SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



(Mark One)
ý ☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March 30,~~June 29, 2019



¨☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 1-14315

Cornerstone Building Brands, Inc.

(Exact name of registrant as specified in its charter)



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



5020 Weston Parkway	Suite 400	Cary	NC	27513
(Address of principal executive offices)				(Zip Code)

~~(888)~~ (888) 975-9436

(Registrant’s telephone number, including area code)

NCI Building Systems, Inc.



Large accelerated filer	ý	Accelerated filer	¨☐
Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨☐
		Emerging growth company	¨☐

Securities registered pursuant to Section 12(b) of the Exchange Act:



Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock $.01 par value per share	~~NCS~~CNR	New York Stock Exchange

APPLICABLE ONLY TO CORPORATE ISSUERS

Common Stock, $.01 par value - ~~125,514,093~~125,539,894 shares as of ~~May 3,~~August 2, 2019.

TABLE OF CONTENTS



		PAGE
	Part I — Financial Information
Item 1.	Unaudited Consolidated Financial Statements	1
	Consolidated Statements of Operations for the Three and Six Months Ended ~~March 30,~~June 29, 2019 and ~~January 28,~~April 29, 2018	1
	Consolidated Statements of Comprehensive ~~Income (Loss)~~Loss for the Three and Six Months Ended ~~March 30,~~June 29, 2019 and ~~January 28,~~April 29, 2018	2
	Consolidated Balance Sheets as of ~~March 30,~~June 29, 2019 and October 28, 2018	3
	Consolidated Statements of Cash Flows for the ~~Three~~Six Months Ended ~~March 30,~~June 29, 2019 and ~~January 28,~~April 29, 2018	4
	Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended ~~March 30,~~June 29, 2019 and ~~January 28,~~April 29, 2018, and the Transition Period ended December 31, 2018	5
	Notes to Unaudited Consolidated Financial Statements	67
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3234
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4752
Item 4.	Controls and Procedures	4954

	Part II — Other Information
Item 1.	Legal Proceedings	5055
Item 1A.	Risk Factors	5055
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5055
Item 6.	Exhibits	5156

PART I — FINANCIAL INFORMATION

Item 1. Unaudited Consolidated Financial Statements.

~~NCI~~CORNERSTONE BUILDING ~~SYSTEMS,~~BRANDS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)


	Three Months Ended						Three Months Ended						Six Months Ended
	March 30, 2019			January 28, 2018			June 29, 2019			April 29, 2018			June 29, 2019			April 29, 2018
Sales	$	1,064,832		$	421,349		$	1,295,457		$	457,069		$	2,360,289		$	878,418
Cost of sales	878,915			329,432			990,794			352,986			1,869,709			682,418
Gross profit	185,917			91,917			304,663			104,083			490,580			196,000
Selling, general and administrative expenses	154,306			74,786			158,028			74,406			312,334			149,192
Intangible asset amortization	41,463			2,412			46,511			2,413			87,974			4,825
Restructuring and impairment charges, net	3,431			1,094			7,107			488			10,538			1,582
Strategic development and acquisition related costs	14,082			727			12,086			1,134			26,168			1,861
Income (loss) from operations	(27,365		)	12,898
Loss on disposition of business							—			6,686			—			6,686
Income from operations							80,931			18,956			53,566			31,854
Interest income	215			33			121			37			336			70
Interest expense	(58,286		)	(7,492		)	(58,299		)	(4,849		)	(116,585		)	(12,341		)
Foreign exchange gain	1,177			471
Other income, net	345			457
Foreign exchange gain (loss)							523			(305		)	1,700			166
Loss on extinguishment of debt							—			(21,875		)	—			(21,875		)
Other income (expense), net							(397		)	270			(52		)	727
Income (loss) before income taxes	(83,914		)	6,367			22,879			(7,766		)	(61,035		)	(1,399		)
Provision (benefit) for income taxes	(23,897		)	1,118			5,346			(2,082		)	(18,551		)	(964		)
Net income (loss)	$	(60,017	)	$	5,249		17,533			(5,684		)	(42,484		)	(435		)
Net income allocated to participating securities	—			(38		)	(270		)	—			—			—
Net income (loss) applicable to common shares	$	(60,017	)	$	5,211		$	17,263		$	(5,684	)	$	(42,484	)	$	(435	)
Income (loss) per common share:
Basic	$	(0.48	)	$	0.08		$	0.14		$	(0.09	)	$	(0.34	)	$	(0.01	)
Diluted	$	(0.48	)	$	0.08		$	0.14		$	(0.09	)	$	(0.34	)	$	(0.01	)
Weighted average number of common shares outstanding:
Basic	125,503			66,434			125,516			66,210			125,510			66,311
Diluted	125,503			66,546			125,516			66,210			125,510			66,311

See accompanying notes to consolidated financial statements.

~~NCI~~

CORNERSTONE BUILDING ~~SYSTEMS,~~BRANDS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~INCOME (LOSS)~~LOSS

(In thousands)

(Unaudited)



	Three Months Ended						Six Months Ended
	June 29, 2019			April 29, 2018			June 29, 2019			April 29, 2018
Comprehensive loss:
Net income (loss)	$	17,533		$	(5,684	)	$	(42,484	)	$	(435	)
Other comprehensive loss, net of tax:
Foreign exchange translation gains (losses)	3,668			(261		)	6,140			(24		)
Unrealized loss on derivative instruments	(22,746		)	—			(22,746		)	—
Other comprehensive loss	(19,078		)	(261		)	(16,606		)	(24		)
Comprehensive loss	$	(1,545	)	$	(5,945	)	$	(59,090	)	$	(459	)

Three Months Ended
March 30,
2019 January 28,
2018
Comprehensive income (loss):

Net income (loss) $ (60,017 ) $ 5,249
Other comprehensive income, net of tax:

Foreign exchange translation gains 2,472
237
Other comprehensive income 2,472
237
Comprehensive income (loss) $ (57,545 ) $ 5,486

See accompanying notes to consolidated financial statements.

~~NCI~~

CORNERSTONE BUILDING ~~SYSTEMS,~~BRANDS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)


	March 30, 2019			October 28, 2018			June 29, 2019			October 28, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	99,588		$	54,272		$	87,496		$	54,272
Restricted cash	4,039			245			3,989			245
Accounts receivable, less allowances of $10,449 and $6,249, respectively	499,438			233,297
Accounts receivable, less allowances of $9,825 and $6,249, respectively							589,610			233,297
Inventories, net	516,957			254,531			502,125			254,531
Income taxes receivable	13,597			1,012			20,233			1,012
Investments in debt and equity securities, at market	3,722			5,285			3,709			5,285
Prepaid expenses and other	78,926			34,821			70,046			34,821
Assets held for sale	7,272			7,272			5,018			7,272
Total current assets	1,223,539			590,735			1,282,226			590,735
Property, plant and equipment, less accumulated depreciation of $487,251 and $459,931, respectively	638,172			236,240
Property, plant and equipment, less accumulated depreciation of $508,103 and $459,931, respectively							634,599			236,240
Lease right-of-use assets	292,927			—			282,793			—
Goodwill	1,702,182			148,291			1,611,213			148,291
Intangible assets, net	1,721,054			127,529			1,830,821			127,529
Deferred income taxes	—			982			—			982
Other assets, net	11,980			6,598			12,088			6,598
Total assets	$	5,589,854		$	1,110,375		$	5,653,740		$	1,110,375
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	25,600		$	4,150		$	25,600		$	4,150
Note payable	—			497			—			497
Payable pursuant to a tax receivable agreement	24,760			—			24,760			—
Accounts payable	216,306			170,663			241,808			170,663
Accrued compensation and benefits	73,955			65,136			82,804			65,136
Accrued interest	59,814			1,684			47,237			1,684
Accrued income taxes	5,824			11,685			11,720			11,685
Current portion of lease liabilities	69,718			—			69,837			—
Other accrued expenses	236,067			81,884			252,367			81,884
Total current liabilities	712,044			335,699			756,133			335,699
Long-term debt	3,301,248			403,076			3,315,550			403,076
Deferred income taxes	282,886			2,250			265,464			2,250
Long-term lease liabilities	228,010			—			217,968			—
Other long-term liabilities	159,380			39,085			190,421			39,085
Total long-term liabilities	3,971,524			444,411			3,989,403			444,411
Stockholders’ equity:
Common stock, $.01 par value; 200,000,000, 125,581,009 and 125,514,093 shares authorized, issued and outstanding at March 30, 2019, respectively; and 100,000,000, 66,264,654 and 66,203,841 shares authorized, issued and outstanding at October 28, 2018, respectively	1,256			663
Common stock, $.01 par value; 200,000,000, 125,588,427 and 125,519,112 shares authorized, issued and outstanding at June 29, 2019, respectively; and 100,000,000, 66,264,654 and 66,203,841 shares authorized, issued and outstanding at October 28, 2018, respectively							1,256			663
Additional paid-in capital	1,240,423			523,788			1,243,897			523,788
Accumulated deficit	(325,856		)	(186,291		)	(308,323		)	(186,291		)
Accumulated other comprehensive loss, net	(8,341		)	(6,708		)	(27,419		)	(6,708		)
Treasury stock, at cost (66,916 and 60,813 shares at March 30, 2019 and October 28, 2018, respectively)	(1,196		)	(1,187		)
Treasury stock, at cost (69,315 and 60,813 shares at June 29, 2019 and October 28, 2018, respectively)							(1,207		)	(1,187		)
Total stockholders’ equity	906,286			330,265			908,204			330,265
Total liabilities and stockholders’ equity	$	5,589,854		$	1,110,375		$	5,653,740		$	1,110,375

See accompanying notes to consolidated financial statements.

NCI BUILDING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

Three Months Ended
March 30,
2019 January 28,
2018
Cash flows from operating activities:

Net income (loss) $ (60,017 ) $ 5,249
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Depreciation and amortization 59,947
10,358
Non-cash interest expense 2,672
435
Share-based compensation expense 4,005
5,870
Non-cash fair value premium on purchased inventory 16,249
—
Gains on asset sales, net —
(320 )
Provision for doubtful accounts (189 ) (20 )
Deferred income taxes (7,434 ) (1,676 )
Changes in operating assets and liabilities, net of effect of acquisitions:

Accounts receivable (43,635 ) 30,858
Inventories 16,704
(2,237 )
Income taxes (34,090 ) 2,373
Prepaid expenses and other 18,524
(2,567 )
Accounts payable (7,216 ) (31,205 )
Accrued expenses (12,373 ) (23,183 )
Other, net (1,869 ) (515 )
Net cash used in operating activities (48,722 ) (6,580 )
Cash flows from investing activities:

Acquisitions, net of cash acquired (182,418 ) —
Capital expenditures (27,190 ) (8,109 )
Proceeds from sale of property, plant and equipment —
2,249
Net cash used in investing activities (209,608 ) (5,860 )
Cash flows from financing activities:

Proceeds from stock options exercised —
1,040
Proceeds from ABL facility 220,000
43,000
Payments on ABL facilities —
(33,000 )
Payments on term loan (6,405 ) —
Payments on note payable —
(441 )
Payments of financing costs —
(275 )
Payments related to tax withholding for share-based compensation (156 ) (4,610 )
Purchases of treasury stock —
(46,705 )
Net cash provided by (used in) financing activities 213,439
(40,991 )
Effect of exchange rate changes on cash and cash equivalents 911
237
Net decrease in cash, cash equivalents and restricted cash (43,980 ) (53,194 )
Cash, cash equivalents and restricted cash at beginning of period 147,607
65,794
Cash, cash equivalents and restricted cash at end of period $ 103,627
$ 12,600



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

	Six Months Ended
	June 29, 2019			April 29, 2018
Cash flows from operating activities:
Net loss	$	(42,484	)	$	(435	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	127,476			20,800
Non-cash interest expense	3,954			781
Loss on extinguishment of debt	—			21,875
Share-based compensation expense	7,479			7,868
Loss on disposition of business, net	—			6,192
Non-cash fair value premium on purchased inventory	16,249			—
Gains on asset sales, net	(277		)	(250		)
Provision for doubtful accounts	(205		)	(44		)
Deferred income taxes	(48,515		)	(1,676		)
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable	(133,820		)	17,060
Inventories	29,430			(24,920		)
Income taxes	2,245			(2,822		)
Prepaid expenses and other	(706		)	(4,182		)
Accounts payable	15,079			12,686
Accrued expenses	(2,952		)	(12,016		)
Other, net	(2,867		)	(931		)
Net cash provided by (used in) operating activities	(29,914		)	39,986
Cash flows from investing activities:
Acquisitions, net of cash acquired	(179,184		)	—
Capital expenditures	(57,220		)	(16,897		)
Proceeds from sale of property, plant and equipment	873			2,678
Business disposition, net	—			(4,415		)
Net cash used in investing activities	(235,531		)	(18,634		)
Cash flows from financing activities:
Proceeds from stock options exercised	—			1,040
Proceeds from ABL facility	270,000			65,000
Payments on ABL facility	(50,000		)	(65,000		)
Proceeds from term loan	—			415,000
Payments on term loan	(12,810		)	(144,147		)
Payments on senior notes	—			(265,470		)
Payments on note payable	—			(441		)
Payments of financing costs	—			(6,275		)
Payments related to tax withholding for share-based compensation	(167		)	(4,612		)
Purchases of treasury stock	—			(46,705		)
Net cash provided by (used in) financing activities	207,023			(51,610		)
Effect of exchange rate changes on cash and cash equivalents	2,300			(24		)
Net decrease in cash, cash equivalents and restricted cash	(56,122		)	(30,282		)
Cash, cash equivalents and restricted cash at beginning of period	147,607			65,794
Cash, cash equivalents and restricted cash at end of period	$	91,485		$	35,512

See accompanying notes to consolidated financial statements.


NCI BUILDING SYSTEMS, INC.
CORNERSTONE BUILDING BRANDS, INC.																												CORNERSTONE BUILDING BRANDS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY																																																							(In thousands, except share data)		(Unaudited)

Fiscal Quarters and Transition Period																												Common Stock						Additional Paid-In Capital				Retained Earnings (Deficit)				Accumulated Other Comprehensive Income (Loss)				Treasury Stock						Stockholders’ Equity
	Common Stock					Additional Paid-In Capital				Retained Earnings (Deficit)				Accumulated Other Comprehensive Income (Loss)				Treasury Stock							Stockholders’ Equity			Shares		Amount							Shares					Accumulated Other Comprehensive Income (Loss)			Amount							Stockholders’ Equity
Balance, March 30, 2019																	125,581,009			$	1,256			$	Stockholders’ Equity			1,240,423		$	(325,856	)		Additional Paid-In Capital			$	Retained Earnings (Deficit)	(8,341	)		(66,916	)		$	(1,196	)	$	906,286
Treasury stock purchases																												—		—				—				—				—				(2,399	)	(11		)		(11		)
Issuance of restricted stock																												7,418		—				—				—				—				—		—				—
Other comprehensive loss																												—		—				—				—				(19,078		)		—		—				(19,078		)
Share-based compensation																												—		—				3,474				—				—				—		—				3,474
Net income																												—		—				—				17,533				—				—		—				17,533
Balance, June 29, 2019																												125,588,427		$	1,256			$	1,243,897			$	(308,323	)		$	(27,419	)		(69,315	)	$	(1,207	)		$	908,204
	Shares		Amount			Additional Paid-In Capital			Additional Paid-In Capital					Accumulated Other Comprehensive Income (Loss)		Retained Earnings (Deficit)				Accumulated Other Comprehensive Income (Loss)				Shares			Amount			Stockholders’ Equity
Balance, October 28, 2018	66,264,654		$	663					Additional Paid-In Capital			(60,813	)		$	Retained Earnings (Deficit)			(1,187	Accumulated Other Comprehensive Income (Loss)			)
Transition Period Beginning Balance, October 28, 2018																												66,264,654		Stockholders’ Equity			$	663			$	523,788			$	(186,291	)		$	(6,708	)	(60,813	)		$	(1,187	)		$	330,265
Treasury stock purchases	—		—			—				—				—				(347,040	)		(4,128		)		(4,128		)	—		—				—				—				—				(347,040	)	(4,128		)		(4,128		)
Retirement of treasury shares	(296,954	)	(3		)	(3,634		)		—				—				296,954			3,637				—			(296,954	)	(3		)		(3,634		)		—				—				296,954		3,637				—
Issuance of restricted stock	977,226		10			(10		)		—				—				—			—				—			977,226		10				(10		)		—				—				—		—				—
Issuance of common stock for the Ply Gem merger	58,638,233		586			712,455				—				—				—			—				713,041			58,638,233		586				712,455				—				—				—		—				713,041
Other comprehensive income (loss)	—		—			—				—				(4,105		)		—			—				(4,105		)
Other comprehensive loss																												—		—				—				—				(4,105		)		—		—				(4,105		)
Share-based compensation	—		—			4,457				—				—				—			—				4,457			—		—				4,457				—				—				—		—				4,457
Cumulative effect of accounting change	—		—			—				(3,358		)		—				—			—				(3,358		)	—		—				—				(3,358		)		—				—		—				(3,358		)
Net loss	—		—			—				(76,190		)		—				—			—				(76,190		)	—		—				—				(76,190		)		—				—		—				(76,190		)
Balance, December 31, 2018	125,583,159		$	1,256		$	1,237,056			$	(265,839	)		$	(10,813	)		(110,899	)		$	(1,678	)		$	959,982
Transition Period Ending Balance, December 31, 2018																												125,583,159		$	1,256			$	1,237,056			$	(265,839	)		$	(10,813	)		(110,899	)	$	(1,678	)		$	959,982

Balance, January 28, 2018																												66,251,796		$	663			$	519,224			$	(244,148	)		$	(7,294	)		(109,689	)	$	(2,140	)		$	266,305
Treasury stock purchases	—		—			—				—				—				(19,713	)		(156		)		(156		)	—		—				—				—				—				(104	)	(2		)		(2		)
Retirement of treasury shares	(57,984	)	(1		)	(551		)		—				—				57,984			552				—
Issuance of restricted stock	55,834		1			(1		)		—				—				—			—				—			316		—				—				—				—				—		—				—
Other comprehensive income (loss)	—		—			—				—				2,472				—			—				2,472
Deferred compensation obligation	—		—			(86		)		—				—				5,712			86				—
Other comprehensive loss																												—		—				(32		)		—				(261		)		—		—				(293		)
Share-based compensation	—		—			4,005				—				—				—			—				4,005			—		—				1,998				—				—				—		—				1,998
Net loss	—		—			—				(60,017		)		—				—			—				(60,017		)	—		—				—				(5,684		)		—				—		—				(5,684		)
Balance, March 30, 2019	125,581,009		$	1,256		$	1,240,423			$	(325,856	)		$	(8,341	)		(66,916	)		$	(1,196	)		$	906,286

Balance, October 29, 2017	68,677,684		$	687		$	562,277			$	(248,046	)		$	(7,531	)		(291,128	)		$	(2,140	)		$	305,247
Treasury stock purchases	—		—			—				—				—				(2,916,930	)		(51,315		)		(51,315		)
Retirement of treasury shares	(2,916,930	)	(29		)	(51,286		)		—				—				2,916,930			51,315				—
Issuance of restricted stock	397,406		4			(4		)		—				—				181,439			—				—
Stock options exercised	93,636		1			1,039				—				—				—			—				1,040
Other comprehensive income (loss)	—		—			(23		)		—				237				—			—				214
Share-based compensation	—		—			5,870				—				—				—			—				5,870
Cumulative effect of accounting change	—		—			1,351				(1,351		)		—				—			—				—
Net income	—		—			—				5,249				—				—			—				5,249
Balance, January 28, 2018	66,251,796		$	663		$	519,224			$	(244,148	)		$	(7,294	)		(109,689	)		$	(2,140	)		$	266,305
Balance, April 29, 2018																												66,252,112		$	663			$	521,190			$	(249,832	)		$	(7,555	)		(109,793	)	$	(2,142	)		$	262,324

See accompanying notes to consolidated financial statements.

~~NCI~~



CORNERSTONE BUILDING BRANDS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)
(In thousands, except share data)
(Unaudited)

Fiscal Year to Date Periods	Common Stock					Additional Paid-In Capital			Retained Earnings (Deficit)			Accumulated Other Comprehensive Income (Loss)			Treasury Stock					Stockholders’ Equity
	Shares		Amount			Additional Paid-In Capital			Retained Earnings (Deficit)			Accumulated Other Comprehensive Income (Loss)			Shares		Amount			Stockholders’ Equity
December 31, 2018	125,583,159		$	1,256		$	1,237,056		$	(265,839	)	$	(10,813	)	(110,899	)	$	(1,678	)	$	959,982
Treasury stock purchases	—		—			—			—			—			(22,112	)	(167		)	(167		)
Retirement of treasury shares	(57,984	)	(1		)	(551		)	—			—			57,984		552			—
Issuance of restricted stock	63,252		1			(1		)	—			—			—		—			—
Other comprehensive loss	—		—			—			—			(16,606		)	—		—			(16,606		)
Deferred compensation obligation	—		—			(86		)	—			—			5,712		86			—
Share-based compensation	—		—			7,479			—			—			—		—			7,479
Net loss	—		—			—			(42,484		)	—			—		—			(42,484		)
Balance, June 29, 2019	125,588,427		$	1,256		$	1,243,897		$	(308,323	)	$	(27,419	)	(69,315	)	$	(1,207	)	$	908,204

Balance, October 29, 2017	68,677,684		$	687		$	562,277		$	(248,046	)	$	(7,531	)	(291,128	)	$	(2,140	)	$	305,247
Treasury stock purchases	—		—			—			—			—			(2,917,034	)	(51,317		)	(51,317		)
Retirement of treasury shares	(2,916,930	)	(29		)	(51,286		)	—			—			2,916,930		51,315			—
Issuance of restricted stock	397,722		4			(4		)	—			—			181,439		—			—
Stock options exercised	93,636		1			1,039			—			—			—		—			1,040
Other comprehensive loss	—		—			(55		)	—			(24		)	—		—			(79		)
Share-based compensation	—		—			7,868			—			—			—		—			7,868
Cumulative effect of accounting change	—		—			1,351			(1,351		)	—			—		—			—
Net loss	—		—			—			(435		)	—			—		—			(435		)
Balance, April 29, 2018	66,252,112		$	663		$	521,190		$	(249,832	)	$	(7,555	)	(109,793	)	$	(2,142	)	$	262,324

See accompanying notes to consolidated financial statements.

CORNERSTONE BUILDING ~~SYSTEMS,~~BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~March 30,~~June 29, 2019

(Unaudited)

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Change of Name

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

Basis of Presentation

The accompanying unaudited consolidated financial statements for ~~NCI~~Cornerstone Building ~~Systems,~~Brands, Inc. ~~(together with its subsidiaries, unless otherwise indicated, the “Company,” “NCI,” “we,” “us” or “our”)~~ have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles (“GAAP”) for complete financial statements. In the opinion of management, the unaudited consolidated financial statements included herein contain all adjustments, which consist of normal recurring adjustments, necessary to fairly present the Company’s financial position, results of operations and cash flows for the periods indicated. Operating results for the period from January 1, 2019 through ~~March 30,~~June 29, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2019.

For additional information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended October 28, 2018 filed with the Securities and Exchange Commission (the “SEC”) on December 19, 2018.

On April 11, 2019, the Company announced that it will change its name to Cornerstone Building Brands, Inc., which is expected to become effective following shareholder approval at the Company’s annual shareholder meeting being held on May 23, 2019.

Reporting Periods

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

The Company’s current fiscal quarters are based on a four-four-five week calendar with periods ending on the Saturday of the last week in the quarter except that December 31st will always be the year-end date. Therefore, the financial results of certain fiscal quarters may not be comparable to prior fiscal quarters.

Change in Operating Segments

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

Disposition of Business

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

Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that total the amounts shown in the consolidated statements of cash flows (in thousands):


	March 30, 2019		June 29, 2019
Cash and cash equivalents	$	99,588	$	87,496
Restricted cash⁽¹⁾	4,039		3,989
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows	$	103,627	$	91,485


(1)	Restricted cash at ~~March 30,~~June 29, 2019 relates to an escrow balance held for an outstanding earnout agreement.

Net Sales

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

We enter into contracts that pertain to products, which are accounted for as separate performance obligations and are typically one year or less in duration. We do not exercise significant judgment in determining the timing for the satisfaction of performance obligations or the transaction price. Revenue is measured as the amount of consideration expected to be received in exchange for our products. We have elected to apply the practical expedient provided for in ASU No. 2014-09 and have not disclosed information regarding remaining performance obligations that have original expected durations of one year or less. Revenue is generally recognized when the product has shipped from our facility and control has transferred to the customer. For a portion of our business, when we process customer owned material, control is deemed to transfer to the customer as the processing is being completed.

Our revenues are adjusted for variable consideration, which includes customer volume rebates and prompt payment discounts. We measure variable consideration by estimating expected outcomes using analysis and inputs based upon anticipated performance, historical data, and current and forecasted information. Customer returns are recorded as a reduction to sales on an actual basis throughout the year and also include an estimate at the end of each reporting period for future customer returns related to sales recorded prior to the end of the period. The Company generally estimates customer returns based upon the time lag that historically occurs between the sale date and the return date while also factoring in any new business conditions that might impact the historical analysis such as new product introduction. Measurement of variable consideration is reviewed by management periodically and revenue is adjusted accordingly. We do not have significant financing components.

Shipping and handling activities performed by us are considered activities to fulfill the sales of our products. Amounts billed for shipping and handling are included in net sales, while costs incurred for shipping and handling are included in cost of sales.

In accordance with certain contractual arrangements, we receive payment from our customers in advance related to performance obligations that are to be satisfied in the future and recognize such payments as deferred revenue, primarily related to our weathertightness warranties (see Note 11 — Warranty).

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



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

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

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

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

Three Months Ended
March 30, 2019 January 28, 2018
Commercial Net Sales Disaggregation:
Metal building products $ 273,425
$ 275,816
Insulated metal panels 106,372
97,513
Metal coil coating 45,164
48,020
Total $ 424,961
$ 421,349

Siding Net Sales Disaggregation:
Vinyl siding $ 105,957
$ —
Metal 52,980
—
Injection molded 11,838
—
Stone 22,314
—
Other products 25,188
—
Total $ 218,277
$ —

Windows Net Sales Disaggregation:
Vinyl windows $ 393,930
$ —
Aluminum windows 11,708
—
Other 15,956
—
Total $ 421,594
$ —

Total Net Sales: $ 1,064,832
$ 421,349

NOTE 2 — ACCOUNTING PRONOUNCEMENTS

Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU 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. ~~Additional practical expedients have also been elected.~~ 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.

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 no adjustment to opening balance of accumulated deficit as of January 1, 2019. The new standard also provides for practice expedients for an entity’s ongoing accounting. Additional disclosures on leases are included in Note 8 — Leases.

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software—General (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract, which aligns 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 the service element of a hosting arrangement that is a service contract is not affected by these amendments. Effective January 1, 2019, the Company early adopted this guidance on a prospective basis. The application of ASU 2018-15 did not have a material impact on our consolidated financial statements.

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. We performed an assessment of the differences between the new revenue standard and current accounting practices. As part of our implementation process, we 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 completed this evaluation and have established new policies, procedures, and internal controls in our adoption of the new revenue standard. We adopted this guidance on a modified retrospective basis, pursuant to which we recorded a $2.6 million adjustment to increase the opening balance of accumulated deficit as of October 29, 2018 (the first day of the Transition Period) for the impact of applying the new revenue standard. The adjustment related to changes in the timing of revenue recognition for our weathertightness warranties in our Commercial segment. Additional disaggregated revenue disclosures are included in Note 1 — Summary of Significant Accounting Policies.

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 adopted this guidance on a retrospective basis in the Transition Period. The application of ASU 2016-15 did not have a material impact on our 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 adopted this guidance on a modified retrospective basis, pursuant to which we recorded a $0.7 million adjustment to increase the opening balance of accumulated deficit as of October 29, 2018 (the first day of the Transition Period) for the impact 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 adopted this guidance on a retrospective basis in the Transition Period. The adoption of this guidance resulted in restricted cash activity previously included in financing activities on our consolidated statement of cash flows to be included as part of the beginning and ending balances of cash and cash equivalents and restricted cash in our consolidated statements of cash flows.

In March 2017, the FASB issued ASU 2017-07, Compensation—Retirement 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 adopted this guidance in the Transition Period on a retrospective basis 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. The adoption of ASU 2017-07 did not have a material impact 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. WeThe Company adopted this guidance on a prospective basis in the Transition Period for share-based payment awards modified on or after the adoption date. The adoption of ASU 2017-09 did not have a material impact on our 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 ~~currently does not designate any derivative financial instruments as formal hedging relationships, and therefore, does not currently utilize hedge accounting. As such,~~adopted this guidance on a prospective basis for fiscal 2019. The adoption of ASU ~~No.~~ 2017-12 did not have a material impact ~~the Company’s~~on our 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. 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 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 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 are 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. We 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 are evaluating the impact of 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 the Company’s consolidated financial statements ~~and the notes thereto~~ going forward.

NOTE 3 — ACQUISITIONS

Environmental Stoneworks

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, ~~NCI’s~~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, for Environmental Stoneworks. 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. 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 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 tangible and intangible assets and the liabilities acquired, and recorded goodwill based on the excess of fair value of the acquisition consideration over such fair values, as follows (in thousands):



Assets acquired:
Restricted cash	$	3,379
Accounts receivable	17,134
Inventories	13,362
Prepaid expenses and other current assets	3,347
Property, plant and equipment	14,295
Lease right of use assets	11,372
Intangible assets (trade names/customer relationships)	91,170
Goodwill	59,863
Other assets	157
Total assets acquired	214,079
Liabilities assumed:
Accounts payable	5,910
Other accrued expenses	10,791
Lease liabilities	11,365
Other long-term liabilities	3,450
Total liabilities assumed	31,516
Net assets acquired	$	182,563

Assets acquired:
Restricted cash $ 145
Accounts receivable 17,134
Inventories 13,362
Prepaid expenses and other current assets 1,581
Property, plant and equipment 14,295
Lease right of use assets 11,372
Intangible assets (trade names/customer relationships) 91,170
Goodwill 62,214
Other assets 157
Total assets acquired 211,430
Liabilities assumed:
Accounts payable 2,676
Other accrued expenses 11,376
Lease liabilities 11,365
Other long-term liabilities 3,450
Total liabilities assumed 28,867
Net assets acquired $ 182,563

The ~~$62.2~~$59.9 million of goodwill was allocated to the Siding 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.

During the three and six months ended ~~March 30,~~June 29, 2019, the Company incurred ~~$1.2~~$0.3 million and $1.5 million, respectively, of acquisition-related costs for Environmental Stoneworks, which are recorded in strategic development and acquisition related costs in the Company’s consolidated statements of operations.

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 remains open as of ~~March 30,~~June 29, 2019, and the preliminary acquisition accounting allocation detailed above is subject to further adjustment. The Company anticipates completing these acquisition accounting adjustments during the fourth quarter of fiscal 2019.

~~Unaudited Pro Forma Financial Information~~

During the three months ended March 30, 2019, Environmental Stoneworks contributed net sales of $19.4 million and net income of $0.3 million from the closing date, which has been included within the Company’s consolidated statement of operations. The following table provides unaudited supplemental pro forma results for NCI, prepared in accordance with ASC 805, for the three months ended March 30, 2019 and for the three months ended January 28, 2018 as if the Environmental Stoneworks and Ply Gem (disclosed below) acquisitions had occurred on October 30, 2017 (beginning of the quarter ended January 28, 2018) (in thousands except for per share data):

Three Months Ended
March 30, 2019 January 28, 2018
Net sales $ 1,080,928
$ 1,173,374
Net loss applicable to common shares (41,521 ) (98,811 )
Net loss per common share:
Basic $ (0.33 ) $ (0.79 )
Diluted $ (0.33 ) $ (0.79 )

The unaudited supplemental pro forma financial information was prepared based on the historical information of NCI, Ply Gem, Atrium, Silver Line and Environmental Stoneworks. Material pro forma adjustments related to the Environmental Stoneworks and Ply Gem acquisitions include approximately $63.5 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.

The unaudited supplemental pro forma financial information does not give effect to the potential impact of current financial conditions, any anticipated synergies, operating efficiencies or cost savings that may result from the 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.

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, 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 70,834 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 ~~March 30,~~June 29, 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 two segments: Siding and Windows. These two segments produce a comprehensive product line of vinyl siding, designer accents, cellular PVC trim, vinyl fencing, vinyl railing, stone veneer, ~~roofing,~~ 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 us 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 ~~product~~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 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 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 subsidiaries.

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 in the Merger, and recorded goodwill based on the excess of fair value of the acquisition consideration over such fair values, as follows (in thousands):



Assets acquired:
Cash	$	102,121
Accounts receivable	345,472
Inventories	301,513
Prepaid expenses and other current assets	51,841
Property, plant and equipment	364,603
Intangible assets (trade names/customer relationships)	1,720,000
Goodwill	1,402,737
Other assets	3,262
Total assets acquired	4,291,549
Liabilities assumed:
Accounts payable	139,955
Tax receivable agreement liability	47,355
Other accrued expenses (inclusive of $27.5 million for current warranty liabilities)	245,611
Debt (inclusive of current portion)	2,674,767
Other long-term liabilities ($78.6 million for accrued long-term warranty)	78,552
Deferred income taxes	346,530
Other long-term liabilities	29,834
Total liabilities assumed	3,562,604
Net assets acquired	$	728,945

Assets acquired:
Cash $ 102,121
Accounts receivable 345,544
Inventories 303,735
Prepaid expenses and other current assets 51,841
Property, plant and equipment 377,383
Intangible assets (trade names/customer relationships) 1,565,000
Goodwill 1,492,611
Other assets 3,262
Total assets acquired 4,241,497
Liabilities assumed:
Accounts payable 139,955
Tax receivable agreement liability 47,355
Other accrued expenses (inclusive of $27.5 million for current warranty liabilities) 245,050
Debt (inclusive of current portion) 2,655,159
Other long-term liabilities (accrued long-term warranty) 78,552
Deferred income taxes 316,647
Other long-term liabilities 29,834
Total liabilities assumed 3,512,552
Net assets acquired $ 728,945

At the acquisition date, ~~$853.8~~$802.3 million of goodwill allocated to the Siding segment and ~~$638.8~~$600.4 million 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.

The final acquisition accounting allocation for the Merger remains subject to further adjustments. The specific accounts subject to ongoing acquisition accounting adjustments include various income tax assets and liabilities, accounts receivable, inventories, prepaid expenses and other current assets, goodwill, intangibles, accounts payable, accrued expenses, accrued warranties and other liabilities. Therefore, the measurement period remains open as of ~~March 30,~~June 29, 2019, and the preliminary acquisition accounting allocation detailed above is subject to further adjustment. The Company anticipates completing these acquisition accounting adjustments during the fourth quarter of fiscal 2019.

Unaudited Pro Forma Financial Information

During the three and six months ended June 29, 2019, Environmental Stoneworks contributed net sales of $43.4 million and $62.8 million, respectively, and net income of $2.6 million and $2.9 million, respectively, 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 three and six months ended June 29, 2019 and April 29, 2018 as if the Environmental Stoneworks and Ply Gem (disclosed below) acquisitions had occurred on October 30, 2017 (beginning of the six months ended April 29, 2018) (in thousands except for per share data):



	Three Months Ended					Six Months Ended
	June 29, 2019		April 29, 2018			June 29, 2019			April 29, 2018
Net sales	$	1,295,457	$	1,112,867		$	2,376,385		$	2,286,242
Net income (loss) applicable to common shares	22,682		(58,308		)	(18,200		)	(162,686		)
Net income (loss) per common share:
Basic	$	0.18	$	(0.46	)	$	(0.15	)	$	(1.30	)
Diluted	$	0.18	$	(0.46	)	$	(0.15	)	$	(1.30	)

The unaudited supplemental pro forma financial information was prepared based on the historical information of Cornerstone, Ply Gem and Environmental Stoneworks. Material pro forma adjustments related to the Environmental Stoneworks and Ply Gem acquisitions include approximately $70.3 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.

NOTE 4 — GOODWILL

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



	Commercial		Siding			Windows			Total
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	—		59,863			—			59,863
Currency translation	—		1,404			1,051			2,455
Purchase accounting adjustments	—		(52,234		)	(39,082		)	(91,316		)
Balance, June 29, 2019	$	148,291	$	862,419		$	600,503		$	1,611,213

Commercial Siding Windows Total
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 —
62,214
—
62,214
Currency translation —
686
513
1,199
Purchase accounting adjustments —
(825 ) (617 ) (1,442 )
Balance, March 30, 2019 $ 148,291
$ 915,461
$ 638,430
$ 1,702,182

NOTE 5 — INVENTORIES

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


	March 30, 2019		October 28, 2018		June 29, 2019		October 28, 2018
Raw materials	$	291,247	$	205,902	$	286,218	$	205,902
Work in process and finished goods	225,710		48,629		215,907		48,629
	$	516,957	$	254,531	$	502,125	$	254,531

NOTE 6 — INTANGIBLES

The table that follows presents the major components of intangible assets as of ~~March 30,~~June 29, 2019 and October 28, 2018 (in thousands):



	Range of Life (Years)			Cost		Accumulated Amortization			Net Carrying Value
As of June 29, 2019
Amortized intangible assets:
Trademarks/Trade names⁽¹⁾	6	–	15	$	252,942	$	(27,931	)	$	225,011
Customer lists and relationships	5	–	20	1,737,060		(131,250		)	1,605,810
Total intangible assets				$	1,990,002	$	(159,181	)	$	1,830,821
(1) During the six months ended June 29, 2019, the Company began amortization of trade names previously classified as indefinite-lived over an eight-year period.

	Range of Life (Years)			Cost		Accumulated Amortization			Net Carrying Value
As of October 28, 2018
Amortized intangible assets:
Trademarks/Trade names		15		$	29,167	$	(12,657	)	$	16,510
Customer lists and relationships	12	–	20	136,210		(38,646		)	97,564

Indefinite-lived intangible assets:
Trade names				13,455		—			13,455
Total intangible assets				$	178,832	$	(51,303	)	$	127,529

Range of Life (Years) Cost Accumulated Amortization Net Carrying Value
As of March 30, 2019
Amortized intangible assets:
Trademarks/Trade names⁽¹⁾
6 – 15 $ 252,942
$ (21,606 ) $ 231,336
Customer lists and relationships 5 – 20 1,582,060
(92,342 ) 1,489,718
Total intangible assets $ 1,835,002
$ (113,948 ) $ 1,721,054
(1) During the three months ended March 30, 2019, the Company began amortization of trade names previously classified as indefinite-lived over an eight-year period.

Range of Life (Years) Cost Accumulated Amortization Net Carrying Value
As of October 28, 2018
Amortized intangible assets:
Trademarks/Trade names 15 $ 29,167
$ (12,657 ) $ 16,510
Customer lists and relationships 12 – 20 136,210
(38,646 ) 97,564

Indefinite-lived intangible assets:
Trade names 13,455
—
13,455
Total intangible assets $ 178,832
$ (51,303 ) $ 127,529

NOTE 7 — ASSETS HELD FOR SALE

We 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 consider 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. The total carrying value of assets held for sale was $5.0 million and $7.3 million as of ~~March 30,~~June 29, 2019 and October 28, ~~2018.~~2018, respectively. All of these assets continued to be actively marketed for sale or were under contract as of ~~March 30,~~June 29, 2019.

During the three and six months ended June 29, 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 to property, plant and equipment and recorded an immaterial depreciation adjustment. Additionally, during the three and six months ended June 29, 2019, the Company closed on the sale of an idled facility in the Commercial segment which had previously been classified as held for sale. In connection with the sale we received net proceeds of $0.9 million and recognized a net gain of $0.3 million, which is included in restructuring and impairment charges, net, in the consolidated statements of operations.

Due to uncertainties in the estimation process, actual results could differ from the estimates used in our historical analysis. Our assumptions about property sales prices require significant judgment because the current market is highly sensitive to changes in economic conditions. We determined the estimated fair values of 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. 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 carrying value. 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 costs to sell, totaled $5.0 million as of ~~March 30,~~June 29, 2019.

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.

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.

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 Company’s IBR is determined based on securing borrowings, further described in Note 13 - Long-term Debt and Note Payable.

Weighted average information about the Company’s lease portfolio as of ~~March 30,~~June 29, 2019 was as follows:



Weighted-average remaining lease term	~~6.5~~6.4 years
Weighted-average IBR	~~6.09~~6.1	%

Operating lease costs for the three and six months ended ~~March 30,~~June 29, 2019 were as follows (in thousands):



	Three Months Ended		Six Months Ended
	June 29, 2019		June 29, 2019
Operating lease costs
Fixed lease costs	$	32,172	$	53,222
Variable lease costs (a)	8,660		19,214

^(a) Includes short-term lease costs, which are immaterial.

Three months ended
March 30, 2019
Operating lease costs
Fixed lease costs $ 21,050
Variable lease costs (a) 10,554

^(a) Includes short-term lease costs, which are immaterial.

Cash and non-cash activities for the three and six months ended ~~March 30,~~June 29, 2019 were as follows (in thousands):



	Three Months Ended		Six Months Ended
	June 29, 2019		June 29, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	21,810	$	43,473

Right-of-use assets obtained in exchange for new operating lease liabilities	$	20,977	$	325,033

Three months ended
March 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases $ 21,663

Right-of-use assets obtained in exchange for new operating lease liabilities $ 304,056

Future minimum lease payments under non-cancelable leases as of ~~March 30,~~June 29, 2019 were as follows (in thousands):



	Operating Leases
2019 (excluding the six months ended June 29, 2019)	$	43,697
2020	78,097
2021	65,650
2022	51,336
2023	26,129
Thereafter	91,234
Total future minimum lease payments	356,143
Less: interest	68,338
Present value of future minimum lease payments	$	287,805

As of June 29, 2019
Current portion of lease liabilities	$	69,837
Long-term portion of lease liabilities	217,968
Total	$	287,805

Operating Leases
2019 (excluding the three months ended March 30, 2019) $ 66,205
2020 77,720
2021 64,633
2022 50,669
2023 26,527
Thereafter 92,974
Total future minimum lease payments 378,728
Less: interest 81,000
Present value of future minimum lease payments $ 297,728

As of March 30, 2019
Current portion of lease liabilities $ 69,718
Long-term portion of lease liabilities 228,010
Total $ 297,728

NOTE 9 — SHARE-BASED COMPENSATION

Our 2003 Long-Term Stock Incentive Plan, as amended (the “Incentive Plan”), is an equity-based compensation plan that allows us to grant a variety of types of awards, including stock options, restricted stock awards, stock appreciation rights, cash awards, phantom stock awards, restricted stock unit awards and long-term incentive awards with performance conditions (“Performance Share 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, restricted stock units (“RSUs”) and performance share units (“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 ~~March 30,~~June 29, 2019, and for all periods presented, the Founders Awards and our share-based awards under the Incentive Plan have consisted of restricted stock grants, 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 of 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.

As a general rule, option awards terminate on the earlier of (i) 10 years from the date of grant, (ii) 60 days after termination of employment or service for a reason other than death, disability or retirement, or (iii) 180 days ~~year~~ after death, disability or retirement. Awards are non-transferable except by disposition on death or to certain family members, trusts and other family entities as the Committee may approve. 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.

Our time-based restricted stock awards are typically subject to graded vesting over a service period, which is three or five years. Our performance-based and market-based restricted stock awards are typically subject to cliff vesting at the end of the service period, which is typically three years. Our share-based compensation arrangements are equity classified and we recognize

compensation cost for these awards on a straight-line basis over the requisite service period for each award grant. In the case of performance-based awards, expense is recognized based upon management’s assessment of the probability that such performance conditions will be achieved. Certain of our awards provide for accelerated vesting upon a change of control or upon termination without cause or for good reason. ~~We recognize compensation cost for such awards over the period from grant date to the date the employee first becomes eligible for retirement.~~

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 beginning on the grant date. 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 ~~NCI~~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 ~~NCI~~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 ~~NCI~~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 ~~NCI~~the Company without cause or by the executive for good reason, the unvested restricted stock is forfeited. If a change in control of ~~NCI~~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 ~~NCI~~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 of grant.

During the six months ended June 29, 2019, we granted 0.3 million stock options. The average grant date fair value of options granted during the six months ended June 29, 2019 was $2.04 per share. We did not grant stock options during the ~~three~~six months ended ~~March 30, 2019 and January 28,~~April 29, 2018. No options were exercised during the ~~three~~six months ended ~~March 30,~~June 29, 2019. During the six months ended April 29, 2018, 0.1 million options with an intrinsic value of $0.6 million were exercised and cash received from options exercised was $1.0 million.

Restricted stock units and performance share units

Annual awards to our key employees generally have a three-year performance period. The fair value of RSUs awarded is based on the Company’s stock price as of the date of grant. During the ~~three~~six months ended ~~March 30,~~June 29, 2019, we granted RSUs to key employees with a fair value of ~~$1.0~~$1.7 million representing approximately ~~0.1~~0.3 million shares. ~~We did not grant PSU’s during~~During the ~~three~~six months ended ~~March 30, 2019. During the three months ended January 28,~~April 29, 2018, we granted RSUs with a fair value of ~~$6.7~~$6.8 million, representing 0.3 million shares.

During the six months ended June 29, 2019, we granted PSUs with a total fair value of approximately $0.3 million to key employees. During the six months ended April 29, 2018, we granted PSUs with a total fair value of approximately $4.5 million and $2.1 million, to the Company’s senior executives and key employees, respectively. On November 16, 2018, upon consummation of the Merger, certain 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, as the Board of Directors approved the treatment of existing awards, at the Merger date, as if a change in control had occurred, per the respective agreements governing each award.

Share-based compensation expense

During the three and six months ended ~~March 30,~~June 29, 2019 we recorded share-based compensation expense for all awards of ~~$4.0 million.~~$3.5 million and $7.5 million, respectively. During the three and six months ended ~~January 28,~~April 29, 2018, we recorded share-based compensation expense for all awards of ~~$5.9~~$2.0 million ~~which~~and $7.9 million, respectively. Share-based compensation expense for the six months ended April 29, 2018 included accelerated awards of $3.6 million due to the retirement of the Company’s former CEO.

NOTE 10 — EARNINGS PER COMMON SHARE

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



	Three Months Ended					Six Months Ended
	June 29, 2019		April 29, 2018			June 29, 2019			April 29, 2018
Numerator for Basic and Diluted Earnings Per Common Share
Net income (loss) applicable to common shares	$	17,263	$	(5,684	)	$	(42,484	)	$	(435	)
Denominator for Basic and Diluted Income Per Common Share
Weighted average basic number of common shares outstanding	125,516		66,210			125,510			66,311
Common stock equivalents:
Employee stock options	—		—			—			—
PSUs and Performance Share Awards	—		—			—			—
Weighted average diluted number of common shares outstanding	125,516		66,210			125,510			66,311

Basic income (loss) per common share	$	0.14	$	(0.09	)	$	(0.34	)	$	(0.01	)
Diluted income (loss) per common share	$	0.14	$	(0.09	)	$	(0.34	)	$	(0.01	)

Incentive Plan securities excluded from dilution⁽¹⁾	5,880		95			4,872			122

Three Months Ended
March 30,
2019 January 28,
2018
Numerator for Basic and Diluted Earnings Per Common Share

Net income (loss) applicable to common shares $ (60,017 ) $ 5,211
Denominator for Basic and Diluted Income Per Common Share

Weighted average basic number of common shares outstanding 125,503
66,434
Common stock equivalents:
Employee stock options —
71
PSUs and Performance Share Awards —
41
Weighted average diluted number of common shares outstanding 125,503
66,546

Basic income (loss) per common share $ (0.48 ) $ 0.08
Diluted income (loss) per common share $ (0.48 ) $ 0.08

Incentive Plan securities excluded from dilution⁽¹⁾
5,665
1


(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.

NOTE 11 — 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 product sold. Upon the sale of a weathertightness warranty, we record the resulting revenue as deferred revenue, which is included in other accrued expenses and other long-term liabilities on our consolidated balance sheets depending on when the revenues are expected to be recognized. 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. The Company assesses the adequacy of the recorded warranty claims and adjusts the amounts as necessary.

The following table represents the rollforward of our accrued warranty obligation and deferred warranty revenue activity for the ~~three~~six months ended ~~March 30,~~June 29, 2019 and ~~January 28,~~April 29, 2018 (in thousands):



	Six Months Ended
	June 29, 2019			April 29, 2018
Beginning balance	$	134,515		$	32,418
Purchase accounting adjustments	2,690			—
Warranties sold	1,551			1,605
Revenue recognized	(1,395		)	(1,314		)
Expense	14,081			—
Settlements	(13,772		)	(950		)
Ending balance	137,670			31,759
Less: current portion	33,974			6,338
Total, less current portion	$	103,696		$	25,421

Three Months Ended
March 30, 2019 January 28, 2018
Beginning balance $ 134,515
$ 32,418
Purchase accounting adjustments 2,690
—
Warranties sold 757
747
Revenue recognized (721 ) (724 )
Expense 6,720
—
Settlements (6,517 ) (36 )
Ending balance $ 137,444
$ 32,405
Less: current portion 34,288
7,072
Total, less current portion $ 103,156
$ 25,333

The Company records the current warranty obligation within other accrued expenses and the long-term warranty obligation within other long-term liabilities within the Company’s consolidated balance sheets at ~~March 30,~~June 29, 2019 and October 28, 2018.

NOTE 12 — DEFINED BENEFIT PLANS

RCC Pension Plan — With the acquisition of Robertson-Ceco II Corporation (“RCC”) on April 7, 2006, we 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.

CENTRIA Benefit Plans — As a result of the CENTRIA Acquisition on January 16, 2015, we 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, although benefits accruals for one of the plans previously ceased. Plan assets of the CENTRIA Benefit Plans are invested in broadly diversified portfolios of domestic and international equity mutual funds, bonds, mortgages and other funds. CENTRIA also sponsors postretirement medical and life insurance plans that cover certain of its employees and their spouses (the “OPEB Plans”).

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.

Ply Gem Pension Plans — As a result of the Merger on November 16, 2018, we 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.

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

The following table sets forth the components of the net periodic benefit cost, before tax, and funding contributions, for the periods indicated (in thousands):


	Three Months Ended March 30, 2019								Three Months Ended January 28, 2018								Three Months Ended June 29, 2019								Three Months Ended April 29, 2018
	Defined Benefit Plans			OPEB Plans		Total			Defined Benefit Plans			OPEB Plans		Total			Defined Benefit Plans			OPEB Plans		Total			Defined Benefit Plans			OPEB Plans		Total
Service cost	$	11		$	6	$	17		$	22		$	7	$	29		$	11		$	6	$	17		$	22		$	7	$	29
Interest cost	974			66		1,040			494			62		556			974			66		1,040			494			62		556
Expected return on assets	(1,234		)	—		(1,234		)	(729		)	—		(729		)	(1,234		)	—		(1,234		)	(729		)	—		(729		)
Amortization of prior service cost	15			—		15			15			—		15			15			—		15			15			—		15
Amortization of net actuarial loss	704			—		704			248			—		248			704			—		704			248			—		248
Net periodic benefit cost	$	470		$	72	$	542		$	50		$	69	$	119		$	470		$	72	$	542		$	50		$	69	$	119

																	Six Months Ended June 29, 2019								Six Months Ended April 29, 2018
																	Defined Benefit Plans			OPEB Plans		Total			Defined Benefit Plans			OPEB Plans		Total
Service cost																	$	21		$	11	$	32		$	44		$	14	$	58
Interest cost																	1,949			131		2,080			988			124		1,112
Expected return on assets																	(2,468		)	—		(2,468		)	(1,458		)	—		(1,458		)
Amortization of prior service cost																	28			—		28			28			—		28
Amortization of net actuarial loss																	1,409			—		1,409			496			—		496
Net periodic benefit cost																	$	939		$	142	$	1,081		$	98		$	138	$	236

We expect to contribute $2.3 million to the Defined Benefit Plans in the year ending December 31, 2019. Our policy is to fund the CENTRIA Benefit Plans as required by minimum funding standards of the Internal Revenue Code. The contributions to the OPEB Plans by retirees vary from none to 25% of the total premiums paid.

NOTE 13 — LONG-TERM DEBT AND NOTE PAYABLE

Debt is comprised of the following (in thousands):



	June 29, 2019			October 28, 2018
Asset-based revolving credit facility due April 2023	$	220,000		$	—
Asset-based revolving credit facility due February 2023	—			—
Term loan facility due April 2025	2,536,397			—
Term loan facility due February 2025	—			412,925
Cash flow revolver due April 2023	—			—
8.00% senior notes due April 2026	645,000			—
Less: unamortized discounts and unamortized deferred financing costs⁽¹⁾	(60,247		)	(5,699		)
Total long-term debt, net of unamortized discounts and unamortized deferred financing costs	3,341,150			407,226
Less: current portion of long-term debt	25,600			4,150
Total long-term debt, less current portion	$	3,315,550		$	403,076

March 30,
2019 October 28,
2018
Asset-based revolving credit facility due April 2023 $ 220,000
$ —
Asset-based revolving credit facility due February 2023 —
—
Term loan facility due April 2025 2,542,802
—
Term loan facility due February 2025 —
412,925
Cash flow revolver due April 2023 —
—
8.00% senior notes due April 2026 645,000
—
Less: unamortized discounts and unamortized deferred financing costs⁽¹⁾
(80,954 ) (5,699 )
Total long-term debt, net of unamortized discounts and unamortized deferred financing costs 3,326,848
407,226
Less: current portion of long-term debt 25,600
4,150
Total long-term debt, less current portion $ 3,301,248
$ 403,076

Recent Debt Transactions

In connection with the Merger, on November 16, 2018, ~~NCI~~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.

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, the proceeds of which, together, were used to redeem the 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 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 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. 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 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 Cash 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 $115.0 million. 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.

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 loan facility were used to, among other things, (a) finance the Merger and to pay certain fees, premiums and expenses incurred in connection therewith, (b) repay in full amounts outstanding under the Pre-merger Term Loan Credit Agreement and the Pre-merger ABL Credit Agreement and (c) repay $325.0 million of borrowings outstanding under the ABL Facility. On November 16, 2018, in connection with the consummation of the Merger, NCI and Ply Gem Midco entered into a joinder agreement with respect to the Current Cash Flow Facilities, and ~~NCI~~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 ~~March 30,~~June 29, 2019, the interest rates on the Current Term Loan Facility were follows:



	~~March 30,~~June 29, 2019
Interest rate	~~6.55~~6.35	%
Effective interest rate	6.51	%

The Company has also entered into certain interest rate swap agreements. See Note 16 - 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 Current Cash Flow Credit Agreement) on or prior to April 12, 2019 are subject to a 1.00% prepayment premium. Prepayments may otherwise be made without premium or penalty (other than customary breakage costs). The Current Cash Flow Revolver may be prepaid at the Company’s option at any time without premium or penalty (other than customary breakage costs), subject to minimum principal amount requirements.

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

year, payable within five business days after the delivery of the annual financial statements.

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

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

ABL 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 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 $150.0 million, letters of credit of up to $30.0 million and up to $20.0 million for swingline borrowings. Borrowing availability was 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 was 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. 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, ~~NCI~~the Company and Ply Gem Midco entered into a joinder agreement with respect to the Current ABL Facility, and ~~NCI~~the Company became the Parent Borrower (as defined in the ABL Credit Agreement) under the Current ABL Facility.

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 ~~March 30,~~June 29, 2019, the Company had the following in relation to the Current ABL Facility (in thousands):



	June 29, 2019
Excess availability	$	350,280
Revolving loans outstanding	220,000
Letters of credit outstanding	35,460

March 30, 2019
Excess availability $ 326,994
Revolving loans outstanding 220,000
Letters of credit outstanding 34,410

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 ~~March 30,~~June 29, 2019, the weighted average interest rate on the Current ABL Facility was ~~4.19%~~3.77%.

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

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

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

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 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 ~~9.22%~~8.64% as of ~~March 30,~~June 29, 2019, after considering each of the different interest expense components of this instrument, including the coupon payment and the deferred debt issuance costs.

On November 16, 2018, in connection with the consummation of the Merger, ~~NCI~~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 Facility (including by reason of being a borrower under the Current ABL Facility on a joint and several basis with the Company or a subsidiary guarantor). The 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:

Redemption of 8.25% Senior Notes

On January 16, 2015, the Company issued $250.0 million in aggregate principal amount of the 8.25% Senior Notes. On February 8, 2018, the Company redeemed the outstanding $250.0 million aggregate principal amount of the 8.25% Senior Notes for approximately $265.5 million using the proceeds from borrowings under the Pre-merger Term Loan Credit Facility.

During the three and six months ended April 29, 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 call premium paid on the redemption of the Notes.

The Company’s debt agreements contain a number of covenants that, among other things, limit or restrict the ability of the Company and its subsidiaries to incur additional indebtedness; make dividends and other restricted payments; incur additional liens; consolidate, merge, sell or otherwise dispose of all or substantially all assets; make investments; transfer or sell assets; enter into restrictive agreements; change the nature of the business; and enter into certain transactions with affiliates. As of ~~March 30,~~June 29, 2019, the Company was in compliance with all covenants that were in effect on such date.

Insurance Note Payable

As of ~~March 30,~~June 29, 2019, the Company had no notes payable outstanding. As of October 28, 2018, the Company had an outstanding note payable in the amount of $0.5 million related to financed insurance premiums. Insurance premium financings are generally secured by the unearned premiums under such policies.

NOTE 14 — CD&R INVESTOR GROUP

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

On December 11, 2017, the CD&R Fund VIII Investor Group completed a registered underwritten offering of 7,150,000 shares of ~~NCI~~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 ~~NCI~~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.

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 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 ~~NCI~~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.

As of ~~March 30,~~June 29, 2019, the CD&R Investor Group owned approximately 49.3% of the outstanding shares of ~~NCI~~the Company’s Common Stock. At October 28, 2018, the CD&R Fund VIII Investor Group owned approximately 34.4% of the outstanding shares of ~~NCI~~the Company’s Common Stock.

NOTE 15 — STOCK REPURCHASE PROGRAM

On September 8, 2016, the Company announced that its Board of Directors authorized a stock repurchase program for the repurchase of up to an aggregate of $50.0 million of the Company’s outstanding Common Stock. On October 10, 2017 and March 7, 2018, the Company announced that its Board of Directors authorized new stock repurchase programs for the repurchase of up to an aggregate of $50.0 million and $50.0 million, respectively, of the Company’s outstanding Common Stock. Under these repurchase programs, the Company is authorized to repurchase shares, if at all, at times and in amounts that it deems appropriate in accordance with all applicable securities laws and regulations. Shares repurchased pursuant to the repurchase programs are usually retired. There is no time limit on the duration of the programs.

During the ~~three~~six months ended ~~March 30,~~June 29, 2019, there were no repurchases under the stock repurchase programs. During the ~~three~~six months ended ~~January 28,~~April 29, 2018, the Company repurchased approximately 2.7 million shares for $46.7 million under the stock repurchase programs, which included 1.15 million shares for $22.3 million purchased pursuant to the CD&R Fund VIII Investor Group’s 2017 Secondary Offering (see Note 14 — CD&R Investor Group). As of ~~March 30,~~June 29, 2019, approximately $55.6 million remained available for stock repurchases under the programs. The timing and method of any repurchases, which will depend on a variety of factors, including market conditions, are subject to results of operations, financial conditions, cash requirements and other factors, and may be suspended or discontinued at any time.

During the ~~three~~six months ended ~~March 30,~~June 29, 2019 and ~~January 28,~~April 29, 2018, the Company withheld ~~20,000~~twenty-two thousand and 0.2 million shares, respectively, of stock to satisfy minimum tax withholding obligations arising in connection with the vesting of stock awards, which are included in treasury stock purchases in the consolidated statements of stockholders’ equity.

During the ~~three~~six months ended ~~March 30,~~June 29, 2019, the Company cancelled 0.1 million shares related to shares withheld to satisfy minimum tax withholding obligations arising in connection with the vesting of stock awards, resulting in a $0.6 million decrease in both additional paid in capital and treasury ~~stock during the quarter.~~stock. During the ~~three~~six months ended ~~January 28,~~April 29, 2018, the Company cancelled ~~2.7~~2.9 million shares related to shares withheld to satisfy minimum tax withholding obligations arising in connection with the vesting of stock awards and shares repurchased under the stock repurchase programs, resulting in a ~~$46.7~~$51.3 million decrease in both additional paid in capital and treasury ~~stock during the quarter.~~stock.

NOTE 16 — 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, accounts payable and notes payable approximate fair value as of ~~March 30,~~June 29, 2019 and October 28, 2018, respectively, because of their relatively short maturities. The carrying amounts of the indebtedness under the Current ABL Facility and Current Cash Flow Revolver approximate fair value as the interest rates are variable and reflective of market rates. At ~~March 30,~~June 29, 2019, there was $220.0 million of borrowings outstanding under the Current ABL Facility and no outstanding indebtedness under the Current Cash Flow Revolver. The fair values of the remaining financial instruments not currently recognized at fair value on our consolidated balance sheets at the respective period ends were (in thousands):



	June 29, 2019				October 28, 2018
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Term Loan Facilities	$	2,536,397	$	2,460,305	$	412,925	$	412,409
8.00% Senior Notes	645,000		625,650		—		—

March 30, 2019 October 28, 2018

Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
Term Loan Facilities $ 2,542,802
$ 2,431,554
$ 412,925
$ 412,409
8.00% Senior Notes 645,000
580,500
—
—

The fair values of the term loan facility 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 as of ~~March 30,~~June 29, 2019 and October 28, 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.

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, representative of Level 3 inputs.

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.

The following tables summarize information regarding our financial assets and liabilities that are measured at fair value on a recurring basis as of ~~March 30,~~June 29, 2019 and October 28, 2018, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (in thousands):



	June 29, 2019
	Level 1		Level 2		Level 3		Total
Assets:
Short-term investments in deferred compensation plan⁽¹⁾:
Money market	$	120	$	—	$	—	$	120
Mutual funds – Growth	1,057		—		—		1,057
Mutual funds – Blend	1,606		—		—		1,606
Mutual funds – Foreign blend	537		—		—		537
Mutual funds – Fixed income	—		389		—		389
Total short-term investments in deferred compensation plan⁽²⁾	3,320		389		—		3,709
Total assets	$	3,320	$	389	$	—	$	3,709

Liabilities:
Deferred compensation plan liability⁽²⁾	$	—	$	3,618	$	—	$	3,618
Interest rate swap liability⁽³⁾	—		29,850		—		29,850
Total liabilities	$	—	$	33,468	$	—	$	33,468

March 30, 2019
Level 1 Level 2 Level 3 Total
Assets:

Short-term investments in deferred compensation plan⁽¹⁾:

Money market $ 146
$ —
$ —
$ 146
Mutual funds – Growth 1,041
—
—
1,041
Mutual funds – Blend 1,573
—
—
1,573
Mutual funds – Foreign blend 561
—
—
561
Mutual funds – Fixed income —
401
—
401
Total short-term investments in deferred compensation plan⁽²⁾
3,321
401
—
3,722
Total assets $ 3,321
$ 401
$ —
$ 3,722

Liabilities:

Deferred compensation plan liability⁽²⁾
$ —
$ 3,499
$ —
$ 3,499
Total liabilities $ —
$ 3,499
$ —
$ 3,499



	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 – Growth	1,118		—		—		1,118
Mutual funds – Blend	2,045		—		—		2,045
Mutual funds – Foreign blend	812		—		—		812
Mutual funds – Fixed income	—		941		—		941
Total short-term investments in deferred compensation plan⁽²⁾	4,344		941		—		5,285
Total assets	$	4,344	$	941	$	—	$	5,285

Liabilities:
Deferred compensation plan liability⁽²⁾	$	—	$	4,639	$	—	$	4,639
Total liabilities	$	—	$	4,639	$	—	$	4,639

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 – Growth 1,118
—
—
1,118
Mutual funds – Blend 2,045
—
—
2,045
Mutual funds – Foreign blend 812
—
—
812
Mutual funds – Fixed income —
941
—
941
Total short-term investments in deferred compensation
plan⁽²⁾
4,344
941
—
5,285
Total assets $ 4,344
$ 941
$ —
$ 5,285

Liabilities:

Deferred compensation plan liability⁽²⁾
$ —
$ 4,639
$ —
$ 4,639
Total liabilities $ —
$ 4,639
$ —
$ 4,639

NOTE 17 — INCOME TAXES

Under FASB Accounting Standards Codification 740-270, Income Taxes - Interim Reporting, each interim period is considered an integral part of the annual period and tax expense is measured using an estimated annual effective tax rate. Estimates of the annual effective tax rate at the end of interim periods are, of necessity, based on evaluation of possible future events and transactions and may be subject to subsequent refinement or revision. The Company calculates its quarterly tax provision consistent with the guidance provided by ASC 740-270, whereby the Company forecasts its estimated annual effective tax rate then applies that rate to its year-to-date pre-tax book income (loss). In addition, the Company excludes jurisdictions with a projected loss for the year

or the year-to-date loss where the Company cannot recognize a tax benefit from its estimated annual effective tax rate. The impact of such an exclusion could result in a higher or lower effective tax rate during a particular quarter, based upon the mix and timing of actual earnings versus annual projections. In addition to the tax resulting from applying the estimated annual effective tax rate to pre-tax income (loss), the Company includes certain items treated as discrete events to arrive at an estimated effective tax rate. Future changes in the forecasted annual income (loss) projections, tax rate changes, or discrete tax items could result in significant adjustments to quarterly income tax expense in future periods in accordance with ASC 740-270.

For the ~~three~~six months ended ~~March 30,~~June 29, 2019, the Company's estimated annual effective income tax rate was approximately ~~29.9%~~34.3%, which varied from the statutory rate primarily due to state income tax expense, valuation allowances, foreign income taxes, and the net impact of the Tax Cuts and Jobs Act (“U.S. Tax Reform”). U.S. Tax Reform 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 effective tax rate including discrete items related to unrecognized tax benefits and adjustments to state income tax rates was ~~28.5%. The Company’s statutory federal corporate income tax rate~~30.4% for ~~three~~the six months ended ~~January 28, 2018 was 23.3%.~~June 29, 2019.

As of ~~March 30,~~June 29, 2019, the Company remains in a valuation allowance position, in the amount of ~~$20.1~~$20.5 million, against its deferred tax assets for certain state and Canadian jurisdictions for certain entities as it is currently deemed “more likely than not” that the benefit of such net tax assets will not be utilized as the Company continues to be in a three-year cumulative loss position for these states and Canadian jurisdictions. The Company will continue to monitor the positive and negative factors for these jurisdictions and make further changes to the valuation allowances as necessary. As a result of the Merger, net operating losses may be subject to limitation under Section 382.

Unrecognized tax benefits

Despite the Company’s belief that its tax return positions are consistent with applicable tax laws, the Company believes that certain positions could be challenged by taxing authorities. The Company’s tax reserves reflect the difference between the tax benefit claimed on tax returns and the amount recognized in the consolidated financial statements. These reserves have been established based on management’s assessment as to potential exposure attributable to permanent differences 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. During the ~~three~~six months ended ~~March 30,~~June 29, 2019, the tax reserves increased by approximately ~~$6.7~~$6.8 million after excluding the reserves from the Ply Gem Merger. The increase is primarily due to uncertain tax positions that were previously netted against deferred tax assets related to net operating losses in accordance with ASC 740 in addition to interest expense related to previously recorded unrecognized tax benefits.

The liability for unrecognized tax benefits as of ~~March 30,~~June 29, 2019 was approximately ~~$11.7~~$11.8 million and is recorded in other long-term liabilities in the accompanying consolidated balance sheet.

Tax receivable agreement (“TRA”) liability

The TRA liability generally provides for the payment by Ply Gem to a third party entity of 85% of the amount of cash savings, if any, in the U.S. federal, state and local 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 ~~NCI~~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. As of ~~March 30,~~June 29, 2019, the Company had a $24.8 million current liability for the amount due pursuant to the Tax Receivable Agreement.

NOTE 18 — SEGMENT INFORMATION

Operating segments are defined as components of an enterprise that engage in business activities for which discrete financial information is available and is evaluated on a regular basis by the chief operating decision maker to make decisions regarding the allocation of resources to the segment and assess the performance of the segment. For the transition period ended December 31, 2018, the Company began reporting results under three reportable segments: Commercial, Siding and Windows. The Company’s prior reportable segments, Engineered Building Systems, Metal Components, Insulated Metal Panels, and Metal Coil Coating, are now collectively in the Commercial segment. Prior periods for all periods presented have been recast to conform to the current segment presentation. The Siding segment will include the operating results of the legacy Ply Gem operating segment of Siding,

Fencing, and Stone, and the Windows segment will include the operating results of the legacy Ply Gem operating segment of Windows and Doors.

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.

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 the three months ended June 29, 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, 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.~~.

The following table represents summary financial data attributable to the segments for the periods indicated (in thousands):


	Three Months Ended						Three Months Ended						Six Months Ended
	March 30, 2019			January 28, 2018			June 29, 2019			April 29, 2018			June 29, 2019			April 29, 2018
Net sales:
Commercial	$	424,961		$	421,349		$	480,285		$	457,069		$	905,246		$	878,418
Siding	218,277			—			306,525			—			524,802			—
Windows	421,594			—			508,647			—			930,241			—
Total net sales	$	1,064,832		$	421,349		$	1,295,457		$	457,069		$	2,360,289		$	878,418
Operating income (loss):
Operating income:
Commercial	$	32,628		$	37,799		$	58,809		$	40,022		$	83,119		$	77,821
Siding	(11,654		)	—			25,937			—			14,283			—
Windows	(4,319		)	—			31,912			—			27,593			—
Corporate	(44,020		)	(24,901		)	(35,727		)	(21,066		)	(71,429		)	(45,967		)
Total operating income (loss)	(27,365		)	12,898
Total operating income							80,931			18,956			53,566			31,854
Unallocated other expense, net	(56,549		)	(6,531		)	(58,052		)	(26,722		)	(114,601		)	(33,253		)
Income (loss) before income taxes	$	(83,914	)	$	6,367
Income (loss) before taxes							$	22,879		$	(7,766	)	$	(61,035	)	$	(1,399	)

NOTE 19 — CONTINGENCIES

As a manufacturer of products primarily for use in building construction, the Company is inherently exposed to various types of contingent claims, both asserted and unasserted, in the ordinary course of business. As a result, from time to time, the Company and/or its subsidiaries become involved in various legal proceedings or other contingent matters arising from claims or potential claims. 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. The Company regularly reviews the status of ongoing 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.

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 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.

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 ~~March 30,~~June 29, 2019 are $4.6 million. The Company has recorded approximately $0.3 million of this environmental liability within current liabilities at ~~March 30,~~June 29, 2019 and approximately $4.3 million within other long-term liabilities in the Company’s consolidated balance sheets at ~~March 30,~~June 29, 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 $5.0 million within other long-term liabilities in its consolidated balance sheets as of ~~March 30,~~June 29, 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.

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. Aurora alleges that Atrium’s breach of the Agreement has resulted in damages in excess of $48.0 million. Arbitration of the matter is currently expected to occur in 2019.

On November 14, 2018, an individual stockholder, Gary D. Voigt, filed a putative class action complaint in the Delaware Court of Chancery against CD&R, 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 the director defendants in connection with the Merger. Voigt seeks damages in an amount to be determined at trial. The Company intends to vigorously defend the litigation.

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 ~~March 30,~~June 29, 2019.

~~NCI~~

CORNERSTONE BUILDING ~~SYSTEMS,~~BRANDS, INC.

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

The following information should be read in conjunction with the unaudited consolidated financial statements included herein under “Item 1. Unaudited Consolidated Financial Statements” and the audited consolidated financial statements and the notes thereto and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the fiscal year ended October 28, 2018.

FORWARD LOOKING STATEMENTS

This Quarterly Report includes statements concerning our expectations, beliefs, plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements that are not historical facts. These statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those expressed or implied by these statements. In some cases, our forward-looking statements can be identified by the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “objective,” “plan,” “potential,” “predict,” “projection,” “should,” “will” 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. 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;

inability to successfully develop new products or improve existing products;

the effects of manufacturing or assembly realignments;

changes in laws or regulations;

the effects of certain external domestic or international factors that we may not be able to control, including war, civil conflict, terrorism, natural disasters and public health issues;

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 and aluminum;

retention and replacement of key personnel;

increases in union organizing activity and work stoppages at our facilities or the facilities of our suppliers;

our ability to employ, train and retain qualified personnel at a competitive cost;

enforcement and obsolescence of our intellectual property rights;

changes in foreign currency exchange and interest rates;

costs and liabilities related to compliance with environmental laws and environmental clean-ups;

changes in building codes and standards;

potential product liability claims, including class action claims and warranties, relating to products we manufacture;

competitive activity and pricing pressure in our industry;

the credit risk of our customers;

the dependence on a core group of significant customers in our Windows and Siding segments;

operational problems or disruptions at any of our facilities, including natural disasters;

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;

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

volatility in transportation, energy and freight prices;

the adoption of climate change legislation;

limitations on our net operating losses, interest deductibility, and payments under the tax receivable agreement;

breaches of our information system security measures;

damage to our major information management 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;

the effect of tariffs on steel imports;

the cost and difficulty associated with integrating and combining ~~the businesses of NCI and Ply Gem;~~acquired businesses;

potential write-downs or write-offs, restructuring and impairment or other charges required in connection with the Merger;

potential claims arising from the operations of our various businesses arising from periods prior to the dates they were acquired;

substantial governance and other rights held by the Investors;

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

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

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

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

downgrades of our credit ratings;

~~the results of the Company’s shareholder vote on May 23, 2019;~~ and

other risks detailed under the caption “Risk Factors” in this Quarterly Report on Form 10-Q, and in Part I, Item 1A in our Annual Report on Form 10-K for the fiscal year ended October 28, 2018 (the “2018 Form 10-K”), our Transition Report on Form 10-Q for the Transition Period and other filings we make with the SEC.

A forward-looking statement may include a statement of the assumptions or bases underlying the forward-looking statement. We believe that we have chosen these assumptions or bases in good faith and that they are reasonable. However, we caution you that assumed facts or bases almost always vary from actual results, and the differences between assumed facts or bases and actual results can be material, depending on the circumstances. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this report, including those described under the caption “Risk Factors” in the 2018 Form 10-K, the Transition Report and other risks described in documents subsequently filed by the Company from time to time with the SEC. We expressly disclaim any obligations to release publicly any updates or revisions to these forward-looking statements to reflect any changes in our expectations unless the securities laws require us to do so.

OVERVIEW

Effective 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 ~~one of~~the largest North ~~America’s largest~~American integrated ~~manufacturers~~manufacturer and ~~marketers~~marketer of external building products for the commercial, residential, and repair & remodel construction industries. We design, engineer, manufacture and market external building products through our three operating segments, Commercial, Siding, and Windows.

On April 11, 2019, we announced that our name will be changing to Cornerstone Building Brands, Inc., which is expected to become effective following shareholder approval at the annual shareholder meeting being held on May 23, 2019.

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 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 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.

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, ~~engineered slate and cedar shake roofing,~~ 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 assess performance across our operating 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 return on adjusted operating assets, as well as growth in earnings, as key indicators of shareholder value.

Reporting Periods

On November 16, 2018, the Company’s Board of Directors ~~of NCI Building Systems, Inc., or the "Company",~~ approved a change to the Company's fiscal year end from a 52/53 week year with the Company’s fiscal year end on the Sunday closest to October 31 to a calendar year of the ~~12 month~~twelve-month period from January 1 to December 31. The Company elected to change its fiscal year end in connection with the Merger to align both Companies’ fiscal year ends. As a result of this change, the Company filed a Transition Report on Form 10-Q that included the financial information for the transition period from October 29, 2018 to December 31, 2018, which period is referred to herein as the "Transition Period". References in this Quarterly Report on Form 10-Q to “fiscal year 2018” or “fiscal 2018” refer to the period from October 30, 2017 through October 28, 2018. The results of operations offor the ~~first quarter of fiscal~~three and six months ended April 29, 2018 are presented herein as the comparable period to the ~~period from January 1, 2019 through March 30,~~three and six months ended June 29, 2019. The Company did not recast the consolidated financial statements for the period from March 31, 2018 to June 29, 2018 or January 1, 2018 to ~~March 30,~~June 29, 2018, because the financial reporting processes in place at that time included certain procedures that were completed only on a quarterly basis. Consequently, to recast this period would have been ~~impractical and would not have been cost-justified.~~impractical.

The Company’s current fiscal quarters are based on a four-four-five week calendar with periods ending on the Saturday of the last week in the quarter except 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 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, ~~NCI’s~~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 post-closing adjustments. The transaction was financed through borrowings under the Company’s asset-based revolving credit facility.

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 in accordance with 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. Pursuant to the terms of the New Registration Rights Agreement, the Company and the CD&R Fund VIII Investor Group terminated the Old Registration Rights Agreement.

In connection with the Merger, on November 16, 2018, NCI 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, 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 the 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 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.

The Company incurred approximately ~~$14.1~~$24.4 million of acquisition expenses during the ~~three~~six months ended ~~March 30,~~June 29, 2019 related to the Merger, primarily for integration expenses, various third-party consulting and due-diligence services, and financial advisors’ fees, which are recorded in strategic development and acquisition related costs in the Company’s consolidated statements of operations.

Change in Operating Segments

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

Three Months Ended ~~March 30,~~June 29, 2019

Consolidated sales increased by approximately ~~152.7%~~183.4% for the three months ended ~~March 30,~~June 29, 2019. The improvement was ~~primarily~~ driven by the Ply Gem sales addition for the three months ended ~~March 30,~~June 29, 2019.

The Company’s gross profit percentage for the three months ended ~~March 30,~~June 29, 2019 was ~~17.5%~~23.5% as compared to ~~21.8%~~22.8% in the ~~first~~second quarter of fiscal 2018. The ~~lower~~higher gross margin was primarily caused by the ~~Company incurring approximately $16.2 million~~inclusion of certain Ply Gem product lines that carry a higher gross margin than certain legacy Commercial products combined with integration synergies and cost reduction initiatives implemented in ~~additional cost of goods sold related to~~connection with the ~~fair value premium of the~~merger between Ply Gem and ESW inventory on the respective acquisition dates. Excluding the inventory premium impact, the Company’s gross margin would have been 19.0%. The remaining decrease in gross profit percentage relates to the Merger and the inclusion of Ply Gem in our operating results for the three months ended March 30, 2019.NCI. Since our ~~residential~~ building products are intended for exterior use, ~~Ply Gem’s~~our sales and operating earnings tend to be lower during periods of inclement weather. As a result, weather conditions in the first and fourth quarters of each calendar year will result in these quarters producing significantly less sales revenue and profitability than our second and third quarters of the year.

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 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.

According to Dodge Data & Analytics (“Dodge”), low-rise nonresidential construction starts, as measured in square feet and comprising buildings of up to five stories, were down approximately 10% during the first four months of 2019 as compared to the same period in 2018. According to the Dodge third quarter 2019 forecast, as measured in square feet, non-residential buildings starts are expected to dip 3% in 2019 and 8% in 2020. However, Dodge typically revises initial reported figures.

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.

Residential (Siding and Windows)

Our residential building products are typically installed on a new construction home 90 to 120 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 a normal quarterly period. For the three months ended June 29, 2019, we evaluated U.S. Census Bureau single family housing starts in the period from December 2018 to March 2019 to assess the demand impacts for our products for the three months ended June 29, 2019 noting that single family housing starts decreased 3.3% due to inclement wet weather that existed during the period and a general softening in overall economic conditions specifically for new construction. For new construction, we also examine where these single-family housing starts occur geographically as the Northeast, which increased 3.8%, and Midwest, which decreased 5.8%, are significant vinyl siding concentrated areas relative to the South and the West. In addition to new construction, we also evaluate the repair and remodeling market to assess market conditions by evaluating the Leading Indicator of Remodeling Activity (“LIRA”). For the second quarter of 2019, LIRA reflected that the trailing 12 months of remodeling activity increased from 6.3% for the second quarter of 2018 to 6.8% indicating a slight increase in the repair and remodeling market. 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, a third party which summarizes vinyl siding unit sales for the industry. Overall, our Siding segment is heavily weighted to the repair and remodeling market with approximately 65% of our net sales being attributed to repair and remodeling with the remaining 35% attributed to the new construction market.

For the six months ended June 29, 2019, we evaluated U.S. Census Bureau single family housing starts in the period from September 2018 to March 2019 to assess the demand impacts for our products for the six months ended June 29, 2019 noting that single family housing starts decreased 3.7% during this period due to inclement wet weather that existing during the period and a general softening in overall economic conditions specifically for new construction. For new construction, we also examine where these single-family housing starts occur geographically as the Northeast; which decreased 0.4%, and Midwest; which decreased 9.2%, are significant vinyl siding concentrated areas relative to the South and the West. In addition to new construction, we also evaluate the repair and remodeling market to assess market conditions by evaluating the LIRA. For the second quarter of 2019, LIRA reflected that the trailing 12 months of remodeling activity increased from 6.3% for the second quarter of 2018 to 6.8% indicating a slight increase in the repair and remodeling market. 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, a third party which summarizes vinyl siding unit sales for the industry. As of June 29, 2019, our U.S. market position in vinyl siding was 37.7% while our share of the Canadian vinyl siding market was 31.7%.

Historically, we evaluate 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 weighted to the new construction market with approximately 55% of our net sales attributed to new construction with the remaining 45% attributed to the repair and remodeling market.

RESULTS OF OPERATIONS

Operating segments are defined as components of an enterprise that engage in business activities and by 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 have three operating segments: (i) Commercial, (ii) Siding, and (iii) Windows. Our operating segments operate in the commercial and residential new construction, and repair & remodel construction markets. Sales and earnings are influenced by general economic conditions, the level of residential and nonresidential construction activity, commodity costs, such as steel, aluminum, and PVC, other input costs such as labor and freight, and the availability and terms of financing available for construction. The operating segments follow the same accounting policies used for our consolidated financial statements.

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, acquisition costs and other expenses related to executive, legal, finance, tax, treasury, human resources, information technology and strategic sourcing, and corporate travel expenses. Additional unallocated amounts primarily include non-operating items such as interest income, interest expense, loss on extinguishment of debt and other income (expense) ~~income.~~. See Note 18 — Segment Information in the notes to the unaudited consolidated financial statements for more information on our segments.

We have revised our segment reporting to represent how we now manage our business, recasting prior periods to conform to the current segment presentation. The following table represents sales and operating income (loss) attributable to these operating segments for the periods indicated (in thousands):


	Three Months Ended						Three Months Ended						Six Months Ended
	March 30, 2019			January 28, 2018			June 29, 2019			April 29, 2018			June 29, 2019			April 29, 2018
Net sales:
Commercial	$	424,961		$	421,349		$	480,285		$	457,069		$	905,246		$	878,418
Siding	218,277			—			306,525			—			524,802			—
Windows	421,594			—			508,647			—			930,241			—
Total net sales	$	1,064,832		$	421,349		$	1,295,457		$	457,069		$	2,360,289		$	878,418
Operating income (loss):
Operating income:
Commercial	$	32,628		$	37,799		$	58,809		$	40,022		$	83,119		$	77,821
Siding	(11,654		)	—			25,937			—			14,283			—
Windows	(4,319		)	—			31,912			—			27,593			—
Corporate	(44,020		)	(24,901		)	(35,727		)	(21,066		)	(71,429		)	(45,967		)
Total operating income (loss)	(27,365		)	12,898
Total operating income							$	80,931		$	18,956		$	53,566		$	31,854
Unallocated other expense, net	(56,549		)	(6,531		)	(58,052		)	(26,722		)	(114,601		)	(33,253		)
Income (loss) before income taxes	$	(83,914	)	$	6,367
Income (loss) before taxes							$	22,879		$	(7,766	)	$	(61,035	)	$	(1,399	)

Following the Merger completed on November 16, 2018, the Company determined that it would have three reportable segments: (i) Commercial, (ii) Siding and (iii) Windows. These reportable segments were derived out of the legacy segments ~~for NCI Buildings Systems Inc.-~~of the Company and Ply Gem Holdings. The legacy segments of the Company: Engineered Building ~~Systems;~~Systems, Metal ~~Components;~~Components, Insulated Metal ~~Panels;~~Panels, and Metal Coil Coating, ~~which~~are contained within the Commercial segment under the post-Merger segment ~~structure will be contained within the Commercial segment.~~structure. The legacy segments ~~for~~of Ply Gem ~~Holdings,~~Holdings: Siding, Fencing, and Stone, ~~will be~~are within the Siding segment under the post-Merger segment structure while Windows and Doors ~~will be~~are within the Windows segment.

For the three and six months ended ~~March 30,~~June 29, 2019, the Commercial segment ~~will contain~~contains operating segment results for the period with a comparison to the three and six months ended ~~January 28,~~April 29, 2018. During the three months ended June 29, 2019, the Company prospectively 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. The Siding and Windows segments ~~will~~ contain operating segment results for the three and six months ended ~~March 30,~~June 29, 2019 with no comparative information included as these operating segments did not exist within ~~NCI~~Cornerstone for the three and six months ended ~~January 28,~~April 29, 2018.

THREE MONTHS ENDED ~~MARCH 30,~~JUNE 29, 2019 COMPARED TO THREE MONTHS ENDED ~~JANUARY 28,~~APRIL 29, 2018

Commercial


	Three Months Ended								Three Months Ended
(Amounts in thousands)	March 30, 2019				January 28, 2018				June 29, 2019				April 29, 2018
Statement of operations data:
Net sales	$	424,961	100.0	%	$	421,349	100.0	%	$	480,285	100.0	%	$	457,069	100.0	%
Gross profit	90,401		21.3	%	91,917		21.8	%	121,434		25.3	%	104,083		22.8	%
SG&A expense (including acquisition costs)	54,942		12.9	%	51,706		12.3	%	59,801		12.5	%	54,962		12.0	%
Amortization of intangible assets	2,831		0.7	%	2,412		0.6	%	2,824		0.6	%	2,413		0.5	%
Operating income	32,628		7.7	%	37,799		9.0	%	58,809		12.2	%	40,022		8.8	%

Net sales increased ~~$3.6~~$23.2 million, or ~~0.9%~~5.1% for the three months ended ~~March 30,~~June 29, 2019 compared to the three months ended ~~January 28,~~April 29, 2018. During the three months ended ~~March 30,~~June 29, 2019 we continued to benefit from the pass through of higher material input costs, partially offset by lower tonnage volumes. The decrease in volume is primarily attributed to an acceleration of shipments in the prior year as customers were motivated to take receipt of materials in advance of material and price increases as well as indications of a slowdown in commercial construction starts during the three months ended June 29, 2019.

Gross profit increased $17.4 million or 16.7% for the three months ended June 29, 2019 compared to the three months ended April 29, 2018. As a percent of net sales, gross profit increased from commercial discipline around price in our longer lead time products and cost out initiatives, partially offset by lower leverage of fixed cost structure as a result of decreasing tonnage volume.

Selling, general, and administrative expenses (“SG&A”) increased $4.8 million or 8.8% for the three months ended June 29, 2019 compared to the three months ended April 29, 2018 primarily due to general and administrative costs of $5.2 million that are allocated to the Commercial segment that were previously categorized as unallocated corporate costs prior to the Merger. Adjusting for the incremental general and administrative costs, as a percent of net sales, SG&A decreased by 60 basis points as a result of realization of cost initiatives.

Amortization expense for the three months ended June 29, 2019 was $2.8 million or 0.6% of net sales compared to $2.4 million or 0.5% of net sales for the three months ended April 29, 2018. The amortization expense as a percentage of net sales is higher due to the amortization of trade names which were previously classified as indefinite lived.



	Three Months Ended
(Amounts in thousands)	June 29, 2019				April 29, 2018
Statement of operations data:
Net sales	$	306,525	100.0	%	$	—	—	%
Gross profit	85,042		27.7	%	—		—	%
SG&A expense (including acquisition costs)	31,820		10.4	%	—		—	%
Amortization of intangible assets	26,154		8.5	%	—		—	%
Operating income	25,937		8.5	%	—		—	%

Net sales for the three months ended June 29, 2019 were $306.5 million. Net sales for the three months ended June 29, 2019 were favorably impacted by the inclusion of $43.4 million for the Environmental Stoneworks (“ESW”) acquisition, which closed on February 20, 2019. Excluding ESW, our net sales were $263.1 million for the three months ended June 29, 2019. Our net sales for the U.S. and Canadian markets were approximately $285.7 million and $20.8 million, respectively, for the three months ended June 29, 2019. For the three months ended June 29, 2019, foreign currency negatively impacted our net sales by $1.1 million.

Gross profit for the three months ended June 29, 2019 was $85.0 million. Gross profit for the three months ended June 29, 2019 included ESW gross profit of $11.2 million. Excluding ESW, our gross profit would have been $73.8 million for the three months ended June 29, 2019. Historically, our gross profit is impacted by raw material costs specifically PVC resin and aluminum. 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 while freight costs have trended higher as well due to industry driver and lane shortages and rising fuel costs. For the three months ended June 29, 2019 foreign currency negatively impacted our gross profit by $0.3 million.

As a percentage of net sales, our gross profit percentage was 28.1% excluding ESW as our Siding 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 during the late spring and summer months. Higher volumes combined with price over inflation contributed to the 28.1% gross profit percentage.

Selling, general, and administrative expenses were $31.8 million for the three months ended June 29, 2019 including $5.5 million of SG&A expenses 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 10.0% for the three months ended June 29, 2019 excluding ESW.

Amortization expense for the three months ended June 29, 2019 was $26.2 million or 8.5% of net sales. The amortization expense is directly attributed 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.



	Three Months Ended
(Amounts in thousands)	June 29, 2019				April 29, 2018
Statement of operations data:
Net sales	$	508,647	100.0	%	—	—	%
Gross profit	98,187		19.3	%	—	—	%
SG&A expense (including acquisition costs)	49,873		9.8	%	—	—	%
Amortization of intangible assets	17,533		3.4	%	—	—	%
Operating income	31,912		6.3	%	—	—	%

Net sales for the three months ended June 29, 2019 were $508.6 million. Net sales for the three months ended June 29, 2019 included net sales of $112.1 million for Silver Line which was acquired on October 14, 2018. Excluding Silver Line, our net sales would have been $396.6 million for the three months ended June 29, 2019. For the three months ended June 29, 2019, foreign currency negatively impacted our net sales by $1.6 million.

Gross profit for the three months ended June 29, 2019 was $98.2 million. Gross profit for the three months ended June 29, 2019 includes Silver Line gross profit of $13.1 million. Excluding the impact of the Silver Line gross profit, our gross profit would have been $85.1 million for the three months ended June 29, 2019. Historically, our gross profit is impacted significantly by raw material costs, specifically PVC resin, aluminum, and glass. 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 while freight costs have trended higher as well due to industry driver and lane shortages and rising fuel costs. Finally, we review foreign currency fluctuations specifically for the Canadian dollar that can impact gross profit. For the three months ended June 29, 2019 foreign currency negatively impacted our gross profit by $0.5 million.

As a percentage of net sales, our gross profit percentage was 21.5% excluding Silver Line gross profit. 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. These higher volumes combined with price discipline, synergy and cost improvement initiatives contributed to the 21.5% gross profit percentage.

Selling, general, and administrative expenses were $49.9 million for the three months ended June 29, 2019. SG&A expenses for the three months ended June 29, 2019 includes $5.5 million of Silver Line SG&A expenses. Excluding the impact of Silver Line, SG&A expenses would have been $44.4 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 11.2% for the three months ended June 29, 2019 excluding Silver Line.

Amortization expense for the three months ended June 29, 2019 was $17.5 million or 4.4% of net sales excluding Silver Line. The amortization expense is directly attributed to the Merger 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



	Three Months Ended
(Amounts in thousands)	June 29, 2019			April 29, 2018
Statement of operations data:
SG&A expense	$	(32,311	)	$	(19,993	)
Acquisition related expenses	(3,416		)	(1,073		)
Operating loss	(35,727		)	(21,066		)
Interest expense	(58,299		)	(4,849		)
Interest income	121			37
Currency transaction gain (loss)	523			(305		)
Other income (expense), net	(397		)	270
Loss on debt extinguishment	—			(21,875		)
Income tax provision (benefit)	5,346			(2,082		)

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 three months ended June 29, 2019 increased by $14.7 million or 69.6% compared to the three months ended April 29, 2018 due primarily to the addition of the Ply Gem corporate cost center, increased stock-based compensation and $3.4 million of costs associated with the Merger and integration of the legacy companies.

Interest expense increased to $58.3 million for the three months ended June 29, 2019 compared to $4.8 million for the three months ended April 29, 2018. The interest expense increase is primarily due to debt obligations assumed in the Merger. Following the consummation of the Merger, our consolidated debt balance increased to $3.3 billion at June 29, 2019 as compared to $407.2 million at October 28, 2018.

Foreign exchange gain (loss) for the three months ended June 29, 2019 was a $0.5 million gain, compared to a loss of $0.3 million for the three months ended April 29, 2018, due to exchange rate fluctuations in the Canadian dollar and Mexican peso relative to the U.S. dollar.

Loss on debt extinguishment was $0.0 million for the three months ended June 29, 2019 compared to $21.9 million for the three months ended April 29, 2018. During our second quarter of fiscal 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.

Consolidated provision (benefit) for income taxes was an expense of $5.3 million for the three months ended June 29, 2019 compared to a benefit of $2.1 million for the three months ended April 29, 2018. The effective tax rate for the three months ended June 29, 2019 was 23.4% compared to 26.8% for the three months ended April 29, 2018. The change in the effective tax rate was primarily driven by the continuing effects associated with the enactment of the U.S. Tax Cuts and Jobs Act and the inclusion of Ply Gem operations in the current period.

SIX MONTHS ENDED JUNE 29, 2019 COMPARED TO SIX MONTHS ENDED APRIL 29, 2018



	Six Months Ended
(Amounts in thousands)	June 29, 2019				April 29, 2018
Statement of operations data:
Net sales	$	905,246	100.0	%	$	878,418	100.0	%
Gross profit	211,835		23.4	%	196,000		22.3	%
SG&A expense (including acquisition costs)	123,061		13.6	%	106,668		12.1	%
Amortization of intangible assets	5,655		0.6	%	4,825		0.5	%
Operating income	83,119		9.2	%	77,821		8.9	%

Net sales increased $26.8 million, or 3.1% for the six months ended June 29, 2019 compared to the six months ended April 29, 2018. During the six months ended June 29, 2019, we continued to benefit from the pass through of higher material input costs, offset by lower tonnage volumes. The decrease in volume is primarily attributed to an acceleration of shipments in the prior year as customers were motivated to take receipt of materials in advance of material and price ~~increases. In addition to~~increases as well as indications of a slowdown in commercial construction starts during the ~~pull-forward, poor job site conditions in late~~ 2018 and early 2019, caused by extreme wet weather across the southern and southeastern portions of the United States, resulted in longer than usual lead times from our customers to the end users of our products.period.

Gross profit ~~decreased $1.5~~ increased $15.8 million or ~~1.6%~~8.1% for the ~~three~~six months ended ~~March 30,~~June 29, 2019 compared to the ~~three~~six months ended ~~January 28,~~April 29, 2018. As a percent of net sales, gross profit ~~decreased 50 basis points due to~~increased from commercial discipline around price in our longer lead time products and cost improvement initiatives, partially offset by lower leverage of fixed cost structure as a result of ~~the decreased~~decreasing tonnage ~~volume, partially offset by commercial discipline across all divisions.~~volume.

Selling, general, and administrative expenses (“SG&A”) increased ~~$3.2~~$16.4 million or ~~6.3%~~15.4% for the ~~three~~six months ended ~~March 30,~~June 29, 2019, compared to the ~~three~~six months ended ~~January 28,~~April 29, 2018 primarily due to ~~project-related expenses in support~~general and administrative costs of $13.5 million that are allocated to the Commercial segment ~~initiatives. As~~that were previously categorized as unallocated corporate costs prior to the Merger. Adjusting for these incremental general and administrative costs, as a percent of net sales, SG&A ~~increased~~was flat due to the seasonally slower winter months driving down SG&A efficiency, offset by ~~60 basis points as a result~~cost initiatives realized in the second quarter of ~~the aforementioned items.~~2019.

Amortization expense for the ~~three~~six months ended ~~March 30,~~June 29, 2019 was ~~$2.8 million or 0.7% of net sales compared to $2.4~~$5.7 million or 0.6% of net sales compared to $4.8 million or 0.5% of net sales for the ~~three~~six months ended ~~January 28,~~April 29, 2018. The amortization expense as a percentage of net sales is higher due to the amortization of trade names which were previously classified as indefinite lived.

Net sales for the ~~three~~six months ended ~~March 30,~~June 29, 2019 were ~~$218.3~~$524.8 million. Net sales for the ~~three~~six months ended ~~March 31,~~June 29, 2019 were favorably impacted by the inclusion of ~~$19.4~~$62.8 million ~~of sales~~ for ~~Environmental Stoneworks (“ESW”),~~the ESW acquisition, which closed on February 20, 2019. Excluding ESW, our net sales were ~~$198.9~~$462.0 million for the ~~three~~six months ended ~~March 30,~~June 29, 2019. Our net sales for the U.S. and Canadian markets were approximately ~~$206.9~~$492.6 million and ~~$11.4~~$32.2 million, respectively, for the ~~three~~six months ended ~~March 30,~~June 29, 2019. Our building products are typically installed on a new construction home 90 to 120 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 a normal quarterly period. For the ~~three~~six months ended ~~March 30,~~June 29, 2019, we evaluated single family housing starts in the period from September 2018 to December 2018 to assess the demand impacts for our products for the three months ended March 30, 2019 noting that single family housing starts decreased 4.1% due to inclement wet weather that existing during the period and a general softening in overall economic conditions specifically for new construction. For new construction, we also examine where these single-family housing starts occur geographically as the Northeast and Midwest are significant vinyl siding concentrated areas relative to the South and the West. In addition to new construction, we also evaluate the repair and remodeling market to assess market conditions by evaluating the Leading Indicator of Remodeling Activity (“LIRA”). For the first quarter of 2019, LIRA reflected that the trailing 12 months of remodeling activity increased from 6.5% for the first quarter of 2018 to 7.0% indicating a slight increase in the repair and remodeling market. 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, a third party which summarizes vinyl siding unit sales for the industry. As of March 30, 2019, our U.S. market position in vinyl siding was 39.5% while our share of the Canadian vinyl siding market was 29.1%. Overall, our Siding segment is heavily weighted to the repair and remodeling market with approximately 62% offoreign currency negatively impacted our net sales ~~being attributed to repair and remodeling with the remaining 38% attributed to the new construction market.~~by $2.0 million.

Gross profit for the ~~three~~six months ended ~~March 30,~~June 29, 2019 was ~~$33.2~~$118.2 million. Gross profit was negatively impacted $14.4 million by the non-cash inventory 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 ~~Environmental Stoneworks Acquisition~~ESW acquisition that closed on February 20, 2019 both of which increased costs of goods sold during the ~~three~~six months ended ~~March 30,~~June 29, 2019. Gross profit for the ~~three~~six months ended ~~March 30,~~June 29, 2019 includes ESW gross profit of ~~$3.4~~$14.6 million. Excluding ESW and the impact of these inventory step-ups, our gross profit would have been ~~$44.2~~$119.9 million for the ~~three~~six months ended ~~March 30,~~June 29, 2019. Historically, our gross profit is impacted significantly by raw material costs specifically PVC resin and aluminum. For the three months ended March 30, 2019 relative to Ply Gem’s legacy first quarter of 2018, PVC resin increased 3.3% while the Midwest Ingot price of aluminum decreased 7.8%. We have typically attempted to 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 while freight costs ~~which~~have trended higher as well due to industry driver and lane shortages and rising fuel ~~costs have been trending higher than recent years.~~costs. For the six months ended June 29, 2019, foreign currency negatively impacted our gross profit by $0.6 million.

As a percentage of net sales, our gross profit percentage was ~~22.2%~~25.9% excluding ESW and ~~this~~the fair value ~~step-up as our~~step-up. Our net sales and profitability are normally ~~lower~~higher during the ~~first~~second and ~~fourth~~third quarters due to ~~inclement~~ weather ~~in the winter months~~seasonality which ~~reduces~~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. These higher volumes combined with price discipline contributed to the 25.9% gross profit percentage.



	Operating Leases
2019 (excluding the three months ended March 30, 2019)	$	66,205
2020	77,720
2021	64,633
2022	50,669
2023	26,527
Thereafter	92,974
Total future minimum lease payments	378,728
Less: interest	81,000
Present value of future minimum lease payments	$	297,728

As of March 30, 2019
Current portion of lease liabilities	$	69,718
Long-term portion of lease liabilities	228,010
Total	$	297,728


(1)	Includes the unamortized deferred financing costs associated with the term loan facilities and senior notes. The unamortized deferred financing costs associated with the asset-based revolving credit facilities of ~~$3.0~~$2.8 million and $1.1 million as of ~~March 30,~~June 29, 2019 and October 28, 2018, respectively, are classified in other assets on the consolidated balance sheets.



	March 30, 2019
Excess availability	$	326,994
Revolving loans outstanding	220,000
Letters of credit outstanding	34,410


(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.


	Payments due by period										Payments due by period
Contractual Obligation	Total		Less than 1 year		1 – 3 years		3 – 5 years		More than 5 years		Total		Less than 1 year		1 – 3 years		3 – 5 years		More than 5 years
Total debt⁽¹⁾	$	3,407,802	$	245,620	$	51,240	$	51,240	$	3,059,702	$	3,401,397	$	245,620	$	51,240	$	51,240	$	3,053,297
Interest payments on debt⁽²⁾	1,366,557		226,665		429,861		423,152		286,879		1,270,673		220,434		419,396		412,885		217,958
Operating lease liabilities⁽³⁾	378,728		66,205		142,353		77,196		92,974		356,143		84,943		131,916		57,770		81,514
Purchase obligations⁽⁴⁾	112,275		112,275		—		—		—		64,523		64,523		—		—		—
Total	$	5,265,362	$	650,765	$	623,454	$	551,588	$	3,439,555	$	5,092,736	$	615,520	$	602,552	$	521,895	$	3,352,769


(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.


(2)	Interest payments were calculated based on the variable rate in effect at ~~March 30,~~June 29, 2019 for the Current ABL Facility (applied to the outstanding ABL balance as of ~~March 30,~~June 29, 2019) and Current Term Loan Facility, and at 8.00% on the 8.00% Senior Notes.


(3)	Lease liabilities are stated at gross payment obligations under the terms of existing lease agreements and are not reduced for the discount rate applied to the minimum lease payments that was used to calculate the minimum lease liabilities recorded under ASC 842, as represented in our consolidated balances sheets.


(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 three 2019 contracts that were finalized during 2018.



Period	(a) Total Number of Shares Purchased⁽¹⁾	(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Programs	(d) Maximum Dollar Value of Shares that May Yet be Purchased Under Publicly Programs⁽²⁾ (in thousands)
January 1, 2019 to January 26, 2019	5,624	$	7.64	—	$	55,573
January 27, 2019 to February 23, 2019	12,355	$	8.14	—	55,573
February 24, 2019 to March 30, 2019	1,734	$	7.02	—	55,573
Total	19,713	$	7.90	—



Exhibit Number		Description
*2.1 3.1		~~Unit Purchase Agreement, dated January 12, 2019 (the “Purchase Agreement”), by~~Third Amended and ~~among Environmental Materials, LLC, the Members~~Restated Certificate of ~~Environmental Materials, LLC, Charles P. Gallagher and Wayne C. Kocourek, solely in their capacity as the Seller Representative, and NCI~~Incorporation of Cornerstone Building ~~Systems,~~Brands, Inc. (filed as Exhibit ~~2.1~~3.2 to ~~NCI’s~~Cornerstone’s Current Report on Form 8-K dated ~~January 17,~~May 28, 2019 and incorporated by reference herein).
~~4.1~~3.2		~~Sixth Supplemental Indenture, dated as~~Seventh Amended and Restated By-Laws of ~~February 20, 2019, by and among NCI, the subsidiary guarantors party thereto and Wilmington Trust, National Association, as trustee~~Cornerstone Building Brands, Inc. (filed as Exhibit ~~4.1~~3.1 to ~~NCI’s~~Cornerstone’s Current Report on Form 8-K dated ~~February 20,~~May 28, 2019 and incorporated by reference herein).
*†10.1		Employment Agreement, effective June 17, 2019, between the Cornerstone Building Brands, Inc., its wholly-owned subsidiary, Ply Gem Industries, Inc., and Jeffrey S. Lee
†10.2		2003 Long-Term Stock Incentive Plan, as amended (as included in Cornerstone’s Proxy Statement on Schedule 14A dated April 22, 2019 and incorporated by reference herein)
*31.1		Rule 13a-14(a)/15d-14(a) Certifications (Section 302 of the Sarbanes-Oxley Act of 2002)
**31.2		Rule 13a-14(a)/15d-14(a) Certifications (Section 302 of the Sarbanes-Oxley Act of 2002)
***32.1		Certifications pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code (Section 906 of the Sarbanes-Oxley Act of 2002)
***32.2		Certifications pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code (Section 906 of the Sarbanes-Oxley Act of 2002)
**101.INS		~~XBRL Instance Document~~
**101.SCH		XBRL Taxonomy Extension Schema Document
**101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
**101.DEF		XBRL Taxonomy Definition Linkbase Document
**101.LAB		XBRL Taxonomy Extension Label Linkbase Document
**101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document



	*	The schedules to the Purchase Agreement have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K. The Registrant will furnish copies of such schedules to the Securities and Exchange Commission upon request by the Commission.



	***	Furnished herewith
	†	Management contracts or compensatory plans or arrangements



	~~NCI~~CORNERSTONE BUILDING ~~SYSTEMS,~~BRANDS, INC.

Date: ~~May 8,~~August 7, 2019	By:	/s/ James S. Metcalf
		James S. Metcalf
		Chairman of the Board and Chief Executive Officer


Date: ~~May 8,~~August 7, 2019	By:	/s/ ~~Shawn K. Poe~~Jeffrey S. Lee
		~~Shawn K. Poe~~Jeffrey S. Lee
		Executive Vice President and Chief Financial Officer