviews operating performance and allocates resources following the Merger. The Commercial segment will include the aggregate operating results of the NCI’s legacy businesses. The Siding and Windows segments will include the operating results of the legacy Ply Gem operating segments.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Examples include provisions for bad debts and inventory reserves, accounting for business combinations, valuation of reporting units for purposes of assessing goodwill and other indefinite-lived intangible assets for impairment, valuation of asset groups for impairment testing, accruals for employee benefits, general liability insurance, warranties and certain contingencies. We base our estimates on historical experience, market participant fair value considerations, projected future cash flows, and various other factors that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.
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(b) Cash and Cash Equivalents. Cash equivalents are stated at cost plus accrued interest, which approximates fair value. Cash equivalents are highly liquid debt instruments with an original maturity of three months or less and may consist of time deposits with a number of commercial banks with high credit ratings, money market instruments, certificates of deposit and commercial paper. OurThe Company's policy allows usit to also invest excess funds in no-load, open-end, management investment trusts (“mutual funds”). The mutual funds invest exclusively in high quality money market instruments. As of October 28, 2018, ourDecember 31, 2019, the Company's cash and cash equivalents were only invested in cash.
(c) Accounts Receivable and Related Allowance.  We report The Company reports accounts receivable net of the allowance for doubtful accounts. Trade accounts receivable are the result of sales of metal building systems, metal components,products, insulated metal panels, and metal coating, vinyl siding, metal siding, injection molded products, vinyl windows, aluminum windows, 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;
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NCI BUILDING SYSTEMS, INC.


however, various types of liens may be filed to enhance the collection process and we require payment prior to shipment for certain international shipments.
We establishThe Company establishes reserves for doubtful accounts on a customer by customer basis when we believe the required payment of specific amounts owed is unlikely to occur. Bad debt provisions are included in selling, general and administrative expenses. In establishing these reserves, we considerthe Company considers changes in the financial position of a customer, availability of security, unusual macroeconomic conditions, lien rights and bond rights as well as disputes, if any, with our customers. Our allowance for doubtful accounts reflects reserves for customer receivables to reduce receivables to amounts expected to be collected. We determine past due status as of the contractual payment date. 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, or we have exhausted all collection efforts. efforts have been exhausted and/or any legal action taken by the Company has concluded.
The following table represents the rollforward of ourthe reserve for uncollectible accounts for the fiscal years ended October 28, 2018, October 29, 2017 and October 30, 2016periods indicated (in thousands):
Fiscal Year EndedFiscal Year Ended
December 31,
2019
October 29,2018 - December 31, 2018October 28,
2018
October 29,
2017
Beginning balance$10,270  $6,249  $8,325  $7,413  
Provision for bad debts2,035  (786) (491) 1,948  
Amounts charged against allowance for bad debts, net of recoveries(2,807) 188  (1,585) (1,036) 
Allowance for bad debts of acquired company at date of acquisition464  4,619  —  —  
Ending balance$9,962  $10,270  $6,249  $8,325  
 October 28,
2018
 October 29,
2017
 October 30,
2016
Beginning balance$8,325
 $7,413
 $7,695
Provision for bad debts(491) 1,948
 1,343
Amounts charged against allowance for bad debts, net of recoveries(1,585) (1,036) (1,625)
Ending balance$6,249
 $8,325
 $7,413
(d) Inventories. Beginning with ourthe Company's prospective adoption of ASU 2015-11 in the first quarter of fiscal 2018, inventories are stated at the lower of cost or net realizable value less allowance for inventory obsolescence using the First-In,
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First-Out Method (“FIFO”) for steel coils and other raw materials.. Prior inventory balances are stated at the lower of cost or market value less allowance for inventory obsolescence using FIFO. See Note 3 — Accounting Pronouncements.
The components of inventory are as follows (in thousands):
October 28,
2018
 October 29,
2017
December 31,
2019
December 31,
2018
Raw materials$205,902
 $150,919
Raw materials$239,063  $311,183  
Work in process and finished goods48,629
 47,377
Work in process and finished goods200,131  225,492  
$254,531
 $198,296
$439,194  $536,675  
The following table represents the rollforward of reserve for obsolete materials and supplies activity for the fiscal years ended October 28, 2018, October 29, 2017 and October 30, 2016periods indicated (in thousands):
Fiscal Year EndedFiscal Year Ended
October 28,
2018
 October 29,
2017
 October 30,
2016
December 31,
2019
October 29,2018 - December 31, 2018October 28,
2018
October 29,
2017
Beginning balance$5,205
 $3,984
 $3,749
Beginning balance$19,227  $6,619  $5,205  $3,984  
Provisions3,069
 1,923
 1,463
Provisions3,207  1,025  3,069  1,923  
Dispositions(1,655) (702) (1,228)Dispositions(4,082) (490) (1,655) (702) 
Reserve of acquired company at date of acquisitionReserve of acquired company at date of acquisition360  12,073  —  —  
Ending balance$6,619
 $5,205
 $3,984
Ending balance$18,712  $19,227  $6,619  $5,205  
The principal raw material used in the manufacturing of our Engineered Building Systems, Metal Components and Insulated Metal Panels segmentsCommercial segment is steel which we purchase from multiple steel producers. The principal raw material used in the manufacturing of our Siding segment is PVC resin which we purchase from multiple producers. The principal raw material used in the manufacturing of our Windows segment is PVC resin, aluminum, and glass which we purchase from multiple producers.
(e) Assets Held for Sale.  We The Company record assets held for sale at the lower of the 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 property is probable within one year; (v) the property is being actively marketed at a reasonable sale price relative to its current fair value; and (vi) it is unlikely that the plan to sell will be withdrawn or that significant changes to the plan will be made.
In determining the fair value of the assets less cost to sell, we considerthe 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 to sell of an asset is less than its current carrying value, the asset is written down to its estimated fair value less cost to sell.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NCI BUILDING SYSTEMS, INC.


During fiscal 2018 and 2017, we reclassified $5.0 million and $4.7 million, respectively, from property, plant and equipment to assets held for sale for idled facilities in our Metal Components, Insulated Metal Panels and Engineering Building Systems segments that met the held for sale criteria. The total carrying value of assets held for sale (primarily representing idled facilities in our Insulated Metal Panelsis $1.8 million and Engineered Building Systems segments) is $7.3 million at December 31, 2019 and $5.6 million2018, respectively. Assets held for sale at October 28, 2018 and October 29, 2017, respectively. All of these assets continue to beDecember 31, 2019 are actively marketed for sale or are under contract at October 28, 2018.contract.
During fiscal 2019 and 2018, and 2017, wethe Company sold certain idled facilities in our Metal Components and Engineered Building Systems segments,Commercial segment, along with related equipment, which previously had been classified as held for sale. In connection with the sales of these assets, during fiscal 2019 and 2018, and 2017, wethe Company received net cash proceeds of $4.1$5.5 million and $3.2$4.1 million, respectively, and recognized a net gain (loss) of $(41) thousand and $0.5 million, respectively, which is included in restructuring and $(0.2)impairment charges, net, in the consolidated statements of operations. During fiscal 2019, the Company determined an alternative use for a facility in the Commercial segment that had previously been classified as held for sale and reclassified the net book value of $1.7 million respectively. to property, plant and equipment and recorded an immaterial depreciation adjustment. Additionally, during fiscal 2019, the Company acquired certain real property assets of $1.8 million, through its executive relocation program which are classified as held for sale as of December 31, 2019.
Certain assets held for sale are valued at fair value and are measured at fair value on a nonrecurring basis. Assets held for sale are reported at fair value, if, on an individual basis, the fair value of the asset is less than cost. The fair value of assets held for sale is estimated using Level 3 inputs, such as broker quotes for like-kind assets or other market indications of a potential selling value that approximates fair value. Assets held for sale, reported at fair value less cost to sell totaled $5.0$1.8 million as of October 28, 2018.December 31, 2019.
Due to uncertainties in the estimation process, it is reasonably possible that actual results could differ from the estimates used in our historical analysis. OurThe Company's assumptions about property sales prices require significant judgment because the current market is highly sensitive to changes in economic conditions. WeThe Company determined the estimated fair values of 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.
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(f) Property, Plant and Equipment and Leases. Property, plant and equipment are stated at cost and depreciated using the straight-line method over their estimated useful lives. Leasehold improvements are capitalized and amortized using the straight-line method over the shorter of their estimated useful lives or the term of the underlying lease. Computer software developed or purchased for internal use is depreciated using the straight-line method over its estimated useful life. Depreciation and amortization are recognized in cost of sales and engineering, selling, general and administrative expenses based on the nature and use of the underlying asset(s). Operating leases are expensed using the straight-line method over the term of the underlying lease.
Depreciation expense for fiscal 2019, 2018 and 2017, and 2016the transition period ended December 31, 2018 was $86.2 million, $32.7 million, $31.7 million and $32.3$10.8 million, respectively. Of this depreciation expense, $5.8 million, $5.8 million and $6.4 million was related to computer software and equipment depreciation for fiscal 2018, 2017 and 2016.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NCI BUILDING SYSTEMS, INC.


Property, plant and equipment consists of the following (in thousands):
 October 28,
2018
 October 29,
2017
Land$17,398
 $18,473
Buildings and improvements172,920
 178,019
Machinery, equipment and furniture356,509
 336,163
Transportation equipment4,287
 4,599
Computer software and equipment116,449
 117,515
Construction in progress28,608
 15,092
 696,171
 669,861
Less: accumulated depreciation(459,931) (442,866)
 $236,240
 $226,995
December 31,
2019
December 31,
2018
Land$24,510  $26,029  
Buildings and improvements266,094  258,547  
Machinery and equipment918,380  799,342  
1,208,984  1,083,918  
Less accumulated depreciation(556,143) (469,911) 
Total property, plant and equipment, net$652,841  $614,007  
Estimated useful lives for depreciation are:
Buildings and improvements1539 years
Machinery, equipment and furniture315 years
Transportation equipment410 years
Computer software and equipment37 years
Buildings and improvements1539 years
Machinery and equipment315 years
We capitalizeThe Company capitalizes interest on capital invested in projects in accordance with Accounting Standards Codification (“ASC”) Topic 835, Interest. For fiscal 2019, 2018 and 2017, and 2016,the transition period ended December 31, 2018, the total amount of interest capitalized was $1.2 million, $0.4 million, $0.2 million and $0.2$0.1 million, respectively. Upon commencement of operations, capitalized interest, as a component of the total cost of the asset, is amortized over the estimated useful life of the asset.
Involuntary conversions result from the loss of an asset because of an unforeseen event (e.g., destruction due to fire). Some of these events are insurable and result in property damage insurance recovery. Amounts the Company receives from insurance carriers are net of any deductibles related to the covered event. The Company records a receivable from insurance to the extent it recognizes a loss from an involuntary conversion event and the likelihood of recovering such loss is deemed probable at the balance sheet date. To the extent that any of the Company’s insurance claim receivables are later determined not probable of recovery (e.g., due to new information), such amounts are expensed. The Company recognizes gains on involuntary conversions when the amount received from insurers exceeds the net book value of the impaired asset(s). In addition, the Company does not recognize a gain related to insurance recoveries until the contingency related to such proceeds has been resolved, through either receipt of a non-refundable cash payment from the insurers or by execution of a binding settlement agreement with the insurers that clearly states that a non-refundable payment will be made. To the extent that an asset is rebuilt or new assets are acquired, the associated expenditures are capitalized, as appropriate, in the consolidated balance sheets and presented as capital expenditures in the Company’s consolidated statements of cash flows. With respect to business interruption insurance claims, the Company recognizes income only when non-refundable cash proceeds are received from insurers, which are presented in the Company’s consolidated statements of operations as a component of gross profit or operating income and in the consolidated statements of cash flows as an operating activity.
In June 2016, the Company experienced a fire at a facility in the Insulated Metal PanelsCommercial segment. WeThe Company estimated that fixed assets with a net book value of approximately $6.7 million were impaired as a result of the fire. During the second quarter of fiscal 2017, the Company settled the property damage claims with the insurers for actual cash value of $18.0 million. Of this amount, the Company received proceeds of $10.0 million from our insurers during the fourth quarter of fiscal 2016. The remaining $8.0 million was received in May 2017.
Approximately $8.8 million was previously recognized to offset the loss on involuntary conversion and other amounts incurred related to the incident. The remaining $9.2 million was recognized as a gain on insurance recovery in the consolidated statement of operations during the quarter ended April 30, 2017 as all contingencies were resolved.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NCI BUILDING SYSTEMS, INC.


The Company’s property insurance policy is a replacement cost policy. During the third quarter of fiscal 2018, the Company received final proceeds of $4.7 million as reimbursement for new assets acquired and recognized a $4.7 million gain on insurance recovery in the consolidated statements of operations.
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(g) Internally Developed SoftwareInternally developed software is stated at cost less accumulated amortization, is included within property, plant and equipment within our consolidated balance sheets, and is amortized using the straight-line method over its estimated useful life ranging from 3 to 7 years. Software assets are reviewed for impairment when events or circumstances indicate the carrying value may not be recoverable over the remaining lives of the assets. During the software application development stage, capitalized costs include external consulting costs, cost of software licenses and internal payroll and payroll related costs for employees who are directly associated with a software project. Upgrades and enhancements are capitalized if they result in added functionality which enable the software to perform tasks it was previously incapable of performing. Software maintenance, training, data conversion and business process reengineering costs are expensed in the period in which they are incurred.
(h) Goodwill and Other Intangible Assets.  We review The Company reviews the carrying values of goodwill and identifiable intangibles whenever events or changes in circumstances indicate that such carrying values may not be recoverable and annually for goodwill and indefinite lived intangible assets as required by ASC Topic 350, Intangibles — Goodwill and Other. This guidance provides the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If, based on a review of qualitative factors, it is more likely than not that the fair value of a reporting unit is less than its carrying value, we perform a quantitative analysis. Prior to July 30, 2017, the test for impairment was a two-step process that involved comparing the estimated fair value of each reporting unit to the reporting unit’s carrying value, including goodwill. If the fair value of a reporting unit exceeded its carrying amount, the goodwill of the reporting unit was not considered impaired; therefore the second step of the impairment test would not be deemed necessary. If the carrying amount of the reporting unit exceeded its fair value, we would then perform the second step to the goodwill impairment test, which involved the determination of the fair value of a reporting unit’s assets and liabilities as if those assets and liabilities had been acquired/assumed in a business combination at the impairment testing date, to measure the amount of goodwill impairment loss to be recorded. However, with the adoption of Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2017-04, wethe Company prospectively adopted a new accounting principle that eliminated the second step of the goodwill impairment test. Therefore, beginning with the annual goodwill impairment tests occurring on the first day of the fourth quarter of fiscal 2017, if the carrying value of a reporting unit exceeds its fair value, we measure any goodwill impairment losses as the amount by which the carrying amount of a reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to that reporting unit.
Unforeseen events, changes in circumstances, market conditions and material differences in the value of intangible assets due to changes in estimates of future cash flows could negatively affect the fair value of ourthe Company's assets and result in a non-cash impairment charge. Some factors considered important that could trigger an impairment review include the following: significant underperformance relative to expected historical or projected future operating results, significant changes in the manner of ourthe Company's use of acquired assets or the strategy for ourits overall business and significant negative industry or economic trends. WeThe Company recorded a non-cash loss on goodwill impairment of $6.0 million in fiscal 2017, which is included in goodwill impairment in the consolidated statements of operations. See Note 6Goodwill and Other Intangible Assets.Assets.
(i) Leases. The Company leases certain manufacturing, warehouse and distribution locations, 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 these are real estate agreements in which future increases in rent are based on an index. Lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Effective January 1, 2019, the Company adopted ASU 2016-02, Leases, applying the standard to leases existing at the effective date. For arrangements entered into following the transition date, applicability of the standard is determined at inception.
Operating lease liabilities are recognized based on the present value of the future minimum lease payments over the reasonably expected holding period at commencement date. Few of the Company’s lease contracts provide a readily determinable implicit rate. For these contracts, 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 may require judgment, including determining whether a contract contains a lease, what incremental borrowing rates to utilize for leases without a stated implicit rate, what the reasonably certain holding period is for a leased asset, and the allocation of consideration to lease and non-lease components. The Company has elected the practical expedient to not separate lease and non-lease components for the majority of leases. Where components are separated, the allocation is based on the Company’s best estimate of standalone price.
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(j) Revenue RecognitionWe recognize revenuesThe 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. The Company does not exercise significant judgment in determining the timing for the satisfaction of performance obligations or the transaction price. Revenue is measured as the amount of consideration expected to be received in exchange for our products. The Company has elected to apply the practical expedient provided for in ASU No. 2014-09 and has not disclosed information regarding remaining performance obligations that have original expected durations of one year or less. Revenue is generally recognized when the following conditions are met: persuasive evidence of an arrangement exists, deliveryproduct has occurred or services have been rendered,shipped from the priceCompany's facility and control has transferred to the customer. Generally, this criteria is fixed or determinable, and collectability is reasonably assured. Generally, these criteria are met at the time product is shipped or services are complete. Generally, the customer takes title upon shipment and assumes the risks and rewards of ownership of the product. 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 the Company's business, when 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. The Company does not have significant financing components. The Company recognizes installation revenue, primarily within the stone veneer category, over the period for which the stone is installed, which is typically a very short duration.
Shipping and handling activities performed by the 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, the Company receives payment from our customers in advance related to performance obligations that are to be satisfied in the future and recognize such payments as deferred revenue, primarily related to the Company's weathertightness warranties (see Warranty accounting policies below).
A portion of our revenue, exclusively within our Engineered Building Systemsthe 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. We useThe 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. We determineThe Company determines ESP based on our normal pricing and discounting practices.
Our sales arrangements do not include a general right of return of the delivered product(s). In certain cases, the cancellation terms of a job order provide us with the opportunity to bill for certain incurred costs. In those instances, revenue is not recognized until all revenue recognition criteria are met, including reasonable assurance of collectability.
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The following table presents disaggregated revenue disclosure details of net sales by segment (in thousands):
In our Metal Coil Coating segment, our revenue activities broadly consist of cleaning, treating, painting and packaging various flat rolled metals as well as slitting and/or embossing the metal. We enter into two types of sales arrangements with our customers: toll processing sales and package sales. The primary distinction between these two arrangements relates to ownership of the underlying metal coil during treatment. In toll processing arrangements, we do not maintain ownership of the underlying metal coil during treatment and only recognize revenue for the toll processing activities, typically, cleaning, painting, slitting, embossing and packaging. In package sales arrangements, we have ownership of the metal coil during treatment and recognize revenue on both the toll processing activities and the sale of the underlying metal coil. Under either arrangement, revenue and the related direct and indirect costs are recognized when all of the recognition criteria are met, which is generally when the products are shipped to the customer.
Year Ended  
December 31,
2019
October 28,
2018
October 29,
2017
October 29,2018 - December 31, 2018
Commercial Net Sales Disaggregation:
Metal building products$1,249,757  $1,367,998  $1,204,532  $198,483  
Insulated metal panels441,441  424,762  372,304  52,044  
Metal coil coating156,695  207,817  193,442  35,995  
Total$1,847,893  $2,000,577  $1,770,278  $286,522  
Siding Net Sales Disaggregation:
Vinyl siding$525,005  $—  $—  $43,142  
Metal263,018  —  —  23,104  
Injection molded66,578  —  —  5,123  
Stone92,228  —  —  2,499  
Other products & services164,578  —  —  9,106  
Total$1,111,407  $—  $—  $82,974  
Windows Net Sales Disaggregation:
Vinyl windows$1,838,796  $—  $—  $181,624  
Aluminum windows53,622  —  —  4,700  
Other38,029  —  —  4,050  
Total$1,930,447  $—  $—  $190,374  
Total Net Sales:$4,889,747  $2,000,577  $1,770,278  $559,870  
(j)(k) Equity Raising and Deferred Financing Costs.  Costs. Equity raising costs are recorded as a reduction to additional paid in capital upon the execution of an equity transaction. Deferred financing costs composed of facility, agency, and certain legal fees associated with issuing new debt, are capitalized as incurred and amortized usingover the straight-line method, which approximatescontractual term of the related agreement using the effective interest method, over the expected life of the associated debt.method. See Note 1112Long-Term Debt and Note Payable..
(k)(l) Cost of Sales. Cost of sales includes the cost of inventory sold during the period, including costs for manufacturing, inbound freight, receiving, inspection, warehousing, and internal transfers less vendor rebates. Costs associated with shipping and handling ourthe Company's products are included in cost of sales. Purchasing costs and engineering and drafting costs are included in engineering, selling, general and administrative expense. Purchasing costs were $3.9 million, $3.9 million
(m) WarrantyThe Company sells a number of products and $5.3 millionoffers a number of warranties. The specific terms and engineering and drafting costs were $41.1 million, $43.1 million and $44.2 million in each of fiscal 2018, 2017 and 2016, respectively. Approximately $2.3 million and $2.6 millionconditions of these engineering, selling, generalwarranties vary depending on the product sold. The Company's warranty liabilities are undiscounted and administrative costs were capitalizedadjusted for inflation based on third party actuarial estimates. Factors that affect the Company’s warranty liabilities include the number of units sold, historical and remained in inventory atanticipated rates of warranty claims, cost per claim and new product introduction. Warranties are normally limited to replacement or service of defective components for the endoriginal customer. Some warranties are transferable to subsequent owners and are generally limited to ten years from the date of fiscal 2018 and 2017, respectively.
(l) Warranty.  We sell weathertightness warranties to our customers for protectionmanufacture or require pro-rata payments from leaks in our roofing systems related to weather. These warranties range from two years to twenty years. We sell two types of warranties, standard and Single Source, and three grades of coverage for each. The type and grade of coverage determines the price to the customer. For standard warranties, our responsibilityA provision for leaks in a roofing system begins after 24 consecutive leak-free months. For Single Source warranties,estimated warranty costs is recorded based on historical experience and the roofing system must pass our inspection before warranty coverage will be issued. InspectionsCompany periodically adjusts these provisions to reflect actual experience.Warranty costs are typically performed at three stagesincluded within cost of goods sold. The Company assesses the adequacy of the roofing project: (i) atrecorded warranty claims and adjusts the project start-up; (ii) at the project mid-point; and (iii) at the project completion. These inspections are included in the cost of the warranty. If the project requires or the customer requests additional inspections, those inspections are billed to the customer. Uponamounts as necessary. Separately, upon the sale of a weathertightness warranty we recordin the Commercial segment, the Company records the resulting revenue as deferred revenue, which is included in other accrued expenses and other long-term liabilities in ouron the consolidated balance sheets depending on when the revenues are expected to be recognized. Deferred revenue of $25.3 million, classified within other accrued expenses at October 29, 2017 has been reclassified to other long-term liabilities to correct the prior year balance sheet classification. See Note 1011 — Warranty.Warranty.
(m)(n) Insurance. Group medical insurance is purchased through Blue Cross Blue Shield (“BCBS”). The plans include a Preferred Provider Organization Plan (“PPO”) and a Consumer Driven Health Plan (“CDHP”). These plans are managed-care plans utilizing networks to achieve discounts through negotiated rates with the providers within these networks. The claims incurred under these plans are self-funded for the first $355,000$500,000 of each claim. We purchaseThe Company purchases individual stop loss reinsurance to limit ourthe claims liability to $355,000$500,000 per claim. BCBS administers all claims, including claims processing, utilization review and network access charges.
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Insurance is purchased for workers compensation and employer liability, general liability, property and auto liability/auto physical damage. We utilizeThe Company utilizes either deductibles or self-insurance retentions (“SIR”) to limit ourthe exposure to catastrophic loss. The workers compensation insurance has a $250,000 per-occurrence deductible. The property and auto liability insurances have per-occurrence deductibles of $500,000 and $250,000, respectively. The general liability insurance has a $1,000,000 SIR. Umbrella insurance coverage is purchased to protect us against claims that exceed ourthe Company's per-occurrence or aggregate limits set forth in ourthe Company's respective policies. All claims are adjusted utilizing a third-party claims administrator and insurance carrier claims adjusters.
Each reporting period, we recordthe Company records the costs of ourits health insurance plan, including paid claims, an estimate of the change in incurred but not reported (“IBNR”) claims, taxes and administrative fees, when applicable, (collectively the “Plan Costs”) as general and administrative expenses on ourthe consolidated statements of operations. The estimated IBNR claims are based upon (i) a recent average level of paid claims under the plan, (ii) an estimated lag factor and (iii) an estimated growth factor to provide for those claims that have been incurred but not yet reported and paid. We useThe Company uses an actuary to determine the claims lag and estimated liability for IBNR claims.
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For workers’ compensation costs, we monitorthe Company monitors the number of accidents and the severity of such accidents to develop appropriate estimates for expected costs to provide both medical care and indemnity benefits, when applicable, for the period of time that an employee is incapacitated and unable to work. These accruals are developed using independent third-party actuarial estimates of the expected cost for medical treatment, and length of time an employee will be unable to work based on industry statistics for the cost of similar disabilities, to include statutory impairment ratings. For general liability and automobile claims, accruals are developed based on independent third-party actuarial estimates of the expected cost to resolve each claim, including damages and defense costs, based on legal and industry trends and the nature and severity of the claim. Accruals also include estimates for IBNR claims, and taxes and administrative fees, when applicable. Each reporting period, we recordthe Company records the costs of our workers’ compensation, general liability and automobile claims, including paid claims, an estimate of the change in IBNR claims, taxes and administrative fees as general and administrative expenses on ourthe consolidated statements of operations.
(n)(o) Advertising Costs. Advertising costs are expensed as incurred. Advertising expense was $28.6 million, $9.3 million, $7.1 million and $7.1$3.1 million in fiscal 2019, 2018 and 2017, and 2016,the transition period ended December 31, 2018, respectively.
(o)(p) Impairment of Long-Lived AssetsWe assessThe Company assesses impairment of property, plant and equipment at an asset group level in accordance with the provisions of ASC Topic 360, Property, Plant and Equipment. We assess The Company assesses the recoverability of the carrying amount of property, plant and equipment if certain events or changes in circumstances indicate that the carrying value of such asset groups may not be recoverable, such as a significant decrease in market value of the asset groups or a significant change in our business conditions. If we determineit is determined that the carrying value of an asset group is not recoverable based on expected undiscounted future cash flows, excluding interest charges, we record an impairment loss equal to the excess of the carrying amount of the asset group over its fair value.value is recorded. The fair value of an asset group is determined based on prices of similar assets adjusted for their remaining useful life.
(p)(q) Share-Based Compensation. Compensation expense is recorded for restricted stock awards under the fair value method. Compensation expense for performance stock units (“PSUs”) granted to our senior executives and Performance Share Awards granted to our key employees is recorded based on the probable outcome of the performance conditions associated with the respective shares, as determined by management. WeThe Company recorded pre-tax compensation expense relating to restricted stock awards, Performance Share Awards, stock options and performance share unit awards of $14.1 million, $11.6 million, $10.2 million and $10.9$4.5 million for fiscal 2019, 2018 and 2017, and 2016,the transition period ended December 31, 2018, respectively. Included in the share-based compensation expense during fiscal 2018 were accelerated awards of $3.6 million due to the retirement of the Company’s former CEO. See Note 78Share-Based Compensation.Compensation.
(q)(r) Foreign Currency Re-measurement and TranslationThe functional currency for ourthe Company's Mexico operations is the U.S. dollar. Adjustments resulting from the re-measurement 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 othernet income (loss) in the current period. Net foreign currency re-measurement lossesgains (losses) were $0.3$0.9 million, $(0.3) million and $0.8$(0.1) million for the fiscal years ended October 29,2019 and 2017, and October 30, 2016,the transition period ended December 31. 2018, respectively. For the fiscal year ended October 28, 2018, the net foreign currency re-measurement gain (loss) was insignificant.
The functional currency for ourthe Company's 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 incomeloss, net in stockholders’ equity. The net foreign currency gains (losses) gains included in othernet income (loss) for the fiscal years ended October 28,2019, 2018 October 29,and 2017, and October 30, 2016the transition period ended December 31, 2018, were $1.2 million, $(0.2) million, $0.8 million and $(0.6)$(1.6) million, respectively. Net foreign currency translation adjustments, net of tax, and included in other comprehensive income (loss) were $3.2 million, $(0.1) million, $0.2 million and $(0.3)$(4.2) million for the fiscal years ended October 28,2019, 2018 October 29,and 2017, and October 30, 2016,the transition period ended December 31, 2018, respectively.
(r)
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(s) ContingenciesWe establishThe Company establishes reserves for estimated loss contingencies and unasserted claims when we believeit believes a loss is probable and the amount of the loss can be reasonably estimated. OurThe Company's contingent liability reserves are related primarily to litigation and environmental matters. Revisions to contingent liability reserves are reflected in income in the period in which there are changes in facts and circumstances that affect our previous assumptions with respect to the likelihood or amount of loss. Reserves for contingent liabilities are based upon our assumptions and estimates regarding the probable outcome of the matter. We estimateThe Company estimates the probable costprobability by evaluating historical precedent as well as the specific facts relating to each particular contingency (including the opinion of outside advisors, professionals and experts). Should the outcome differ from ourthe assumptions and estimates or other events result in a material adjustment to the accrued estimated reserves, revisions to the estimated reserves for contingent liabilities would be required and would be recognized in the period the new information becomes known.
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(s)(t) Income taxes. The determination of ourthe Company's provision for income taxes requires significant judgment, the use of estimates and the interpretation and application of complex tax laws. OurThe amount recorded in our consolidated financial statements reflects estimates of final amounts due to timing of completion and filing of actual income tax returns. Estimates are required with respect to, among other things, the appropriate state income tax rates used in the various states in which we and our subsidiaries are required to file, the potential utilization of operating and capital loss carry-forwards for federal, state, and foreign income tax purposes and valuation allowances required, if any, for tax assets that may not be realized in the future. The Company establishes reserves when, despite our belief that our tax return positions are fully supportable, certain positions could be challenged, and the positions may not be fully sustained. The Company's provision for income taxes reflects a combination of income earned and taxed in the various U.S. federal and state, Canadian federal and provincial, Mexican federal and other jurisdictions. Jurisdictional tax law changes, increases or decreases in permanent differences between book and tax items, accruals or adjustments of accruals for tax contingencies or valuation allowances, and the change in the mix of earnings from these taxing jurisdictions all affect the overall effective tax rate.
In assessing the realizability of deferred tax assets, we must considerthe Company considers whether it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. We considerThe Company considers all available evidence, both positive and negative, in determining whether a valuation allowance is required. Such evidence includes the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment, and judgment is required in considering the relative weight of negative and positive evidence.
(t)(u) ReclassificationsCertain reclassifications have been made to the prior period amounts in ourthe consolidated balance sheets, consolidatedcash statements of cash flows and notes to the consolidated financial statements to conform to the current presentation. The net effect of these reclassifications was not material to ourthe consolidated financial statements.
(v) AcquisitionsThe Company allocates the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. If the fair value of the acquired assets exceeds the purchase price the difference is recorded as a bargain purchase in other income (expense). Such valuations require us to make significant estimates and assumptions, especially with respect to intangible assets. As a result, during the measurement period, which may be up to one year from the acquisition date, material adjustments must be reflected in the comparative consolidated financial statements in the period in which the adjustment amount will be determined. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of operations. Newly acquired entities are included in our results from the date of their respective acquisitions.
3. ACCOUNTING PRONOUNCEMENTS
Adopted Accounting Pronouncements
In July 2015,February 2016, the FASB issued ASU 2015-11, Inventory (Topic 330)2016-02, Leases, to increase transparency and comparability among organizations by recognizing right-of-use assets and lease liabilities on the balance sheet and disclosing key information about leasing transactions. Effective January 1, 2019, the Company adopted the guidance initially applying the standard to leases existing at, or entered into after, the January 1, 2019 adoption date. The Company has elected only the package of three transition practical expedients available under the new standard. The short-term lease recognition exemption has been elected for all leases that qualify as well as the practical expedient to not separate lease and non-lease components for all leases other than leases of durable tooling.
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The adoption of the new standard resulted in the recognition of additional operating liabilities of $304.1 million with corresponding right-of-use (“ROU”) assets of $304.1 million, based on the present value of the remaining minimum rental payments. The Company recognized 0 adjustment to the opening balance of accumulated deficit as of January 1, 2019. The new standard also provides for practical expedients for an entity’s ongoing accounting. Additional disclosures on leases are included in Note 7 — Leases.
In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software—General (Subtopic 350-40): Simplifying the Measurement of Inventory. ASU 2015-11 requires that inventoryCustomer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is accounteda Service Contract, which aligns the requirements for using first-in, first-out (FIFO)capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or average cost method be measured atobtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the lowerservice element of cost or net realizable value. Wea hosting arrangement that is a service contract is not affected by these amendments. Effective January 1, 2019, the Company early adopted this guidance in our first quarter of fiscal 2018 on a prospective basis. The adoptionapplication of this guidanceASU 2018-15 did not have a material impact on our financial position or results of operations.
In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes. ASU 2015-17 requires all deferred tax assets and liabilities to be presented on the balance sheet as noncurrent. This guidance did not change the requirement that deferred tax assets and liabilities be offset and presented by tax jurisdiction. We adopted ASU 2015-17 in our first quarter in fiscal 2018 on a retrospective basis. As a result deferred tax assets of $20.1 million that were presented on our October 29, 2017 consolidated balance sheet have been reclassified to non-current deferred tax liabilities and the remaining $2.5 million deferred tax assets have been reclassified to non-current deferred tax assets to be consistent with the current year classification.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which simplifies certain aspects of the accounting for share-based payment transactions, including income tax effects, forfeitures, minimum statutory tax withholding requirements, classification as either equity or liability, and classification on the statement of cash flows. We adopted ASU 2016-09 in our first quarter in fiscal 2018. ASU 2016-09 requires all excess tax benefits and tax deficiencies be recognized as income tax expense or benefit in the income statement, thus eliminating additional paid-in capital pools. The Company applied the new standard guidance prospectively to all excess tax benefits and tax deficiencies resulting from settlements after October 29, 2017. The standard also requires a policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. The Company recognized a cumulative effect adjustment of $1.4 million to increase accumulated deficit on a modified retrospective basis as of October 29, 2017 and has elected to account for forfeitures when they occur on a prospective basis. The standard requires that excess tax benefits should be classified along with other income tax cash flows as an operating activity on the statement of cash flows, which differs from the Company’s historical classification of the excess tax benefits as cash inflows from financing activities. The Company elected to apply this provision using the retrospective transition method and reclassified $1.5 million and $(0.3) million of excess tax benefits/(shortfalls) from financing activities to operating activities on the statement of cash flows for the fiscal year ended October 29, 2017 and October 30, 2016, respectively. Additionally, the standard requires cash paid by an employer when directly withholding shares for tax withholding purposes to be classified in the statement of cash flows as a financing activity. Payments for shares withheld for tax withholding purposes of $5.1 million, $2.4 million and $1.1 million are classified on the consolidated statements of cash flows for the fiscal years ended October 28, 2018, October 29, 2017 and October 30, 2016, respectively.financial statements.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. This ASU adds guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Under the new guidance, if a single asset or group of similar identifiable assets comprise substantially all of the fair value of the gross assets acquired (or disposed of) in a transaction, the assets and related activities are not a business. Also, a minimum of an input process and a substantive process must be present and significantly contribute
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to the ability to create outputs in order to be considered a business. We early adopted ASU 2017-01 in the third quarter of fiscal 2018, as permitted. The adoption of this guidance did not have a material impact on our consolidated financial position or results of operations.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606).as subsequently amended. ASU 2014-09 supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. During 2016, the FASB also issued ASU 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net); ASU 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing; ASU 2016-11, Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting; and ASU 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients; and ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers (collectively, the “new revenue standard”), all of which were issued to improve and clarify the guidance in ASU 2014-09. These ASUs are effective for our transition period ending December 31, 2018, using either a full or modified retrospective approach. WeThe Company performed an assessment of the differences between the new revenue standard and current accounting practices. As part of our implementation process, wethe Company identified significant revenue streams and evaluated a sample of contracts within each significant revenue stream in order to determine the effect of the standard on our revenue recognition practices. We are substantially complete withThe Company completed this evaluation. We are in the process of establishingevaluation and have established new policies, procedures, and internal controls to be put in place uponour adoption of the standard. To adopt the new revenue standard, we will apply thestandard. The Company adopted this guidance on a modified retrospective approach,basis, pursuant to which we will record anrecorded a $2.6 million adjustment to increase the opening balance of accumulated deficit as of October 29, 2018 (the first day of our transition period ending December 31, 2018)the Transition Period) for the impact of applying the new revenue standard to all contracts existing as of the date of application. Although this is still under review and not finalized, we expect that thestandard. The adjustment related to changes in the timing of revenue recognition for: tolling services within the Metal Coil Coating segment, fixed price contracts within the Insulated Metal Panels segment, andfor our weathertightness warranties offered primarily in the Engineered Building Systems and Metal Components segments will not be material. We do anticipate the adoption will have a material impact on our financial statement disclosures.Commercial segment. Additional disaggregated revenue disclosures are included in Note 1 — Summary of Significant Accounting Policies.
 In February 2016, the FASB issued ASU 2016-02, Leases, which will require lessees to record most leases on the balance sheet and modifies the classification criteria and accounting for sales-type leases and direct financing leases for lessors. ASU 2016-02 is effective for our fiscal year ending December 31,2019, including interim periods within that fiscal year. ASU 2016-02, as amended by ASU 2018-11, Leases:Targeted Improvements, requires entities to use a modified retrospective approach, either, for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements, or under an alternative transition option, for leases existing at, or entered into after, the adoption date. While we are evaluating the impact that the adoption of this guidance will have on our consolidated financial statements, we currently believe that most of our operating leases will be reflected on the consolidated balance sheet upon adoption.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU requires an entity to measure all expected credit losses for financial assets, including trade receivables, held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Entities will now incorporate forward-looking information based on expected losses to estimate credit losses. ASU 2016-13 is effective for our fiscal year ending December 31, 2020, including interim periods within that fiscal year. We are evaluating the impact that the adoption of this ASU will have on our consolidated financial position, result of operations and cash flows.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which provides guidance on eight cash flow classification issues with the objective of reducing differences in practice. We will be required to adopt the amendments inThe Company adopted this ASU in our transition period ending December 31, 2018. Adoption is required to beguidance on a retrospective basis unless impracticable for anyin the Transition Period. The application of the amendments, in which case a prospective application is permitted. We are evaluating the impact that ASU 2016-15 willdid not have a material impact on ourthe consolidated financial statements.
In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory, which eliminates the exception that prohibits the recognition of current and deferred income tax effects for intra-entity transfers of assets other than inventory until the asset has been sold to an outside party. We will be required to adopt the amendments inThe Company adopted this ASU in the transition period ending December 31, 2018. The application of the amendments will require
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the use ofguidance on a modified retrospective basis, throughpursuant to which the Company recorded a cumulative-effect$0.7 million adjustment to retained earningsincrease the opening balance of accumulated deficit as of the beginningOctober 29, 2018 (the first day of the period of adoption. We are evaluating the standard andTransition Period) for the impact it will have on our consolidated financial statements.of applying the new standard.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force), which clarifies how entities should present restricted cash and restricted cash equivalents in the statement of cash flows. Entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. An entity with a material balance of restricted cash and restricted cash equivalents must disclose information about the nature of the restrictions. We will be required to adoptThe Company adopted this guidance on a retrospective basis in the transition period ending December 31, 2018.Transition Period. The adoption of ASU 2016-18 will not have a material impactthis guidance resulted in restricted cash activity previously included in financing activities on ourthe consolidated financial statements.statement of cash flows to be included as part of the beginning and ending balances of cash and cash equivalents and restricted cash in the Company's consolidated statements of cash flows.
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In March 2017, the FASB issued ASU 2017-07, CompensationRetirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which amends the requirements related to the income statement presentation of the components of net periodic benefit cost for employer sponsored defined benefit pension and other postretirement benefit plans. Under the new guidance, an entity must disaggregate and present the service cost component of net periodic benefit cost in the same income statement line items as other employee compensation costs arising from services rendered during the period, and only the service cost component will be eligible for capitalization. Other components of net periodic benefit cost will be presented separately from the line items that include the service cost. We will be required to adoptThe Company adopted this guidance in the transition period ending December 31, 2018. Entities must useTransition Period on a retrospective transition methodbasis to adopt the requirement for separate presentation of the income statement service cost and other components, and on a prospective transition method to adopt the requirement to limit the capitalization of benefit cost to the service component. We are evaluatingThe adoption of ASU 2017-07 did not have a material impact on the standard and the impact it will have on our consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, which provides clarity on the accounting for modifications of stock-based awards. We will be required to adoptThe Company adopted this guidance on a prospective basis in the transition period ending December 31, 2018Transition Period for share-based payment awards modified on or after the adoption date. We do not anticipate theThe adoption of ASU 2017-09 todid not have a material impact on the consolidated financial statements.
In August 2017, the FASB issued ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities. This ASU’s objectives are to (1) improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities by better aligning the entity’s financial reporting for hedging relationships with those risk management activities; and (2) reduce the complexity of and simplify the application of hedge accounting by preparers. ASU No. 2017-12 is effective for interim and annual reporting periods beginning after December 15, 2018. The Company adopted this guidance on a prospective basis for fiscal 2019. The adoption of ASU 2017-12 did not have a material impact on the consolidated financial statements.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU requires an entity to measure all expected credit losses for financial assets, including trade receivables, held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Entities will now incorporate forward-looking information based on expected losses to estimate credit losses. ASU 2016-13 will be effective for our fiscal year ending December 31, 2020, including interim periods within that fiscal year. The Company is evaluating the impact that the adoption of this ASU will have on our consolidated financial statements.position, result of operations and cash flows and does not expect it to be material.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which modifies disclosure requirements for fair value measurements under ASC 820, Fair Value Measurement. We The Company will be required to adopt this guidance retrospectively in the annual and interim periods for our fiscal year ending December 31, 2020, with early adoption permitted. We areThe Company is evaluating the impact of adopting this guidance.
In August 2018, the FASB issued ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans, which removes disclosures no longer considered cost beneficial, clarifies the specific requirements of disclosures and adds disclosure requirements identified as relevant. WeThe Company will be required to adopt this guidance for our fiscal year ending December 31, 2020, with early adoption permitted. Certain provisions are applied prospectively while others are applied retrospectively. We areThe Company is evaluating the impact of adopting this guidance.
In August 2018,December 2019, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software—General (Subtopic 350-40)2019-12, Income Taxes (Topic 740): Customer’sSimplifying the Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract,Income Taxes, which alignssimplifies the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for income taxes by removing certain exceptions to the service elementgeneral principles in Topic 740 and also improves consistent application of a hosting arrangement that is a service contract is not affectedand simplifies generally accepted accounting principles ("GAAP") for other areas of Topic 740 by these amendments. Weclarifying and amending existing guidance. The Company will be required to adopt this guidance in the annual and interim periods for our fiscal year ending December 31, 2020,2021, with early adoption permitted. The amendments in this ASU may be applied either retrospectively or prospectively. We areCompany is evaluating the impact ASU 2018-15 willof adopting this guidance.
Additionally, there were various other accounting standards and interpretations issued that the Company has not yet been required to adopt, none of which is expected to have a material impact on ourthe Company’s consolidated financial statements.statements going forward.
4. ACQUISITION
Fiscal 2016 acquisition
On November 3, 2015, we acquired manufacturing operations in Hamilton, Ontario, Canada for cash consideration of $2.2 million, net of post-closing working capital adjustments. This business allows us to service customers more competitively within the Canadian and Northeastern United States insulated metal panel (“IMP”) markets. Because the business was acquired from
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NCI BUILDING SYSTEMS, INC.


4. ACQUISITIONS
Environmental Stoneworks
On January 12, 2019, the Company entered into a sellerUnit Purchase Agreement (the “Purchase Agreement”) with Environmental Materials, LLC, a Delaware limited liability company (“Environmental Stoneworks” or “ESW”), the Members of Environmental Materials, LLC (the “Sellers”) and Charles P. Gallagher and Wayne C. Kocourek, solely in connectiontheir capacity as the Seller Representative (as defined in the Purchase Agreement), pursuant to which, on February 20, 2019, the Company’s wholly-owned subsidiary, Ply Gem Industries, Inc., purchased from the Sellers 100% of the outstanding limited liability company interests of Environmental Stoneworks (the “Environmental Stoneworks Acquisition”) for total consideration of $182.6 million, subject to certain post-closing adjustments. The transaction was financed through borrowings under the Company’s asset-based revolving credit facility.
The Environmental Stoneworks Acquisition, when combined with the Company’s existing stone businesses, positions the Company as a divestment required bymarket leader in stone veneer. The Company accounted for the transaction as an acquisition in accordance with the provisions of Accounting Standards Codification 805, Business Combinations, which results in a regulatory authority,new valuation for the assets and liabilities of Environmental Stoneworks based upon fair values as of the closing date.
The Company determined the fair value of the nettangible and intangible assets and the liabilities acquired, exceededand recorded goodwill based on the purchaseexcess of fair value of the acquisition consideration by $1.9over such fair values, as follows (in thousands):
Assets acquired:
Restricted cash$3,379 
Accounts receivable17,134 
Inventories13,062 
Prepaid expenses and other current assets3,677 
Property, plant and equipment14,295 
Lease right-of-use assets11,372 
Intangible assets (trade names/customer relationships)91,170 
Goodwill61,767 
Other assets157 
Total assets acquired216,013 
Liabilities assumed:
Accounts payable5,910 
Other accrued expenses12,725 
Lease liabilities11,365 
Other long-term liabilities3,450 
Total liabilities assumed33,450 
Net assets acquired$182,563 
The $61.8 million of goodwill was allocated to the Siding segment and is expected to be deductible for tax purposes. The goodwill is attributable to the workforce of the acquired business and the synergies expected to be realized.
During the year ended December 31, 2019, the Company incurred $1.5 million of acquisition-related costs for Environmental Stoneworks, which wasare recorded as a non-taxable gain from bargain purchasein strategic development and acquisition related costs in the Company’s consolidated statements of operationsoperations.
The final acquisition accounting allocation for the Environmental Stoneworks Acquisition remains subject to further adjustments. The specific accounts subject to ongoing acquisition accounting adjustments include accounts receivable, inventories, prepaid expenses and other current assets, goodwill, intangibles, accounts payable, accrued expenses, accrued warranties and other liabilities. Therefore, the measurement period remained open as of December 31, 2019, and the preliminary acquisition accounting allocation detailed above is subject to further adjustment. The Company anticipates completing these acquisition accounting adjustments during the first quarter of fiscal 2016.2020.
Ply Gem Merger
On July 17, 2018, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Ply Gem Parent, LLC (“Ply Gem”), and for certain limited purposes as set forth in the Merger Agreement, Clayton, Dubilier & Rice,
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LLC (“CD&R”), pursuant to which, at the closing of the merger, Ply Gem would be merged with and into NCI, with NCI continuing its existence as a corporation organized under the laws of the State of Delaware (the “Merger”). On November 15, 2018, at a special meeting of NCI shareholders, NCI’s shareholders approved, among other items, the Merger Agreement and the issuance in the Merger of 58,709,067 shares of NCI common stock, par value $0.01 per share (“NCI Common Stock”) in the aggregate, on a pro rata basis, to the holders of all of the equity interests in Ply Gem (the “Stock Issuance”), representing approximately 47% of the total number of shares of NCI Common Stock outstanding following the consummation of the Merger on November 16, 2018 (the “Closing Date”). The total value of shares of NCI Common Stock issued pursuant to the Stock Issuance was approximately $713.9 million based on the number of shares issued multiplied by the NCI Common Stock closing share price of $12.16 on the Closing Date. There are approximately 57,103 shares of NCI Common Stock of the original 58,709,067 that have not yet been issued pending holder identification and have been accrued as purchase consideration within other current liabilities in the consolidated balance sheet at December 31, 2019. For accounting and legal purposes, NCI was the accounting and legal acquirer of Ply Gem as of the Closing Date and Ply Gem’s results have been included within NCI from the Closing Date.
Ply Gem is a leading manufacturer of exterior building products in North America, operating in 2 segments: Siding and Windows. These 2 segments produce a comprehensive product line of vinyl siding, designer accents, cellular PVC trim, vinyl fencing, vinyl railing, stone veneer, and vinyl windows and doors used in both the new construction market and the home repair and remodeling market in the United States and Canada. Vinyl building products have the leading share of sales volume in siding and windows in the United States. Ply Gem also manufactures vinyl and aluminum soffit and siding accessories, aluminum trim coil, wood windows, aluminum windows, vinyl and aluminum-clad windows and steel and fiberglass doors, enabling Ply Gem to bundle complementary and color-matched products and accessories with our core products.
Ply Gem strategically fits into NCI’s existing footprint and broadens its service offering to existing and new customers within the building products industry. The Company accounted for the Merger as an acquisition in accordance with the provisions of Accounting Standards Codification 805, Business Combinations, which results in a new valuation for the assets and liabilities of Ply Gem based upon fair values as of the Closing Date.
In connection with the Merger, on November 16, 2018, NCI assumed (i) the obligations of the company formerly known as Ply Gem Midco, Inc. (“Ply Gem Midco”), a subsidiary of Ply Gem immediately prior to the consummation of the Merger, as borrower under the Current Cash Flow Credit Agreement (as defined below), (ii) the obligations of Ply Gem Midco as parent borrower under the Current ABL Credit Agreement (as defined below) and (iii) the obligations of Ply Gem Midco as issuer under the Current Indenture (as defined below).
On April 12, 2018, Ply Gem Midco entered into a Cash Flow Credit Agreement (the “Current Cash Flow Credit Agreement”), by and among Ply Gem Midco, JP Morgan Chase Bank, N.A., as administrative agent and collateral agent (the “Cash Flow Agent”), and the several banks and other financial institutions from time to time party thereto. As of November 16, 2018, immediately prior to consummation of the Merger, the Current Cash Flow Credit Agreement provided for (i) a term loan facility (the “Current Term Loan Facility”) in an original aggregate principal amount of $1,755.0 million and (ii) a cash flow-based revolving credit facility (the “Current Cash Flow Revolver” and together with the Current Term Loan Facility, the “Current Cash Flow Facilities”) of up to $115.0 million. On November 16, 2018, Ply Gem Midco entered into a Lender Joinder Agreement, by and among Ply Gem Midco, the additional commitment lender party thereto and the Cash Flow Agent, which amended the Current Cash Flow Credit Agreement in order to, among other things, increase the aggregate principal amount of the Current Term Loan Facility by $805.0 million (the “Incremental Term Loans”). Proceeds of the Incremental Term Loans 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 (each as defined below) and (c) repay $325.0 million of borrowings outstanding under the Current ABL Facility (as defined below). 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 Current Cash Flow Facilities, and NCI became the Borrower (as defined in the Current Cash Flow Credit Agreement) under the Current Cash Flow Facilities. The Current Term Loan Facility amortizes in nominal quarterly installments equal to 1 percent of the aggregate initial principal amount thereof per annum, with the remaining balance payable upon final maturity of the Current Term Loan Facility on April 12, 2025. There are no amortization payments under the Current Cash Flow Revolver, and all borrowings under the Current Cash Flow Revolver mature on April 12, 2023.
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On April 12, 2018, Ply Gem Midco and certain subsidiaries of Ply Gem Midco entered into an ABL Credit Agreement (the “Current ABL Credit Agreement”), by and among Ply Gem Midco, the subsidiary borrowers from time to time party thereto, UBS AG, Stamford Branch, as administrative agent and collateral agent (the “ABL Agent”), and the several banks and other financial institutions from time to time party thereto, which provided for an asset-based revolving credit facility (the “Current 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”). On October 15, 2018, Ply Gem Midco entered into Amendment No. 2 to the Current ABL Credit Agreement, by and among Ply Gem Midco, the incremental lender party thereto and the ABL Agent, which amended the Current ABL Credit Agreement in order to, among other things, increase the aggregate commitments under the Current ABL Facility by $36.0 million to $396.0 million overall, and with the (x) 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 Amendment No. 4 to the Current ABL Credit Agreement, by and among Ply Gem Midco, the incremental lenders party thereto and the ABL Agent, which amended the Current ABL Credit Agreement in order to, among other things, increase the aggregate commitments under the Current ABL Facility by $215.0 million (the “Incremental ABL Commitments”) to $611.0 million overall, and with the (x) 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, NCI and Ply Gem Midco entered into a joinder agreement with respect to the Current ABL Facility, and NCI became the Parent Borrower (as defined in the Current ABL Credit Agreement) under the Current ABL Facility. The Company and, at the Company’s option, certain of the Company’s subsidiaries are the borrowers under the Current ABL Facility. As of November 16, 2018, and following consummation of the Merger, (a) Ply Gem Industries, Inc., Atrium Windows and Doors, Inc., NCI Group, Inc. and Robertson-Ceco II Corporation were U.S. subsidiary borrowers under the Current ABL Facility, and (b) Gienow Canada Inc., Mitten Inc., North Star Manufacturing (London) Ltd. and Robertson Building Systems Limited were Canadian borrowers under the Current ABL Facility. All borrowings under the Current ABL Facility mature on April 12, 2023.
On April 12, 2018, Ply Gem Midco issued $645.0 million aggregate principal amount of 8.00% Senior Notes due 2026 (the “8.00% Senior Notes”). The 8.00% Senior Notes were issued pursuant to an Indenture, dated as of April 12, 2018 (as supplemented from time to time, the “Current Indenture”), by and among Ply Gem Midco, as issuer, the subsidiary guarantors from time to time party thereto and Wilmington Trust, National Association, as trustee. On November 16, 2018, in connection with the consummation of the Merger, the Company entered into a supplemental indenture and assumed the obligations of Ply Gem Midco as issuer under the Current Indenture and the 8.00% Senior Notes. The 8.00% Senior Notes bear interest at 8.00% per annum and will mature on April 15, 2026. Interest is payable semi-annually in arrears on April 15 and October 15.
On November 16, 2018, in connection with the incurrence by Ply Gem Midco of the Incremental Term Loans and the obtaining by Ply Gem Midco of the Incremental ABL Commitments, following consummation of the Merger, the Company (a) terminated all outstanding commitments and repaid all outstanding amounts under the Term Loan Credit Agreement, dated as of February 8, 2018 (the “Pre-merger Term Loan Credit Agreement”), by and among the Company, as borrower, the several banks and other financial institutions from time to time party thereto and Credit Suisse AG, Cayman Islands Branch, as administrative agent and collateral agent, and (b) terminated all outstanding commitments and repaid all outstanding amounts under the ABL Credit Agreement, dated as of February 8, 2018 (the “Pre-merger ABL Credit Agreement”), by and among NCI Group, Inc. and Robertson-Ceco II Corporation, as borrowers, the Company, as a guarantor, the other borrowers from time to time party thereto, the several banks and other financial institutions from time to time party thereto and Wells Fargo Bank, National Association, as administrative agent and collateral agent. Outstanding letters of credit under the Pre-merger ABL Credit Agreement were cash collateralized.
In connection with the termination and repayment of the Pre-merger Term Loan Credit Agreement and the Pre-merger ABL Credit Agreement, the Company also terminated (i) the Term Loan Guarantee and Collateral Agreement, dated as of February 8, 2018, made by the Company and certain of its subsidiaries, in favor of Credit Suisse AG, Cayman Islands Branch, as collateral agent, (ii) the ABL Guarantee and Collateral Agreement, dated as of February 8, 2018, made by the Company and certain of its subsidiaries, in favor of Wells Fargo Bank, National Association, as collateral agent, and (iii) the Intercreditor Agreement, dated as of February 8, 2018, between Credit Suisse AG, Cayman Islands Branch and Wells Fargo Bank, National Association, and acknowledged by the Company and certain of its subsidiaries.
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Purchase Price Allocation
The Company’s total purchase consideration in the Merger was equal to $728.9 million and is comprised of the Stock Issuance of $713.9 million and a cash payment of $15.0 million by the Company to settle certain third-party fees and expenses incurred by Ply Gem. The Company determined the fair values of the tangible and intangible assets acquired and the liabilities assumed as partin the Merger, and recorded goodwill based on the excess of thisfair value of the acquisition as of November 3, 2015, as determined in accordance with ASC Topic 805, wereconsideration over such fair values, as follows (in thousands):
Assets acquired:
Cash$102,121 
Accounts receivable345,601 
Inventories301,388 
Prepaid expenses and other current assets52,923 
Property, plant and equipment364,708 
Intangible assets (trade names/customer relationships)1,720,000 
Goodwill1,462,958 
Other assets4,868 
Total assets acquired4,354,567 
Liabilities assumed:
Accounts payable139,955 
Tax receivable agreement liability47,355 
Other accrued expenses (inclusive of $23.6 million for current warranty liabilities)244,622 
Debt (inclusive of current portion)2,674,767 
Other long-term liabilities ($163.7 million for accrued long-term warranty)163,668 
Deferred income taxes323,308 
Other long-term liabilities31,947 
Total liabilities assumed3,625,622 
Net assets acquired$728,945 
  November 3,
2015
Current assets $307
Property, plant and equipment 4,810
Assets acquired 5,117
Current liabilities assumed 380
Fair value of net assets acquired 4,737
Total cash consideration transferred 2,201
Deferred tax liabilities 672
Gain from bargain purchase $(1,864)
At the acquisition date, $747.4 million of goodwill was allocated to the Siding segment and $715.6 million was allocated to the Windows segment and none of the goodwill is expected to be deductible for tax purposes. The goodwill is attributable to the workforce of the acquired business and the synergies expected to be realized.
Unaudited Pro Forma Financial Information
During the year ended December 31, 2019, Environmental Stoneworks contributed net sales of $150.5 million and net income of $8.7 million which has been included within the Company’s consolidated statement of operations. The following table provides unaudited supplemental pro forma results for Cornerstone, prepared in accordance with ASC 805, for the years ended December 31, 2019 and October 28, 2018 as if the Environmental Stoneworks and Ply Gem acquisitions had occurred on October 30, 2017 (beginning of the year ended October 28, 2018) (in thousands except for per share data):
Year Ended
December 31,
2019
October 28,
2018
Net sales$4,905,843  $5,082,205  
Net income (loss) applicable to common shares15,176  (182,778) 
Net income (loss) per common share:
Basic$0.12  $(1.46) 
Diluted$0.12  $(1.46) 
The results of operations for this business are included in our Insulated Metal Panels segment. Prounaudited supplemental pro forma financial information was prepared based on the historical information of Cornerstone, Ply Gem and other disclosures for this acquisition have not been presented as such is not materialEnvironmental Stoneworks. Material pro forma adjustments related to the Company’sEnvironmental Stoneworks and Ply Gem acquisitions include approximately $62.6 million of certain acquisition and compensation costs and $37.9 million of non-cash charges of purchase price allocated to inventories, which were reflected in the pro forma results as if they were incurred on October 30, 2017. Other material pro forma adjustments include adjustments to depreciation and amortization expense and interest expense related to the Environmental Stoneworks and Ply Gem acquisitions.
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The unaudited supplemental pro forma financial positioninformation 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 two acquisitions or any integration costs. Unaudited pro forma balances are not necessarily indicative of operating results had the Environmental Stoneworks and Ply Gem acquisitions occurred on October 30, 2017 or of future results.
5. RESTRUCTURING
As part of theThe Company developed restructuring plans developed in the fourth quarter of the fiscal year ended November 1, 2015 (“fiscal 2015”) primarily to improve engineering, selling, general and administrative (“ESGSG&A”) and manufacturing cost efficiency and to optimize our combined manufacturing footprint wegiven the Company’s acquisitions, dispositions and restructuring efforts. Under these plans, the Company incurred restructuring charges of $1.5 million, including $1.3 million, $1.3 million and $0.1 million in the Engineered Building Systems, Insulated Metal Panels and Corporate segments, respectively, partially offset bywhich included a net gain of $1.2 million on salesthe sale of facilities, $4.7 million and $1.3 million during fiscal 2018, 2017 and the transition period ended December 31, 2018, respectively, in our Engineered Metal Buildings and Metal Components segments, forthe Commercial segment. As of December 31, 2018, the Company was substantially complete with the fiscal year ended October 28, 2018.2015 restructuring plans initiated by the Company before the Merger.
ForThe Company has various new initiatives and programs in place within its business units to further reduce SG&A, manufacturing costs and to optimize our combined manufacturing footprint given the fiscal year ended October 29, 2017, we incurred restructuring charges, primarily consisting of severance related costs of $4.7 million, including $3.2 million, $1.2 million and $0.3 million in the Engineered Building Systems segment, Metal Components segment and Corporate, respectively.
For the fiscal year ended October 30, 2016, we incurred restructuring charges, primarily consisting of severance related costs of $3.6 million, including $1.0 million, $1.7 million and $0.9 million in the Engineered Building Systems segment, Metal Components segment and Corporate, respectively. These charges include severance related costs associated with the consolidation and closing of two manufacturing facilities in our Metal Components segment during fiscal 2016. We also incurred approximately $0.6 million of other costs associated with the restructuring actions during fiscal 2016.
Merger. The following table summarizes our restructuring plan costs and charges related to the restructuring plans duringfor the fiscal year ended October 28, 2018 and since inception,December 31, 2019, which are recorded in restructuring and impairment charges in the Company’s consolidated statements of operations (in thousands):
 Fiscal Year Ended 
Costs
Incurred
To Date
(since
inception)
 October 28,
2018
 
General severance$2,272
 $11,234
Plant closing severance31
 3,310
Asset impairments1,171
 7,140
Gain on sale of facility(2,049) (2,049)
Other restructuring costs102
 1,415
Total restructuring costs$1,527
 $21,050
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NCI BUILDING SYSTEMS, INC.


Costs
Incurred
To Date
(since
inception)
General severance$8,485 
Plant closing severance1,173 
Asset impairments2,963 
Loss on sale of facilities, net64 
Other restructuring costs5,375 
Total restructuring costs$18,060 
The following table summarizes ourthe Company's severance liability and cash payments made pursuant to the restructuring plans from inception through October 28, 2018December 31, 2019 (in thousands):
General
Severance
Plant Closing
Severance
Total
Balance at December 31, 2018$2,418  $—  $2,418  
Costs incurred8,485  1,173  9,658  
Cash payments(8,240) (1,173) (9,413) 
Balance, December 31, 2019$2,663  $—  $2,663  
 General
Severance
 Plant Closing
Severance
 Total
Balance, November 2, 2014$
 $
 $
Costs incurred3,887
 1,575
 5,462
Cash payments(2,941) (1,575) (4,516)
Accrued severance(1)
739
 
 739
Balance, November 1, 2015$1,685
 $
 $1,685
Costs incurred(1)
2,725
 165
 2,890
Cash payments(3,928) (165) (4,093)
Balance, October 30, 2016$482
 $
 $482
Costs incurred2,350
 1,539
 3,889
Cash payments(2,549) (1,539) (4,088)
Balance, October 29, 2017$283
 $
 $283
Costs incurred2,272
 31
 2,303
Cash payments(2,134) (31) (2,165)
Balance at October 28, 2018$421
 $
 $421
(1)During the second and fourth quarters of fiscal 2015, we entered into transition and separation agreements with certain executive officers. Each terminated executive officer was entitled to severance benefit payments issuable in two installments. The termination benefits were measured initially at the separation dates basedThese severance liabilities are included within other accrued expenses on the fair value of the liability as of the termination date and were recognized ratably over the future service period. Costs incurred during fiscal 2016 exclude $0.7 million of amortization expense associated with these termination benefits.
We expect to fully execute our plans in phases over the next 3 months and estimate that additional restructuring charges associated with these plans will not be material.consolidated balance sheets.
6. GOODWILL AND OTHER INTANGIBLE ASSETS
OurThe Company's goodwill balance and changes in the carrying amount of goodwill by operating segment are as follows (in thousands):
CommercialSidingWindowsTotal
Balance, October 28, 2018$148,291  $—  —  $148,291  
Goodwill recognized from Merger—  854,606  639,447  1,494,053  
Currency translation—  (1,220) (913) (2,133) 
Balance, December 31, 2018$148,291  $853,386  638,534  $1,640,211  
Goodwill recognized from Environmental Stoneworks Acquisition—  61,767  —  61,767  
Currency translation—  (655) (634) (1,289) 
Purchase accounting adjustments—  (45,607) 14,512  (31,095) 
Reallocation of goodwill between segments for purchase accounting—  (61,611) 61,611  —  
Balance, December 31, 2019$148,291  $807,280  $714,023  $1,669,594  
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 Engineered
Building
Systems
 Metal
Components
 Insulated Metal Panels Metal Coil
Coating
 Total
Balance, October 30, 2016$14,310
 $7,110
 121,444
 $11,407
 $154,271
Impairment (1)

 
 
 (6,000) (6,000)
Other, net
 
 20
 
 20
Balance, October 29, 2017$14,310
 $7,110
 121,464
 5,407
 $148,291
Balance, October 28, 2018$14,310
 $7,110
 $121,464
 $5,407
 $148,291
(1) Our July 31, 2017 goodwill impairment testing indicated an impairment as the carrying value of CENTRIA’s coil coating operations, included in our Metal Coil Coating segment, exceeded its fair value. As a result, we recorded a non-cash charge of $6.0 million in goodwill impairment on our consolidated statements of operations for the year ended October 29, 2017.
In accordance with ASC Topic 350, Intangibles — Goodwill and Other, goodwill is tested for impairment at least annually at the reporting unit level, which is defined as an operating segment or a component of an operating segment that constitutes a business for which financial information is available and is regularly reviewed by management. ManagementThe Company has determined that we have six6 reporting units for the purpose of allocating goodwill and the subsequent testing of goodwill for impairment. Our EngineeredThe Commercial segment has 4 reporting units (Engineered Building Systems, segment has one reporting unit, our Metal Components, segment has two reporting units, our Insulated Metal Panels, segment has two reporting units and our Metal Coil Coating segment has oneCoating) and the Siding and Windows segments each have 1 reporting unit.
In the first quarter of fiscal 2018 we assessed goodwill for impairment upon the change in reporting segments, which changed the composition of the Metal Coil Coating reporting unit. At the beginning of the fourth quarter of each fiscal year, we perform
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NCI BUILDING SYSTEMS, INC.


the Company performs an annual impairment assessment of goodwill and indefinite-lived intangible assets. Additionally, we assessThe Company measures the goodwill and indefinite-lived intangible assets for impairment whenever events or changesas the amount by which the reporting unit's carrying value exceeds its fair value not to exceed the carrying amount of goodwill in circumstances indicate thata reporting unit. To determine the fair value mayof its reporting units, the Company equally considers both the income and market valuation methodologies. The income valuation methodology uses the fair value of the cash flows that the reporting unit can be belowexpected to generate in the future. This method requires management to project revenues, operating expenses, working capital investment, capital spending and cash flows for the reporting unit over a multi-year period as well as determine the weighted average cost of capital to be used as the discount rate. The Company also utilizes the market valuation method to estimate the fair value of the reporting units by utilizing comparable public company multiples. These comparable public company multiples are then applied to the reporting unit’s financial performance. The market approach is more volatile as an indicator of fair value as compared to the income approach as internal forecasts and projections have historically been more stable. Since each approach has its merits, the Company equally weighs the approaches to balance the internal and external factors affecting the Company’s fair value. Since the Merger occurred on November 16, 2018, the Siding and Windows reporting units were marked to fair value at the Merger date and the goodwill was adjusted accordingly for the Merger consideration.The annual impairment test occurred less than a year from the Merger date resulting in the Siding and Windows reporting units along with the Metal Coil Coating report units having fair values that exceeded their carrying values by approximately 12%, 3% and 8%, respectively.
The Company’s fair value estimates of its reporting units are sensitive to a number of assumptions including discount rates, cash flow projections, operating margins, and comparable market multiples. In order to accurately forecast future cash flows, the Company utilized its weighted average cost of capital and its long-term growth rate to derive the appropriate capitalization rate used in the terminal value calculation. The Company utilized these fair value estimate assumptions during the impairment analysis conducted during the year ended December 31, 2019.
The Company provides no assurance that: 1) valuation multiples will not decline, 2) discount rates will not increase, or 3) the earnings, book values or projected earnings and cash flows of the Company’s reporting units will not decline. The Company will continue to analyze changes to these assumptions in future periods. The Company will also continue to evaluate goodwill during future periods and declines in the residential housing, remodeling, and commercial construction markets or unfavorable performance by the Company in these markets could result in future goodwill impairments.
Our fiscal 2017 annual goodwill impairment testing indicated an impairment as the carrying value of CENTRIA’s coil coating operations, included in the Commercial segment, exceeded its fair value. We completed our interimAs a result, the Company recorded a non-cash charge of $6.0 million in goodwill impairment test asin the Company's consolidated statements of Januaryoperations for the year ended October 29, 2018 and our annual impairment assessment2017.
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The table that follows presents the major components of goodwill and indefinite-lived intangible assets as of July 30, 2018. We elected to apply the qualitative assessment for each of the reporting units with goodwillDecember 31, 2019 and the indefinite lived intangibles for the interim and annual tests. Under the qualitative assessment, relevant events and circumstances (or factors) that would affect the estimated fair value of a reporting unit are identified. These factors are then classified by the type of impact they would have on the estimated fair value using positive, neutral, and negative categories based on current business conditions. Additionally, an assessment of the level of impact that a particular factor would have on the estimated fair value is determined using relative weightings. Based on our assessment of these tests, we do not believe it is more likely than not that the fair value of these reporting units or the indefinite-lived intangible assets are less than their respective carrying amounts.
The following table represents all our intangible assets activity for the fiscal years ended October 28, 2018 and October 29, 2017 (in thousands):
Range of Life (Years)Weighted Average Amortization Period (Years)CostAccumulated AmortizationNet Carrying Value
As of December 31, 2019
Amortized intangible assets:
Trademarks/Trade names/other(1)
5159$252,942  $(38,010) $214,932  
Customer lists and relationships920111,737,060  (211,292) 1,525,768  
Total intangible assets10$1,990,002  $(249,302) $1,740,700  
(1) During fiscal 2019, the Company began amortization of trade names previously classified as indefinite-lived over an eight-year period.
Range of Life (Years)Weighted Average Amortization Period (Years)CostAccumulated AmortizationNet Carrying Value
As of December 31, 2018
Amortized intangible assets:
Trademarks/Trade names81510$226,967  $(15,483) $211,484  
Customer lists and relationships920111,503,410  (58,448) 1,444,962  
Indefinite-lived intangible assets:
Trade names13,455  —  13,455  
Total intangible assets11$1,743,832  $(73,931) $1,669,901  
 Range of Life
(Years)
 October 28,
2018
 October 29,
2017
Amortized intangible assets:       
Cost:       
Trade names 15  $29,167
 $29,167
Customer lists and relationships1220 136,210
 136,210
     $165,377
 $165,377
Accumulated amortization:       
Trade names    $(12,657) $(10,713)
Customer lists and relationships    (38,646) (30,971)
     $(51,303) $(41,684)
        
Net book value    $114,074
 $123,693
Indefinite-lived intangible assets:      
   
Trade names    13,455
 13,455
Total intangible assets at net book value    $127,529
 $137,148
The Star and Ceco trade name assets within the Engineered Building Systems segment have an indefinite life and are not amortized, but are reviewed annually and tested for impairment. These trade names were determined to have indefinite lives due to the length of time the trade names have been in place, with some having been in place for decades. Our intention is to maintain these trade names indefinitely.
All other intangibleIntangible assets are amortized on a straight-line basis or a basis consistent with the expected future cash flows over their expected useful lives. As of October 28, 2018 and October 29, 2017, the weighted average amortization period for all our intangible assets was 14.2 years and 15.0 years, respectively. Amortization expense of intangibles was $177.6 million, $9.6 million, $9.6 million and $9.6$20.1 million forin fiscal 2019, 2018 and 2017, and 2016,the transition period ended December 31, 2018, respectively. We expectThe Company expects to recognize amortization expense over the next five fiscal years as follows (in thousands):
2020$179,435  
2021179,130  
2022178,820  
2023178,802  
2024177,374  
2019$9,620
20209,327
20219,064
20228,721
20238,667
In accordance with ASC Topic 350, Intangibles — Goodwill and Other, we evaluatethe Company evaluates the remaining useful life of intangible assets on an annual basis. WeThe Company also reviewreviews finite-lived intangible assets for impairment when events or changes in circumstances indicate the carrying values may not be recoverable in accordance with ASC Topic 360, Property, Plant and Equipment.

7. LEASES
As described in Note 2 — Summary of Significant Accounting Policies, effective January 1, 2019, the Company adopted ASU 2016-02, Leases, applying the standard to leases existing at the effective date. For arrangements entered into following the transition date, applicability of the standard is determined at inception.
Weighted average information about the Company’s lease portfolio as of December 31, 2019 was as follows:
Weighted-average remaining lease term5.9 years
Weighted-average IBR6.13 %
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NCI BUILDING SYSTEMS, INC.


Operating lease costs were as follows (in thousands):
7.
Year Ended December 31, 2019
Operating lease costs
Fixed lease costs$102,767 
Variable lease costs(1)
107,357 
(1) Includes short-term lease costs, which are immaterial.
Cash and non-cash activities were as follows (in thousands):
Year Ended December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases$109,274 
Right-of-use assets obtained in exchange for new operating lease liabilities$396,008 
Future minimum lease payments under non-cancelable leases as of December 31, 2019 were as follows (in thousands):
Operating Leases  
2020$89,649  
202178,970  
202264,046  
202337,049  
202427,793  
Thereafter82,345  
Total future minimum lease payments379,852  
Less: interest63,644  
Present value of future minimum lease payments$316,208  
As of December 31, 2019
Current portion of lease liabilities$72,428  
Long-term portion of lease liabilities243,780  
Total$316,208  

8. SHARE-BASED COMPENSATION
Our 2003 Long-Term Stock Incentive Plan, as amended (the “Incentive Plan”), is an equity-based compensation plan that allows for theus to grant of a variety of types of awards, including stock options, restricted stock restricted stock units,awards, stock appreciation rights, performance share units (“PSUs”),cash awards, phantom stock awards, restricted stock unit awards ("RSUs") and long-term incentive awards with performance conditions (“Performance Share Awards”performance share units” or "PSUs") and cash awards.. 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, 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 Incentive Plan but was instead granted pursuant to a separate equity-based compensation plan, the Long-Term Incentive Plan consisting of award agreements for select Founders Awards. However, these awards were subject to the same terms and provisions as awards of the same type granted under the Incentive Plan.
As of December 31, 2019, and for all periods presented, the Founders Awards and our share-based awards under the Incentive Plan have consisted of RSUs, PSUs and stock option grants, none of which can be settled through cash payments, and Performance Share Awards, which are settled in cash. Both our stock options and restricted stock awards are subject only to vesting requirements based on continued employment at 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. Restricted stock awards do not vest upon attainment of a specified retirement age, as provided by the agreements governing such awards. The vesting of our Performance Share Awards is described below.
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As a general rule, option awards terminate on the earlier of (i) 10 years from the date of grant, (ii) 3060 days after termination of employment or service for a reason other than death, disability or retirement, or (iii) one year180 days after death, or (iv) one year for incentive stock options or five years for other awards after 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. Awards may be paid in cash, shares of our Common Stock or a combination, in lump sum or installments and currently or by deferred payment, all as determined by the Committee.
As of October 28, 2018, and for all periods presented, our share-based awards under this plan have consisted of restricted stock grants, PSUs and stock option grants, none of which can be settled through cash payments, and Performance Share Awards. Both our stock options and restricted stock awards are subject only to vesting requirements based on continued employment at the end of a specified time period and typically vest in annual increments over three to four years or earlier upon death, disability or a change in control. Restricted stock awards issued after December 15, 2013 do not vest upon attainment of a specified retirement age, as provided by the agreements governing such awards. The vesting of our Performance Share Awards is described below.
A total of approximately 3,771,000 and 2,287,000 shares were available at October 28, 2018 and October 29, 2017, respectively, under the Incentive Plan for the further grants of awards.
Our option awards and time-based restricted stock awards are typically subject to graded vesting over a service period, which is typically three or four 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. WeOur 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 annual award grant. In addition, certainthe 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 qualified retirement, after a change inof control or upon termination without cause or for good reason. We recognize compensation cost
A total of approximately 8,734,000 and 2,091,000 shares were available at December 31, 2019 and 2018, respectively, under the Incentive Plan for further grants of awards.
Our Board of Directors approved the treatment of existing awards as if a change in control had occurred, per the respective agreements governing each award. As such, on November 16, 2018, upon consummation of the Merger, certain awards overgranted in fiscal 2016 and earlier vested, resulting in the issuance of 0.5 million shares, net of shares withheld. Certain other PSUs that were issued in fiscal 2017 and fiscal 2018 converted to RSUs at 100% and continue to vest in accordance with the original schedule.
Founders Awards granted to our senior executives and certain key employees included options, RSUs and PSUs. The options and RSUs vest subject to continued employment 20% per year on the first through fifth anniversary of the award. Vesting of the PSUs is contingent upon the achievement of synergies captured from the Merger and continued employment during a three-year performance period frombeginning on the grant datedate. At the end of the performance period, the number of actual shares to be awarded varies between 0% and 200% of target amounts. The PSUs vest pro rata if an executive’s employment terminates after 50% of the service period has passed and prior to the end of the performance period due to death, disability, or termination by the Company without cause or by the executive for good reason. If an executive’s employment terminates for any other reason prior to the end of the performance period, all outstanding unvested PSUs, whether earned or unearned, are forfeited and cancelled. If a change in control of the Company occurs, and the plan is not accepted by the successor entity, prior to the end of the performance period, the PSU payout is calculated and paid assuming that the maximum benefit had been achieved. If the plan is accepted, awards will continue to vest as RSUs with a double trigger acceleration upon termination by the Company without cause or by the executive for good reason. If an executive’s employment terminates due to death or disability while any of the restricted stock is unvested, then all of the unvested restricted stock shall become vested. If an executive’s employment is terminated by the Company without cause or by the executive for good reason, the unvested restricted stock is forfeited. If a change in control of the Company occurs, and the plan is not accepted by the successor entity, prior to the end of the performance period, the restricted stock fully vests. If the plan is accepted, awards will continue to vest with a double trigger acceleration upon termination by the Company without cause or by the executive for good reason. The fair value of the awards is based on the Company’s stock price as of the date the employee first becomes eligible for retirement.
We adopted the provisions of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, in our first quarter in fiscal 2018. For additional information see Note3 - Accounting Pronouncements.grant.
Stock Option Awards
The fair value of each option award is estimated as of the date of grant using a Black-Scholes-Merton option pricing formula. Expected volatility is based on normalized historical volatility of our stock over a preceding period commensurate with the expected term of the option. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Expected dividend yield was not considered in the option pricing formula since we do not currently pay dividends on our Common Stock and have no current plans to do so in the future.
There were 115,424, 182,923 and 1,418,219 options exercised during fiscal 2018, 2017 and 2016, respectively. Cash received from the option exercises was $1.3 million, $1.7 million and $12.6 million during fiscal 2018, 2017 and 2016, respectively. The total intrinsic value of options exercised in fiscal 2018, 2017 and 2016 was $0.8 million, $1.4 million and $9.9 million, respectively.
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During fiscal 2019 and 2017, and 2016,the transition period ended December 31, 2018, we granted 359,873, 10,424 and 28,5353,082,175 stock options, respectively, and the weighted average grant-date fair value of options granted during fiscal 2019 and 2017, and 2016the transition period ended December 31, 2018 was $1.97, $6.59 and $5.38,$5.19, respectively. We did not0t grant stock options during fiscal 2018.
The weighted average assumptions for the option awards granted onin fiscal 2019 and 2017, and the transition period ended December 15, 2016 and December 15, 201531, 2018 are as follows:
 December 15,
2016
 December 15,
2015
Expected volatility42.63% 43.71%
Expected term (in years)5.50
 5.50
Risk-free interest rate2.15% 1.77%
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NCI BUILDING SYSTEMS, INC.


Year Ended
December 31,
2019
October 29,
2017
October 29, 2018 -
December 31, 2018
Volatility rate39.87 %42.63 %37.26 %
Expected term (in years)6.505.506.50
Risk-free interest rate1.73 %2.15 %2.95 %
The following is a summary of stock option transactions during fiscal 2019, 2018 and 2017, and 2016the transition period ended December 31. 2018 (in thousands, except weighted average exercise prices and weighted average remaining life):
Number of
Shares
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Life
Aggregate
Intrinsic
Value
Number of
Shares
 Weighted
Average
Exercise
Price
 Weighted
Average
Remaining
Life
 Aggregate
Intrinsic
Value
Balance, November 1, 20151,904
 $9.85
  
Granted29
 12.76
  
Exercised(1,418) (8.89)  
Cancelled(7) (227.21)  
Balance, October 30, 2016508
 10.24
  Balance, October 30, 2016508  $10.24  
Granted11
 15.70
  Granted11  15.70  
Exercised(183) (9.03)  Exercised(183) 9.03  
Balance, October 29, 2017336
 11.06
  Balance, October 29, 2017336  11.06  
Exercised(115) 11.09
  Exercised(115) 11.09  
Cancelled(6) 15.70
    Cancelled(6) 15.70  
Balance, October 28, 2018215
 $10.94
 2.9 $428
Balance, October 28, 2018215  10.94  
Exercisable at October 28, 2018212
 $10.86
 2.8 $428
GrantedGranted3,082  12.16  
Balance, December 31, 2018Balance, December 31, 20183,297  12.08  
GrantedGranted360  4.67  
ForfeitedForfeited(713) 12.16  
CancelledCancelled(96) 9.17  
Balance, December 31, 2019Balance, December 31, 20192,848  $11.22  8.7$1,383  
Exercisable at December 31, 2019Exercisable at December 31, 2019669  $11.39  7.8$277  
The following summarizes additional information concerning outstanding options at October 28, 2018December 31, 2019 (in thousands, except weighted average remaining life and weighted average exercise prices):
Options Outstanding
Number of
Options
 Weighted Average
Remaining Life
 Weighted Average
Exercise Price
194
 2.5 years $10.30
21
 6.4 years 16.90
215
 2.9 years $10.94
Options Outstanding
Number of
Options
Weighted Average
Remaining Life
Weighted Average
Exercise Price
403  8.7 years$5.26  
2,445  8.7 years12.21  
2,848  8.7 years$11.22  
The following summarizes additional information concerning options exercisable at October 28, 2018December 31, 2019 (in thousands, except weighted average exercise prices):
Options Exercisable
Number of
Options
Weighted Average
Remaining Life
Weighted Average
Exercise Price
115  6.7 years$6.74  
554  8.1 years12.36  
669  7.8 years$11.39  
NaN options were exercised during fiscal 2019 and the transition period ended December 31, 2018. There were 115,424, and 182,923 options exercised during fiscal 2018 and 2017, respectively. Cash received from the option exercises was $1.3 million, and $1.7 million during fiscal 2018 and 2017, respectively. The total intrinsic value of options exercised in fiscal 2018 and 2017 was $0.8 million, and $1.4 million, respectively.
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Options Exercisable
Number of
Options
 Weighted Average
Exercise Price
194
 $10.30
18
 16.88
212
 $10.86
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Restricted stock and performance awards
Long-term incentive awards granted to our senior executives generally have a three-year performance period. Long-term incentive awards include restricted stock unitsDuring fiscal 2019, 2018 and PSUs representing 40% and 60% of the total value, respectively. The restricted stock units vest upon continued employment. Vesting of the PSUs is contingent upon continued employment2017, and the achievement of targetstransition period ended December 31, 2018, we granted time-based RSUs with respect to the following metrics, as defined by management: (1) cumulative free cash flow (weighted 40%); (2) cumulative earnings per share (weighted 40%); and (3) total shareholder return (weighted 20%), in each case during the performance period. At the end of the performance period, the number of actual shares to be awarded varies between 0% and 200% of target amounts. The PSUs vest pro rata if an executive’s employment terminates prior to the end of the performance period due to death, disability, or termination by the Company without cause or by the executive for good reason. If an executive’s employment terminates for any other reason prior to the end of the performance period, all outstanding unvested PSUs, whether earned or unearned, will be forfeited and cancelled. If a change in control occurs prior to the end of the performance period, the PSU payout will be calculated and paid assuming that the maximum benefit had been achieved. If an executive’s employment terminates due to death or disability while any of the restricted stock is unvested, then all of the unvested restricted stock will become vested. If an executive’s employment is terminated by the Company without cause or after reaching normal retirement
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NCI BUILDING SYSTEMS, INC.


age, the unvested restricted stock will be forfeited. If a change in control occurs prior to the end of the performance period, the restricted stock will fully vest. The fair value of the awards is based on the Company’s stock price as of the date of grant. $3.3 million, $7.1 million, $4.5 million and $24.0 million, respectively.
During the fiscal years 2019, 2018 and 2017, and 2016,the transition period ended December 31, 2018, we granted PSUs with fair values of approximately $0.4 million, $3.8 million, $4.6 million and $4.7$7.1 million, respectively, to the Company’s seniorcertain executives.
The restricted stock units granted in December 2017, 2016 and 2015 to our senior executives vest one-third annually. For the restricted stock units granted in December 2014 to our senior executives, two-thirds vested on December 15, 2016 and one-third vested on December 15, 2017. The PSUs granted in December 2017, 2016 and 2015 to our senior executives cliff vest at the end of the three-year performance period. For the PSUs granted in December 2014 to our senior executives, one-half vested on December 15, 2016 and one-half vested on December 15, 2017.
Long-term incentive awards granted to our key employees generally have a three-year performance period. Long-term incentive awards are granted 50% in restricted stock units and 50% in PSUs. Vesting of PSUs is contingent upon continued employment and the achievement of free cash flow and earnings per share targets, as defined by management, over a three-year period. At the end of the performance period, the number of actual shares to be awarded varies between 0% and 150% of target amounts. However, a minimum of 50% of the awards will vest upon continued employment over the three-year period if the minimum targets are not met. The PSUs vest earlier upon death, disability or a change in control. A portion of the awards also vests upon termination without cause or after reaching normal retirement age prior to the vesting date, as defined by the agreements governing such awards. The fair value of Performance Share Awards is based on the Company’s stock price as of the date of grant. The fair value and cash value of Performance Share Awards granted in fiscal 2018, 2017 and 2016 are as follows (in millions):
 Fiscal year ended
 October 28,
2018
 October 29,
2017
 October 30,
2016
Equity fair value$2.8
 $2.0
 $2.4
Cash value$
 $2.0
 $2.1
On December 15, 2017, the performance period ended for certain PSUs granted to senior executives and key employees in December 2014. The PSUs vested at 69.4%, and resulted in the issuance of 0.1 million shares, net of shares withheld for taxes.
During fiscal 2018, 2017 and 2016, we granted time-based restricted stock awards with a fair value of $7.1 million, $4.5 million and $4.2 million, respectively.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NCI BUILDING SYSTEMS, INC.


Restricted stock and performance award transactions during fiscal 2019, 2018 and 2017, and 2016the transition period ended December 31, 2018 were as follows (in thousands, except weighted average grant prices):
Restricted Stock and Performance Awards
Time-BasedPerformance-BasedMarket-Based
Number of
Shares
Weighted
Average
Grant Price
Number of
Shares(1)
Weighted
Average
Grant Price
Number of
Shares(1)
Weighted
Average
Grant Price
Balance, October 30, 2016762  $14.91  799  $14.82  107  $14.02  
Granted285  15.84  362  15.70  58  16.03  
Vested(392) 15.14  (165) 16.07  —  —  
Forfeited(27) 14.41  (124) 15.88  (21) 11.51  
Balance, October 29, 2017628  $15.21  872  $14.76  144  $15.15  
Granted367  19.37  281  19.65  44  19.65  
Vested(423) 15.67  (94) 17.07  —  —  
Forfeited(64) 17.15  (183) 16.26  (43) 16.49  
Balance, October 28, 2018508  $17.58  876  $16.14  145  $16.02  
Granted2,014  11.91  802  12.15  27  —  
Vested(277) 16.94  (640) 13.48  (104) 15.14  
Forfeited—  19.65  (1) 17.63  (68) 20.70  
Balance, December 31, 20182,245  $12.57  1,037  $14.63  —  $—  
Granted703  5.40  76  4.67  —  —  
Vested(586) 12.42  (234) 16.30  —  —  
Forfeited(543) 11.00  (168) 13.09  —  
Balance, December 31, 20191,819  $10.32  711  $13.38  —  $—  
 Restricted Stock and Performance Awards
 Time-Based Performance-Based Market-Based
 Number of
Shares
 Weighted
Average
Grant Price
 
Number of
Shares
(1)
 Weighted
Average
Grant Price
 
Number of
Shares
(1)
 Weighted
Average
Grant Price
Balance, November 1, 2015828
 $15.87
 343
 $17.19
 40
 $11.78
Granted329
 12.64
 516
 12.76
 71
 14.60
Vested(335) 15.09
 
 
 
 
Forfeited(60) 14.33
 (60) 15.22
 (4) 13.81
Balance, October 30, 2016762
 $14.91
 799
 $14.82
 107
 $14.02
Granted285
 15.84
 362
 15.70
 58
 16.03
Vested(392) 15.14
 (165) 16.07
 
 
Forfeited(27) 14.41
 (124) 15.88
 (21) 11.51
Balance, October 29, 2017628
 $15.21
 872
 $14.76
 144
 $15.15
Granted367
 19.37
 281
 19.65
 44
 19.65
Vested(423) 15.67
 (94) 17.07
 
 
Forfeited(64) 17.15
 (183) 16.26
 (43) 16.49
Balance, October 28, 2018508
 $17.58
 876
 $16.14
 145
 $16.02
(1)The number of restricted stock shown reflects the shares that would be granted if the target level of performance is achieved. The number of shares actually issued may vary.
(1)The number of restricted stock shown reflects the shares that would be granted if the target level of performance is achieved. The number of shares actually issued may vary.
Share-Based Compensation Expense
Share-based compensation expense is recorded over the requisite service or performance period. For awards with performance conditions, the amount of share-based compensation expense recognized is based upon the probable outcome of the performance conditions, as defined and determined by management. With the adoption of ASU 2016-09 in the first quarter of fiscal 2018, we account for forfeitures of outstanding but unvested grants in the period they occur. We estimated a forfeiture rate of 5.0% for our non-officers and 0% for our officers in our calculation of share-based compensation expense for the fiscal years ended October 29, 2017 and October 30, 2016. These estimates are based on historical forfeiture behavior exhibited by our employees.
Share-based compensation expense as well asrecognized during fiscal 2019, 2018, 2017, and the unrecognizedtransition period ended December 31, 2018 was $14.1 million, $11.6 million, $10.2 million and $4.5 million, respectively. The total income tax benefit recognized in results of operations for share-based compensation arrangements was $3.7 million, $3.2 million, $4.0 million and $1.1 million in fiscal 2019, 2018 and 2017, and the transition period ended December 31, 2018, respectively. As of December 31, 2019, we do not have any amounts capitalized for share-based compensation cost in inventory or similar assets.
Unrecognized share-based compensation expense and weighted average period over which expense attributable to unvested awards will be recognized are as follows (in millions, except weighted average remaining years):
Year Ended December 31, 2019
Unrecognized Share-Based Compensation ExpenseWeighted Average Remaining Years
Stock options$10.1  3.9
Time-based restricted stock17.9  3.5
Performance-based restricted stock4.8  1.7
Total unrecognized share-based compensation expense$32.8  
 Fiscal year ended
 October 28,
2018
 October 29,
2017
 October 30,
2016
Cost of goods sold$0.9
 $1.0
 $1.1
Engineering, selling, general and administrative10.7
 9.2
 9.8
Total recognized share-based compensation expense$11.6
 $10.2
 $10.9

88
 Fiscal Year Ended October 28, 2018
 Unrecognized Share-Based Compensation Expense Weighted Average Remaining Years
Stock options$
 0.1
Time-based restricted stock4.8
 1.9
Performance- and market-based restricted stock7.0
 1.9
Total unrecognized share-based compensation expense$11.8
  

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NCI BUILDING SYSTEMS, INC.


As of October 28, 2018, we do not have any amounts capitalized for share-based compensation cost in inventory or similar assets. The total income tax benefit recognized in results of operations for share-based compensation arrangements was $3.2 million, $4.0 million and $4.2 million for the fiscal years ended October 28, 2018, October 29, 2017 and October 30, 2016, respectively.
8.9. EARNINGS PER COMMON SHARE
Basic earnings per common share is computed by dividing net income allocated to common shares by the weighted average number of common shares outstanding. Diluted income per common share, if applicable, considers the dilutive effect of common stock equivalents. The reconciliation of the numerator and denominator used for the computation of basic and diluted income per common share is as follows (in thousands, except per share data):
Year Ended
December 31,
2019
October 28,
2018
October 29,
2017
October 29, 2018 -
December 31, 2018
Numerator for Basic and Diluted Earnings Per Common Share:
Net income (loss) applicable to common shares$(15,390) $62,694  $54,399  $(76,190) 
Denominator for Basic and Diluted Earnings Per Common Share:
Weighted average basic number of common shares outstanding125,576  66,260  70,629  107,813  
Common stock equivalents:
Employee stock options—  89  124  —  
PSUs and Performance Share Awards—  13  25  —  
Weighted average diluted number of common shares outstanding125,576  66,362  70,778  107,813  
Basic earnings (loss) per common share$(0.12) $0.95  $0.77  $(0.71) 
Diluted earnings (loss) per common share$(0.12) $0.94  $0.77  $(0.71) 
Incentive Plan securities excluded from dilution(1)
4,48012,053
 Fiscal Year Ended
 October 28,
2018
 October 29,
2017
 October 30,
2016
Numerator for Basic and Diluted Earnings Per Common Share:     
Net income applicable to common shares$62,694
 $54,399
 $50,638
Denominator for Basic and Diluted Earnings Per Common Share:     
Weighted average basic number of common shares outstanding66,260
 70,629
 72,411
Common stock equivalents:     
Employee stock options89
 124
 446
PSUs and Performance Share Awards13
 25
 
Weighted average diluted number of common shares outstanding66,362
 70,778
 72,857
      
Basic earnings per common share$0.95
 $0.77
 $0.70
Diluted earnings per common share$0.94
 $0.77
 $0.70
      
Incentive Plan securities excluded from dilution(1)
1
 0
 195
(1)Represents securities not included in the computation of diluted earnings per common share because their effect would have been anti-dilutive.
(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 related to our Incentive Plan 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.
9.10. OTHER ACCRUED EXPENSES
Other accrued expenses are comprised of the following (in thousands):
December 31,
2019
December 31,
2018
Sales and marketing$62,384  $58,034  
Accrued warranty obligation and deferred warranty revenue26,427  34,112  
Other accrued expenses144,876  172,992  
Total other accrued expenses$233,687  $265,138  

 October 28,
2018
 October 29,
2017
Accrued warranty obligation and deferred warranty revenue$7,005
 $7,082
Deferred revenue21,040
 28,295
Other accrued expenses53,839
 41,520
Total other accrued expenses$81,884
 $76,897
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10.11. WARRANTY
The following table represents the rollforward of our accrued warranty obligation and deferred warranty revenue activity for the fiscal yearsyear ended October 28,December 31, 2019 and the transition period ended December 31, 2018 and October 29, 2017 (in thousands):
December 31,
2019
December 31,
2018
Beginning balance$134,515  $30,659  
Acquisition - Ply Gem—  103,842  
Purchase accounting adjustments83,410  —  
Warranties sold2,910  3,194  
Revenue recognized(2,774) (442) 
Expense28,580  —  
Settlements(30,468) —  
Cost incurred and other—  (2,738) 
Ending balance216,173  134,515  
Less: Current portion26,427  34,112  
Total, less current portion$189,746  $100,403  
The current portion of the warranty liabilities are recorded within other accrued expenses and the long-term portion of the warranty liabilities are recorded within other long-term liabilities in the Company’s consolidated balance sheets.
 October 28,
2018
 October 29,
2017
Beginning balance$32,418
 $33,122
Warranties sold3,297
 2,149
Revenue recognized(2,656) (2,323)
Cost incurred and other(2,400) (530)
Ending balance30,659
 32,418
Less: Current portion7,005
 7,082
Total warranty reserve, less current portion$23,654
 $25,336
11.12. LONG-TERM DEBT AND NOTE PAYABLE
Debt is comprised of the following (in thousands):
 October 28,
2018
 October 29,
2017
Term loan credit facility, due February 2025 and June 2022, respectively$412,925
 $144,147
8.25% senior notes, due January 2023
 250,000
Asset-based lending credit facility, due February 2023 and June 2019, respectively
 
Less: unamortized deferred financing costs(1)
5,699
 6,857
Total long-term debt, net of deferred financing costs407,226
 387,290
Less: current portion of long-term debt4,150
 
Total long-term debt, less current portion$403,076
 $387,290
December 31,
2019
December 31,
2018
Asset-based revolving credit facility due April 2023$70,000  $—  
Term loan facility due April 20252,523,587  2,549,207  
Cash flow revolver due April 2023—  —  
8.00% senior notes due April 2026645,000  645,000  
Less: unamortized discounts and unamortized deferred financing costs(1)
(56,063) (83,444) 
Total long-term debt, net of unamortized discounts and deferred financing costs3,182,524  3,110,763  
Less: current portion of long-term debt25,600  25,600  
Total long-term debt, less current portion$3,156,924  $3,085,163  
(1)Includes the unamortized deferred financing costs associated with the term loan credit facilities and 8.25% senior notes due 2023 (the “Notes”). The unamortized deferred financing costs associated with the asset-based lending credit facilities of $1.1 million and $0.7 million as of October 28, 2018 and October 29, 2017, respectively, are classified in other assets on the consolidated balance sheets.
(1)Includes the unamortized deferred financing costs associated with the term loan credit facility and the senior notes. The unamortized deferred financing costs associated with the asset-based revolving credit facility of $2.4 million and $3.1 million as of December 31, 2019 and 2018, respectively, are classified in other assets on the consolidated balance sheets.
The scheduled maturity of our debt is as follows (in thousands):
2020$25,600  
202125,600  
202225,600  
202395,600  
2024 and thereafter3,066,187  
$3,238,587  
Merger Debt Transactions
In connection with the Merger, on November 16, 2018, the Company assumed (i) the obligations of Ply Gem Midco, a subsidiary of Ply Gem immediately prior to the consummation of the Merger, as borrower under the Current Cash Flow Credit Agreement, (ii) the obligations of Ply Gem Midco as parent borrower under the Current ABL Credit Agreement and (iii) the obligations of Ply Gem Midco as issuer under the Current Indenture.
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2019$4,150
20204,150
20214,150
20224,150
2023 and thereafter396,325
 $412,925
February 2018 Debt Redemption and Refinancing
On February 8, 2018, the Company entered into the Pre-merger Term Loan Credit Agreement and the Pre-merger ABL Credit Agreement, (each defined below), the proceeds of which, together, were used to redeem the then existing 8.25% senior notes due 2023 (the "8.25% Senior Notes") and to refinance the Company’s then existing term loan credit facility and the Company’s then existing asset-based revolving credit facility.
Term Loan Credit Agreement due February 2025
On February 8, 2018, the Company entered into athe Pre-merger Term Loan Credit Agreement (the “Pre-merger Term Loan Credit Agreement”) which providesprovided for a term loan credit facility in an original aggregate principal amount of $415.0 million (“Pre-merger(the “Pre-merger Term Loan Credit Facility”). Proceeds from borrowings under the Pre-merger Term Loan Credit Facility were used,
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NCI BUILDING SYSTEMS, INC.


together with cash on hand, (i) to refinance the then existing term loan credit agreement, (ii) to redeem and repay the 8.25% Senior Notes and (iii) to pay any fees, premiums and expenses incurred in connection with the refinancing.
The On November 16, 2018, the Company repaid the remaining $412.9 million aggregate principal amount of the term loans outstanding under the Pre-merger Term Loan Credit Agreement will mature on February 7,Facility for approximately $413.7 million, reflecting remaining principal and interest, using proceeds from the incremental term loan facility entered into in connection with the Merger.
Term Loan Facility due April 2025 and priorCash Flow Revolver due April 2023
On April 12, 2018, Ply Gem Midco entered into the Current Cash Flow Credit Agreement, which provides for (i) a term loan facility (the “Current 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 “Current Cash Flow Revolver” and together with the Term Loan Facility, the “Current Cash Flow Facilities”) of up to such date, will amortize$115.0 million. The Current Term Loan Facility amortizes in nominal quarterly installments equal to one1 percent of the aggregate initial principal amount thereof per annum.annum, with the remaining balance payable upon final maturity of the Current Term Loan Facility on April 12, 2025. There are no amortization payments under the Current Cash Flow Revolver, and all borrowings under the Current Cash Flow Revolver mature on April 12, 2023.
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 Current Term Loan Facility by $805.0 million. The proceeds of this incremental term loansloan 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 Current Cash Flow Facilities, and the Company became the Borrower (as defined in the Current Cash Flow Credit Agreement) under the Current Cash Flow Facilities.
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 0.00%) plus an applicable margin of 3.75% per annum or (ii) an alternate base rate plus an applicable margin of 2.75% per annum. At December 31, 2019, the interest rates on the Current Term Loan Facility were as follows:
December 31, 2019
Interest rate5.49 %
Effective interest rate6.51 %
The Company entered into certain interest rate swap agreements during fiscal 2019 to convert a portion of its variable rate debt to fixed. See Note 15 — Fair Value of Financial Instruments and Fair Value Measurements.
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. 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.
The Current Term Loan Facility may be prepaid at the Company’s option at any time, subject to minimum principal amount requirements. Prepayments of the Current Term Loan Facility in connection with a repricing transaction (as defined in the Pre-merger Term LoanCurrent Cash Flow Credit Agreement) during the first six months after the closing of the Pre-merger Term Loan Credit Facility will beon or prior to April 12, 2019 are subject to a 1.00% prepayment premium equal to 1% of the principal amount of the term loans being prepaid.premium. Prepayments may otherwise be made without premium or penalty (other than customary breakage costs). The Company will also haveCurrent Cash Flow Revolver may be prepaid at the ability to repurchase a portion of the term loans under the Pre-merger Term Loan Credit AgreementCompany’s option at any time without premium or penalty (other than customary breakage costs), subject to certain terms and conditions set forth in the Pre-merger Term Loan Credit Agreement.minimum principal amount requirements.
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Subject to certain exceptions, the term loans under the Pre-mergerCurrent Term Loan Credit Agreement will beFacility is subject to mandatory prepaymentprepayments in an amount equal to:
the net cash proceeds of (1) certain asset sales, (subject to reduction to 50% or 0%, if specified leverage ratio targets are met), (2) certain debt offerings and (3) certain insurance recovery and condemnation events; and
50% of annual excess cash flow (as defined in the Pre-merger Term LoanCash Flow Credit Agreement), subject to reduction to 25% and 0% if specified secured leverage ratio targets are met.met to the extent that the amount of such excess cash flow exceeds $10.0 million. The annual excess cash flow assessment began with the Company’s 2019 fiscal year, payable within five business days after the delivery of the annual financial statements. For fiscal 2019, no payments were required under the excess cash flow calculation.
The obligations under the Pre-merger Term LoanCurrent Cash Flow Credit Agreement are guaranteed by each direct and indirect wholly-owned U.S. restricted subsidiary of the Company, other thansubject to certain excluded subsidiaries,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 domesticwholly-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 customarycertain exceptions (the “Term Loan“Cash Flow Priority Collateral”), which security interest will be senior to the security interest in the foregoing assets securing the Pre-mergerCurrent ABL Credit Facility (as defined below);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 Credit Facility.
AtThe 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 Company’s election,outstanding amount of loans and drawings under letters of credit which have not then been reimbursed exceeds a specified threshold at the interest rates applicable to the term loans under the Pre-merger Term Loan Credit Agreement will be based on a fluctuating rateend of interest measured by reference to either (i) an adjusted LIBOR plus a borrowing margin of 2.00% per annum or (ii) an alternative base rate not less than 1.00% plus a borrowing margin of 1.00% per annum. At October 28, 2018, the interest rate on the Term Loans was 4.24%.any fiscal quarter.
ABL Credit Agreement due February 2023
On February 8, 2018, the subsidiaries of the Company, NCI Group, Inc. and Robertson-Ceco II Corporation, and the Company as a guarantor, entered into anthe Pre-merger ABL Credit Agreement (the “Pre-merger ABL Credit Agreement”).Agreement. The Pre-merger ABL Credit Agreement providesprovided for an asset-based revolving credit facility (the “Pre-merger ABL Credit Facility”) which allowsallowed aggregate maximum borrowings by the ABL borrowers of up to $150$150.0 million, letters of credit of up to $30$30.0 million and up to $20$20.0 million for swingline borrowings. Borrowing availability iswas determined by a monthly borrowing base collateral calculation that iswas based on specified percentages of the value of accounts receivable, eligible credit card receivables and eligible inventory, less certain reserves and subject to certain other adjustments. Availability iswas reduced by issuance of letters of credit as well as any borrowings. All borrowings under the Pre-merger ABL Credit Facility maturewould have matured on February 8, 2023. This facility was terminated in connection with the Merger and replaced with the Current ABL Facility (defined below).
ABL Facility due April 2023
On April 12, 2018, Ply Gem Midco entered into the Current ABL Credit Agreement, which provides for an asset-based revolving credit facility (the “Current 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 Current ABL Facility. All borrowings under the Current ABL Facility mature on April 12, 2023.
On October 15, 2018, Ply Gem Midco entered into an incremental asset-based revolving credit facility of $36.0 million, which upsized the Current 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 Current 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 Current ABL Facility, and the Company became the Parent Borrower (as defined in the ABL Credit Agreement) under the Current ABL Facility.
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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 December 31, 2019, the Company had the following in relation to the Current ABL Facility (in thousands):
December 31, 2019
Excess availability$425,920 
Revolving loans outstanding70,000 
Letters of credit outstanding30,223 
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. At December 31, 2019, the weighted average interest rate on the Current ABL Facility was 3.24%.
The obligations under the Pre-mergerCurrent ABL Credit Agreement are guaranteed by each direct and indirect wholly-owned U.S. restricted subsidiary of the Company, other thansubject to certain excluded subsidiaries,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, toand other related assets owned by the extent evidencing or otherwise related to such items, all general intangibles, intercompany debt, insurance proceeds, letter of credit rights, commercial tort claims, chattel paper, instruments, supporting obligations, documents, investment propertyCompany and payment intangibles)the U.S. subsidiary guarantors and the proceeds of any of the foregoing and all books and records relating to, or arising from, any of the foregoing, except to the extent such proceeds constitute Term LoanCash Flow Priority Collateral, and subject to customarycertain exceptions (the “ABL Priority
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Collateral”), which security interest is senior to the security interest in the foregoing assets securing the Pre-merger Term Loan Credit Facility;Current Cash Flow Facilities; and
a perfected security interest in the Term LoanCash Flow Priority Collateral, which security interest will be junior to the security interest in the Term Loan PriorityCash Flow Collateral securing the Pre-merger Term LoanCurrent Cash Flow Facilities.
Additionally, the obligations of the Canadian borrowers under the Current ABL Credit Facility.
At October 28, 2018Agreement are guaranteed by each direct and October 29, 2017,indirect wholly-owned Canadian restricted subsidiary of the Company’s excess availability under its asset-based lending credit facilities was $141.0 million and $140.0 million, respectively. At October 28, 2018 and October 29, 2017, the Company had no revolving loans outstanding under its asset-based lending credit facilities. In addition, at October 28, 2018 and October 29, 2017, standby letters of credit relatedCanadian borrowers, subject to certain insurance policies totaling approximately $9.0 millionexceptions, and $10.0 million, respectively, were outstanding but undrawn underare secured by substantially all assets of the Company’s asset-based lending credit facilities.Canadian borrowers and the Canadian subsidiary guarantors, subject to certain exceptions.
The Pre-mergerCurrent ABL Credit Agreement includes a minimum fixed charge coverage ratio of 1.00:1.00, which will apply ifis tested only when specified availability is less than 10.0% of the Company fails to maintain a specified minimumlesser of (x) the then applicable borrowing capacity. The minimum level of borrowing capacity as of October 28, 2018 was $14.1 million. Althoughbase and (y) the Pre-merger ABL Credit Agreement does not require any financial covenant compliance, at October 28, 2018, the Company’s fixed charge coverage ratio, which is calculated on a trailing twelve month basis, was 7.70:1.00.
Loansthen aggregate effective commitments under the Pre-mergerCurrent ABL Credit Facility, and continuing until such time as specified availability has been in excess of such threshold for a period of 20 consecutive calendar days.
8.00% Senior Notes due April 2026
On April 12, 2018, Ply Gem Midco issued $645.0 million at a discount of 2.25% in aggregate principal amount of 8.00% Senior Notes due April 2026 (the “8.00% Senior Notes”). The 8.00% Senior Notes bear interest at NCI’s option,8.00% per annum and will mature on April 15, 2026. Interest is payable semi-annually in arrears on April 15 and October 15. The effective interest rate for the 8.00% Senior Notes was 8.64% as follows:
(1)Base Rate loans at the Base Rate plus a margin. The margin ranges from 0.25% to 0.75% depending on the quarterly average excess availability under such facility; and
(2)LIBOR loans at LIBOR plus a margin. The margin ranges from 1.25% to 1.75% depending on the quarterly average excess availability under such facility.
A commitment fee is paid onof December 31, 2019, after considering each of the Pre-merger ABL Credit Facility at an annual ratedifferent interest expense components of 0.25% or 0.35%, depending onthis instrument, including the average daily used percentage, based oncoupon payment and the amount by which the maximum credit exceeds the average daily principal balance of outstanding loans and letter of credit obligations. Additional customary feesdeferred debt issuance costs.
On November 16, 2018, in connection with the Pre-mergerconsummation of the Merger, the Company entered into a supplemental indenture and assumed the obligations of Ply Gem Midco as issuer under the Current Indenture.
The 8.00% Senior Notes are guaranteed on a senior unsecured basis by each of the Company’s wholly-owned domestic subsidiaries that guarantee the Company’s obligations under the Current Cash Flow Facilities or the Current ABL Credit Facility also apply.(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 8.00% Senior Notes are unsecured senior indebtedness and rank equally in right of payment with the Current Cash Flow Facilities and Current ABL Facility. The 8.00% Senior Notes are effectively subordinated to all of the Company’s secured debt, including the Current Cash Flow Facilities and Current ABL Facility, and are senior in right of payment to all subordinated obligations of the Company.
The Company may redeem the 8.00% Senior Notes in whole or in part at any time as set forth below:
prior to April 15, 2021, the Company may redeem the 8.00% Senior Notes 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;
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prior to April 15, 2021, the Company may redeem up to 40.0% of the original aggregate principal amount of the 8.00% Senior Notes with proceeds of certain equity offerings, at a redemption price of 108%, plus accrued and unpaid interest, if any, to but not including the redemption date; and
on or after April 15, 2021, the Company may redeem the 8.00% Senior Notes at specified redemption prices starting at 104% and declining ratably to 100.0% by April 15, 2023, plus accrued and unpaid interest, if any, to but not including the redemption date.
Redemption of 8.25% Senior Notes
On January 16, 2015, the Company issued $250.0 million in aggregate principal of 8.25% senior notes due 2023.notes. On February 8, 2018, the Company redeemed the outstanding $250.0 million aggregate principal amount of the 8.25% Notes for approximately $265.5 million using the proceeds from borrowings under the Pre-merger Term Loan Credit Facility.
During the fiscal year ended October 28, 2018, the Company incurred a pretax loss, primarily on the extinguishment of the Notes, of $21.9 million, of which approximately $15.5 million represents the premium paid on the redemption of the Notes.
Transition Period Loss on Extinguishment of Debt
As a result of the Merger, during the transition period ended December 31, 2018, the Company incurred a $3.3 million pretax loss on the extinguishment of the Pre-merger Term Loan Credit Facility and the Pre-merger ABL Credit Agreement, of which approximately $2.4 million represented unamortized debt issuance costs on the Pre-merger Term Loan Credit Facility.
Debt Covenants
The Company’s outstanding 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,indebtedness; make dividends and other restricted payments, create liens securing indebtedness, engage in mergers and acquisitions,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, amend certain documents in respect of other indebtedness,agreements; change the nature of the businessbusiness; and engage inenter into certain transactions with affiliates. As of October 28, 2018,December 31, 2019, the Company was in compliance with all covenants that were in effect on such date.
Insurance Note Payable
As of October 28, 2018 and October 29, 2017, the Company had an outstanding note payable in the amount of $0.5 million and $0.4 million, respectively, related to financed insurance premiums. Insurance premium financings are generally secured by the unearned premiums under such policies.
12.13. CD&R FUND VIII Investor GroupINVESTOR 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. (collectively,, 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 later converted tointo shares of our Common Stockcommon stock on May 14, 2013.
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NCI BUILDING SYSTEMS, INC.


In January 2014, the CD&R Fund VIII Investor Group completed a registered underwritten offering, in which the CD&R Fund VIII Investor Group offered 8.5 million shares of Common Stock at a price to the public of $18.00 per share (the “2014 Secondary Offering”). The underwriters also exercised their option to purchase 1.275 million additional shares of Common Stock. In addition, the Company entered into an agreement with the CD&R Fund VIII Investor Group to repurchase 1.15 million shares of its Common Stock at a price per share equal to the price per share paid by the underwriters to the CD&R Fund VIII Investor Group in the underwritten offering (the “2014 Stock Repurchase”). The 2014 Stock Repurchase, which was completed at the same time as the 2014 Secondary Offering, represented a private, non-underwritten transaction between NCI and the CD&R Fund VIII Investor Group that was approved and recommended by the Affiliate Transactions Committee of our boardBoard of directors.Directors.
On July 25, 2016, the CD&R Fund VIII Investor Group completed a registered underwritten offering, in which the CD&R Fund VIII Investor Group offered 9.0 million shares of our Common Stock at a price to the public of $16.15 per share (the “2016 Secondary Offering”). The underwriters also exercised their option to purchase 1.35 million additional shares of our Common Stock from the CD&R Fund VIII Investor Group. The aggregate offering price for the 10.35 million shares sold in the 2016 Secondary Offering was approximately $160.1 million, net of underwriting discounts and commissions. The CD&R Fund VIII Investor Group received all of the proceeds from the 2016 Secondary Offering and no shares in the 2016 Secondary Offering were sold by the Company or any of its officers or directors (although certain of our directors are affiliated with the CD&R Fund VIII Investor Group). In connection with the 2016 Secondary Offering and the 2016 Stock Repurchase (as defined below), we incurred approximately $0.7 million in expenses, which were included in engineering, selling, general and administrative expenses in the consolidated statements of operations for the fiscal year ended October 30, 2016.
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On July 18, 2016, the Company entered into an agreement with the CD&R Fund VIII Investor Group to repurchase approximately 2.9 million shares of our Common Stock at the price per share equal to the price per share paid by the underwriters to the CD&R Fund VIII Investor Group in the underwritten offering (the “2016 Stock Repurchase”). The 2016 Stock Repurchase, which was completed concurrently with the 2016 Secondary Offering, represented a private, non-underwritten transaction between the Company and the CD&R Fund VIII Investor Group that was approved and recommended by the Affiliate Transactions Committee of our boardBoard of directors.Directors. See Note 18Stock Repurchase Program.Program.
On December 11, 2017, the CD&R Fund VIII Investor Group completed a registered underwritten offering of 7,150,000 shares of the Company’s Common Stock at a price to the public of $19.36 per share (the “2017 Secondary Offering”). Pursuant to the underwriting agreement, at the CD&R Fund VIII Investor Group request, the Company purchased 1.15 million of the 7.15 million shares of the Company's Common Stock from the underwriters in the 2017 Secondary Offering at a price per share equal to the price at which the underwriters purchased the shares from the CD&R Fund VIII Investor Group. The total amount the Company spent on these repurchases was $22.3 million.
At October 28,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 (the “Ply Gem-Atrium Merger”).
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 October 29, 2017,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 that are held by the Investors following the consummation of the Merger.
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 (the “Old Registration Rights Agreement”), by and among the Company and the CD&R Fund VIII Investor Group.
At December 31, 2019 and 2018, the CD&R Investor Group owned approximately 34.4%49.1% and 43.8%49.4%, respectively, of the outstanding shares of ourthe Company's Common Stock.
13.14. RELATED PARTIES
Pursuant to the Investment Agreement and the OldNew Stockholders Agreement, the CD&R Fund VIII Investor Group had the right to designate a number of directors to NCI’s boardthe Company’s Board of directorsDirectors that was equivalent to the CD&R Fund VIII Investor Group’s percentage interest in the Company. Among other directors appointed by the CD&R Fund VIII Investor Group, our Board of Directors appointed to the boardBoard of directors James G. Berges,Directors John Krenicki, Nathan K. Sleeper and Jonathan L. Zrebiec. Messrs. Berges,Krenicki, Sleeper and Zrebiec are partners of Clayton, Dubilier & Rice, LLC, (“CD&R, LLC”), an affiliate of the CD&R Fund VIII Investor Group.
As a result of their respective positions with CD&R, LLC and its affiliates, one or more of Messrs. Berges,Krenicki, Sleeper and Zrebiec may be deemed to have an indirect material interest in certain agreements executed in connection with the Equity Investment. Messrs. Berges, Sleeper and Zrebiec may be deemed to have an indirect material interest in the following agreements:
the Investment Agreement, pursuant to which the CD&R Fund VIII Investor Group acquired a 68.4% interest in the Company, CD&R Fund VIII’s transaction expenses were reimbursed and a deal fee of $8.25 million was paid to CD&R, Inc., the predecessor to the investment management business of CD&R, LLC, on October 20, 2009;
the Old Stockholders Agreement, which set forth certain terms and conditions regarding the Equity Investment and on certain actions of the CD&R Fund VIII Investor Group and their controlled affiliates with respect to the Company, and to provide for, among other things, subscription rights, corporate governance rights and consent rights as well as other obligations and rights;Merger.
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NCI BUILDING SYSTEMS, INC.


a Registration Rights Agreement, dated as of October 20, 2009 (the “Old Registration Rights Agreement”), between the Company and the CD&R Fund VIII Investor Group, pursuant to which the Company granted to the CD&R Fund VIII Investor Group, together with any other stockholder of the Company that may become a party to the Old Registration Rights Agreement in accordance with its terms, certain customary registration rights with respect to the shares of our Common Stock held by the CD&R Fund VIII Investor Group; and
an Indemnification Agreement, dated as of October 20, 2009 between the Company, NCI Group, Inc., a wholly owned subsidiary of the Company, Robertson-Ceco II Corporation, a wholly owned subsidiary of the Company, the CD&R Fund VIII Investor Group and CD&R, Inc., pursuant to which the Company, NCI Group, Inc. and Robertson-Ceco II Corporation agreed to indemnify CD&R, Inc., the CD&R Fund VIII Investor Group and their general partners, the special limited partner of CD&R Fund VIII and any other investment vehicle that is a stockholder of the Company and is managed by CD&R, Inc. or any of its affiliates, their respective affiliates and successors and assigns and the respective directors, officers, partners, members, employees, agents, representatives and controlling persons of each of them, or of their respective partners, members and controlling persons, against certain liabilities arising out of the Equity Investment and transactions in connection with the Equity Investment, including, but not limited to, the Pre-merger Term Loan Credit Agreement, the Pre-merger ABL Credit Facility, the Exchange Offer, and certain other liabilities and claims.
14.15. 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 28,December 31, 2019 and 2018 and October 29, 2017 because of the relatively short maturity of these instruments. The carrying amountamounts of revolving loans outstandingthe indebtedness under the asset-based lending facilities approximatesCurrent ABL Facility and Current Cash Flow Revolver approximate fair value as the interest rates are variable and reflective of market rates. At December 31, 2019, there was $70.0 million of borrowings outstanding under the Current ABL Facility and 0 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 fiscal yearperiod ends were (in thousands):
 October 28, 2018 October 29, 2017
 Carrying
Amount
 Fair
Value
 Carrying
Amount
 Fair
Value
Term loan credit facility, due February 2025 and June 2022, respectively$412,925
 $412,409
 $144,147
 $144,147
8.25% senior notes, due January 2023
 
 250,000
 267,500
December 31, 2019December 31, 2018
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Term loan facility due April 2025$2,523,587  $2,514,906  $2,549,207  $2,319,778  
8.00% Senior Notes645,000  670,800  645,000  599,850  
The fair values of the term loan credit facilities and 8.25% senior notesfacility were based on recent trading activities of comparable market instruments, which are level 2 inputs and the fair value of the 8.00% senior notes 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 at October 28, 2018December 31, 2019 and October 29, 2017.2018.
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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NCI BUILDING SYSTEMS, INC.


Assets held for sale: Assets held for sale are valued based on current market conditions, prices of similar assets in similar condition and expected proceeds from the sale of the assets.
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 swap liability: Interest rate swap liabilities 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 classified within Level 2 of the fair value hierarchy because they were valued using alternative pricing sources or models that utilized market observable inputs, including current and forward interest rates.
Foreign currency hedge: The fair value of the foreign currency forward contract agreement is estimated using industry standard valuation models using market-based observable inputs, including spot rates, forward points, interest rates and volatility inputs (Level 2).
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The following tables summarize information regarding our financial assets and liabilities that are measured at fair value on a recurring basis as of October 28,December 31, 2019 and 2018, and October 29, 2017, segregated by level of the valuation inputs within the fair value hierarchy utilized to measure fair value (in thousands):
December 31, 2019
Level 1Level 2Level 3Total
Assets:
Short-term investments in deferred compensation plan:(1)
Money market$ $—  $—  $ 
Mutual funds – Growth1,044  —  —  1,044  
Mutual funds – Blend1,769  —  —  1,769  
Mutual funds – Foreign blend572  —  —  572  
Mutual funds – Fixed income—  389  —  389  
Total short-term investments in deferred compensation plan(2)
3,387  389  —  3,776  
Foreign currency hedge(4)
—  —  —  —  
Total assets$3,387  $389  $—  $3,776  
Liabilities:
Deferred compensation plan liability(2)
$—  $3,847  $—  $3,847  
Interest rate swap liability(3)
—  29,988  —  29,988  
Total liabilities$—  $33,835  $—  $33,835  
 Recurring fair value measurements
 October 28, 2018
 Level 1 Level 2 Level 3 Total
Assets:       
Short-term investments in deferred compensation plan(1):
       
Money market$369
 $
 $
 $369
Mutual funds – Growth1,118
 
 
 1,118
Mutual funds – Blend2,045
 
 
 2,045
Mutual funds – Foreign blend812
 
 
 812
Mutual funds – Fixed income
 941
 
 941
Total short-term investments in deferred compensation plan4,344
 941
 
 5,285
Total assets$4,344
 $941
 $
 $5,285
        
Liabilities:       
Deferred compensation plan liability$
 $4,639
 $
 $4,639
Total liabilities$
 $4,639
 $
 $4,639

December 31, 2018
Level 1Level 2Level 3Total
Assets:
Short-term investments in deferred compensation plan:(1)
Money market$ $—  $—  $ 
Mutual funds – Growth960  —  —  960  
Mutual funds – Blend1,537  —  —  1,537  
Mutual funds – Foreign blend717  —  —  717  
Mutual funds – Fixed income—  553  —  553  
Total short-term investments in deferred compensation plan(2)
3,218  553  —  3,771  
Total assets$3,218  $553  $—  $3,771  
Liabilities:
Deferred compensation plan liability(2)
$—  $3,139  $—  $3,139  
Total liabilities$—  $3,139  $—  $3,139  
(1)The unrealized holding gain (loss) was $0.5 million and $(0.8) million for the year ended December 31, 2019 and the transition period ended December 31, 2018, respectively.
(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)In May 2019, the Company entered into 4 year interest rate swaps to mitigate variability in forecasted interest payments on $1,500.0 million of the Company’s Term Loan secured variable debt. The interest rate swaps effectively convert a portion of the floating rate interest payments into a fixed rate interest payment. There are 3 interest rate swaps that cover $500.0 million of notional debt each and fix the interest rate at 5.918%, 5.906% and 5.907%, respectively. The Company designated the interest rate swaps as qualifying hedging instruments and accounts for these derivatives as cash flow hedges. The interest rate swap liability is included within other long-term liabilities on the consolidated balance sheets.
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 Recurring fair value measurements
 October 29, 2017
 Level 1 Level 2 Level 3 Total
Assets:       
Short-term investments in deferred compensation plan(1):
       
Money market$1,114
 $
 $
 $1,114
Mutual funds – Growth958
 
 
 958
Mutual funds – Blend1,948
 
 
 1,948
Mutual funds – Foreign blend915
 
 
 915
Mutual funds – Fixed income
 1,546
 
 1,546
Total short-term investments in deferred compensation plan4,935
 1,546
 
 6,481
Total assets$4,935
 $1,546
 $
 $6,481
        
Liabilities:       
Deferred compensation plan liability$
 $4,923
 $
 $4,923
Total liabilities$
 $4,923
 $
 $4,923
(1)The unrealized holding gain (loss) was insignificant for the fiscal years ended October 28, 2018 and October 29, 2017.

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NCI BUILDING SYSTEMS, INC.


(4)In July 2019, the Company entered into a forward contract agreement to hedge approximately $21.9 million of its 2019 non-functional currency inventory purchases. This forward contract was established to protect the Company from variability in cash flows attributable to changes in the U.S. dollar relative to the Canadian dollar. As a cash flow hedge, unrealized gains are recognized as assets while unrealized losses are recognized as liabilities. The forward contract is highly correlated to the changes in the U.S. dollar relative to the Canadian dollar. Unrealized gains and losses on these agreements 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 contract 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. During fiscal 2019, the Company realized a gain of approximately $0.1 million within cost of goods sold in the consolidated statement of operations based on these cash flow hedges. The changes in fair values of derivatives that have been designated and qualify as cash flow hedges are recorded in accumulated other comprehensive income or loss and are reclassified into cost of goods sold in the same period the hedged item affects earnings. Due to the high degree of effectiveness between the hedging instruments and the underlying exposures being hedged, fluctuations in the value of the derivative instruments are generally offset by changes in the fair value or cash flows of the underlying exposures being hedged. The changes in the fair value of derivatives that do not qualify as effective are immediately recognized in earnings. As of December 31, 2019, the forward contracts during fiscal 2019 have been settled.
15.
16. INCOME TAXES
Income tax expense is based on pretax financial accounting income. Deferred income taxes are recognized for the temporary differences between the recorded amounts of assets and liabilities for financial reporting purposes and such amounts for income tax purposes.
The following is a summary of the components of income tax(loss) before provision (benefit) for income taxes (in thousands):
Fiscal Year Ended
December 31,
2019
October 28,
2018
October 29,
2017
October 29, 2018 - December 31, 2018
Domestic$(12,016) $74,465  $78,884  $(90,306) 
Foreign1,401  8,630  4,254  (6,551) 
$(10,615) $83,095  $83,138  $(96,857) 

The components of the provision for the fiscal years ended 2018, 2017 and 2016,income taxes consisted of the following (in thousands):
Fiscal Year Ended
December 31,
2019
October 28,
2018
October 29,
2017
October 29, 2018 - December 31, 2018
Current:
Federal$(311) $16,850  $23,885  $—  
State7,219  3,483  3,218  1,172  
Foreign3,952  545  445  (120) 
Total current10,860  20,878  27,548  1,052  
Deferred:
Federal205  (2,937) (358) (17,041) 
State1,875  565  769  (3,759) 
Foreign(8,165) 1,483  455  (919) 
Total deferred(6,085) (889) 866  (21,719) 
Total provision (benefit)$4,775  $19,989  $28,414  $(20,667) 
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 Fiscal Year Ended
 October 28,
2018
 October 29,
2017
 October 30,
2016
Current:     
Federal$16,850
 $23,885
 $22,602
State3,483
 3,218
 3,179
Foreign545
 445
 838
Total current20,878
 27,548
 26,619
Deferred:     
Federal(2,937) (358) 105
State565
 769
 1,380
Foreign1,483
 455
 (167)
Total deferred(889) 866
 1,318
Total provision$19,989
 $28,414
 $27,937
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The reconciliation of income tax computed at the United States federal statutory tax rate to the effective income tax rate is as follows:
Fiscal Year EndedFiscal Year Ended
October 28,
2018
 October 29,
2017
 October 30,
2016
December 31,
2019
October 28,
2018
October 29,
2017
October 29, 2018 - December 31, 2018
Statutory federal income tax rate23.3 % 35.0 % 35.0 %Statutory federal income tax rate$(2,229) $19,361  $29,098  $(20,022) 
State income taxes4.2 % 3.2 % 3.8 %State income taxes8,059  3,490  2,660  (2,945) 
Production activities deduction(1.7)% (3.1)% (3.4)%Production activities deduction—  (1,413) (2,577) —  
Non-deductible expenses0.2 % 0.9 % 1.3 %Non-deductible expenses62  166  748   
Revaluation of U.S. deferred income tax due to statutory rate reduction(1.2)%  %  %Revaluation of U.S. deferred income tax due to statutory rate reduction—  (997) —  —  
One-time repatriation tax on foreign earnings0.6 %  %  %One-time repatriation tax on foreign earnings—  499  —  —  
Other(1.3)% (1.8)% (1.3)%
Effective tax rate24.1 % 34.2 % 35.4 %
Compensation related expensesCompensation related expenses3,518  69  (1,360) 74  
Meals and entertainmentMeals and entertainment1,265  288  503  164  
Tax creditsTax credits(7,179) (850) (1,105) (360) 
Foreign income taxForeign income tax(884) 365  900  256  
Employee fringe benefitsEmployee fringe benefits474  101  23  —  
Unrecognized tax benefitsUnrecognized tax benefits(581) —  —  143  
Reversal of valuation allowanceReversal of valuation allowance(3,981) —  —  —  
Global intangible low-taxed incomeGlobal intangible low-taxed income4,398  —  —  90  
Transaction costsTransaction costs1,903  —  —  1,542  
Other(1)
Other(1)
(50) (1,090) (476) 389  
Total provision (benefit)Total provision (benefit)$4,775  $19,989  $28,414  $(20,667) 
(1) Certain reclassifications of items included in “Other” in fiscal 2018 and 2017 have been made to conform to fiscal 2019 classifications.(1) Certain reclassifications of items included in “Other” in fiscal 2018 and 2017 have been made to conform to fiscal 2019 classifications.
The decrease in the effective tax rate for the fiscal year ended October 28, 2018December 31, 2019 is a result of lower pretax earnings related to $68.2 million of integration costs, the reversal of a valuation allowance from a foreign subsidiary, and the net impact of the Tax Cuts and Jobs Act (“U.S. Tax Reform”) which was enacted by the United States on December 22, 2017. U.S. Tax Reform incorporates significant changes to U.S. corporate income tax laws including, among other things, a reduction in the federal statutory corporate income tax rate from 35% to 21%, an exemption for dividends received from certain foreign subsidiaries, a one-time repatriation tax on deemed repatriated earnings from foreign subsidiaries, immediate expensing of certain depreciable tangible assets, limitations on the deduction for net interest expense and certain executive compensation and the repeal of the Domestic Production Activities Deduction. The majority of these changes will bewere effective for the Company’s fiscal year beginning October 29, 2018. However, the corporate income tax rate reduction iswas effective December 22, 2017. As such, the Company’s statutory federal corporate income tax rate for the fiscal year ended October 28, 2018 iswas 23.3%. In addition, the one-time repatriation tax was recognized by the Company for the tax year ended October 28, 2018.
Under ASC Topic 740, Income Taxes ("ASC 740"), a company is generally required to recognize the effect of changes in tax laws in its financial statements in the period in which the legislation is enacted. U.S. income tax laws are deemed to be effective on the date the president signs tax legislation. The President signed the U.S. Tax Reform legislation on December 22, 2017. In acknowledgment of the substantial changes incorporated in the U.S. Tax Reform, the SEC staff issued Staff Accounting Bulletin 118 (“SAB 118”) to provide certain guidance in determining the accounting for income tax effects of the legislation in the accounting period of enactment as well as provide a measurement period within which to finalize and reflect such final effects associated with U.S. Tax Reform. Further, SAB 118 summarizes a three-step approach to be applied each reporting period
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within the overall measurement period: (1) amounts should be reflected in the period including the date of enactment for those items which are deemed to be complete, (2) to the extent the effects of certain changes due to U.S. Tax Reform for which the accounting is not deemed complete but for which a reasonable estimate can be determined, such provisional amount(s) should be reflected in the period so determined and adjusted in subsequent periods as such effects are finalized and (3) to the extent a reasonable estimate cannot be determined for a specific effect of the tax law change associated with U.S. Tax Reform, no provisional amount should be recorded but rather, continue to apply ASC 740 based upon the tax law in effect prior to the enactment of U.S. Tax Reform. Such measurement period is deemed to end when all necessary information has been obtained, prepared and analyzed such that a final accounting determination can be concluded, but in no event should the period extend beyond one year.
In consideration of this guidance, the Company obtained, prepared and analyzed various information associated with the enactment of U.S. Tax Reform. Based upon this review, the Company recognized an estimated income tax benefit with respect to U.S. Tax Reform of $0.6 million. This net income tax benefit reflects a $1.0 million net estimated income tax benefit associated with the remeasurement of the Company’s net U.S. deferred tax liability, partiality offset with a $0.5 million estimated income tax expense associated with the impact of the deemed repatriated earnings from the Company’s foreign subsidiaries, including the one-time repatriation tax of $1.8 million. Due to the Company’s fiscal year-end of October 28, 2018 and the timing of the various technical provisions provided for under U.S. Tax Reform, the financial statement impacts recorded in fiscal 2018 relating to U.S. Tax Reform are not deemed to be complete but rather are deemed to be reasonable, provisional estimates based upon the current available information. As such, the Company will continue to update and finalize the accounting for the tax effect of the enactment of U.S. Tax Reform in the next interim period in accordance with the guidance as outlined in SAB 118, as deemed necessary.
Deferred income taxes reflect the net impact of temporary differences between the amounts of assets and liabilities recognized for financial reporting purposes and such amounts recognized for income tax purposes. The tax effects of the temporary differences for fiscalas December 31, 2019 and 2018 and 2017 are as follows (in thousands):
October 28,
2018
 October 29,
2017
December 31,
2019
December 31,
2018
Deferred tax assets:   Deferred tax assets:
Inventory obsolescence$2,161
 $2,680
Inventory obsolescence$3,980  $3,830  
Bad debt reserve1,007
 1,686
Bad debt reserve1,942  1,520  
Accrued and deferred compensation14,828
 16,003
Accrued and deferred compensation9,172  9,613  
Accrued insurance reserves1,122
 1,816
Accrued insurance reserves3,878  2,339  
Deferred revenue7,495
 10,260
Net operating loss and tax credit carryover1,815
 3,686
Net operating loss and tax credit carryover60,987  70,017  
Depreciation and amortization536
 434
Pension2,842
 6,510
Pension6,015  6,401  
InterestInterest60,257  36,406  
LeasesLeases80,372  —  
WarrantyWarranty39,469  28,313  
Other reserves863
 716
Other reserves28,707  30,637  
Total deferred tax assets32,669
 43,791
Total deferred tax assets294,779  189,076  
Less valuation allowance(11) 
Less valuation allowance(10,347) (19,497) 
Net deferred tax assets32,658
 43,791
Net deferred tax assets284,432  169,579  
Deferred tax liabilities:   Deferred tax liabilities:
Depreciation and amortization(33,926) (42,632)Depreciation and amortization(474,214) (463,198) 
U.S. tax on unremitted foreign earnings
 (1,107)
Stock basisStock basis(10,568) —  
LeasesLeases(80,376) —  
Other
 (1,805)Other(3,751) (858) 
Total deferred tax liabilities(33,926) (45,544)Total deferred tax liabilities(568,909) (464,056) 
Total deferred tax liability, net$(1,268) $(1,753)Total deferred tax liability, net$(284,477) $(294,477) 
We carry out our business operations through legal entities in the U.S., Canada, Mexico and Costa Rica, and carried out operations in China until the sale of our manufacturing facility in China during fiscal 2018. These operations require that we file corporate income tax returns that are subject to U.S., state and foreign tax laws. We are subject to income tax audits in these multiple jurisdictions.
As of October 28, 2018,December 31, 2019, the $1.8$60.9 million net operating loss and tax credit carryforward included $0.1$32.6 million for U.S federal losses, $11.6 million for U.S. state loss carryforwards.losses, and $16.7 million for foreign losses. The state net operating loss carryforwards will begin to expire in 2019 to 2029,2020, if unused. As of October 28, 2018,
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NCI BUILDING SYSTEMS, INC.


ourunused, and the foreign operations have a net operating loss carryforward of approximately $1.7 million, that will startbegin to expire in fiscal 2028, if unused.
Valuation allowance
As of December 31, 2019, the Company remains in a valuation allowance position, in the amount of $10.3 million, against its deferred tax assets for certain state jurisdictions 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 states jurisdictions. The following table representsCompany will continue to monitor the positive and negative factors for these jurisdictions and make further changes to the valuation allowance as necessary.
During the quarter and year ending December 31, 2019, the Company reversed the valuation allowance for Gienow Canada, Inc. ("Gienow") due to its amalgamation with Northstar Manufacturing, Ltd ("Northstar") at December 31, 2019. The Company determined that a valuation allowance was no longer required due to Northstar’s three-year cumulative income position.
The rollforward of the valuation allowance on deferred taxes activity for the fiscal years ended October 28, 2018, October 29, 2017 and October 30, 2016is as follows (in thousands):
Fiscal Year EndedFiscal Year Ended
December 31,
2019
October 29, 2018 - December 31, 2018October 28,
2018
October 29,
2017
Beginning balance$19,497  $11  $—  $210  
Additions (reductions)(9,150) —  11  (210) 
Allowance of acquired company at date of acquisition—  19,486  —  —  
Ending balance$10,347  $19,497  $11  $—  
100

 October 28,
2018
 October 29,
2017
 October 30,
2016
Beginning balance$
 $210
 $115
Additions (reductions)11
 (210) 95
Ending balance$11
 $
 $210
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Uncertain tax positions
There were noDespite 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 and 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.
As of December 31, 2019 the reserve was approximately $11.9 million, which includes interest and penalties of approximately $1.8 million and is recorded in other long-term liabilities in the accompanying consolidated balance sheets. Of this amount, approximately $9.9 million, if recognized would have an impact on the Company's effective tax rate. The difference between the total unrecognized tax benefits at October 28, 2018 and October 29, 2017. We do not anticipate any material changethe amount of the liability for unrecognized tax benefits represents unrecognized tax benefits that have been netted against deferred tax assets related to net operating losses in accordance with ASC 740 in addition to accrued penalties and interest.
The Company has elected to treat interest and penalties on unrecognized tax benefits as income tax expense in its consolidated statement of operations. Interest and penalty charges have been recorded in the total amountcontingency reserve account within other long-term liabilities in the consolidated balance sheets.
The following is a rollforward of unrecognized tax benefits to occur within the next twelve months.
We recognize(excluding interest and penalties relatedpenalties) from October 30, 2017 through December 31, 2019 (in thousands):
Fiscal Year EndedFiscal Year Ended
December 31,
2019
October 29, 2018 - December 31, 2018October 28,
2018
Unrecognized tax benefits at beginning of year$10,549  $—  $—  
Additions based on tax positions related to current year262  —  —  
Unrecognized tax benefits positions of acquired company at date of acquisition—  10,549  —  
Reductions for tax positions of prior years(95) —  —  
Reductions resulting from expiration of statute of limitations(609) —  —  
Unrecognized tax benefits at end of year$10,107  $10,549  $—  

Tax receivable agreement (“TRA”) liability
The TRA liability generally provides for the payment by Ply Gem to uncertain tax positions in income tax expense. To the extent accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and reflected as a reductionthird party entity of 85% of the overall income tax provision in the period that such determination is made. We did not haveamount of cash savings, if any, accrued interest and penalties related to uncertain tax positions as of October 28, 2018.
We file income tax returns in the U.S. federal, jurisdictionstate and multiplelocal income tax that Ply Gem actually realizes as a result of (i) net operating loss carryovers (“NOLs”) from periods ending before January 1, 2013, (ii) deductible expenses attributable to Ply Gem’s 2013 initial public offering and (iii) deductions related to imputed interest. This liability carried over to the Company in connection with the consummation of the Merger on November 16, 2018. Ply Gem’s future taxable income estimate was used to determine the cumulative NOLs that are expected to be utilized and the TRA liability was accordingly adjusted using the 85% TRA rate as Ply Gem retains the benefit of 15% of the tax savings. During the Transition Period, the Company made a $22.5 million payment pursuant to the Tax Receivable Agreement. During fiscal 2019, the Company made a $24.9 million payment pursuant to the Tax Receivable Agreement to settle this liability
Other tax considerations
As of December 31, 2019, the Company has not established U.S. deferred taxes on unremitted earnings for the Company's foreign subsidiaries. The Company continues to consider these amounts to be permanently invested. The indefinite reinvestment assertion continues to apply for the purpose of determining deferred tax liabilities for U.S. state and foreign jurisdictions. Ourwithholding tax years are closed with the IRS through the year ended October 28, 2014, as the statute of limitations related to these tax years has closed. In addition, open tax years related to state and foreign jurisdictions remain subject to examination but are not considered material.purposes.
16.
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17. ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss consists of the following (in thousands):
December 31,
2019
December 31,
2018
Foreign exchange translation adjustments$(1,090) $(4,301) 
Unrealized loss on derivative instruments, net of tax benefit of $6,627 and $0, respectively(23,361) (549) 
Defined benefit pension plan actuarial losses, net of tax benefit of $4,818 and $6,574, respectively(7,947) (5,963) 
Accumulated other comprehensive loss$(32,398) $(10,813) 
 October 28,
2018
 October 29,
2017
Foreign exchange translation adjustments$(89) $3
Defined benefit pension plan actuarial losses, net of tax(6,619) (7,534)
Accumulated other comprehensive loss$(6,708) $(7,531)

17. OPERATING LEASE COMMITMENTS
We have operating lease commitments expiring at various dates, principally for real estate, office space, office equipment and transportation equipment. Certain of these operating leases have purchase options that entitle us to purchase the respective equipment at fair value at the end of the lease. In addition, many of our leases contain renewal options at rates similar to the current arrangements. As of October 28, 2018, future minimum rental payments related to noncancellable operating leases are as follows (in thousands):
2019$13,951
20208,223
20216,202
20225,001
20233,928
Thereafter7,693
Rental expense incurred from operating leases, including leases with terms of less than one year, for 2018, 2017 and 2016 was $20.1 million, $19.4 million and $17.8 million, respectively.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NCI BUILDING SYSTEMS, INC.


18. STOCK REPURCHASE PROGRAM
OurOn September 8, 2016, the Company announced that its Board of Directors authorized twoa stock repurchase programs duringprogram for the fiscal year ended October 30, 2016, which were publicly announced on January 20, 2016 and September 8, 2016. Together, these stock repurchase programs authorized forof up to an aggregate of $106.3$50.0 million of the Company’s outstanding Common Stock.
On July 18, 2016, the Company entered into an agreement with the CD&R Fund VIII Investor Group to repurchase approximately 2.9 million shares of our Common Stock for $45.0 million based on the price per share paid by the underwriters to the CD&R Fund VIII Investor Group in the 2016 Secondary Offering. The 2016 Stock Repurchase (as defined in Item 1. Business) represented a private, non-underwritten transaction between the Company and the CD&R Fund VIII Investor Group that was approved and recommended by the Affiliate Transactions Committee of our board of directors. The closing of the 2016 Stock Repurchase occurred on July 25, 2016 concurrently with the closing of the 2016 Secondary Offering. The 2016 Stock Repurchase was funded by the Company’s cash on hand. In addition to the 2016 Stock Repurchase, the Company repurchased 1.6 million shares of its Common Stock for $17.9 million during fiscal 2016 through open-market purchases under the authorized stock repurchase programs.
On October 10, 2017 and March 7, 2018, the Company announced that its Board of Directors authorized new stock repurchase programs for up to an aggregate of $50.0 million and $50.0 million, respectively, of the Company’s Common Stock.Stock for a cumulative three year total of $150.0 million.
During fiscal 2017 and fiscal 2018, the Company repurchased 2.8 million shares of its Common Stock for $41.2 million and 2.7 million shares of its Common Stock for $46.7 million, respectively, through open-market purchases under the authorized stock repurchase programs. The fiscal 2018 repurchases included 1.15 million shares for $22.3 million purchased pursuant to the CD&R Fund VIII Investor Group 2017 Secondary Offering (see Note 1213CD&R Fund VIII Investor Group)Group). During the Transition Period and fiscal 2019, there were 0 stock repurchases under the stock repurchase programs. As of October 28, 2018,December 31, 2019, approximately $55.6 million remains available for stock repurchases under the programs authorized on October 10, 2017 and March 7, 2018. The authorized programs have no time limit on their duration, but our Pre-merger TermCurrent Cash Flow Credit Agreement and Pre-mergerCurrent ABL Credit Agreement apply certain limitations on our repurchase of shares of our Common Stock. 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.
In addition to the Common Stock repurchases, the Company also withheld shares of restricted stock to satisfy minimum tax withholding obligations arising in connection with the vesting of restricted stock units, which are included in treasury stock purchases in the consolidated statements of stockholders’ equity.
The Company canceled 4.0 million of the total shares repurchased duringDuring fiscal 2016 as well as 0.4 million shares repurchased in prior fiscal years that had been held in treasury stock, resulting in a $62.3 million decrease in both additional paid in capital and treasury stock during the fiscal year ended October 30, 2016. During the fiscal year ended October 29, 2017, the Company canceled 3.0 million of the total shares repurchased during fiscal 2017 as well as 0.4 million shares repurchased in the prior fiscal year that had been held in treasury stock, resulting in a $50.6 million decrease in both additional paid inpaid-in capital and treasury stock. During fiscal year ended October 28, 2018, the Company canceled 2.7 million shares repurchased under stock repurchase programs and canceled 0.3 million shares of stock that are included in treasury stock purchases and were used to satisfy minimum tax withholding obligations arising in connection with the vesting of stock awards, resulting in a total $51.8 million decrease in both additional paidpaid-in capital and treasury stock. During the Transition Period and fiscal 2019, the Company cancelled 0.3 million and 0.3 million shares of stock, respectively, that are included in treasury stock purchases and were used to satisfy minimum tax withholding obligations arising in connection with the vesting of stock awards, resulting in $3.6 million and $2.4 million decreases in both additional paid-in capital and treasury stock.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NCI BUILDING SYSTEMS, INC.



Changes in treasury stock, at cost, were as follows (in thousands):
Number of
Shares
Amount
Balance, October 30, 2016775  $9,259  
Purchases2,958  43,603  
Issuance of restricted stock20  —  
Retirements(3,444) (50,587) 
Deferred compensation obligation(18) (135) 
Balance, October 29, 2017291  $2,140  
Purchases2,939  51,773  
Issuance of restricted stock(181) —  
Retirements(2,939) (51,772) 
Deferred compensation obligation(49) (954) 
Balance, October 28, 201861  $1,187  
Purchases347  4,128  
Retirements(297) (3,637) 
Balance, December 31, 2018111  $1,678  
Purchases257  1,934  
Retirements(307) (2,423) 
Deferred compensation obligation(6) (86) 
Balance, December 31, 201956  $1,103  
 Number of
Shares
 Amount
Balance, November 1, 2015447
 $7,523
Purchases4,590
 64,015
Issuance of restricted stock162
 
Retirements(4,424) (62,279)
Balance, October 30, 2016775
 $9,259
Purchases2,958
 43,603
Issuance of restricted stock20
 
Retirements(3,444) (50,587)
Deferred compensation obligation(18) (135)
Balance, October 29, 2017291
 $2,140
Purchases2,939
 51,773
Issuance of restricted stock(181) 
Retirements(2,939) (51,772)
Deferred compensation obligation(49) (954)
Balance, October 28, 201861
 $1,187

19. EMPLOYEE BENEFIT PLANS
Defined Contribution Plan — We have aThe Company has several 401(k) profit sharing planplans (the “Savings Plan”Plans”) that allowsallow participation for all eligible employees. The Savings Plan for the legacy NCI employees allows usthe Company to match between 50% and 100% of the participant’s contributions up to 6% of a participant’s pre-tax deferrals, based on a calculation of the Company’s annual return-on-assets. The Savings Plan for the legacy Ply Gem and ESW employees allows the Company to match 50% of the first 6% of employee contributions with the option of making discretionary contributions into the Savings Plan for the legacy Ply Gem and ESW employees. Contributions expense for the fiscal years ended October 28,2019, 2018 October 29,and 2017, and October 30, 2016the transition period ended December 31, 2018 was $13.3 million, $7.6 million, $6.1 million and $5.7$2.4 million, respectively, for matching contributions to the Savings Plan.
Deferred Compensation Plan — We haveThe Company has an Amended and Restated Deferred Compensation Plan (as amended and restated, the “Deferred Compensation Plan”) that allows ourits officers and key employees to defer up to 80% of their annual salary and up to 90% of their bonus on a pre-tax basis until a specified date in the future, including at or after retirement. Additionally, the Deferred Compensation Plan allows ourthe Company's directors to defer up to 100% of their annual fees and meeting attendance fees until a specified date in the future, including at or after retirement. The Deferred Compensation Plan also permits usthe Company to make contributions on behalf of ourits key employees who are impacted by the federal tax compensation limits under the NCI 401(k)Savings plan, and to receive a restoration matching amount which, under the current NCI 401(k)Savings Plan terms, mirrors our 401(k) profit sharingthe Savings Plan plan matching levels based on ourthe Company’s performance. The Deferred Compensation Plan provides for usthe Company to make discretionary contributions to employees who have elected to defer compensation under the plan. Deferred Compensation Plan participants will vest in ourthe Company's discretionary contributions ratably over three years from the date of each of ourthe Company's discretionary contributions.
On February 26, 2016, the Company amended its Deferred Compensation Plan, with an effective date of January 31, 2016, to require that amounts deferred into the Company Stock Fund remain invested in the Company Stock Fund until distribution. In accordance with the terms of the Deferred Compensation Plan, the deferred compensation obligation related to the Company’s stock may only be settled by the delivery of a fixed number of the Company’s common shares held on the participant’s behalf. The deferred compensation obligation related to the Company Stock Fund recorded within equity in additional paid-in capital on the consolidated balance sheet was $0.7$0.6 million and $1.3$0.7 million as of October 28,December 31, 2019 and 2018, and October 29, 2017, respectively. Subsequent changes in the fair value of the deferred compensation obligation classified within equity are not recognized. Additionally, the Company currently holds 60,81355,101 shares in treasury shares, relating to deferred, vested awards, until participants are eligible to receive benefits under the terms of the Deferred Compensation Plan.
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As of October 28,December 31, 2019 and 2018, and October 29, 2017, the liability balance of the Deferred Compensation Plan was $4.6$3.8 million and $4.9$3.1 million, respectively, and was included in accrued compensation and benefits on the consolidated balance sheets. We haveThe Company has not made any discretionary contributions to the Deferred Compensation Plan.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NCI BUILDING SYSTEMS, INC.


A rabbi trust is used to fund the Deferred Compensation Plan and an administrative committee manages the Deferred Compensation Plan and its assets. The investments in the rabbi trust were $5.3$3.8 million and $6.5$3.4 million as of October 28,December 31, 2019 and 2018, and October 29, 2017, respectively. The rabbi trust investments include debt and equity securities as well as cash equivalents and are accounted for as trading securities.
Defined Benefit Plans — With the acquisition of 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, fixed income securities and master limited partnerships and hedge funds.partnerships. In accordance with ASC Topic 805, we quantified the projected benefit obligation and fair value of the plan assets of the RCC Pension Plan and recorded the difference between these two amounts as an assumed liability.
As a result of the CENTRIA Acquisition on January 16, 2015, wethe Company assumed noncontributory defined benefit plans covering certain hourly employees (the “CENTRIA Benefit Plans”). which are closed to new participants. Benefits under the CENTRIA Benefit Plans are calculated based on fixed amounts for each year of service rendered. CENTRIA also sponsors postretirement medical and life insurance plans that cover certain of its employees and their spouses (the “OPEB Plans”). The contributions to the OPEB Plans by retirees vary from noneNaN to 25% of the total premiums paid. Plan assets of the CENTRIA Benefit Plans are invested in broadly diversified portfolios of equity mutual funds, international equity mutual funds, bonds, mortgages and other funds. Currently, ourthe Company's policy is to fund the CENTRIA Benefit Plans as required by minimum funding standards of the Internal Revenue Code. In accordance with ASC Topic 805, wethe Company remeasured the projected benefit obligation and fair value of the plan assets of the CENTRIA Benefits Plans and OPEB Plans. The difference between the two amounts was recorded as an assumed liability.
In addition to the CENTRIA Benefit Plans, CENTRIA contributes to a multi-employer plan, the Steelworkers Pension Trust. The minimum required annual contribution to this plan is $0.3 million. The current contract expires on June 1, 2019.2022. If we were to withdraw our participation from this multi-employer plan, CENTRIA may be required to pay a withdrawal liability representing an amount based on the underfunded status of the plan. The plan is not significant to the Company’s consolidated financial statements.
We referAs a result of the Merger on November 16, 2018, the 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.
The Company refers to the RCC Pension Plan, and the CENTRIA Benefit Plans, the Ply Gem Plan and the MW Plan collectively as the “Defined Benefit Plans” in this Note.
Assumptions—Weighted average actuarial assumptions used to determine benefit obligations were as follows:
Defined Benefit PlansOPEB Plans
December 31,
2019
December 31,
2018
October 28,
2018
December 31,
2019
December 31,
2018
October 28,
2018
Discount rate3.30 %4.25 %4.40 %3.20 %4.05 %4.20 %
 October 28, 2018 October 29, 2017
 Defined
Benefit Plans
 OPEB Plans Defined
Benefit Plans
 OPEB Plans
Discount rate4.40% 4.20% 3.64% 3.40%
Weighted average actuarial assumptions used to determine net periodic benefit cost (income) were as follows:
October 28, 2018 October 29, 2017Defined Benefit Plans  OPEB Plans  
Defined
Benefit Plans
 OPEB Plans Defined
Benefit Plans
 OPEB PlansFY 2019Transition PeriodFY 2018FY 2019Transition PeriodFY 2018
Discount rate3.64% 3.40% 3.64% 3.25%Discount rate4.25 %3.98 %3.64 %4.05 %4.20 %3.40 %
Expected return on plan assets6.19% n/a
 6.18% n/a
Expected return on plan assets6.60 %6.61 %6.19 %n/a  n/a  n/a  
Health care cost trend rate-initialn/a
 7.50% n/a
 7.00%
Health care cost trend rate-ultimaten/a
 4.00% n/a
 5.00%
The basis used to determine the overall expected long-term assetrate of return assumptionon assets assumptions for the Defined Benefit Plans was a 10-year forecast of expected return based on the target asset allocationrecent market performance and historical returns. The assumptions for the plans. The weighted average expected return for the portfolio over the forecast period is 6.19%, net of investment related expenses, and taking into consideration historical experience, anticipated asset allocations, investment strategies and the views of various investment professionals.plans are primarily long-term, prospective rates.
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The health care cost trend rate assumed for 2020 is 6.50% and is assumed to decline each year to an ultimate trend rate of 4.00%, which is expected to be achieved in 2030.
A one-percentage-point change in assumed health care cost trend rates would have the OPEB Plans was assumed at 6.5% for years 2019 to 2024, 5.5% for years 2025 to 2035, 5.0% for years 2036 to 2051 and approximately 4.0% per year thereafter.following effect (in thousands):
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One-Percentage-Point  
IncreaseDecrease
Total service and interest cost components$24,957  $(21,834) 
Postretirement benefit obligation741,171  (643,979) 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NCI BUILDING SYSTEMS, INC.


Funded status—The changes in the projected benefit obligation, plan assets and funded status, and the amounts recognized on our consolidated balance sheets were as follows (in thousands):
Defined Benefit PlansOPEB Plans
FY 2019Transition PeriodFY 2019Transition Period
Change in benefit obligation
Benefit obligation at beginning of period$95,053  $51,032  $6,929  $7,354  
Service cost42   22   
Interest cost3,897  359  262  48  
Benefits paid(6,218) (662) (802) (139) 
Actuarial (gains) losses8,374  606  1,367  (338) 
Additions due to Ply Gem merger—  43,711  —  —  
Benefit obligation at end of period$101,148  $95,053  $7,778  $6,929  
Accumulated benefit obligation at end of period$101,148  $95,053  
Change in plan assets
Fair value of assets at beginning of period$76,222  $47,725  $—  $—  
Actual return on plan assets13,625  (1,645) —  —  
Company contributions2,477  —  802  140  
Benefits paid(6,219) (662) (802) (140) 
Additions due to Ply Gem merger—  30,804  —  —  
Fair value of assets at end of period$86,105  $76,222  $—  $—  
Funded status at end of period$(15,043) $(18,831) $(7,778) $(6,929) 
Amounts recognized in the consolidated balance sheets
Noncurrent assets$6,319  $3,920  $—  $—  
Current liabilities—  —  (740) (838) 
Noncurrent liabilities(21,362) (22,751) (7,038) (6,091) 
$(15,043) $(18,831) $(7,778) $(6,929) 
 October 28, 2018 October 29, 2017
Change in projected benefit obligationDefined
Benefit Plans
 OPEB Plans Total Defined
Benefit Plans
 OPEB Plans Total
Accumulated benefit obligation$51,032
 $7,354
 $58,386
 $56,378
 $7,698
 $64,076
Projected benefit obligation – beginning of fiscal year$56,378
 $7,698
 $64,076
 $58,551
 $8,347
 $66,898
Interest cost1,976
 247
 2,223
 2,055
 257
 2,312
Service cost87
 28
 115
 97
 36
 133
Benefit payments(3,838) (822) (4,660) (3,681) (546) (4,227)
Plan amendments
 
 
 275
 
 275
Actuarial (gains) losses(3,571) 203
 (3,368) (919) (396) (1,315)
Projected benefit obligation – end of fiscal year$51,032
 $7,354
 $58,386
 $56,378
 $7,698
 $64,076
 October 28, 2018 October 29, 2017
Change in plan assetsDefined
Benefit Plans
 OPEB Plans Total Defined
Benefit Plans
 OPEB Plans Total
Fair value of assets – beginning of fiscal year$49,564
 $
 $49,564
 $46,160
 $
 $46,160
Actual return on plan assets(263) 
 (263) 5,041
 
 5,041
Company contributions2,262
 822
 3,084
 2,044
 546
 2,590
Benefit payments(3,838) (822) (4,660) (3,681) (546) (4,227)
Fair value of assets – end of fiscal year$47,725
 $
 $47,725
 $49,564
 $
 $49,564
 October 28, 2018 October 29, 2017
Funded statusDefined
Benefit Plans
 OPEB Plans Total Defined
Benefit Plans
 OPEB Plans Total
Fair value of assets$47,725
 $
 $47,725

$49,564
 $
 $49,564
Benefit obligation51,032
 7,354
 58,386

56,378
 7,698
 64,076
Funded status$(3,307) $(7,354) $(10,661)
$(6,814) $(7,698) $(14,512)
BenefitCertain of our defined pension plans have projected benefit obligations in excess of the fair value of plan assets. For these plans, the projected benefit obligations and the fair value of plan assets of $10.7 million and $14.5 millionwere as of October 28, 2018 and October 29, 2017, respectively, are included in other long-term liabilities on the consolidated balance sheets.follows (in thousands):
December 31,
2019
December 31,
2018
Projected benefit obligations$87,059  $81,828  
Fair value of plan assets65,698  59,077  
Funded status$(21,361) $(22,751) 
Plan assets—The investment policy is to maximize the expected return for an acceptable level of risk. Our expected long-term rate of return on plan assets is based on a target allocation of assets, which is based on our goal of earning the highest rate of return while maintaining risk at acceptable levels.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NCI BUILDING SYSTEMS, INC.


As of October 28,December 31, 2019 and 2018, and October 29, 2017, the weighted average asset allocations by asset category for the Defined Benefit Plans were as follows (in thousands):
Investment typeOctober 28,
2018
 October 29,
2017
Investment typeDecember 31,
2019
December 31,
2018
Equity securities55% 58%Equity securities45 %51 %
Debt securities7% 35%Debt securities48 %41 %
Master limited partnerships3% 3%Master limited partnerships%%
Cash and cash equivalents31% 1%Cash and cash equivalents%%
Real estate3% 2%Real estate%%
Other1% 1%Other%%
Total100% 100%Total100 %100 %
The principal investment objectives are to ensure the availability of funds to pay pension and postretirement benefits as they become due under a broad range of future economic scenarios, to maximize long-term investment return with an acceptable level of risk based on our pension and postretirement obligations, and to be sufficiently diversified across and within the capital markets to mitigate the risk of adverse or unexpected results from one security class will not have an unduly detrimental.detrimental impact. Each asset class has broadly diversified characteristics. Decisions regarding investment policy are made with an understanding of the effect of asset allocation on funded status, future contributions and projected expenses.
The plans strive to have assets sufficiently diversified so that adverse or unexpected results from one security class will not have an unduly detrimental impact on the entire portfolio. We regularly review our actual asset allocation and the investments are periodically rebalanced to our target allocation when considered appropriate. We have set the target asset allocation for the RCC Pension Plan as follows: 45% US bonds, 17% large cap US equities, 13% foreign equity, 5% master limited partnerships, 2% commodity futures, 4% real estate investment trusts, 8% emerging markets and 6% small cap US equities. The CENTRIA Benefit Plans have a target asset allocation of approximately 80%-85% equities and 15%-20% fixed income. The Ply Gem Plan and the MW Plan combined target allocation is as follows: 25% US large cap funds, 5% US mid cap funds, 3% US small cap funds, 15% international equity, 45% fixed income and 7% other investments.
The fair values of the assets of the Defined Benefit Plans at October 28,December 31, 2019 and 2018, and October 29, 2017, by asset category and by levels of fair value, as further defined in Note 1415 — Fair Value of Financial Instruments and Fair Value Measurements were as follows (in thousands):
December 31, 2019December 31, 2018
Asset categoryLevel 1Level 2TotalLevel 1Level 2Total
Cash and cash equivalents$1,487  $—  $1,487  $1,909  $—  $1,909  
Mutual funds:
Growth funds5,409  —  5,409  6,959  —  6,959  
Real estate funds1,409  —  1,409  1,202  —  1,202  
Commodity linked funds507  1,459  1,966  481  1,394  1,875  
Equity income funds12,857  1,707  14,564  12,662  1,502  14,164  
Index funds1,868  17  1,885  2,794  30  2,824  
International equity funds5,486  952  6,438  4,685  1,447  6,132  
Fixed income funds6,103  5,087  11,190  1,778  16,174  17,952  
Master limited partnerships1,245  —  1,245  1,241  —  1,241  
Corporate bonds—  30,172  30,172  —  13,270  13,270  
Common/collective trusts—  10,340  10,340  —  8,694  8,694  
Total$36,371  $49,734  $86,105  $33,711  $42,511  $76,222  
106
 October 28, 2018 October 29, 2017
Asset categoryLevel 1 Level 2 Total Level 1 Level 2 Total
Cash and cash equivalents$14,774
 $
 $14,774
 $463
 $
 $463
Mutual funds:           
Growth funds7,235
 
 7,235
 7,262
 
 7,262
Real estate funds1,245
 
 1,245
 1,236
 
 1,236
Commodity linked funds528
 
 528
 544
 
 544
Equity income funds5,043
 
 5,043
 4,767
 
 4,767
Index funds3,036
 35
 3,071
 2,763
 110
 2,873
International equity funds253
 1,543
 1,796
 260
 1,726
 1,986
Fixed income funds1,745
 1,518
 3,263
 1,742
 1,739
 3,481
Master limited partnerships1,448
 
 1,448
 1,506
 
 1,506
Government securities
 
 
 
 6,400
 6,400
Corporate bonds
 
 
 
 7,301
 7,301
Common/collective trusts
 9,322
 9,322
 
 11,745
 11,745
Total$35,307
 $12,418
 $47,725
 $20,543
 $29,021
 $49,564

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NCI BUILDING SYSTEMS, INC.


Net periodic benefit cost (income)—The components of the net periodic benefit cost (income) were as follows (in thousands):
Defined Benefit Plans
FY 2019FY 2018FY 2017Transition Period
Service cost$42  $87  $97  $ 
Interest cost3,897  1,976  2,055  359  
Expected return on assets(4,935) (2,916) (2,798) (480) 
Amortization of prior service cost (credit)58  58  (9)  
Amortization of loss1,313  991  1,374  185  
Net periodic benefit cost$375  $196  $719  $80  
 October 28,
2018
 October 29,
2017
 October 30,
2016
 Defined
Benefit Plans
 OPEB Plans Defined
Benefit Plans
 OPEB Plans Defined
Benefit Plans
 OPEB Plans
Interest cost$1,976
 $247
 $2,055
 $257
 $2,354
 $261
Service cost87
 28
 97
 36
 137
 34
Expected return on assets(2,916) 
 (2,798) 
 (2,979) 
Amortization of prior service credit58
 
 (9) 
 (9) 
Amortization of net actuarial loss991
 
 1,374
 
 1,170
 
Net periodic benefit cost$196
 $275
 $719
 $293
 $673
 $295

OPEB Plans
FY 2019FY 2018FY 2017Transition Period
Service cost$22  $28  $36  $ 
Interest cost262  247  257  48  
Net periodic benefit cost$284  $275  $293  $52  
The amounts in accumulated other comprehensive income that have not yet been recognized as components of net periodic benefit income are as follows (in thousands):
 October 28, 2018 October 29, 2017
 Defined
Benefit Plans
 OPEB Plans Total Defined
Benefit Plans
 OPEB Plans Total
Unrecognized net actuarial loss$10,083
 $578
 $10,661
 $11,468
 $375
 $11,843
Unrecognized prior service credit195
 
 195
 252
 
 252
Total$10,278
 $578
 $10,856
 $11,720
 $375
 $12,095
Defined Benefit PlansOPEB Plans
December 31,
2019
December 31,
2018
December 31,
2019
December 31,
2018
Unrecognized actuarial loss$11,002  $12,111  $1,608  $240  
Unrecognized prior service cost127  185  —  —  
Total$11,129  $12,296  $1,608  $240  
Unrecognized actuarial gains (losses), net of income tax, of $0.9$(2.0) million and $2.8$0.7 million during fiscal 20182019 and 2017,the transition period ended December 31, 2018, respectively, are included in other comprehensive income (loss) in the consolidated statements of comprehensive income.income (loss).
The changes in plan assets and benefit obligation recognized in other comprehensive income (loss) are as follows (in thousands):
Defined Benefit Plans
FY 2019FY 2018FY 2017Transition Period
Net actuarial loss (gain)$(315) $(392) $(3,144) $2,731  
Amortization of net actuarial gain (loss)(1,313) (991) (1,374) (185) 
Amortization of prior service credit (cost)(58) (58)  (9) 
New prior service credit—  —  276  —  
Total recognized in other comprehensive income (loss)$(1,686) $(1,441) $(4,233) $2,537  

OPEB Plans
FY 2019FY 2018FY 2017Transition Period
Net actuarial loss (gain)$1,367  $203  $(396) $(338) 
Total recognized in other comprehensive income (loss)$1,367  $203  $(396) $(338) 

107

 October 28,
2018
 October 29,
2017
 October 30,
2016
 Defined
Benefit Plans
 OPEB Plans Defined
Benefit Plans
 OPEB Plans Defined
Benefit Plans
 OPEB Plans
Net actuarial gain (loss)$392

$(203)
$3,144
 $396
 $(3,443) $(911)
Amortization of net actuarial loss991



1,374
 
 1,170
 
Amortization of prior service cost (credit)58



(9) 
 (9) 
New prior service cost
 
 (276) 
 
 
Total recognized in other comprehensive income (loss)$1,441

$(203)
$4,233
 $396
 $(2,282) $(911)
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The estimated amortization for the next fiscal year2020 for amounts reclassified from accumulated other comprehensive income into the consolidated income statement of operations is as follows (in thousands):
 October 28, 2018
 Defined
Benefit Plans
 OPEB Plans Total
Amortization of prior service credit$(143) $
 $(143)
Amortization of net actuarial loss1,111
 
 1,111
Total estimated amortization$968
 $
 $968
Actuarial gains and losses are amortized using the corridor method based on 10% of the greater of the projected benefit obligation or the market related value of assets over the average remaining service period of active employees.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NCI BUILDING SYSTEMS, INC.


Defined
Benefit Plans
OPEB Plans
Amortization of prior service credit$63  $—  
Amortization of net actuarial loss1,193  108  
Total estimated amortization$1,256  $108  
We expect to contribute $1.2$5.2 million to the Defined Benefit Plans and $0.8 million to OPEB Plans in fiscal 2019.2020. We expect the following benefit payments to be made (in thousands):
Fiscal years endingDefined
Benefit Plans
OPEB Plans
2020$6,552  $752  
20216,568  689  
20226,601  604  
20236,566  592  
20246,467  513  
2025 - 202931,078  2,158  
Fiscal years endingDefined
Benefit Plans
 OPEB Plans Total
2019$4,222
 $875
 $5,097
20203,954
 798
 4,752
20213,923
 704
 4,627
20223,847
 600
 4,447
20234,053
 609
 4,662
2024 - 202817,883
 2,134
 20,017
Other Retirement Plans — As a result of the Merger on November 16, 2018, the Company assumed an unfunded nonqualified Supplemental Executive Retirement Plan for certain employees. The projected benefit obligation relating to this unfunded plan totaled approximately $304,000 and $289,000 at December 31, 2019 and 2018, respectively. The Company has recorded this obligation in other long term liabilities in the consolidated balance sheets as of December 31, 2019 and 2018. Pension expense for the plan was approximately $12,000 for the year ended December 31, 2019.

20. OPERATING SEGMENTSSEGMENT INFORMATION
Operating segments are defined as components of an enterprise that engage in business activities and byfor 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. On February 22,For the transition period ended December 31, 2018, the Company announced changes to NCI’sbegan reporting results under 3 reportable businesssegments: Commercial, Siding and Windows. The Company’s prior reportable segments, effective January 28, 2018, starting withEngineered Building Systems, Metal Components, Insulated Metal Panels, and Metal Coil Coating, are now collectively in the first quarter of fiscal 2018, to align with changes in how the Company manages its business, reviews operating performance and allocates resources. WeCommercial segment. Prior periods for all periods presented have revised our segment reporting to represent how we now manage our business, recasting prior periodsbeen recast to conform to the current segment presentation.
We have four The Siding segment includes the operating segments: Engineered Building Systems; Metal Components; Insulated Metal Panels;results of the legacy Ply Gem operating segment of Siding, Fencing, and Metal Coil Coating. All operating segments operate primarily in the nonresidential construction market. Sales and earnings are influenced by general economic conditions, the level of nonresidential construction activity, metal roof repair and retrofit demandStone, and the availabilityWindows segment includes the operating results of the legacy Ply Gem operating segment of Windows and terms of financing available for construction. Products of our operating segments use similar basic raw materials enabling us to leverage our supply chain. The Metal Coil Coating segment consists of cleaning, treating, painting and slitting continuous steel coils before the steel is fabricated for use by construction and industrial users. The Metal Components segment products include metal roof and wall panels, doors, metal partitions, metal trim, and other related accessories. The Insulated Metal Panels segment produces panels consisting of rigid foam encased between two sheets of coated metal in a variety of modules, lengths and reveal combinations which are used in architectural, commercial, industrial and cold storage market applications. The Engineered Building Systems segment manufactures custom designed and engineered products such as structural frames, Long Bay® Systems, metal roofing and wall systems, and the related value-added engineering and drafting, to provide customers a complete building envelope solution. TheDoors.
These operating segments follow the same accounting policies used for our consolidated financial statements. 
We evaluate a segment’s performance based primarily upon operating income before corporate expenses. Intersegment sales are recorded based on standard material costs plus a standard markup to cover labor and overhead and consist of (i) structural framing provided by the Engineered Building Systems segment to the Metal Components segment; (ii) building components provided by the Metal Components and Insulated Metal Panels segments to the Engineered Building Systems segment; and (iii) hot-rolled, light gauge painted and slit material and other services provided by the Metal Coil Coating segment to the Engineered Building Systems, Metal Components and Insulated Metal Panels segments.
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. During fiscal 2019, the Company changed the manner in which costs were allocated to the Commercial segment for commercial cost centers that had previously been categorized as unallocated corporate costs. Corporate unallocated expenses include share-based compensation expenses, acquisition costs, and other expenses related to executive, legal, finance, tax, treasury, human resources, information technology and strategic sourcing, marketing 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) income..

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NCI BUILDING SYSTEMS, INC.


The following table represents summarySummary financial data attributable to these operatingthe segments for the periods indicated is as follows (in thousands):
 Fiscal Year Ended
 October 28,
2018
 October 29,
2017
 October 30,
2016
Total sales:     
Engineered Building Systems$798,299
 $693,980
 $672,235
Metal Components689,344
 636,661
 586,690
Insulated Metal Panels504,413
 441,404
 396,327
Metal Coil Coating417,296
 368,880
 346,348
Intersegment sales(408,775) (370,647) (316,672)
Total net sales$2,000,577
 $1,770,278
 $1,684,928
External sales:  
   
   
Engineered Building Systems$755,353
 $659,863
 $652,471
Metal Components612,645
 544,669
 495,020
Insulated Metal Panels424,762
 372,304
 347,771
Metal Coil Coating207,817
 193,442
 189,666
Total net sales$2,000,577
 $1,770,278
 $1,684,928
Operating income (loss):  
   
   
Engineered Building Systems$66,689
 $41,388
 $62,046
Metal Components87,593
 78,768
 70,742
Insulated Metal Panels47,495
 47,932
 24,620
Metal Coil Coating28,588
 21,459
 32,422
Corporate(104,445) (79,767) (81,051)
Total operating income$125,920
 $109,780
 $108,779
Unallocated other expense(42,825) (26,642) (29,815)
Income before income taxes$83,095
 $83,138
 $78,964
Depreciation and amortization:  
   
   
Engineered Building Systems$8,627
 $9,014
 $9,767
Metal Components5,817
 5,324
 4,944
Insulated Metal Panels17,604
 17,907
 17,862
Metal Coil Coating8,488
 8,243
 8,284
Corporate1,789
 830
 1,067
Total depreciation and amortization expense$42,325
 $41,318
 $41,924
Year Ended
December 31,
2019
October 28,
2018
October 29,
2017
October 29, 2018 -
December 31, 2018
Net sales:      
Commercial$1,847,893  $2,000,577  $1,770,278  $286,522  
Siding1,111,407  —  —  82,974  
Windows1,930,447  —  —  190,374  
Total net sales$4,889,747  $2,000,577  $1,770,278  $559,870  
Operating income (loss):      
Commercial$201,073  $230,365  $189,547  $11,784  
Siding66,273  —  —  (15,979) 
Windows92,538  —  —  (8,023) 
Corporate(145,148) (104,445) (79,767) (51,198) 
Total operating income (loss)$214,736  $125,920  $109,780  $(63,416) 
Unallocated other expense, net(225,351) (42,825) (26,642) (33,441) 
Income (loss) before income taxes$(10,615) $83,095  $83,138  $(96,857) 
Depreciation and amortization:      
Commercial$44,550  $40,536  $40,488  $6,820  
Siding121,004  —  —  11,793  
Windows94,737  —  —  11,893  
Corporate3,473  1,789  830  430  
Total depreciation and amortization expense$263,764  $42,325  $41,318  $30,936  
Capital expenditures:
Commercial$51,144  $36,943  $20,348  $5,660  
Siding22,695  —  —  1,178  
Windows43,408  —  —  5,788  
Corporate3,838  10,884  1,726  960  
Total capital expenditures$121,085  $47,827  $22,074  $13,586  
December 31,
2019
December 31,
2018
Property, plant and equipment, net:
Commercial$238,133  $216,685  
Siding160,524  162,273  
Windows232,855  213,694  
Corporate21,329  21,355  
Total property, plant and equipment, net$652,841  $614,007  
Total assets:
Commercial$963,291  $951,046  
Siding2,289,310  2,119,366  
Windows2,166,220  1,894,732  
Corporate145,525  176,043  
Total assets$5,564,346  $5,141,187  

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NCI BUILDING SYSTEMS, INC.


 Fiscal Year Ended
 October 28,
2018
 October 29,
2017
 October 30,
2016
Capital expenditures:     
Engineered Building Systems$12,433
 $5,533
 $7,571
Metal Components9,507
 5,708
 3,245
Insulated Metal Panels5,975
 5,731
 4,744
Metal Coil Coating9,028
 3,376
 2,949
Corporate10,884
 1,726
 2,515
Total capital expenditures$47,827
 $22,074
 $21,024
Property, plant and equipment, net:     
Engineered Building Systems$53,907
 $46,620
 $50,862
Metal Components52,119
 49,016
 49,654
Insulated Metal Panels57,415
 70,853
 76,899
Metal Coil Coating53,819
 50,855
 54,407
Corporate18,980
 9,651
 10,390
Total property, plant and equipment, net$236,240
 $226,995
 $242,212
Total assets:     
Engineered Building Systems$225,304
 $195,426
 $194,190
Metal Components226,083
 186,369
 172,048
Insulated Metal Panels376,488
 380,308
 388,183
Metal Coil Coating196,558
 175,046
 181,497
Corporate85,942
 93,963
 89,478
 $1,110,375
 $1,031,112
 $1,025,396
The following table represents summarySummary financial data attributable to various geographic regions for the periods indicated is as follows (in thousands):
Fiscal Year EndedYear Ended
October 28,
2018
 October 29,
2017
 October 30,
2016
December 31,
2019
October 28,
2018
October 29,
2017
October 29, 2018 -
December 31, 2018
Total sales:     Total sales:
United States of America$1,874,129
 $1,666,645
 $1,589,479
United States of America$4,526,385  $1,874,129  $1,666,645  $514,306  
Canada99,306
 73,090
 61,781
Canada340,250  99,306  73,090  42,861  
China4
 8,923
 6,733
China  8,923  —  
Mexico2,460
 4,910
 4,060
Mexico3,381  2,460  4,910  285  
All other24,678
 16,710
 22,875
All other19,730  24,678  16,710  2,418  
Total net sales$2,000,577
 $1,770,278
 $1,684,928
Total net sales$4,889,747  $2,000,577  $1,770,278  $559,870  
December 31,
2019
December 31,
2018
Long-lived assets:     Long-lived assets:
United States of America$494,425
 $493,203
 $523,134
United States of America$3,692,015  $3,556,965  
Canada7,041
 8,180
 9,247
Canada359,249  356,296  
China
 448
 170
Costa RicaCosta Rica321  216  
Mexico10,594
 10,603
 10,701
Mexico11,550  10,642  
Total long-lived assets$512,060
 $512,434
 $543,252
Total long-lived assets$4,063,135  $3,924,119  
Sales are determined based on customers’ requested shipment location.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NCI BUILDING SYSTEMS, INC.


21. CONTINGENCIES
As a manufacturer of products primarily for use in nonresidential 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. The Company insures against these risks to the extent deemed prudent by its management and to the extent insurance is available. Many of these insurance policies contain deductibles or self-insured retentions in amounts the Company deems prudent and for which the Company is responsible for payment. In determining the amount of self-insurance, it is the Company’s policy to self-insure those losses that are predictable, measurable and recurring in nature, such as claims for automobile liability and general liability.nature. The Company regularly reviews the status of on-goingongoing proceedings and other contingent matters along with its legal counsel. Liabilities for such items are recorded when it is probable that the liability has beenwill be 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 are not predictablepredictable.
Environmental
The Company is subject to United States and Canadian federal, state, provincial and local laws and regulations relating to pollution and the protection of the environment, including those governing emissions to air, discharges to water, use, storage, treatment, disposal and transport of hazardous waste and other materials, investigation and remediation of contaminated sites, and protection of worker health and safety. From time to time, the Company’s facilities are subject to investigation by governmental authorities. In addition, the Company has been identified as one of many potentially responsible parties for contamination present at certain offsite locations to which it or its predecessors are alleged to have sent hazardous materials for recycling or disposal. The Company may be held liable, or incur fines or penalties, in connection with assurance.such requirements or liabilities for, among other things, releases of hazardous substances occurring on or emanating from current or formerly owned or operated properties or any associated offsite disposal location, or for known or newly-discovered contamination at any of the Company’s properties from activities conducted by it or previous occupants. The amount of any liability, fine or penalty may be material, and certain environmental laws impose strict, and under certain circumstances joint and several, liability for the cost of addressing releases of hazardous substances upon certain classes of persons, including site owners or operators and persons that disposed or arranged for the disposal of hazardous substances at contaminated sites.
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One of the Company’s subsidiaries entered into an Administrative Order on Consent (the “Consent Order”), effective September 12, 2011, with the United States Environmental Protection Agency (“EPA”), under the Resource Conservation and Recovery Act (“RCRA”), with respect to its Rocky Mount, Virginia property. During 2011, as part of the Consent Order, the Company provided the EPA, among other things, a RCRA Facility Investigation Workplan (the “Workplan”). In 2012, the EPA approved the Workplan, which the Company is currently implementing. Current estimates of remaining costs for predicted assessment, remediation and monitoring activities as of December 31, 2019 are $4.5 million. The Company has recorded approximately $1.0 million of this environmental liability within current liabilities at December 31, 2019 and approximately $3.5 million within other long-term liabilities in the Company’s consolidated balance sheets at December 31, 2019. The Company may incur costs that exceed its recorded environmental liability. The Company will adjust its environmental remediation liability in future periods, if necessary, as further information develops or circumstances change.
The EPA is investigating groundwater contamination at a Superfund site in York, Nebraska referred to as the “PCE/TCE Northeast Contamination Site”. A subsidiary of the Company has been named a potentially responsible party (“PRP”) with respect to the PCE/TCE Northeast Contamination Site. As a PRP, the Company could have liability for investigation and remediation costs associated with the contamination. Given the current status of this matter, the Company has recorded a liability of $4.6 million within other current liabilities in its consolidated balance sheets as of December 31, 2019.
The Company is a party to various acquisition and other agreements pursuant to which third parties agreed to indemnify the Company for certain costs relating to environmental liabilities. For example, the Company may be able to recover some of its Rocky Mount, Virginia investigation and remediation costs from U.S. Industries, Inc. and may be able to recover a portion of costs incurred in connection with the York, Nebraska contamination matter from Novelis Corporation as successor to Alcan Aluminum Corporation, the former owner of the York, Nebraska location. The Company’s ability to seek indemnification from parties that have agreed to indemnify it may be limited. There can be no assurance that the Company would receive any funds from these parties, and any related environmental liabilities or costs could have a material adverse effect on our financial condition and results of operations.
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 which resulted in the Company having a $11.2 million liability as of December 31, 2019, of which $3.6 million is held within other current liabilities with the remaining in long-term liabilities in the consolidated balance sheets.
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 purports 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 asserts 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. Voigt seeks damages in an amount to be determined at trial. Defendants moved to dismiss the Amended Complaint and, on February 10, 2020, the court denied the motions except as to four of the director defendants. Defendants are due to answer on April 3, 2020. The Company intends to vigorously defend the litigation.
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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”). Neither of these proceedings were directly aimed at the Company. Rather, the proceedings were brought by the American Institute of Steel Construction in February 2019 against FSS being imported into the USA from Mexico, Canada, and China, not individual companies. 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. Once the USITC opinion is published the AD and CVD tariffs will cease to be applicable to BSM and the Company will seek recovery of those nominal funds deposited with United States Customs and Border Protection related to these tariffs on its importation of FSS from BSM. In the event the USITC decision is appealed, the Company will continue to vigorously advocate its position that its import of FSS from BSM should not be subject to any CVD or AD tariffs.
The Company is subject to other contingencies, including legal proceedings and 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. Product liability, environmental and other legal proceedings also include matters with respect to businesses previously owned. The Company has used various substances in products and manufacturing operations, which have been or may be deemed to be hazardous or dangerous, and the extent of its potential liability, if any, under environmental, product liability and workers’ compensation statutes, rules, regulations and case law is unclear. 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 December 31, 2019.

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22. QUARTERLY RESULTS (Unaudited)
Shown below are selected unaudited quarterly data (in thousands, except per share data):
Fiscal Year 2019
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Sales$1,064,832  $1,295,457  $1,285,043  $1,244,415  
Gross profit$185,917  $304,663  $309,803  $288,036  
Net income (loss)$(60,017) $17,533  $25,164  $1,930  
Net income allocated to participating securities$—  $(270) $(374) $(27) 
Net income (loss) applicable to common shares(3)
$(60,017) $17,263  $24,790  $1,903  
Income (loss) per common share:(1)(2)
Basic$(0.48) $0.14  $0.20  $0.02  
Diluted$(0.48) $0.14  $0.20  $0.02  
Fiscal Year 2018
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
October 29, 2018 - December 31, 2018
Sales$421,349  $457,069  $548,525  $573,634  $559,870  
Gross profit$91,917  $104,083  $133,401  $133,281  $84,090  
Net income (loss)$5,249  $(5,684) $35,986  $27,555  $(76,190) 
Net income allocated to participating securities$(38) $—  $(221) $(138) $—  
Net income (loss) applicable to common shares(3)
$5,211  $(5,684) $35,765  $27,417  $(76,190) 
Income (loss) per common share:(1)(2)
Basic$0.08  $(0.09) $0.54  $0.41  $(0.71) 
Diluted$0.08  $(0.09) $0.54  $0.41  $(0.71) 
(1)The sum of the quarterly income (loss) per share amounts may not equal the annual amount reported, as per share amounts are computed independently for each quarter and for the full year based on the respective weighted average common shares outstanding.
(2)Excludes net income allocated to participating securities. The participating securities are treated as a separate class in computing earnings per share (see Note 9 — Earnings per Common Share).
(3)The quarterly income (loss) before income taxes were impacted by the following special income (expense) items:

Fiscal Year 2019
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Restructuring and impairment charges, net$(3,431) $(7,107) $(4,984) $(2,538) 
Strategic development and acquisition related costs(14,082) (12,086) (10,500) (13,517) 
Non-cash charge of purchase price allocated to inventories(16,249) —  —  —  
Total special expense items in income (loss) before income taxes$(33,762) $(19,193) $(15,484) $(16,055) 
Fiscal Year 2018
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
October 29, 2018 - December 31, 2018
Restructuring charges and impairment charges, net$(1,094) $(488) $439  $(769) $(1,253) 
Strategic development and acquisition related costs(727) (1,134) (3,642) (11,661) (29,094) 
Gain (loss) on disposition of business—  (6,686) 1,013  —  (1,244) 
Loss on extinguishment of debt—  (21,875) —  —  (3,284) 
Acceleration of CEO retirement benefits(4,600) —  —  —  —  
Gain on insurance recovery—  —  4,741  —  —  
Discrete tax effects of U.S. tax reform323  —  —  —  —  
Non-cash charge of purchase price allocated to inventories—  —  —  —  (21,617) 
Litigation settlement—  —  —  —  (3,235) 
Total special income (expense) items in income (loss) before income taxes$(6,098) $(30,183) $2,551  $(12,430) $(59,727) 

 First
Quarter
 Second
Quarter
 Third
Quarter
 Fourth
Quarter
 
FISCAL YEAR 2018        
Sales$421,349
 $457,069
 $548,525
 $573,634
 
Gross profit$91,917
 $104,083
 $133,401
 $133,281
 
Net income (loss)$5,249
 $(5,684) $35,986
 $27,555
 
Net income allocated to participating securities$(38) $
 $(221) $(138) 
Net income (loss) applicable to common shares(3)
$5,211
 $(5,684) $35,765
 $27,417
 
Income (loss) per common share:(1)(2)
        
Basic$0.08
 $(0.09) $0.54
 $0.41
 
Diluted$0.08
 $(0.09) $0.54
 $0.41
 
         
FISCAL YEAR 2017        
Sales$391,703
 $420,464
 $469,385
 $488,726
 
Gross profit$83,951
 $100,839
 $114,969
 $116,305
 
Net income$2,039
 $16,974
 $18,221
 $17,490
 
Net income allocated to participating securities$(8) $(115) $(102) $(78) 
Net income applicable to common shares(3)
$2,031
 $16,859
 $18,119
 $17,412
 
Income per common share:(1)(2)
        
Basic$0.03
 $0.24
 $0.26
 $0.25
 
Diluted$0.03
 $0.24
 $0.25
 $0.25
 
(1)The sum of the quarterly income per share amounts may not equal the annual amount reported, as per share amounts are computed independently for each quarter and for the full year based on the respective weighted average common shares outstanding.
(2)
Excludes net income allocated to participating securities. The participating securities are treated as a separate class in computing earnings per share (see Note 8 — Earnings per Common Share).
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NCI BUILDING SYSTEMS, INC.


(3)The quarterly income before income taxes were impacted by the following special income (expense) items:
 First
Quarter
 Second
Quarter
 Third
Quarter
 Fourth
Quarter
FISCAL YEAR 2018       
Loss on extinguishment of debt$
 $(21,875) $
 $
(Loss) gain on disposition of business
 (6,686) 1,013
 
Restructuring and impairment charges, net(1,094) (488) 439
 (769)
Strategic development and acquisition related costs(727) (1,134) (3,642) (11,661)
Acceleration of CEO retirement benefits(4,600) 
 
 
Gain on insurance recovery
 
 4,741
 
Discrete tax effects of U.S. tax reform323
 
 
 
Total special income (expense) items in income before income taxes$(6,098) $(30,183) $2,551
 $(12,430)
        
FISCAL YEAR 2017  
   
   
   
Goodwill impairment$
 $
 $
 $(6,000)
Restructuring charges and impairment charges, net(2,264) (315) (1,009) (1,710)
Strategic development and acquisition related costs(357) (124) (1,297) (193)
Loss on sale of assets and asset recovery
 (137) 
 
Gain on insurance recovery
 9,601
 148
 
Unreimbursed business interruption costs
 (191) (235) (28)
Total special income (expense) items in income before income taxes$(2,621) $8,834
 $(2,393) $(7,931)
23. SUBSEQUENT EVENTS
Merger with Ply Gem
On July 17, 2018, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Ply Gem Parent, LLC (“Ply Gem”March 2, 2020, the Company agreed to terms to purchase Kleary Masonry, Inc. ("Kleary"), based in Sacramento, California for $40.0 million plus future consideration. Kleary is a leading installer of manufactured stone veneer in Northern California and for certain limited purposes as set forth in the Merger Agreement, Clayton, Dubilier & Rice, LLC, pursuant to which Ply Gem would be merged with and into NCI, with NCI surviving the Merger and continuing its corporate existence (the “Merger”). On November 15, 2018, at a special meeting of shareholders of NCI, NCI’s shareholders approved the Merger Agreement and the issuance of 58,709,067 shares of NCI common stock, par value $0.01 per share (“NCI Common Stock”) in the aggregate, on a pro rata basis,addition to the holders of all of the equity interests in Ply Gem (the “Stock Issuance”), representing approximately 47% of the total number of shares of NCI Common Stock outstanding after closing. The Merger was consummated on November 16, 2018 and the total value of shares of NCI Common Stock issued pursuant to the Stock Issuance was approximately $713.9 million based on the number of shares issued multiplied by the NCI closing share price of $12.16 on November 16, 2018 (the “Acquisition date”).Company's Siding segment further enhances our market leading turnkey stone veneer offering.
In connection with the Merger, on November 16, 2018, NCI assumed (i) the obligations of the company formerly known as Ply Gem Midco, Inc. (“Ply Gem Midco”), a subsidiary of Ply Gem immediately prior to the consummation of the Merger, as borrower under the Current Cash Flow Credit Agreement (as defined below), (ii) the obligations of Ply Gem Midco as parent borrower under the Current ABL Credit Agreement (as defined below) and (iii) the obligations of Ply Gem Midco as issuer under the Current Indenture (as defined below).
On April 12, 2018, Ply Gem Midco entered into a Cash Flow Credit Agreement (the “Current Cash Flow Credit Agreement”), by and among Ply Gem Midco, JPMorgan Chase Bank, N.A., as administrative agent and collateral agent (the “Current Cash Flow Agent”), and the several banks and other financial institutions from time to time party thereto. As of November 16, 2018, immediately prior to the Merger, the Cash Flow Credit Agreement provided for (i) a term loan facility (the “Current Term Loan Facility”) in an original aggregate principal amount of $1,755.0 million and (ii) a cash flow-based revolving credit facility (the
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114


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NCI BUILDING SYSTEMS, INC.



“Current Cash Flow Revolver” and together with the Current Term Loan Facility, the “Current Cash Flow Facilities”) of up to $115.0 million. On November 16, 2018, Ply Gem Midco entered into a Lender Joinder Agreement, by and among Ply Gem Midco, the additional commitment lender party thereto and the Cash Flow Agent, which amended the Current Cash Flow Credit Agreement in order to, among other things, increase the aggregate principal amount of the Current Term Loan Facility by $805.0 million (the “Incremental Term Loans”). Proceeds of the Incremental Term Loans 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 (each as defined below) and (c) repay $325.0 million of borrowings outstanding under the Current ABL Facility (as defined below). 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 Current Cash Flow Facilities, and NCI became the Borrower (as defined in the Current Cash Flow Credit Agreement) under the Current Cash Flow Facilities. The Current Term Loan Facility amortizes in nominal quarterly installments equal to one percent of the aggregate initial principal amount thereof per annum, with the remaining balance payable upon final maturity of the Current Term Loan Facility on April 12, 2025. There are no amortization payments under the Current Cash Flow Revolver, and all borrowings under the Current Cash Flow Revolver mature on April 12, 2023. At November 16, 2018, following consummation of the Merger, there was $2,555.6 million outstanding under the Current Term Loan Facility and there were no amounts drawn on the Current Cash Flow Revolver.
On April 12, 2018, Ply Gem Midco and certain subsidiaries of Ply Gem Midco entered into an Current ABL Credit Agreement (the “Current ABL Credit Agreement”), by and among Ply Gem Midco, the subsidiary borrowers from time to time party thereto, UBS AG, Stamford Branch, as administrative agent and collateral agent (the “ABL Agent”), and the several banks and other financial institutions from time to time party thereto, which provided for an asset-based revolving credit facility (the “Current 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”). On October 15, 2018, Ply Gem Midco entered into Amendment No. 2 to the Current ABL Credit Agreement, by and among Ply Gem Midco, the incremental lender party thereto and the ABL Agent, which amended the Current ABL Credit Agreement in order to, among other things, increase the aggregate commitments under the Current ABL Facility by $36.0 million to $396.0 million overall, and with the (x) 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 Amendment No. 4 to the Current ABL Credit Agreement, by and among Ply Gem Midco, the incremental lenders party thereto and the ABL Agent, which amended the Current ABL Credit Agreement in order to, among other things, increase the aggregate commitments under the Current ABL Facility by $215.0 million (the “Incremental ABL Commitments”) to $611.0 million overall, and with the (x) 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, NCI and Ply Gem Midco entered into a joinder agreement with respect to the Current ABL Facility, and NCI became the Parent Borrower (as defined in the Current ABL Credit Agreement) under the Current ABL Facility. The Company and, at the Company’s option, certain of the Company’s subsidiaries are the borrowers under the Current ABL Facility. As of November 16, 2018, and following consummation of the Merger, (a) Ply Gem Industries, Inc., Atrium Windows and Doors, Inc., NCI Group, Inc. and Robertson-Ceco II Corporation were U.S. subsidiary borrowers under the Current ABL Facility, and (b) Gienow Canada Inc., Mitten Inc., North Star Manufacturing (London) Ltd. and Robertson Building Systems Limited were Canadian borrowers under the Current ABL Facility. All borrowings under the Current ABL Facility mature on April 12, 2023. At November 16, 2018, following consummation of the Merger, there were no amounts drawn and $24.7 million of letters of credit issued under the Current ABL Facility.
On April 12, 2018, Ply Gem Midco issued $645.0 million aggregate principal amount of 8.00% Senior Notes due 2026 (the “8.00% Senior Notes”). The 8.00% Senior Notes were issued pursuant to an Indenture, dated as of April 12, 2018 (as supplemented from time to time, the “Current Indenture”), by and among Ply Gem Midco, as issuer, the subsidiary guarantors from time to time party thereto and Wilmington Trust, National Association, as trustee. On November 16, 2018, in connection with the consummation of the Merger, the Company entered into a supplemental indenture and assumed the obligations of Ply Gem Midco as issuer under the Current Indenture and the 8.00% Senior Notes. The 8.00% Senior Notes bear interest at 8.00% per annum and will mature on April 15, 2026. Interest is payable semi-annually in arrears on April 15 and October 15.
On November 16, 2018, in connection with the incurrence by Ply Gem Midco of the Incremental Term Loans and the obtaining by Ply Gem Midco of the Incremental ABL Commitments, following consummation of the Merger, the Company (a) terminated all outstanding commitments and repaid all outstanding amounts under the Term Loan Credit Agreement, dated as of February 8, 2018 (the “Pre-merger Term Loan Credit Agreement”), by and among the Company, as borrower, the several
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NCI BUILDING SYSTEMS, INC.


banks and other financial institutions from time to time party thereto and Credit Suisse AG, Cayman Islands Branch, as administrative agent and collateral agent, and (b) terminated all outstanding commitments and repaid all outstanding amounts under the ABL Credit Agreement, dated as of February 8, 2018 (the “Pre-merger ABL Credit Agreement”), by and among NCI Group, Inc. and Robertson-Ceco II Corporation, as borrowers, the Company, as a guarantor, the other borrowers from time to time party thereto, the several banks and other financial institutions from time to time party thereto and Wells Fargo Bank, National Association, as administrative agent and collateral agent. Outstanding letters of credit under the Pre-merger ABL Credit Agreement were cash collateralized. We estimate we will record an immaterial loss on extinguishment, primarily related to the Incremental Term Loans.
The Company incurred approximately $15.3 million of acquisition expenses during fiscal 2018 related to the Merger, primarily for various third-party consulting and due-diligence services, and investment bankers’ fees, which are recorded in strategic development and acquisition related costs in the Company’s consolidated statements of operations.


Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and interim chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of October 28, 2018.December 31, 2019. 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. Based on the evaluation of our disclosure controls and procedures as of October 28, 2018,December 31, 2019, our chief executive officer and interim chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at such reasonable assurance level.
Management’s report on internal control over financial reporting is included in Item 8 and is incorporated herein by reference.
Internal Control over Financial Reporting
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 fiscal quarter ended October 28, 2018December 31, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
None.
 


115


PART III
 
Item 10. Directors, Executive Officers and Corporate Governance.
We have adopted a Code of Business Conduct and Ethics, a copy of which is available on our internet website at www.ncibuildingsystems.comwww.cornerstonebuildingbrands.com under the heading “About NCI“Investors — Committees and Charters.” Any amendments to or waivers from the Code of Business Conduct and Ethics that apply to our executive officers and directors will be posted to our website in the same section as the Code of Business Conduct and Ethics as noted above. However, the information on our website is not incorporated by reference into this Form 10-K.
The information under the captions “Election of Directors,” “Management,” “Section“Delinquent Section 16(a) Beneficial Ownership Reporting Compliance,Reports,” “Board of Directors” and “Corporate Governance” in our definitive proxy statement for our annual meeting of shareholders to be held on FebruaryMay 28, 20192020 is incorporated by reference herein.
Item 11. Executive Compensation.
The information under the captions “Compensation Discussion & Analysis,” “Compensation Committee Report” and “Executive Compensation” in our definitive proxy statement for our annual meeting of shareholders to be held on FebruaryMay 28, 20192020 is incorporated by reference herein.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information under the caption “Outstanding Capital Stock” in our definitive proxy statement for our annual meeting of shareholders to be held on FebruaryMay 28, 20192020 is incorporated by reference herein.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information under the captions “Board of Directors” and “Transactions with Related Persons” in our definitive proxy statement for our annual meeting of shareholders to be held on FebruaryMay 28, 20192020 is incorporated by reference herein.
Item 14. Principal Accounting Fees and Services.
The information under the caption “Audit Committee and Auditors — Our Independent Registered Public Accounting Firm and Audit Fees” in our definitive proxy statement for our annual meeting of shareholders to be held on FebruaryMay 28, 20192020 is incorporated by reference herein.


116


PART IV
 
Item 15. Exhibits, Financial Statement Schedules.
(a)The following documents are filed as a part of this report:
1.consolidated financial statements (see Item 8).
2.consolidated financial statement schedules.
(a)The following documents are filed as a part of this report:
1.consolidated financial statements (see Item 8).
2.consolidated financial statement schedules.
All schedules have been omitted because they are inapplicable, not required, or the information is included elsewhere in the consolidated financial statements or notes thereto.
3.Exhibits.
3.Exhibits.
Index to Exhibits
2.1
2.2
3.12.3 
3.1 
3.2
4.1Form of certificate representing shares of NCI’s common stock (filed as Exhibit 1 to NCI’s registration statement on Form 8-A filed with the SEC on July 20, 1998 and incorporated by reference herein)
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9 
117


4.94.10 
†10.1*4.11 


†10.2
10.310.1 
10.410.2 
10.510.3 
10.610.4 
10.710.5
†10.8
†10.9
10.1010.6
10.1110.7
10.1210.8
10.1310.9
10.1410.10
10.1510.11
10.1610.12
†10.17
†10.18
10.1910.13
10.2010.14
10.2110.15 
10.22†10.16 


10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
†10.35
10.3610.17 
10.37


10.38
10.39
10.40
10.41
10.4210.18 
118


10.4310.19 
10.4410.20 
10.4510.21 
10.4610.22 
10.4710.23 
10.4810.24 
10.4910.25 
10.5010.26 
10.5110.27 
10.5210.28 
10.5310.29 


†10.30
*21.1†10.31*
†10.32
†10.33
*21.1 
*23.1
*24.123.2 
*24.1 
119


*31.1
*31.2
**32.1
**32.2
**101.INSInline XBRL Instance Document
**101.SCHInline XBRL Taxonomy Extension Schema Document
**101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
**101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
**101.LABInline XBRL Taxonomy Extension Labels Linkbase Document
**101.PREInline 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


Item 16. Form 10-K Summary.
None.


120


SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
NCICORNERSTONE BUILDING SYSTEMS,BRANDS, INC.
By:/s/ James S. Metcalf
James S. Metcalf, Chairman of the Board and Chief Executive Officer
Date: December 19, 2018March 3, 2020
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated per Form 10-K.
NameTitleDate
/s/ James S. MetcalfChairman of the Board and Chief Executive Officer (Principal Executive Officer)December 19, 2018March 3, 2020
James S. Metcalf
/s/ Shawn K. PoeJeffrey S. LeeChief Financial Officer (Principal Financial Officer)December 19, 2018March 3, 2020
Shawn K. PoeJeffrey S. Lee
/s/ Brian P. BoyleChief Accounting Officer and Treasurer (Principal Accounting Officer)December 19, 2018March 3, 2020
Brian P. Boyle
*DirectorDecember 19, 2018
Kathleen J. Affeldt
*DirectorDecember 19, 2018
George L. Ball
*DirectorDecember 19, 2018
Gary L. Forbes
*DirectorDecember 19, 2018
John J. Holland
*DirectorDecember 19, 2018
John Krenicki
*DirectorDecember 19, 2018
George Martinez
*DirectorDecember 19, 2018
Timothy O’Brien
*DirectorDecember 19, 2018
Nathan K. Sleeper
*DirectorDecember 19, 2018
Jonathan L. Zrebiec
*DirectorMarch 3, 2020
Kathleen J. Affeldt
*DirectorMarch 3, 2020
George L. Ball
*DirectorMarch 3, 2020
Gary L. Forbes
*DirectorMarch 3, 2020
John J. Holland
*DirectorMarch 3, 2020
Wilbert W. James, Jr.
*DirectorMarch 3, 2020
Daniel Janki
*DirectorMarch 3, 2020
John Krenicki
*DirectorMarch 3, 2020
George Martinez
*DirectorMarch 3, 2020
Timothy O’Brien
*DirectorMarch 3, 2020
Nathan K. Sleeper
*DirectorMarch 3, 2020
Jonathan L. Zrebiec

*By:/s/ James S. Metcalf
James S. Metcalf,
Attorney-in-Fact


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