Cornerstone Building Brands, Inc. (Form: 10-Q, Received: 11/09/2021 17:33:44)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended: October 2, 2021


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

For the transition period from to

Commission file number: 1-14315

Cornerstone Building Brands, Inc.

(Exact name of registrant as specified in its charter)


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

5020 Weston Parkway

Suite 400

Cary

27513

(Address of principal executive offices)

(Zip Code)

(866) 419-0042

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ý Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ý No

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


Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock $0.01 par value per share	CNR	New York Stock Exchange

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, $0.01 par value - 126,218,902 shares as of November 2, 2021.

TABLE OF CONTENTS


		PAGE
	Part I — Financial Information
Item 1.	Unaudited Consolidated Financial Statements	1
	Consolidated Statements of Operations for the Three and Nine Months Ended October 2, 2021 and October 3, 2020	1
	Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended October 2, 2021 and October 3, 2020	2
	Consolidated Balance Sheets as of October 2, 2021 and December 31, 2020	3
	Consolidated Statements of Cash Flows for the Nine Months Ended October 2, 2021 and October 3, 2020	4
	Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended October 2, 2021 and October 3, 2020	5
	Notes to Unaudited Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	37
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	50
Item 4.	Controls and Procedures	51

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

PART I — FINANCIAL INFORMATION

Item 1. Unaudited Consolidated Financial Statements.

CORNERSTONE BUILDING BRANDS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)


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

See accompanying notes to consolidated financial statements.

CORNERSTONE BUILDING BRANDS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)


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

Other comprehensive income (loss)	5,159		7,548		26,612		(35,354)
Comprehensive income (loss)	$	625,694	$	38,064	$	654,419	$	(520,012)

See accompanying notes to consolidated financial statements.

CORNERSTONE BUILDING BRANDS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)


	October 2, 2021		December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	677,187	$	674,255
Restricted cash	2,211		6,223
Accounts receivable, less allowances of $11,176 and $13,313, respectively	645,298		554,649
Inventories, net	614,573		431,937
Income taxes receivable	11,611		39,379
Investments in debt and equity securities, at market	2,567		2,333
Prepaid expenses and other	119,234		77,751
Assets held for sale	3,909		4,644
Total current assets	2,076,590		1,791,171
Property, plant and equipment, less accumulated depreciation of $613,459 and $644,308, respectively	583,371		631,821
Lease right-of-use assets	278,316		264,107
Goodwill	1,326,411		1,194,729
Intangible assets, net	1,438,039		1,584,604
Deferred income taxes	2,109		1,867
Other assets, net	26,259		10,191
Total assets	$	5,731,095	$	5,478,490
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	26,000	$	25,600
Accounts payable	307,153		211,441
Accrued compensation and benefits	96,794		81,548
Accrued interest	12,722		25,485
Accrued income taxes	8,216		5,060
Current portion of lease liabilities	72,983		70,125
Other accrued expenses	294,074		247,893
Total current liabilities	817,942		667,152
Long-term debt	3,015,795		3,563,429
Deferred income taxes	248,544		269,792
Long-term lease liabilities	207,570		198,875
Other long-term liabilities	329,189		337,437
Total long-term liabilities	3,801,098		4,369,533
Stockholders’ equity:
Common stock, $0.01 par value; 200,000,000 authorized; 126,228,665 and 126,207,594 shares issued and outstanding at October 2, 2021, respectively; and 125,425,931 and 125,400,599 shares issued and outstanding at December 31, 2020, respectively	1,263		1,255
Additional paid-in capital	1,272,999		1,257,262
Accumulated deficit	(136,878)		(764,685)
Accumulated other comprehensive loss, net	(24,905)		(51,517)
Treasury stock, at cost (21,071 and 25,332 shares at October 2, 2021 and December 31, 2020, respectively)	(424)		(510)
Total stockholders’ equity	1,112,055		441,805
Total liabilities and stockholders’ equity	$	5,731,095	$	5,478,490

See accompanying notes to consolidated financial statements.


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

	Nine Months Ended
	October 2, 2021		October 3, 2020
Cash flows from operating activities:
Net income (loss)	$	627,807	$	(484,658)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	216,956		212,413
Non-cash interest expense	19,857		6,948
Share-based compensation expense	16,946		12,568
Loss on extinguishment of debt	42,234		—
Goodwill impairment	—		503,171
Asset impairment	4,091		3,490
Gain on divestitures	(831,252)		—
Loss on sale of assets, net	—		710
Provision for credit losses	2,289		3,762
Deferred income taxes	(23,441)		(27,052)
Changes in operating assets and liabilities, net of effect of acquisitions and divestitures:
Accounts receivable	(137,424)		(84,309)
Inventories	(241,068)		30,980
Income taxes	27,768		16,886
Prepaid expenses and other	(41,355)		6,246
Accounts payable	100,402		22,669
Accrued expenses	31,554		12,920
Other, net	996		132
Net cash provided by (used in) operating activities	(183,640)		236,876
Cash flows from investing activities:
Acquisitions, net of cash acquired	(331,010)		(41,841)
Capital expenditures	(75,183)		(62,535)
Proceeds from divestitures, net of cash divested	1,187,307		—
Proceeds from sale of property, plant and equipment	4,615		1,538
Net cash provided by (used in) investing activities	785,729		(102,838)
Cash flows from financing activities:
Proceeds from ABL facility	190,000		345,000
Payments on ABL facility	(190,000)		(415,000)
Proceeds from cash flow revolver	—		115,000
Payments on cash flow revolver	—		(115,000)
Proceeds from term loan	108,438		—
Payments on term loan	(19,405)		(19,215)
Proceeds from senior notes	—		500,000
Payments on senior notes	(670,800)		—
Payments of financing costs	(13,187)		(6,905)
Purchases of treasury stock	—		(6,428)
Payments on derivative financing obligations	(6,131)		—
Other	(1,300)		(478)
Net cash provided by (used in) financing activities	(602,385)		396,974
Effect of exchange rate changes on cash and cash equivalents	(784)		507
Net increase (decrease) in cash, cash equivalents and restricted cash	(1,080)		531,519
Cash, cash equivalents and restricted cash at beginning of period	680,478		102,307
Cash, cash equivalents and restricted cash at end of period	$	679,398	$	633,826
Supplemental disclosure of cash flow information:
Interest paid, net of amounts capitalized	$	149,025	$	138,325
Taxes paid, net	$	232,755	$	(1,881)

See accompanying notes to consolidated financial statements.


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

Fiscal Quarters	Common Stock			Additional Paid-In Capital		Retained Earnings (Deficit)		Accumulated Other Comprehensive Income (Loss)		Treasury Stock			Stockholders’ Equity
	Shares	Amount								Shares	Amount
Balance, July 3, 2021	126,072,088	$	1,261	$	1,265,887	$	(757,413)	$	(30,064)	(21,071)	$	(424)	$	479,247
Treasury stock purchases	—	—		—		—		—		(88,330)	(1,320)		(1,320)
Retirement of treasury shares	(88,330)	(1)		(1,319)		—		—		88,330	1,320		—
Issuance of restricted stock	238,329	2		(2)		—		—		—	—		—

Stock options exercised	6,578	1		80		—		—		—	—		81
Other comprehensive income	—	—		—		—		5,159		—	—		5,159

Share-based compensation	—	—		8,353		—		—		—	—		8,353

Net income	—	—		—		620,535		—		—	—		620,535
Balance, October 2, 2021	126,228,665	$	1,263	$	1,272,999	$	(136,878)	$	(24,905)	(21,071)	$	(424)	$	1,112,055

Balance, July 4, 2020	125,122,988	$	1,252	$	1,249,852	$	(797,081)	$	(75,300)	(25,650)	$	(511)	$	378,212
Treasury stock purchases	—	—		—		—		—		(1,635)	(11)		(11)

Issuance of restricted stock	5,816	—		—		—		—		—	—		—


Other comprehensive income	—	—		—		—		7,548		—	—		7,548

Share-based compensation	—	—		4,025		—		—		—	—		4,025

Net income	—	—		—		30,516		—		—	—		30,516
Balance, October 3, 2020	125,128,804	$	1,252	$	1,253,877	$	(766,565)	$	(67,752)	(27,285)	$	(522)	$	420,290

See accompanying notes to consolidated financial statements.


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

Fiscal Year to Date Periods	Common Stock			Additional Paid-In Capital		Retained Earnings (Deficit)		Accumulated Other Comprehensive Income (Loss)		Treasury Stock			Stockholders’ Equity
	Shares	Amount								Shares	Amount
December 31, 2020	125,425,931	$	1,255	$	1,257,262	$	(764,685)	$	(51,517)	(25,332)	$	(510)	$	441,805
Treasury stock purchases	—	—		—		—		—		(200,198)	(2,861)		(2,861)
Retirement of treasury shares	(200,198)	(2)		(2,859)		—		—		200,198	2,861		—
Issuance of restricted stock	835,259	8		(8)		—		—		—	—		—
Issuance of common stock for the Ply Gem merger	15,220	—		185		—		—		—	—		185
Stock options exercised	152,453	2		1,559		—		—		—	—		1,561
Other comprehensive income	—	—		—		—		26,612		—	—		26,612
Deferred compensation obligation	—	—		(86)		—		—		4,261	86		—
Share-based compensation	—	—		16,946		—		—		—	—		16,946

Net income	—	—		—		627,807		—		—	—		627,807
Balance, October 2, 2021	126,228,665	$	1,263	$	1,272,999	$	(136,878)	$	(24,905)	(21,071)	$	(424)	$	1,112,055

Balance, December 31, 2019	126,110,000	$	1,261	$	1,248,787	$	(281,229)	$	(32,398)	(55,513)	$	(1,103)	$	935,318
Treasury stock purchases	—	—		—		—		—		(1,168,514)	(6,906)		(6,906)
Retirement of treasury shares	(1,166,973)	(12)		(6,883)		—		—		1,166,973	6,895		—
Issuance of restricted stock	185,777	2		(2)		—		—		—	—		—


Other comprehensive loss	—	—		—		—		(35,354)		—	—		(35,354)
Deferred compensation obligation	—	1		(593)		—		—		29,769	592		—
Share-based compensation	—	—		12,568		—		—		—	—		12,568
Cumulative effect of accounting change	—	—		—		(678)		—		—	—		(678)
Net loss	—	—		—		(484,658)		—		—	—		(484,658)
Balance, October 3, 2020	125,128,804	$	1,252	$	1,253,877	$	(766,565)	$	(67,752)	(27,285)	$	(522)	$	420,290

See accompanying notes to consolidated financial statements.

CORNERSTONE BUILDING BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

October 2, 2021

(Unaudited)

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited consolidated financial statements for Cornerstone Building Brands, Inc. (together with its subsidiaries, unless otherwise indicated, the “Company,” “Cornerstone Building Brands,” “we,” “us” or “our”) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles (“GAAP”) for complete financial statements. In the opinion of management, the unaudited consolidated financial statements included herein contain all adjustments, which consist of normal recurring adjustments, necessary to fairly present the Company’s financial position, results of operations and cash flows for the periods indicated. Operating results for the period from January 1, 2021 through October 2, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2021.

Certain reclassifications have been made to the prior period amounts in the consolidated financial statements to conform to the current presentation.

For additional information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the Securities and Exchange Commission (the “SEC”) on March 4, 2021.

Reporting Periods

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

Restricted Cash

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


	October 2, 2021		December 31, 2020
Cash and cash equivalents	$	677,187	$	674,255
Restricted cash(1)	2,211		6,223
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows	$	679,398	$	680,478

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

Accounts Receivables and Related Allowance

The Company reports accounts receivable net of an allowance for expected credit losses. Trade accounts receivable are the result of sales of vinyl windows, aluminum windows, vinyl siding, metal siding, injection molded products, metal building products, metal coating, and other products and services to customers throughout the United States and Canada and affiliated territories, including international builders who resell to end users. Sales are primarily denominated in U.S. dollars. Credit sales do not normally require a pledge of collateral; however, various types of liens may be filed to enhance the collection process and we require payment prior to shipment for certain international shipments.

The Company establishes provisions for expected credit losses based on the Company’s assessment of the collectability of amounts owed to us by our customers. Such provisions are included in selling, general and administrative expenses. In establishing these reserves, the Company considers changes in the financial position of a customer, age of the accounts receivable balances, availability of security, unusual macroeconomic conditions, lien rights and bond rights as well as disputes, if any, with our customers. Our allowance for credit losses reflects reserves for customer receivables to reduce receivables to amounts expected to be collected. Interest on delinquent accounts receivable is included in the trade accounts receivable balance and recognized as interest income when earned and collectability is reasonably assured. Uncollectible accounts are written off when a settlement is reached for an amount that is less than the outstanding historical balance, all collection efforts have been exhausted, and/or any legal action taken by the Company has concluded.

The following table represents the rollforward of the allowance for credit losses for the periods indicated (in thousands):


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

(1)Cumulative effect of accounting change reflects the modified retrospective effect of adopting ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.

Net Sales

The Company enters into contracts that pertain to products, which are accounted for as separate performance obligations and are typically one year or less in duration. Given the nature of the Company's sales arrangements, we are not required to exercise significant judgment in determining the timing for the satisfaction of performance obligations or the transaction price. Revenue is measured as the amount of consideration expected to be received in exchange for our products. Revenue is generally recognized when the product has shipped from our facility and control has transferred to the customer. For a portion of our business, when we process customer owned material, control is deemed to transfer to the customer as the processing is being completed.

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

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

In accordance with certain contractual arrangements, we receive payment from our customers in advance related to performance obligations that are to be satisfied in the future and recognize such payments as deferred revenue, primarily related to the Company’s weathertightness warranties (see Note 12 — Warranty).

A portion of the Company’s revenue, exclusively within the Commercial segment, includes multiple-element revenue arrangements due to multiple deliverables. Each deliverable is generally determined based on customer-specific manufacturing and delivery requirements. Because the separate deliverables have value to the customer on a stand-alone basis, they are typically considered separate units of accounting. A portion of the entire job order value is allocated to each unit of accounting. Revenue allocated to each deliverable is recognized upon shipment. The Company uses estimated selling price (“ESP”) based on underlying cost plus a reasonable margin to determine how to separate multiple-element revenue arrangements into separate units of accounting, and how to allocate the arrangement consideration among those separate units of accounting. The Company determines ESP based on normal pricing and discounting practices.

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


	Three Months Ended				Nine Months Ended
	October 2, 2021		October 3, 2020		October 2, 2021		October 3, 2020
Windows Net Sales Disaggregation:
Vinyl windows	$	562,097	$	465,472	$	1,607,704	$	1,283,337
Aluminum windows	22,420		22,056		64,336		61,338
Other	11,969		13,786		31,453		33,364
Total	$	596,486	$	501,314	$	1,703,493	$	1,378,039

Siding Net Sales Disaggregation:
Vinyl siding	$	182,019	$	146,585	$	508,121	$	387,559
Metal	70,667		75,477		221,260		192,567
Injection molded	19,131		20,460		58,420		49,556
Stone	23,025		20,988		66,659		61,999
Other products & services(1)	63,028		58,388		181,988		156,509
Total	$	357,870	$	321,898	$	1,036,448	$	848,190

Commercial Net Sales Disaggregation:
Metal building products(2)	$	395,869	$	281,339	$	1,014,663	$	842,863
Insulated metal panels(3)	32,934		89,088		208,220		260,410
Metal coil coating	61,246		33,614		148,734		96,498
Total	$	490,049	$	404,041	$	1,371,617	$	1,199,771

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

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

(2)The Company’s roll-up sheet doors (“DBCI”) business is only included in the results of operations through August 17, 2021 as a result of divestiture. See Note 8 — Assets and Liabilities Held for Sale and Divestitures for more information.

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

NOTE 2 — ACCOUNTING PRONOUNCEMENTS

Adopted Accounting Pronouncements

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

Recent Accounting Pronouncements

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

NOTE 3 — ACQUISITIONS

2021 Acquisitions

Cascade Windows

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

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


Assets acquired:
Cash	$	2,838
Accounts receivable	15,663
Other receivables	409
Inventories	15,644
Prepaid expenses and other current assets	1,538
Property, plant and equipment	15,561
Lease right of use assets	19,335

Goodwill	220,428
Other assets	500
Total assets acquired	291,916
Liabilities assumed:
Accounts payable	17,680
Accrued expenses	7,673
Deferred income taxes	2,491
Current portion of lease liability	247
Other current liabilities	215
Non-current portion of lease liabilities	19,926
Other long-term liabilities	4,220
Total liabilities assumed	52,452
Net assets acquired	$	239,464

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

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

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

Prime Windows

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


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

Lease liabilities	2,637

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

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

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

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

2020 Acquisition

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

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


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

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


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

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

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

Unaudited Pro Forma Financial Information

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


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

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

NOTE 4 — RESTRUCTURING

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


	Three Months Ended		Nine Months Ended		Costs Incurred to Date
	October 2, 2021		October 2, 2021		(Since inception)
Severance	$	646	$	3,125	$	39,356
Asset impairments	103		4,091		11,959
Gain on sale of facilities, net	—		—		(1,298)
Other restructuring costs	222		245		9,781
Total restructuring costs	$	971	$	7,461	$	59,798

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

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


	Windows		Siding		Commercial		Corporate		Total
Balance, December 31, 2018	$	—	$	85	$	—	$	2,333	$	2,418
Costs incurred	1,094		1,834		2,721		4,009		9,658
Cash payments	(676)		(1,437)		(2,721)		(4,579)		(9,413)
Balance, December 31, 2019	$	418	$	482	$	—	$	1,763	$	2,663
Costs incurred	4,294		2,705		16,561		3,013		26,573
Cash payments	(4,406)		(2,352)		(14,570)		(4,346)		(25,674)
Balance, December 31, 2020	$	306	$	835	$	1,991	$	430	$	3,562
Costs incurred	932		264		1,772		157		3,125
Cash payments	(1,196)		(933)		(2,241)		(587)		(4,957)
Balance, October 2, 2021	$	42	$	166	$	1,522	$	—	$	1,730

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

NOTE 5 — GOODWILL

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


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


Currency translation	303		224		—		527

Balance, October 2, 2021	$	649,824	$	655,167	$	21,420	$	1,326,411

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

NOTE 6 — INVENTORIES

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


	October 2, 2021		December 31, 2020
Raw materials	$	373,034	$	241,353
Work in process and finished goods	241,539		190,584
Total inventory	$	614,573	$	431,937

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

NOTE 7 — INTANGIBLES

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


	Range of Life (Years)			Weighted Average Amortization Period (Years)	Cost		Accumulated Amortization		Net Carrying Value
As of October 2, 2021
Amortized intangible assets:
Trademarks/Trade names/Other	3	–	15	7	$	233,067	$	(69,885)	$	163,182
Customer lists and relationships	7	–	20	9	1,716,511		(441,654)		1,274,857
Total intangible assets				9	$	1,949,578	$	(511,539)	$	1,438,039

As of December 31, 2020
Amortized intangible assets:
Trademarks/Trade names/Other	5	–	15	8	$	248,155	$	(51,722)	$	196,433
Customer lists and relationships	7	–	20	9	1,758,611		(370,440)		1,388,171
Total intangible assets				9	$	2,006,766	$	(422,162)	$	1,584,604

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


2021 (excluding the nine months ended October 2, 2021)	$	45,517
2022	181,916
2023	181,904
2024	181,246
2025	181,136

NOTE 8 — ASSETS AND LIABILITIES HELD FOR SALE AND DIVESTITURES

On August 9, 2021, the Company completed the sale of its IMP business for cash proceeds of $1.0 billion. On August 18, 2021, the Company completed the sale of its DBCI business for cash proceeds of $168.9 million. The IMP and DBCI businesses were within the Company’s Commercial segment and their assets and liabilities were presented as held for sale as of July 3, 2021. For the three and nine months ended October 2, 2021, the Company recognized a pre-tax gain of $679.8 million for the IMP divestiture and $151.5 million for the DBCI divestiture, which are included in gain on divestitures in the consolidated statements of operations. As part of the consideration received for the sale of the IMP business, we entered into a short-term agreement to supply steel to Nucor for the IMP business and deferred approximately $15.5 million, which was recorded in other accrued expenses on the consolidated balance sheet, for the estimated fair value of this agreement (representing a Level 3 fair value measurement). The deferred revenue will be amortized into net sales on a straight-line basis over the term of the agreement, which terminates in December 2021. For the three and nine months ended October 2, 2021, we amortized $6.2 million to net sales related to this agreement. For the three and nine months ended October 2, 2021, the Company incurred $17.9 million and $21.3 million, respectively, of divestiture-related costs, which are recorded in strategic development and acquisition related costs in the Company’s consolidated statements of operations. The divested businesses did not represent strategic shifts that have a major effect on our operations and financial results, so they were not presented as discontinued operations.

The total carrying value of assets held for sale was $3.9 million and $4.6 million as of October 2, 2021 and December 31, 2020, respectively. Assets held for sale at October 2, 2021 are actively marketed for sale. In determining the fair value of the real property assets less cost 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. During the nine months ended October 2, 2021, the Company completed the sale of certain real property assets resulting in approximately $4.6 million in net proceeds and immaterial losses from the transactions.

Our assumptions about property sales prices require significant judgment because the current market is highly sensitive to changes in economic conditions. We determined the estimated fair values of real property assets held for sale based on current market conditions and assumptions made by management, which may differ from actual results and may result in impairments if market conditions deteriorate.

NOTE 9 — LEASES

The Company leases certain manufacturing, warehouse and distribution locations, vehicles and equipment, including fleet vehicles. Many of these leases have options to terminate prior to or extend beyond the end of the term. The exercise of the majority of lease renewal options is at the Company’s sole discretion. Some lease agreements have variable payments, the majority of which are real estate agreements in which future increases in rent are based on an index. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. The Company accounts for lease and non-lease components as a single lease component for all leases other than leases of durable tooling. The Company excludes leases with an initial term of 12 months or less from the consolidated balance sheets and recognizes related lease payments in the consolidated statements of operations on a straight-line basis over the lease term.

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

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

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


Weighted-average remaining lease term	5.9 years
Weighted-average IBR	5.82	%

Operating lease costs were as follows (in thousands):


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

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

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


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

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

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


	Operating Leases
2021 (excluding the nine months ended October 2, 2021)	$	17,972
2022	81,817
2023	56,245
2024	43,479
2025	36,384
Thereafter	98,707
Total future minimum lease payments	334,604
Less: interest	54,051
Present value of future minimum lease payments	$	280,553

As of October 2, 2021
Current portion of lease liabilities	72,983
Long-term portion of lease liabilities	207,570
Total	$	280,553

NOTE 10 — SHARE-BASED COMPENSATION

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

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

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

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

Vesting of the PSUs granted as part of the Founders Awards is contingent upon the achievement of synergies captured from the Merger and continued employment. Based on achieved synergies during the period comprising the two fiscal years ended December 31, 2020, the Founders Awards will vest at 200% of target amounts, subject to continuing employment through the requisite service period ending on November 16, 2021. Vesting of the PSUs granted under the 2003 Incentive Plan during the nine months ended October 2, 2021 and October 3, 2020 are contingent upon achievement of a cumulative three-year EBITDA growth target with an additional modifier based on total shareholder return. The grant-date fair values of the PSUs granted during the nine months ended October 2, 2021 and October 3, 2020 were determined by Monte Carlo simulations.

Stock option awards

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

Restricted stock units and performance share units

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

Share-based compensation expense

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

NOTE 11 — EARNINGS PER COMMON SHARE

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


	Three Months Ended				Nine Months Ended
	October 2, 2021		October 3, 2020		October 2, 2021		October 3, 2020
Numerator for Basic and Diluted Earnings Per Common Share
Net income (loss) applicable to common shares	$	612,155	$	30,028	$	619,970	$	(484,658)
Denominator for Basic and Diluted Earnings Per Common Share
Weighted average basic number of common shares outstanding	126,159		125,100		125,840		125,655
Common stock equivalents:
Employee stock options	920		189		762		—
PSUs and Performance Share Awards	—		—		—		—
Weighted average diluted number of common shares outstanding	127,079		125,289		126,602		125,655

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

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

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

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

NOTE 12 — WARRANTY

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

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


	Nine Months Ended
	October 2, 2021		October 3, 2020
Beginning balance	$	216,230	$	216,173
Acquisitions	6,464		109
Divestiture	(2,245)		—
Warranties sold	1,597		1,885
Revenue recognized	(2,043)		(2,054)
Expense	22,856		23,257
Settlements	(23,978)		(22,645)
Ending balance	218,881		216,725
Less: current portion	29,523		27,201
Total warranty, less current portion	$	189,358	$	189,524

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

NOTE 13 — DEFINED BENEFIT PLANS

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

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

Ply Gem Pension Plans — As a result of the Merger 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 Coil Coating Benefit Plans, the Ply Gem Plan and the MW Plan collectively as the “Defined Benefit Plans” in this Note.

The following tables set forth the components of the net periodic benefit cost, before tax for the periods indicated (in thousands):


	Defined Benefit Plans
	Three Months Ended				Nine Months Ended
	October 2, 2021		October 3, 2020		October 2, 2021		October 3, 2020
Service cost	$	14	$	11	$	41	$	34
Interest cost	635		802		1,906		2,405
Expected return on assets	(1,360)		(1,398)		(4,079)		(4,193)
Amortization of prior service cost	17		16		49		47
Amortization of net actuarial loss	104		753		312		2,256
Net periodic benefit (income) cost	$	(590)	$	184	$	(1,771)	$	549

	OPEB Plans
	Three Months Ended				Nine Months Ended
	October 2, 2021		October 3, 2020		October 2, 2021		October 3, 2020
Service cost	$	4	$	4	$	13	$	13
Interest cost	44		59		133		178


Amortization of net actuarial loss	18		27		53		81
Net periodic benefit cost	$	66	$	90	$	199	$	272

We expect to contribute $3.2 million to the Defined Benefit Plans and $0.7 million to OPEB Plans in the year ending December 31, 2021. Our policy is to fund the Coil Coating Benefit Plans as required by minimum funding standards of the Internal Revenue Code. The contributions to the OPEB Plans by retirees vary from none to 25% of the total premiums paid.

NOTE 14 — LONG-TERM DEBT

Debt is comprised of the following (in thousands):


	October 2, 2021		December 31, 2020

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

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

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

Term Loan Facility due April 2028 and Cash Flow Revolver

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

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

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

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

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

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

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

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


	October 2, 2021
Interest rate	3.75	%
Effective interest rate	4.02	%

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

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

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

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

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

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

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

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

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

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

ABL Facility due April 2026

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

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

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

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

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

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

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


	October 2, 2021
Excess availability	$	564,442
Revolving loans outstanding	—
Letters of credit outstanding	40,925

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

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

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

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

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

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

6.125% Senior Notes due January 2029

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

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

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

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

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

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

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

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

Redemption of 8.00% Senior Notes

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

Debt Covenants

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

NOTE 15 — DERIVATIVES

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

Interest Rate Swaps

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

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

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

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

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

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

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

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


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

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

Our interest rate swap agreements, excluding the portion treated as debt, are recognized at fair value in the consolidated balance sheets and are valued using pricing models that rely on market observable inputs such as yield curve data, which are classified as Level 2 inputs within the fair value hierarchy.

Foreign Currency Hedging Contracts

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

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

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

qualify as effective are immediately recognized in earnings. As of October 2, 2021, the Company had a hedge asset of approximately $0.2 million and a gain of approximately $0.2 million in accumulated other comprehensive loss on the consolidated balance sheets. No hedge liability or asset or deferred gain or loss in accumulated other comprehensive loss existed as of December 31, 2020 related to the forward contracts.

Fair Values of Derivatives on the Consolidated Balance Sheets

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


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

Derivatives designated as hedging instruments	Financial statement line item
Interest rate swaps	Other accrued expenses(3)	$	—	$	13,127	$	—	$	—
	Other long-term liabilities(4)	—		48,386		—		75,770
Foreign currency contracts	Other accrued expenses	—		—		—		—
	Other long-term liabilities	—		(202)		—		—
Total		$	—	$	61,311	$	—	$	75,770

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

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

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

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

Effect of Derivatives on the Consolidated Statements of Operations

The effect of our derivatives and their presentation on the consolidated statements of operations for the three and nine months ended October 2, 2021 and October 3, 2020 were as follows (in thousands):


		Three Months Ended				Nine Months Ended
		October 2, 2021		October 3, 2020		October 2, 2021		October 3, 2020
Derivatives not designated as hedging instruments	Financial statement line item
Interest rate swaps	Interest expense(1)	$	7,288	$	—	$	13,957	$	—
Foreign currency contracts	Cost of sales	339		—		853		—

Derivatives designated as hedging instruments
Interest rate swaps	Interest expense	2,540		7,462		13,422		16,644
		$	10,167	$	7,462	$	28,232	$	16,644

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

NOTE 16 — CD&R INVESTOR GROUP

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

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

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

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

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

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

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

NOTE 17 — STOCK REPURCHASE PROGRAM

The Company announced that its Board of Directors authorized new stock repurchase programs for the repurchase of up to $50.0 million of the Company’s outstanding Common Stock on October 10, 2017 and March 7, 2018, for a cumulative total of $100.0 million. Under these repurchase programs, the Company is authorized to repurchase shares at times and in amounts that it deems appropriate in accordance with all applicable securities laws and regulations. Shares repurchased pursuant to the repurchase programs are usually retired. There is no time limit on the duration of the programs. Following repurchases made during the three months ended July 4, 2020, no authorized amount remained available under the program announced on October 10, 2017.

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

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

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

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

Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, restricted cash, trade accounts receivable and accounts payable approximate fair value as of October 2, 2021 and December 31, 2020, 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 October 2, 2021, there were no borrowings outstanding under the Current ABL Facility and no outstanding indebtedness under the Current Cash Flow Revolver. The fair values of the remaining financial instruments not currently recognized at fair value on our consolidated balance sheets at the respective period ends were (in thousands):


	October 2, 2021				December 31, 2020
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Term Loan Facility	$	2,587,000	$	2,578,929	$	2,497,967	$	2,485,477
8.00% Senior Notes	—		—		645,000		674,025
6.125% Senior Notes	500,000		527,500		500,000		530,000

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

Fair Value Measurements

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

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

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

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

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

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

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

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

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

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

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


	October 2, 2021
	Level 1		Level 2		Level 3		Total
Assets:
Short-term investments in deferred compensation plan(1):
Money market	$	37	$	—	$	—	$	37
Mutual funds – Growth	549		—		—		549
Mutual funds – Blend	1,380		—		—		1,380
Mutual funds – Foreign blend	450		—		—		450
Mutual funds – Fixed income	—		151		—		151
Total short-term investments in deferred compensation plan(2)	2,416		151		—		2,567
Interest rate swap assets(3)	—		17,140		—		17,140
Total assets	$	2,416	$	17,291	$	—	$	19,707

Liabilities:
Deferred compensation plan liability(2)	$	—	$	2,561	$	—	$	2,561
Foreign currency hedges	—		(202)		—		(202)
Interest rate swap liabilities(4)	—		78,653		—		78,653
Total liabilities	$	—	$	81,012	$	—	$	81,012


	December 31, 2020
	Level 1		Level 2		Level 3		Total
Assets:
Short-term investments in deferred compensation plan(1):
Money market	$	349	$	—	$	—	$	349
Mutual funds – Growth	487		—		—		487
Mutual funds – Blend	1,006		—		—		1,006
Mutual funds – Foreign blend	338		—		—		338
Mutual funds – Fixed income	—		153		—		153
Total short-term investments in deferred compensation plan(2)	2,180		153		—		2,333

Total assets	$	2,180	$	153	$	—	$	2,333

Liabilities:
Deferred compensation plan liability(2)	$	—	$	2,339	$	—	$	2,339
Interest rate swap liabilities	—		75,770		—		75,770
Total liabilities	$	—	$	78,109	$	—	$	78,109

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

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

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

(4)The balance as of October 2, 2021 includes $61.5 million related to the financing component of pay-fixed interest rate swaps and $17.1 million related to pay-fixed May 2019 active interest rate swaps which have been de-designated as cash flow hedges.

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


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

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

NOTE 19 — INCOME TAXES

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

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

Valuation allowance

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

Unrecognized tax benefits

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

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

CARES Act

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

NOTE 20 — SEGMENT INFORMATION

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

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

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

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


	Three Months Ended				Nine Months Ended
	October 2, 2021		October 3, 2020		October 2, 2021		October 3, 2020
Net sales:
Windows	$	596,486	$	501,314	$	1,703,493	$	1,378,039
Siding	357,870		321,898		1,036,448		848,190
Commercial	490,049		404,041		1,371,617		1,199,771
Total net sales	$	1,444,405	$	1,227,253	$	4,111,558	$	3,426,000
Operating income (loss):
Windows	$	15,756	$	37,295	$	83,901	$	(252,794)
Siding	46,108		45,313		127,019		(92,916)
Commercial	908,458		56,137		1,003,373		109,642
Corporate	(59,596)		(34,766)		(151,549)		(101,819)
Total operating income (loss)	910,726		103,979		1,062,744		(337,887)
Unallocated other expense, net	(44,593)		(50,402)		(189,611)		(159,056)
Income (loss) before taxes	$	866,133	$	53,577	$	873,133	$	(496,943)

					October 2, 2021		December 31, 2020
Total assets:
Windows					$	2,076,604	$	1,717,032
Siding					2,120,543		2,123,615
Commercial					516,366		890,380
Corporate					1,017,582		747,463
Total assets					$	5,731,095	$	5,478,490

NOTE 21 — CONTINGENCIES

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

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

Environmental

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

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

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

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

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

Litigation

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

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

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

On August 25, 2021, the parties to the case filed a Stipulation of Compromise and Settlement (“Stipulation”) setting forth their agreement to settle the litigation. The Stipulation remains subject to court approval, and the court has scheduled a hearing to consider the Stipulation on January 19, 2022. The Stipulation provides for CD&R, CD&R Fund VIII, and the eight director defendants to cause their respective insurers to pay a total of $100 million into an escrow account that will be used to pay escrow expenses, satisfy any fee and incentive amounts awarded by the court in favor of plaintiff and plaintiff’s counsel, and distribute the remaining funds to the Company. The Stipulation further provides that plaintiff’s counsel intends to seek attorneys’ fees and litigation expenses in an amount no greater than 23.5% of the $100 million payment by the insurers, and that any incentive award for the plaintiff will be paid solely from the amount of attorneys’ fees awarded.

Other contingencies

The Company’s imports of fabricated structural steel (“FSS”) from its Mexican affiliate, Building Systems de Mexico S.A. de C.V. (“BSM”) were subject to antidumping (“AD”) and countervailing duty (“CVD”) tariff proceedings before the U.S. Department of Commerce (“DOC”) and the U.S. International Trade Commission (“USITC”). The proceedings were initiated in February 2019 by the American Institute of Steel Construction against FSS being imported into the USA from Mexico, Canada, and China. In 2019, the DOC issued preliminary tariff rates and in 2020 finalized CVD and AD tariff rates of 0% and 8.47%, respectively, for the Company’s imports of FSS from BSM. However, in February 2020, in a 3 to 2 vote, the USITC concluded there was no injury or threat of injury to the domestic FSS industry. In March 2020 the USITC opinion was published in the Federal Register, ceasing the Company’s requirement to pay the AD and CVD tariffs. The Company received full reimbursement for the $4.1 million in tariffs previously deposited with United States Customs and Border Protection and recorded a reduction in costs of sales during the fiscal year ended December 31, 2020. This matter was appealed and, on September 22, 2021, the U.S. Court of International Trade (“CIT”) issued an opinion upholding the USITC’s determination that there was no injury or threat of injury to the domestic FSS industry caused by the cumulated imports of FSS from Mexico, Canada, and China. The CIT decision is subject to further appeal to the U.S. Court of Appeals for the Federal Circuit and would have preclusive effect only with respect to the proceedings involving China, because the USITC’s determination as it applies to imports of FSS from Mexico has been appealed to a separate tribunal established pursuant to the North American Free Trade Agreement. However, because the CIT decision addresses the USITC’s analysis of cumulated imports of FSS from Mexico, Canada, and China, the court’s opinion may be persuasive in the appeal of the USITC’s determination as it applies to imports of FSS from Mexico.

NOTE 22 — SUBSEQUENT EVENTS

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

CORNERSTONE BUILDING BRANDS, INC.

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

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

FORWARD LOOKING STATEMENTS

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

•industry cyclicality;

•seasonality of the business and adverse weather conditions;

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

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

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

•increasing difficulty in credit or financing availability of consumers or builders;

•increase in inflationary activity;

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

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

•ability to successfully integrate our acquired businesses;

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

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

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

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

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

•our ability to retain and replace key personnel;

•enforcement and obsolescence of our intellectual property rights;

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

•competitive activity and pricing pressure in our industry;

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

•our ability to fund acquisitions using available liquidity;

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

•global climate change, including legal, regulatory or market responses thereto;

•breaches of our information system security measures;

•damage to our computer infrastructure and software systems;

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

•potential personal injury, property damage or product liability claims or other types of litigation;

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

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

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

•ability to compete effectively against competitors with substitutable products;

•additional costs from new regulations which relate to the utilization or manufacturing of our products or services;

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

•volatility of the Company’s stock price;

•substantial governance and other rights held by the Investors;

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

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

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

•our ability to obtain financing on acceptable terms;

•downgrades of our credit ratings;

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

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

A forward-looking statement may include a statement of the assumptions or bases underlying the forward-looking statement. We believe that we have chosen these assumptions or bases in good faith and that they are reasonable. However, we caution you that assumed facts or bases almost always vary from actual results, and the differences between assumed facts or bases and actual results can be material, depending on the circumstances. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this report, including those described under the caption “Risk Factors” in this report and the 2020 Form 10-K, and other risks described in documents subsequently filed by the Company from time to time with the SEC. We expressly disclaim any obligations to release publicly any updates or revisions to these forward-looking statements to reflect any changes in our expectations unless the securities laws require us to do so.

OVERVIEW

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

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

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

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

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

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

Acquisitions and Divestitures

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

On April 30, 2021, the Company acquired Prime Windows LLC (“Prime Windows”) for total consideration of $93.0 million, exclusive of a $2.0 million working capital adjustment which has not been finalized as of October 2, 2021. This acquisition was funded through borrowings under the Company’s existing credit facilities. Prime Windows’ results are reported within the Windows segment as of the acquisition date. On August 20, 2021, the Company completed its acquisition of Cascade Windows, Inc. (“Cascade Windows”) for $239.5 million in cash. This acquisition was funded through cash available on the balance sheet. The Company reports Cascade Windows’ results within the Windows segment as of the acquisition date.

Markets We Serve

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

Cornerstone Building Brands is deeply committed to the communities where our customers and employees live, work and play. We recognize that our customers are increasingly environmentally conscious in their purchasing behavior, and we aim to offer sustainable solutions to address these evolving consumer preferences. For example, certain products in our portfolio are high in recycled end content, virtually 100% recyclable at the end of their useful life and often manufactured to meet or exceed specified sustainability targets, such as windows with ENERGY STAR and LEED certifications. We recognize that efficient use of recycled materials helps to conserve natural resources and reduces environmental impact, and we are committed to offering these sustainable products to our customers.

RESULTS OF OPERATIONS

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


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

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

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

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

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

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

Strategic development and acquisition related costs increased $14.3 million and $12.0 million during the three and nine months ended October 2, 2021, respectively, compared to the three and nine months ended October 3, 2020, due to the timing of these activities, primarily related to the IMP divestiture.

Interest expense decreased $7.8 million or 15.1% and $11.1 million or 7.0% in the three and nine months ended October 2, 2021, respectively, as compared to the three and nine months ended October 3, 2020, primarily as a result of the redemption of the $645 million 8.00% Senior Notes coupled with the refinancing of the Current Term Loan Facility.

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

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

Net income (loss) was $620.5 million or $4.82 per diluted share and $627.8 million or $4.90 per diluted share for the three and nine months ended October 2, 2021, respectively.

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

Segment Results of Operations

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

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

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

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

NON-GAAP FINANCIAL MEASURES

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

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

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


	Three Months Ended October 2, 2021						Three Months Ended October 3, 2020
(Amounts in thousands)	Reported		Acquisitions and Divestitures		Pro Forma		Reported		Acquisitions and Divestitures		Pro Forma
Net Sales
Windows	$	596,486	$	23,577	$	620,063	$	501,314	$	54,439	$	555,753
Siding	357,870		—		357,870		321,898		—		321,898
Commercial	490,049		(39,970)		450,079		404,041		(93,655)		310,386
Total Net Sales	$	1,444,405	$	(16,393)	$	1,428,012	$	1,227,253	$	(39,216)	$	1,188,037

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

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


Consolidated

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

Operating income (loss), GAAP	$	910,726		$	103,979		$	1,062,744		$	(337,887)
Restructuring and impairment charges, net	971			2,918			7,461			32,321
Strategic development and acquisition related costs	22,250			7,909			25,502			13,550
Gain on divestitures	(831,252)			—			(831,252)			—
Goodwill impairment	—			—			—			503,171
Depreciation and amortization	71,055			71,933			216,956			212,413
Other (2)	9,547			6,588			30,337			25,089
Adjusted EBITDA	183,297			193,327			511,748			448,657

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

(1)Reflects the acquisition impact from January 1, 2020 of the net sales and Adjusted EBITDA of Kleary through March 1, 2020, Prime Windows through April 29, 2021 and Cascade Windows through August 19, 2021; and reflects the impact from January 1, 2020 of the divestitures of IMP and DBCI through the divestiture dates of August 9, 2021 and August 18, 2021, respectively.

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

Operating income (loss) for the three months ended October 2, 2021 increased to $910.7 million as compared to $104.0 million for the three months ended October 3, 2020, primarily due to the gain on the sales of the IMP and DBCI businesses of $831.3 million. Disciplined price actions more than offset inflationary impacts by approximately $69 million and were partially reduced by manufacturing inefficiencies experienced as a result of raw material constraints and labor shortages and higher SG&A expense primarily driven by return of near-term costs. Restructuring and impairment charges were also lower versus prior year periods. Strategic development charges were higher than prior year periods due primarily to the IMP divestiture. Operating income for the nine months ended October 2, 2021 increased to $1,062.7 million as compared to an operating loss of $337.9 million in the nine months ended October 3, 2020 primarily as a result of the gain on the sales of the IMP and DBCI businesses of $831.3 million and goodwill impairment of $503.2 million in the comparable period.

Pro forma Adjusted EBITDA for the three months ended October 2, 2021 was $181.6 million or 12.7% of pro forma net sales, a decrease of 210 basis points from the pro forma period a year ago. On a year-to-date basis, pro forma Adjusted EBITDA as a percentage of pro forma net sales increased 30 basis points versus the comparable period. The improvement was driven by strong residential demand and price actions offsetting inflationary impacts partially reduced by manufacturing inefficiencies, as a result of the challenges brought on by supply chain disruptions and labor constraints and higher SG&A costs.


Windows

	Three Months Ended						Nine Months Ended
(Amounts in thousands)	October 2, 2021			October 3, 2020			October 2, 2021			October 3, 2020
Net Sales	$	596,486		$	501,314		$	1,703,493		$	1,378,039
Impact of acquisitions(1)	23,577			54,439			132,142			147,950
Pro forma net sales	$	620,063		$	555,753		$	1,835,635		$	1,525,989

Operating income (loss), GAAP	$	15,756		$	37,295		$	83,901		$	(252,794)
Restructuring and impairment charges, net	258			1,539			1,213			7,189
Strategic development and acquisition related costs	831			—			2,145			16
Goodwill impairment	—			—			—			320,990
Depreciation and amortization	34,876			30,644			97,848			90,679
Other	38			1,168			(36)			6,060
Adjusted EBITDA	$	51,759		$	70,646		$	185,071		$	172,140

Impact of acquisitions(1)	1,588			7,499			15,315			17,097
Pro Forma Adjusted EBITDA	$	53,347		$	78,145		$	200,386		$	189,237
Adjusted EBITDA as a % of Net Sales	8.7		%	14.1		%	10.9		%	12.5		%
Pro Forma Adjusted EBITDA as a % of Pro Forma Net Sales	8.6		%	14.1		%	10.9		%	12.4		%

(1)Reflects the impact from January 1, 2020 of the net sales and Adjusted EBITDA of Prime Windows through April 29, 2021 and Cascade Windows through August 19, 2021.

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

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

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

Pro forma Adjusted EBITDA for the three months ended October 2, 2021 was $53.3 million or 8.6% of pro forma net sales, a decrease of 550 basis points from the pro forma period a year ago. Pro forma Adjusted EBITDA decreased 31.7% over the prior year quarter, primarily due to manufacturing inefficiencies discussed above. On a year-to-date basis, pro forma net sales increased 20.3%, and pro forma Adjusted EBITDA increased 5.9%.


Siding

	Three Months Ended						Nine Months Ended
(Amounts in thousands)	October 2, 2021			October 3, 2020			October 2, 2021			October 3, 2020
Net Sales	$	357,870		$	321,898		$	1,036,448		$	848,190
Impact of acquisition(1)	—			—			—			8,358
Pro forma net sales	$	357,870		$	321,898		$	1,036,448		$	856,548

Operating income (loss), GAAP	$	46,108		$	45,313		$	127,019		$	(92,916)
Restructuring and impairment charges, net	133			(714)			287			2,901
Strategic development and acquisition related costs	(50)			7,139			(2,894)			8,115
Goodwill impairment	—			—			—			176,774
Depreciation and amortization	29,084			28,547			87,441			85,068
Other	(45)			(1,191)			(64)			(841)
Adjusted EBITDA	75,230			79,094			$	211,789		$	179,101

Impact of acquisition(1)	—			—			—			1,869
Pro Forma Adjusted EBITDA	$	75,230		$	79,094		$	211,789		$	180,970
Adjusted EBITDA as a % of Net Sales	21.0		%	24.6		%	20.4		%	21.1		%
Pro Forma Adjusted EBITDA as a % of Pro Forma Net Sales	21.0		%	24.6		%	20.4		%	21.1		%

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

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

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

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


Commercial

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

Operating income, GAAP	$	908,458		$	56,137		$	1,003,373		$	109,642
Restructuring and impairment charges, net	2,673			1,358			5,719			20,427
Strategic development and acquisition related costs	2,263			(8)			3,095			(262)
Gain on divestitures	(831,252)			—			(831,252)			—
Goodwill impairment	—			—			—			5,407
Depreciation and amortization	7,012			11,743			29,015			33,664
Other	396			1,108			524			3,967
Adjusted EBITDA	89,550			70,338			210,474			172,845

Impact of divestitures(1)	(3,298)			(25,383)			(23,268)			(60,057)
Pro Forma Adjusted EBITDA	$	86,252		$	44,955		$	187,206		$	112,788
Adjusted EBITDA as a % of Net Sales	18.3		%	17.4		%	15.3		%	14.4		%
Pro Forma Adjusted EBITDA as a % of Pro Forma Net Sales	19.2		%	14.5		%	16.4		%	12.3		%

(1)Reflects the net adjustments of IMP and DBCI from January 1, 2020 through the divestiture dates of August 9, 2021 and August 18, 2021, respectively.

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

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

Pro forma Adjusted EBITDA for the three months ended October 2, 2021 was $86.3 million or 19.2% of net sales, an improvement of 470 basis points from the same period a year ago primarily due to favorable price mix net of commodity and other inflation impacts of $49 million, partially offset by manufacturing inefficiencies caused by material constraints and higher SG&A costs together totaling $16 million. On a year-to-date basis, pro forma net sales increased 24.2%, and pro forma Adjusted EBITDA increased 66.0%.

Unallocated Operating Losses


	Three Months Ended				Nine Months Ended
(Amounts in thousands)	October 2, 2021		October 3, 2020		October 2, 2021		October 3, 2020
Statements of operations data:
SG&A expenses	$	(40,390)	$	(33,988)	$	(128,393)	$	(96,122)
Strategic development and acquisition related costs	(19,206)		(778)		(23,156)		(5,697)
Operating loss	(59,596)		(34,766)		$	(151,549)	$	(101,819)

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 October 2, 2021 increased by $24.8 million or 71.4% compared to the three months ended October 3, 2020, and the unallocated operating loss for the nine months ended October 2, 2021 increased by $49.7 million or 48.8% compared to the nine months ended October 3, 2020. The change is primarily due to the increase in strategic development divestiture related expenses as well as debt issuance costs and the return of near-term expenses such as bonus and commission costs. Unallocated operating loss includes $8.4 million and $4.0 million of share-based compensation expense for the three months ended October 2, 2021 and October 3, 2020, respectively, and $16.9 million and $12.6 million for the nine months ended October 2, 2021 and October 3, 2020, respectively.

LIQUIDITY AND CAPITAL RESOURCES

General

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


	Nine Months Ended
	October 2, 2021		October 3, 2020
Net cash provided by (used in) operating activities	$	(183,640)	$	236,876
Net cash provided by (used in) investing activities	785,729		(102,838)
Net cash provided by (used in) financing activities	(602,385)		396,974
Effect of exchange rate changes on cash and cash equivalents	(784)		507
Net increase (decrease) in cash, cash equivalents and restricted cash	(1,080)		531,519
Cash, cash equivalents and restricted cash at beginning of period	680,478		102,307
Cash, cash equivalents and restricted cash at end of period	$	679,398	$	633,826

Operating Activities

The Company used cash in operating activities during the nine months ended October 2, 2021 to invest in working capital items to support strong market demand.

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


	Nine Months Ended
	October 2, 2021		October 3, 2020		$ Change
Net cash (used in) provided by:
Accounts receivable	$	(137,424)	$	(84,309)	$	(53,115)
Inventories	(241,068)		30,980		(272,048)
Accounts payable	100,402		22,669		77,733
Net cash (used in) provided by working capital items	$	(278,090)	$	(30,660)	$	(247,430)

The use of cash for working capital between periods was driven by investments in net working capital to support the strong demand environment and increased inventory valuations from rising commodity costs and other inflationary aspects. See the Consolidated Statements of Cash Flows in the unaudited consolidated financial statements for additional information.

Investing Activities

Net cash provided by investing activities was $785.7 million during the nine months ended October 2, 2021 compared to $102.8 million used in investing activities during the nine months ended October 3, 2020. During the nine months ended October 2, 2021, we paid approximately $331.0 million toward acquisitions, primarily for acquisitions of Cascade Windows and Prime Windows, received proceeds of $1,187.3 million from the divestitures of our insulated metal panels and roll-up sheet doors businesses, and used $75.2 million for capital expenditures. In the nine months ended October 3, 2020, we paid approximately $41.8 million, net of cash acquired, for the acquisition of Kleary and used $62.5 million for capital expenditures.

Financing Activities

Net cash used in financing activities was $602.4 million during the nine months ended October 2, 2021 compared to $397.0 million provided by financing activities in the nine months ended October 3, 2020. During the nine months ended October 2, 2021, we increased our Current Term Loan Facility by $108.4 million, borrowed and then repaid $190.0 million on our Current ABL Facility, paid $670.8 million to redeem the 8.00% Senior Notes and paid quarterly installments of $19.4 million on the Current Term Loan Facility.

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

Debt

Below is a reconciliation of the Company’s net debt (in thousands) as of the dates indicated. Management considers net debt to be more representative of the Company’s financial position than total debt due to the amount of cash and cash equivalents held by the Company and the ability to utilize such cash and cash equivalents to reduce debt if needed.


	October 2, 2021		December 31, 2020
Asset-based revolving credit facility due April 2026	$	—	$	—
Term loan facility due April 2028	2,587,000		2,497,967
Cash flow revolver due April 2026	—		—
8.00% senior notes due April 2026	—		645,000
6.125% senior notes due January 2029	500,000		500,000
Total Debt	3,087,000		3,642,967
Less: Cash and cash equivalents	677,187		674,255
Net Debt	$	2,409,813	$	2,968,712

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

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

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

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

Additional Liquidity Considerations

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


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

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

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

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

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

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

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

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

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

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

OFF-BALANCE SHEET ARRANGEMENTS

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

CONTRACTUAL OBLIGATIONS

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

CRITICAL ACCOUNTING POLICIES

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

RECENT ACCOUNTING PRONOUNCEMENTS

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

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

Windows and Siding Businesses

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

Commercial Business

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

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

Other Commodity Risks

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

Interest Rates

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

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

Foreign Currency Exchange Rates

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

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

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

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

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

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

Internal Control over Financial Reporting

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

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

CORNERSTONE BUILDING BRANDS, INC.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 1A. Risk Factors.

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

The U.S. government’s pending rules and regulations concerning mandatory COVID-19 vaccination could materially and adversely affect our business, financial condition and results of operations.

On September 9, 2021, President Biden announced that he has directed the Occupational Safety and Health Administration (“OSHA”) to develop an Emergency Temporary Standard (“ETS”) mandating either the full vaccination against COVID-19 or weekly testing of employees for employers with 100 or more employees. OSHA issued the ETS on November 4, 2021, requiring covered employers to comply with the vaccine mandate beginning with January 4, 2022 or face substantial penalties for non-compliance. Additional, more protective vaccine mandates may be announced by the state or local jurisdictions in which our businesses operate. We are currently reviewing its provisions and potential impacts on us. Further, our suppliers may be subject to, or voluntarily impose, vaccine mandates, which could result in disruptions in our business and supply chain. It is currently not possible to predict with certainty the impact the executive order, the OSHA ETS, and other vaccine mandates will have on our workforce. Additional vaccine mandates may be announced in jurisdictions in which we operate. Our implementation of any of these or other requirements may result in employee attrition, including attrition of critically skilled workforce, and difficulty securing future workforce needs, which could have a material adverse effect on our business, financial condition, and results of operations.

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

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


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

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

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

Item 6. Exhibits.

Index to Exhibits


Exhibit No.						Description
*†10.1						Retirement Agreement between Cornerstone Building Brands, Inc. and James S. Metcalf, dated September 20, 2021
*†10.2						Employment Agreement between Cornerstone Building Brands, Inc, and Rose Lee, dated August 3, 2021
*31.1						Rule 13a-14(a)/15d-14(a) Certifications (Section 302 of the Sarbanes-Oxley Act of 2002)
*31.2						Rule 13a-14(a)/15d-14(a) Certifications (Section 302 of the Sarbanes-Oxley Act of 2002)
**32.1						Certifications pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code (Section 906 of the Sarbanes-Oxley Act of 2002)
**32.2						Certifications pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code (Section 906 of the Sarbanes-Oxley Act of 2002)
*101.INS						Inline XBRL Instance Document
*101.SCH						Inline XBRL Taxonomy Extension Schema Document
*101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document
*101.DEF						Inline XBRL Taxonomy Definition Linkbase Document
*101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document
*101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document
104						Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)


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

SIGNATURE

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


	CORNERSTONE BUILDING BRANDS, INC.

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


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

Exhibit 10.1

RETIREMENT AGREEMENT

This Retirement Agreement (the “Agreement”), dated as of September 20, 2021, is a binding contract between Cornerstone Building Brands, Inc. (“Cornerstone Building Brands“, with Cornerstone Building Brands and its subsidiaries, affiliates, and related entities (including the entities known as NCI Group, Inc., NCI Building Systems, Inc., Ply Gem Industries, Inc., and Employee’s hiring entity) being referred to in this Agreement collectively as the “Company”), on the one hand, and, James S. Metcalf, individually (“Employee”), on the other hand. The Company and Employee will be referred herein to individually as a “Party” and collectively as the “Parties.”

I. RECITALS

WHEREAS, Employee is serving as the Chairman and Chief Executive Officer of the Company pursuant to that certain Employment Agreement between Employee and Cornerstone Building Brands, dated November 16, 2018 (the “Employment Agreement”);

WHEREAS, Employee has informed the Board of Directors of Cornerstone Building Brands of his intention to retire from the Company;

WHEREAS, at the request of the Board, Employee agreed to remain (and did remain) in Cornerstone Building Brands’ service as its Chairman and Chief Executive Officer from the date of this Agreement through September 6, 2021 (the “Transition Commencement Date”), and has agreed to continue to serve as Executive Chairman of the Board from Transition Commencement Date through March 31, 2022 (the “Retirement Date“, and the period from Transition Commencement Date through the Retirement Date, the “Transition Period“); and

WHEREAS, the Parties intend hereby to set forth their mutual agreement as to the terms and conditions of such service during the Transition Period and the compensation to which Employee will be entitled for such service.

NOW, THEREFORE, in consideration of the promises and the terms and provisions set forth herein, the mutual benefits to be gained by the performance thereof, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

II. AGREEMENT

1.Effect of the Transition Commencement Date; Services Following the Transition Commencement Date.

(a)From the date of this Agreement through the Transition Commencement Date, Employee shall continue to serve in such roles as he is serving as of immediately prior to the Transition Commencement Date, including as Chairman and Chief Executive Officer of Cornerstone Building Brands. The terms and conditions of

Employee’s employment prior to the Transition Commencement Date shall be as provided in the Employment Agreement.

(b)Effective as of the Transition Commencement Date, Employee does hereby resign as Chief Executive Officer of Cornerstone Building Brands and all other officer and director positions with the Company, other than as Executive Chairman of the Board.

(c)During the Transition Period, Employee shall continue to serve as Chairman of the Board and as a member of the Board as a Class II Director. During the Transition Period, Employee shall perform such duties as are customarily associated with the Executive Chairman role and shall also perform such other transitional duties as may be reasonably requested by the Board. In such capacity, Employee shall devote such time as is reasonably necessary to perform such duties, including any reasonably necessary business travel on behalf of the Company. Employee’s services in such capacity shall be provided in person in Company offices or remotely, as directed by the Board. During the Transition Period, Employee will report solely to the Board.

(d)Effective as of the Retirement Date, Employee shall retire from the Board.

(e)Employee agrees execute such resignation letters and other instruments as maybe reasonably requested by the Company from time to time to evidence the resignations and retirement contemplated by this Agreement. Employee does hereby waive any claim that the actions contemplated by this Agreement constitute “Good Reason” under paragraph (g) of Appendix A of the Employment Agreement.

2.Compensation and Employee Benefits Matters.

(a)Base Salary. In consideration of his services as Executive Chairman, during the Transition Period, the Company will pay Employee a base salary at an annual rate of $1,100,000 on the Company’s regular payroll schedule.

(b)Benefits; Expense Reimbursement; Etc. During the Transition Period, Employee shall continue to be provided with the employee benefits contemplated by Section 4.f of the Employment Agreement. Not later than the first payroll date after the date on which Appendix A to this Agreement becomes irrevocable, Employee shall receive a lump-sum payment from the Company equal to the aggregate premiums (i.e., both employee and employer portion of the premiums) for medical and dental coverage at his current level of coverage, at the active employee rate for Employee’s period of COBRA coverage (i.e., eighteen (18) months), less applicable withholding taxes.

(c)Annual Bonuses. For the calendar year 2021, Employee will be entitled to be paid an unprorated annual bonus pursuant to Section 4.b of the Employment Agreement based on the actual satisfaction of the applicable performance goals.

Employee understands and agrees that Employee will not have any right or entitlement to an annual bonus in respect of the calendar year 2022.

(d)Minimum Termination Compensation; No Severance Pay. Following the Retirement Date, Employee will be entitled to receive (i) his regular base salary at his current rate through the Retirement Date to the extent unpaid, (ii) all accrued, unused vacation and sick leave according to the Company’s written policies, (iii) reimbursement of business expenses properly incurred through the Retirement Date in accordance with applicable Company policy prior to the Retirement Date, and (iv) any generally applicable vested benefits to which Employee is entitled as a former employee of the Company under the employee benefit plans of the Company, other than severance pay and termination benefits (whether under Section 5 of the Employment Agreement or otherwise).

(e)Effect of the Retirement Date on Equity Awards.

i.The Parties agree that Appendix B to this Agreement (x) sets forth the options to purchase Cornerstone Building Brands common stock (the “Options”), restricted stock units covering shares of Cornerstone Building Brands common stock (“RSUs”) and performance share units (determined applying target levels of performance) (“PSUs”) held by Employee as of the date of this Agreement and (y) indicates (A) the extent to which such awards are vested and unvested as of the date of this Agreement and (B) the extent to which such awards are vested and unvested as of immediately prior to the Retirement Date.

ii.In consideration of Employee’s agreement to continue to provide services to Cornerstone Building Brands during the Transition Period as its Executive Chairman, Appendix B also sets forth (in the column entitled “Additional Vesting”) the agreed-to effect of the occurrence of the Retirement Date on the Options, RSUs and PSUs listed on Appendix B.

iii.Any of the additional vesting following the Retirement Date on any date set forth on Appendix B shall be subject to Employee’s material compliance with the Restrictive Covenants through such date.

iv.For clarity and avoidance of doubt, any vesting or settlement with respect to Options, RSUs and PSUs that occur on dates occurring during the Transition Period shall be unaffected by this Agreement.

v.In addition to the terms set forth on Appendix B, the Parties agree that the vested Options held by Employee shall be exercisable for 180 days following the following dates: (x) for Options that are vested as of the Retirement Date, for 180 days following the Retirement Date; and (y) for Options that become vested pursuant to this Agreement following the Retirement Date, for 180 days following the applicable vesting date.

vi.Employee understands and agrees that Employee will not have any right or entitlement to participate in the annual grant of equity awards to senior executive officers of the Company in the first quarter of 2022.

3.Effect of Termination of Employee’s Services prior to the Retirement Date. In the event (x) that Cornerstone Building Brands shall accelerate the Retirement Date without Cause (as defined in the Employment Agreement), (y) of Employee’s death or permanent disability or (z) that Employee shall accelerate the Retirement Date with Good Reason (as defined herein), Employee (or his Trust as provided in Section 26) shall receive the payments and benefits under this Agreement determined as if Employee’s services as Executive Chairman had continued until the Retirement Date. In the event that the Company shall accelerate the Retirement Date with Cause or Employee shall accelerate the Retirement Date other than with Good Reason (and in each case excluding death and permanent disability), Employee shall forfeit any right to the unpaid or unvested portion of the payments and benefits under this Agreement. For purposes of this Agreement, “Good Reason” shall have the same meaning as provided under paragraph (g) of Appendix A of the Employment Agreement after giving effect to the changes in the terms and conditions of Employee’s employment agreed to by reason of Employee’s entry into this Agreement and shall also include a material breach after the date of this Agreement by the Company of this Agreement or any of the award agreements evidencing the equity awards held by Employee.

4.Effect of this Agreement on the Employment Agreement.

(a)No Severance Pay or Termination Benefits. Other than as expressly set forth in this Agreement, Employee shall not be entitled to separation pay or termination benefits in connection with Employee’s departure from any and all roles held at the Company, including without limitation upon the occurrence of the Retirement Date or the acceleration thereof by any Party, whether under Section 5 of the Employment Agreement or otherwise.

(b)Employee agrees that the restrictive covenants contained in Section 6-12 of the Employment Agreement shall remain in full force and effect as binding obligations on the Parties in accordance with their express terms following execution of this Agreement (and, for clarity, with the Restricted Period (as defined in the last paragraph of Section 7(c) of the Employment Agreement) commencing on the Retirement Date). Employee agrees that he has read and understands these obligations.

5.Review of Agreement. Employee acknowledges that he shall have twenty-one (21) calendar days after receipt of this Agreement to consider and execute this Agreement and that he may use as much or as little of this time as he wishes. To accept the Agreement, Employee must date and sign and return the Agreement to the Company no later than twenty-one (21) days after receipt. Return of the agreement may be made by (i) mail (post-marked on or before the 21st day) or personal delivery to Cornerstone Building Brands, Inc., Attention: Katy Theroux, Chief Human Resources Officer, 5020 Weston

Parkway, Suite 400, Cary, North Carolina 27513, or (ii) email to Katy.Theroux@cornerstone-bb.com. Following execution of the Agreement, Employee shall have seven (7) days to revoke his acceptance of this Agreement. Revocation must be in writing and submitted to the Company at the address and/or e-mail indicated above. Revocation will not be effective unless it is received by the Company prior to the 8th day after Employee executes this Agreement. None of the consideration listed in this Agreement will be provided by the Company unless Employee timely signs this Agreement and the revocation period expires without Employee having exercised his right of revocation. Prior to the date of its effectiveness, this Agreement may be revoked by the Company or Employee at any time.

6.Consult Attorney. By tender of this Agreement to Employee, the Company hereby advises Employee in writing to consult with an attorney of his choosing prior to signing this Agreement.

7.Release of Claims by Employee. In consideration of the payments and benefits to which Employee is entitled hereunder, Employee hereby waives and releases and forever discharges the Company and its and their respective parent entities, subsidiaries, divisions, limited partnerships, affiliated corporations, successors and assigns and their respective past and present directors, managers, officers, stockholders, partners, agents, employees, insurers, attorneys, and servants each in his, her or its capacity as such, and each of them, separately and collectively (collectively, "Releasees"), from any and all existing claims, charges, complaints, liens, demands, causes of action, obligations, damages and liabilities, known or unknown, suspected or unsuspected, whether or not mature or ripe, that Employee ever had and now has against any Releasee arising out of or in any way related to Employee’s employment with or separation from the Company, to any services performed for the Company, to any status, term or condition in such employment, or to any physical or mental harm or distress from such employment or non-employment or claim to any hire, rehire or future employment of any kind by the Company, all to the extent allowed by applicable law. This release of claims includes, but is not limited to, claims based on express or implied contract, compensation plans, covenants of good faith and fair dealing, wrongful discharge, claims for discrimination, harassment and retaliation, violation of public policy, tort or common law, whistleblower or retaliation claims; and claims for additional compensation or damages or attorneys' fees or claims under federal, state, and local laws, regulations and ordinances, including but not limited to Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Americans with Disabilities Act, the Age Discrimination in Employment Act, the Older Workers Benefit Protection Act, the Worker Adjustment and Retraining Notification Act ("WARN"), or equivalent state WARN Act, the Employee Retirement Income Security Act, and the Sarbanes-Oxley Act of 2002. Employee understands that this release of claims includes a release of all known and unknown claims through the date on which this release of claims becomes irrevocable.

8.Limitation of Release. Notwithstanding the foregoing, this release of claims will not prohibit Employee from filing a charge of discrimination with the National Labor Relations Board, the Equal Employment Opportunity Commission or an equivalent state

civil rights agency, but Employee agrees and understands that he is waiving his right to monetary compensation thereby if any such agency elects to pursue a claim on his behalf. Further, nothing in this release of claims shall be construed to waive any right that is not subject to waiver by private agreement under federal, state or local employment or other laws, such as claims for workers' compensation or unemployment benefits or any claims that may arise after the date on which this release of claims becomes irrevocable. In addition, nothing in this release of claims will be construed to affect any of the following claims, all rights in respect of which are reserved:

(a)Any payment or benefit set forth in the Agreement (including Appendix B);

(b)Any rights as a shareholder of Cornerstone Building Brands, Inc.;

(c)Reimbursement of unreimbursed business expenses properly incurred prior to the termination date in accordance with policy of the Company;

(d)Claims in respect of vested equity compensation owned by Employee;

(e)Vested benefits under the general employee benefit plans (other than severance pay or termination benefits under general policy of the Company or under the Employment Agreement, all rights to which are hereby waived and released);

(f)Any claim for unemployment compensation or workers' compensation administered by a state government to which Employee is presently or may become entitled;

(g)Any claim that the Company has breached this Agreement; and

(h)Indemnification as a current or former director or officer the Company (including as a fiduciary of any employee benefit plan), or inclusion as a beneficiary of any insurance policy related to Employee’s service in such capacity.

9.Reaffirmation of General Release. At the close of business on the Retirement Date, Employee shall execute and deliver to the Company the reaffirmation of the release of claims attached hereto as Appendix A. The time periods and remedies of Section 5 of this Agreement shall equally apply to such re-affirmation.

10.Stock Trading and Company Policies. Employee agrees to comply with all Company policies concerning trading in the Company’s securities to the same extent as such policies are applicable to Company employees and officers including, without limitation, “blackout” periods restricting or prohibiting trading in the Company’s securities, whether regularly scheduled or imposed under special circumstances, and any “lockup” requested by any underwriter concerning an offering of the Company’s securities and, agrees to comply with the foregoing to the extent that he is in possession of material non-public information relating to the Company.

11.Non-Alienation. Employee shall not have any right to pledge, hypothecate, anticipate, or in any way create a lien upon any amounts due or payable under this Agreement, and no

payments or benefits due hereunder shall be assignable in anticipation of payment either by voluntary or involuntary acts or by operation of law. So long as Employee lives, no person, other than the Parties hereto, shall have any rights under or interest in this Agreement or the subject matter hereof, except as expressly provided herein.

12.Amendment of Agreement. This Agreement may not be modified or amended except by an instrument in writing signed by Employee and an authorized representative of the Company. Employee understands and agrees that any changes the Parties may make to this Agreement, whether material or immaterial, will not restart the time to consider this Agreement.

13.Waiver. No term or condition of this Agreement shall be deemed to have been waived, nor shall there be an estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel.

14.Notices. Except as otherwise stated herein, for purposes of this Agreement, all notices or other communications hereunder shall be in writing and shall be given in person and/or by United States Certified Mail, return receipt requested, postage prepaid (with evidence of receipt by the Party to whom the notice is given) or by email with a copy provided by mail as aforesaid to the addresses of the Company (to the attention of Katy K. Theroux, Chief Human Resources Officer) or Employee at his address most recently contained in the Company’s records. Either Party may designate a different address by providing written notice to the other Party.

15.Severability and Interpretation. If any provision of this Agreement is held to be invalid, illegal or unenforceable, in whole or part, such invalidity will not affect any other provision, and all other provisions will remain in full force and effect. The fact that counsel for any one of the Parties drafted this Agreement shall not be material to the construction of this Agreement.

16.Counterparts and Titles. This Agreement may be executed in two or more counterparts, each of which will be deemed an original, and all of which together will constitute one document. The titles and headings preceding the text of the paragraphs and subparagraphs of this Agreement (including Appendices) have been inserted solely for convenience of reference and do not constitute a part of this Agreement or affect its meaning, interpretation or effect. This Agreement may be executed in counterparts and delivered electronically, including by email and .pdf file.

17.Governing Law. This Agreement will be construed and enforced in accordance with the laws of the State of Delaware, without regard to conflict of law principles of the State of Delaware or the conflict of law principles of any other jurisdiction which would cause the application of any law other than those of the State of Delaware to apply.

18.Mandatory Venue and Jury Waiver. The Parties consent and agree to submit to personal jurisdiction in the State of North Carolina and agree that the exclusive, mandatory venue for any disputes, lawsuits, actions and/or proceedings arising from or

related in any way to this Agreement or Employee’s employment is in the state and/or federal courts in Cary, Wake County, North Carolina. Any order entered in a North Carolina court shall be enforceable in any other State, regardless of that State's statutes, laws or case law, the same as if the enforcement thereof were brought in North Carolina, applying North Carolina law. The Parties further agree that in any action to enforce this Agreement or otherwise related to employment, all such matters shall be tried solely before a judge and not a jury, and THE PARTIES AGREE TO WAIVE THEIR RIGHT TO A JURY TRIAL IN ALL SUCH CASES.

19.Alternative Dispute Resolution. If there is a dispute arising out of or related to this Agreement, and if the dispute cannot be settled through direct discussions, the aggrieved party shall by written notice demand that the dispute be submitted to nonbinding mediation before any action is filed in a court or arbitral forum. Employee and the Company hereby agree to endeavor to settle the dispute in an amicable manner by participating in non-binding mediation held in Cary, North Carolina, or such other location as agreed by the Parties, before a mediator jointly selected by the Parties, before either party seeks recourse in court or an arbitral forum. The Parties agree to make a good faith attempt to resolve the dispute through mediation within fourteen (14) days after the written demand for mediation is received by the non-aggrieved party. The provisions of this Paragraph in no way restrict the right of the Company to immediately seek to enforce any of the restrictive covenants provided for in this Agreement or any prior agreement or to otherwise protect the Company from immediate and irreparable harm to the fullest extent allowed by law. The cost of mediation shall be split equally between the Parties and each party shall bear its own costs and attorneys’ fees related to the mediation.

20.No Admission of Liability. Employee acknowledges, by entering into this Agreement, that the Company and the Releasees do not admit to the violation of any employment or labor law or any unlawful or tortious conduct or any other wrongdoing of any kind in connection with Employee or his employment.

21.Inadmissibility of Agreement. Neither this Agreement, nor any of its terms, nor any document, statement, proceeding or conduct related to this Agreement, nor any reports or accounts thereof, shall be construed as, offered or admitted in evidence as, received as, or deemed to be evidence for any purpose adverse to the Parties, including, without limitation, evidence of a presumption, concession, or admission by any of the Parties of any liability, fault, wrongdoing, omission, or damage.

22.Entire Agreement. This Agreement, the provisions of the Employment Agreement expressly incorporated herein and the award agreements evidencing equity awards held by Employee constitute the entire agreement of the Parties with respect to the subject matter hereof, and supersede all prior agreements, understandings, representations, negotiations, discussions or arrangements, either oral or written. For the avoidance of doubt, the restrictive covenants contained in the equity awards held by Employee are hereby reaffirmed and shall remain binding on Employee and in full force and effect according to their terms following execution of this Agreement. None of the Parties have

relied on any statements or representations that have been made by any other Party that are not set forth in this Agreement, and no Party is entitled to rely on any representation, agreement or obligation to disclose information that is not expressly stated in this Agreement.

23.Section 409A. This Agreement is intended to comply with Section 409A of the United States Internal Revenue Code and any ambiguous provision will be construed in a manner that is compliant with or exempt from the application of Section 409A. Any taxes or penalties assessed on Employee under Section 409A shall be the sole responsibility of Employee.

24.Third Party Beneficiaries and Binding Effect. Each of the Releasees who are not signatories to this Agreement are hereby agreed to be third party beneficiaries of this Agreement and shall be entitled to all rights, benefits, and protections of this Agreement, and shall further be entitled to enforce this Agreement and each of its terms. This Agreement shall be binding on the Parties hereto, together with their respective executors, administrators, successors, personal representatives, heirs, and assigns.

25.No Other Payments. Employee agrees that except for the payments provided in this Agreement, he is entitled to no other payments or compensation of any kind from the Company or any plan or policy of or agreement with the Company, including the Employment Agreement.

26.Miscellaneous. Nothing in this Agreement restricts Employee from communications with or full cooperation in the investigations of any governmental agency, including the SEC, on matters within their jurisdiction or from cooperating with the Company in any internal investigation. However, as stated above, this Agreement does prohibit Employee from recovering any relief, including monetary relief, as a result of such filing or activities (including any settlement related to such filing). In addition, nothing in this Agreement shall prevent Employee from commencing an action to enforce his rights under this Agreement. If Employee dies prior to full satisfaction of the obligations owed under the Employment Agreement as incorporated herein or this Agreement, any monies that may be due Employee as of the date of Employee’s death (including without limitation any payments that would have been made to him under Section 3(e) had he survived) will be paid to the acting trustee of the JAMES S. METCALF 1999 TRUST dated February 16, 1999, as in effect on the date of his death.

[Remainder of Page Intentionally Blank]

EACH SIGNATORY TO THIS AGREEMENT HAS ENTERED INTO THIS SEPARATION AGREEMENT AND COMPLETE RELEASE OF CLAIMS KNOWINGLY, VOLUNTARILY, FREELY AND WITHOUT DURESS AFTER HAVING CONSULTED WITH AN ATTORNEY OR ADVISOR OF THEIR CHOICE. EACH SIGNATORY AGREES THAT THEY HAVE FULLY READ AND UNDERSTAND THIS AGREEMENT (INCLUDING APPENDICES) AND HAVE HAD A FULL AND FAIR OPPORTUNITY TO ASK ANY QUESTIONS THEY HAVE ABOUT THE AGREEMENT.

EMPLOYEE: James S. Metcalf

By:

/s/ James S. Metcalf

Date:

September 20, 2021

CORNERSTONE BUILDING BRANDS, INC. AND ALL OF THE ENTITIES THE COMPANY

By:

/s/ Alena S. Brenner

Printed Name:

Alena S. Brenner

Title

Executive Vice President, General Counsel and Corporate Secretary

Date

September 20, 2021

APPENDIX A


To:			Cornerstone Building Brands, Inc.
			Attention: Katy K. Theroux, Chief Human Resources Officer
			Email: Katy.Theroux@cornerstone-bb.com

This letter is in reference to the Retirement Agreement, dated as of September 20, 2021 previously entered into between the Company (as defined therein) and the undersigned (the “Agreement”).

As required by that Agreement, I hereby (i) certify my compliance with all the terms in the Agreement, and (ii) re-affirm, restate and again provide the Company with the complete release of claims set forth in the Agreement, effective as of the Retirement Date (as defined therein).


			Sincerely,

			/s/ James S. Metcalf
			James S. Metcalf

			Dated as of the Retirement Date

Appendix B

Treatment of Metcalf Equity Awards

Founders Awards Granted on November 16, 2018

Type of Award / Original No. Granted

As of August 4, 2021

As of March 31, 2022

Additional Vesting

Vested

Unvested

Vested

Unvested

307,481 Options ($12.16 exercise price)

122,992

184,489

122,992

•

61,496 vests on November 16, 2022

•

61,496 vests on November 16, 2023

153,740 RSUs

61,496

92,244

61,496

•

30,748 vests on November 16, 2022

•

30,748 vests on November 16, 2023

76,870 PSUs**

153,740*

N/A


2020 Annual Equity Cycle Awards Granted March 16, 2020
Type of Award / Original No. Granted	As of August 4, 2021		As of March 31, 2022		Additional Vesting
	Vested	Unvested	Vested	Unvested
424,528 Options ($4.52 exercise price)	141,509	283,019	283,019	141,509	141,509 vests on March 16, 2023
122,449 RSUs	40,816	81,633	81,633	40,816	40,816 vests on March 16, 2023
306,123PSUs**	0	306,123	0	306,123	Eligible for a full (i.e., unprorated) award based on actual performance


2021 Annual Equity Cycle Awards Granted March 15, 2021
Type of Award / Original No. Granted	As of August 4, 2021		As of March 31, 2022		Additional Vesting
	Vested	Unvested	Vested	Unvested
235,088 Options ($13.78 exercise price)	0	235,088	78,363	156,725	None: unvested forfeited as of Retirement Date
73,926 RSUs	0	73,926	24,642	49,284
184,813 PUSs**	0	184,813	0	184,813

*This number is the actual number earned based on satisfaction of performance metrics: it is subject to Employee’s continued service until November 16, 2021 and will be settled at that time.

** Target number

Exhibit 10.2

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is entered into as of August 3, 2021, between Cornerstone Building Brands, Inc., a Delaware corporation (the “Company”), and Rose Lee (“Employee”). The Company and Employee are sometimes hereinafter collectively referred to as the “Parties.”

BACKGROUND

Whereas, the Company hires and retains in its employment such personnel as are required by the Company and its other Affiliates, and makes its employees so retained available to provide services to the Company and its Affiliates.

Whereas, the Company and Employee intend to evidence their mutual agreement that, effective as of September 6, 2021 (the “Commencement Date”), Employee shall commence providing services as Chief Executive Officer of the Company, and as such the Company and Employee have agreed to reflect the terms and conditions of the employment of Employee by the Company, and the duties and responsibilities of Employee, on the one hand, and of the Company, on the other hand, to each other.

Whereas, the Company and Employee also intend hereby to evidence their mutual agreement that, not later than the Commencement Date (and in any event effective as of the Commencement Date), Employee shall be appointed to the Board.

Whereas, capitalized terms not defined in the body of this Agreement have the meanings set forth on the attached Appendix “A.”

AGREEMENT AMONG PARTIES

In consideration of the foregoing and of the mutual covenants and agreements set forth in this Agreement, and subject to the terms and conditions set forth herein, the Parties agree as follows:

1.Employment. During the term of this Agreement, the Company hereby agrees to continue Employee in its employ, and Employee hereby agrees to remain in the employ of the Company, pursuant to the terms and conditions set forth herein.

2.Duties and Authority. During the term of this Agreement, Employee shall serve as the Chief Executive Officer of the Company, with those authorities, duties and responsibilities customary to that position and such other authorities, duties and responsibilities as the Board may reasonably assign Employee from time to time commensurate with Employee’s position as Chief Executive Officer of the Company. Employee shall use Employee’s best efforts, including the highest standards of professional competence and integrity, and shall devote substantially all of Employee’s business time and effort in and to Employee’s employment hereunder, and shall not

engage in any other business activity which would conflict with the rendition of Employee’s services hereunder, except that Employee may hold directorships or related positions in charitable, educational, for-profit or not-for-profit organizations to the extent expressly approved by the Board, and make passive investments, which do not unreasonably interfere with Employee’s day-to-day performance of Employee’s responsibilities to the Company (and with Employee’s current position on the board of directors of Crown Holdings, Inc. hereby approved). Following the date of this Agreement and not later than the Commencement Date (and in any event effective as of the Commencement Date), Employee shall be appointed to the Board.

3.Term. The term of, and the terms and conditions of Employee’s employment under, this Agreement shall commence as of the Commencement Date, and shall remain in effect until the first (1st) anniversary of the Commencement Date, subject to earlier termination or extension as described below. The period from the Commencement Date until this Agreement shall have expired in accordance with this Section 3 or been terminated in accordance with Section 5 is hereafter referred to as “the term hereof” or “the term of this Agreement.” The term hereof shall be extended automatically for an additional year as of first (1st) anniversary of the Commencement Date and as of each subsequent annual anniversary of such date (each such extension date is referred to herein as a “Renewal Date”) unless at least one (1) year prior to any such Renewal Date either Party shall have given notice to the other Party that the term of this Agreement shall not be so extended. Notwithstanding any provision of this Agreement to the contrary, if a Change in Control occurs, the term of this Agreement shall be extended for a period of two (2) years after the date of the occurrence of the Change in Control, and, if this Agreement does not terminate during such period, the last day of such extended term shall become the applicable Renewal Date.

4.Compensation.

a.Base Salary. The Company shall pay Employee a base salary in the amount of not less than $1,000,000.00 per year during the term hereof, payable in accordance with the Company’s normal payroll procedures. The salary of Employee will be reviewed for increase at least once annually by the Company and/or, to the extent required, the Board or the Compensation Committee of the Board (the “Compensation Committee”). Any salary review of Employee shall be conducted by the Board or the Compensation Committee at the same time as it reviews the salaries of other senior executives of the Company, and any adjustment shall be solely within the discretion of the Board or the Compensation Committee.

b.Annual Bonus. During the term of this Agreement, Employee shall have a target annual bonus opportunity equal to 120% of her base salary at the highest annualized rate in effect during the year preceding payment of such bonus (the “Target Bonus”); provided, that the annual bonus paid to Employee with respect to 2021 shall be based on the same performance metrics as applicable to the other senior executive officers of the Company and shall be pro rated for the period of Employee’s service to the Company and its Affiliates in 2021. During the term of this Agreement, Employee shall participate under the Company’s currently existing cash annual incentive plan as may be amended, restated or replaced from time to time (the “Bonus Plan”) or, if the

Bonus Plan is amended, replaced or superseded, under any amended, replacement or successor bonus program adopted for senior executives of the Company and its Affiliates. Bonuses, if any, paid to Employee pursuant to the Bonus Plan shall be paid after the end of each fiscal year of the Company at the same time as bonuses are paid to other participants, but no later than March 15 of the following calendar year. Employee understands that bonuses cannot be earned under the Bonus Plan except as specifically set forth therein based on the level of participation specified by the Board or the Compensation Committee in its discretion, but acknowledging the target annual bonus opportunity set forth herein, and, if the employment of a participant terminates for any reason prior to certain dates specified in the Bonus Plan, no bonus shall be payable thereunder except as expressly provided in this Section 4 and in Section 5 of this Agreement. In the event that Employee’s employment terminates for any reason other than by the Company for Cause, after the end of the fiscal year but before payment of the bonus for that fiscal year, Employee shall be entitled to receive the amount of the bonus that would have otherwise been payable under the Bonus Plan, as determined by the Board or the Compensation Committee, on the date bonuses are paid to other participants.

c.2022 Long-Term Incentives. At grant date with respect to the annual long-term incentive cycle of the Company in 2022, the Executive shall be awarded a long-term incentive award having a total grant date fair value value of $4 million (calculated in the same manner as with respect to the other senior executive officers of the Company) (the “2022 LTI Award”). The 2022 LTI Award will consist of the same types of awards, in the same proportion thereof, as those provided to the Company’s other senior executive officers, and shall be granted pursuant to, and subject to the terms and conditions of, the Company’s Amended and Restated 2003 Long-Term Incentive Plan, as amended, or any successor plan thereto (the “Equity Plan”), and such other terms and conditions set forth in the applicable award agreement, which award agreement shall be consistent with the terms and conditions provided to the Company’s senior executive officers.

d.Make-Whole Bonus. In order to compensate Employee for the annual bonus to which she may have become entitled from her prior employer but forfeited by reason of Employee’s commencement of services with the Company and its Affiliates, on the first payroll date following the Commencement Date, the Company shall pay Employee a cash make-whole bonus equal to $500,000. Employee will be required to repay this bonus if Employee’s employment with the Company is terminated by the Company for Cause or by Employee without Good Reason written notice of which is given prior to the first anniversary of the Commencement Date.

e.Make-Whole Long-Term Incentives. In order to compensate Employee for long-term incentives granted to Employee by her prior employer but forfeited by reason of Employee’s commencement of services with the Company and its Affiliates, as of the Commencement Date, Employee shall be granted the following one-time long-term incentives of the Company: (1) $2 million of options to purchase common stock of the Company (the “Make-Whole Options”); (2) $3 million of restricted stock units covering common stock of the Company (the “Make-Whole RSUs”); and (3) $3.5 million of

performance share units covering common stock of the Company (the “Make-Whole PSUs”).

The value of all of such awards shall be calculated in the same manner as with respect to the awards held by the other senior executive officers of the Company. The exercise price of the Make-Whole Options will be the closing trading price of the Company’s common stock on the Commencement Date. The Make-Whole Options and the Make-Whole RSUs will vest based on the continued employment of Employee in equal installments not later than the 15th day of the month in which occurs the first, second and third anniversaries of the date of grant, and other than the exercise price of the Make-Whole Options and the vesting dates of both awards, will have the same terms and conditions as applicable to the options and restricted stock units granted to the Company’s senior executive officers in March 2021. The Make-Whole PSUs will have the same terms and conditions as applicable to the options and restricted stock units granted to the Company’s senior executive officers in March 2021, including without limitation vesting conditions and settlement date.

f.Retirement, Health and Welfare Benefits. Employee shall be entitled to participate in and receive the health, hospitalization, medical, dental, life insurance, accidental death, disability and other insurance plans and benefits provided by the Company, and to participate in the 401(k) and other qualified profit-sharing, deferred compensation, pension, savings and other similar plans of the Company, as and to the extent the Company provides such benefits generally to other employees of the Company or to executive employees of the Company. It is understood and agreed that such benefits may be changed or discontinued from time to time in the sole discretion of the Company. During the term of this Agreement, Employee shall be entitled to six (6) weeks of vacation per year, subject to the generally applicable policies of the Company in effect from time to time, including the current provision of the policy that vacation does not carry over from year to year.

g.Relocation Benefits. In connection with the relocation of Employee’s residence to Cary, North Carolina during the first two years following the Commencement Date, Employee shall receive relocation benefits under the Company’s relocation policy for Tier I employees; provided, that, in the case of multiple relocation events, such relocation benefits shall only be provided for one of such relocation events.

h.Clawback; Company Policies. To the extent required by applicable law or regulation, any applicable stock exchange listing standards or any “clawback” policy adopted by the Company, all of Employee’s compensation (whether paid in cash, long term incentive awards or otherwise) shall be subject to the provisions of any applicable clawback policies or procedures of the Company, which may provide for forfeiture and/or recoupment of such amounts paid or payable under this Agreement or otherwise. Employee shall also be subject to applicable policies of the Company as in effect from time to time, including the Cornerstone Building Brands, Inc. Executive Stock Ownership Guidelines and any successor policy, as applicable

5.Termination Payments.

a.Minimum Termination Compensation. Employee shall serve in an at-will capacity and Employee, the Company may terminate the employment of Employee at any time with or without Cause. Upon any termination of employment of Employee for any reason other than as set forth in Section 5.b or Section 5.c, whether on, before or after the expiration of the term of this Agreement (including any extension of the term hereof pursuant to the provisions of this Agreement), Employee shall be entitled to receive (i) that portion of Employee’s annual base salary, at the rate then in effect, earned by Employee or accrued for Employee’s account through the date of the termination of Employee’s employment hereunder or for which Employee is entitled to payment for events or circumstances occurring on or through the date of termination of Employee’s employment, (ii) any bonus to which Employee is entitled under the Bonus Plan pursuant to Section 4.b for the fiscal year ending prior to the date of termination, (iii) reimbursement of business expenses properly incurred in accordance with applicable Company policy prior to the date of termination and (iv) subject to Section 5.f, any generally applicable vested benefits to which Employee is entitled as a former employee under the employee benefit plans of the Company and its Affiliates (collectively, the “Minimum Termination Compensation”).

b.Severance Pay upon Termination of Employment.

(i) If Employee’s employment is terminated by the Company without Cause, or by Employee for Good Reason, in either case excluding by reason of Employee’s death or permanent disability, then, in addition to the Minimum Termination Compensation, Employee shall be entitled to receive (A) two (2) times Employee’s annual base salary at the highest annualized rate in effect during the one (1) year period immediately preceding the date of termination (the “Severance Payment”), (B) two (2) times Employee’s Target Bonus (the “Bonus Payment”), (C) a prorated annual bonus under the Bonus Plan for the fiscal year in which the date of termination occurs based upon the elapsed number of days in such fiscal year through the date of termination applied to the bonus, if any, that would have been earned by Employee for such fiscal year if Employee had remained employed on the normal payment date of such bonus, based on actual performance under applicable financial metrics and applying any discretionary factors in substantially the same manner as such factors are applied to the senior executive officers of the Company whose employment has not terminated (the “Pro Rata Bonus”) and (D) a lump sum payment equal to the premiums for medical and dental coverage, at the active employee rate and at the coverage levels in effect as of the date of termination, that would otherwise be payable for the period of coverage applicable to Employee (i.e., eighteen (18) months) under the Consolidated Omnibus Budget Reconciliation Act of 1985, currently embodied in Section 4980B of the Internal Revenue Code of 1986, as amended (the “Code”) (the “COBRA Premium Payment”).

(ii) The Severance Payment and Bonus Payment shall be payable in substantially equal installments on regular payroll dates over the two (2) year period following the date of termination, except as otherwise set forth in Section 25 hereof and subject to the next following sentence; provided that any installments that would be paid if the Release Commencement Date (as defined below) were the date of termination shall be paid on the first payroll date after the Release Commencement Date, unless the Release Period (as defined below) begins in one calendar year and ends in the

subsequent calendar year, in which case such installments shall be paid on the first payroll date in the subsequent calendar year. Employee’s right to receive the Severance Payment, the Bonus Payment, the Pro Rata Bonus, and the COBRA Premium Payment shall be conditioned on Employee’s execution, delivery and non-revocation of a general release of any and all claims against the Company and its Affiliates within thirty (30) days following the date of termination (such release of claims, the “Release”; such thirty (30) day period, the “Release Period”, and the Commencement Date of the Release, the “Release Commencement Date”), which Release shall include the release of claims attached hereto as Appendix B and such other terms and conditions as may be mutually agreed by the Parties. The Pro Rata Bonus and COBRA Premium Payment shall be paid in a lump sum at the same time as paid to other senior executive officers of the Company but not later than March 15th of the year following the year in which the date of termination occurs.

c.Impact of Termination on Equity Awards. In the event of any termination of Employee’s employment (either by Employee or the Company), the terms of the applicable equity award agreements and Equity Plan pursuant to which such awards were granted shall govern.

d.Notwithstanding anything in this Agreement to the contrary, if any amounts due to Employee under this Agreement and any other plan or program or award of the Company or any Affiliate constitute a “parachute payment,” as such term is defined in Section 280G(b)(2) of the Code, and the amount of the parachute payment, reduced by the excise tax imposed pursuant to Section 4999 of the Code, is less than the amount Employee would receive if Employee were paid three times Employee’s “base amount,” as defined in Section 280G(b)(3) of the Code, less one dollar, then the aggregate of the amounts constituting the parachute payment shall be reduced to an amount that will equal three times Employee’s base amount less one dollar. The calculations to be made with respect to this subsection shall be made by an accounting firm jointly selected by the Company and Employee and paid by the Company.

e.No Duty to Mitigate Nor Offsets; No Other Severance; No Reduction for Deferred Compensation. Notwithstanding anything in this Agreement to the contrary, if Employee’s employment is terminated, Employee shall have no duty to seek other employment nor shall any payments made or to be made to Employee pursuant to this Agreement be offset by any amount earned from other employment or for any other reason. The payments and benefits to be provided to Employee pursuant to this Section 5 upon termination of Employee’s employment shall constitute the exclusive payments and benefits in the nature of severance or termination pay or salary continuation and termination benefits which shall be due to Employee upon a termination of employment and shall be in lieu of any other such payments under any plan, program, policy or other arrangement which has heretofore been or shall hereafter be established by the Company or any of its Affiliates. The calculations of the Minimum Termination Compensation, Severance Payment, Bonus Payment, Pro Rata Bonus and COBRA Premium Payment shall be made without reduction for any voluntary deferral of compensation made by Employee.

f.Full Satisfaction of Obligations. Payment by the Company of the amounts owed to Employee pursuant to this Section 5 shall fully satisfy all obligations of the Company to Employee under this Agreement if the employment of Employee is terminated hereunder prior to the expiration of the term of this Agreement, and all obligations of the Company and Employee to each other set forth in Sections 1 through 4 of this Agreement shall terminate and be of no further force or effect as of the date of termination. No termination of employment hereunder, whether by the Company or Employee and whether with or without Cause or Good Reason, shall terminate the provisions of Sections 6 or 7 or any subsequent sections of this Agreement and each of such sections shall remain in full force and effect as binding obligations of the Parties in accordance with their express terms.

6.Business Disclosures. Employee acknowledges that Employee has had and will have access to and has or will become familiar with all or substantially all of the Confidential Information of the Company and its Affiliates. As a material inducement to the Company to enter into this Agreement and to pay to Employee the compensation stated herein, Employee covenants and agrees that Employee will not, at any time during or following the termination of Employee’s employment with the Company, directly or indirectly divulge or disclose for any purpose whatsoever any Confidential Information that has been obtained by or disclosed to Employee in connection with Employee’s employment with the Company or any of its Affiliates. If Employee is required in or pursuant to any legal, judicial or administrative proceeding (by oral questions, interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process) to disclose any Confidential Information, Employee shall notify, as promptly as practicable, the Company of such request or requirement so that the Company, at its expense, may seek an appropriate protective order or waive compliance with the provisions of this Agreement, and/or take any other action deemed appropriate by the Company. If, in the absence of a protective order or the receipt of a waiver hereunder, Employee is compelled or required by law or the order of any governmental, regulatory or self-regulatory body to disclose the Confidential Information, Employee may disclose only that portion of the requested Confidential Information which Employee is compelled or required to disclose, and Employee will exercise Employee’s reasonable efforts to obtain reliable assurance that confidential treatment will be accorded the Confidential Information.

No confidentiality or other obligation Employee owes to the Company prohibits Employee from reporting possible violations of law or regulation to any governmental authority or entity under any applicable whistleblower protection provision of applicable U.S. federal or state law or regulation (including Section 21F of the Securities Exchange Act of 1934 or Section 806 of the Sarbanes-Oxley Act of 2002) or requires Employee to notify the Company of any such report. Employee is hereby notified that the immunity provisions in Section 1833 of title 18 of the United States Code provide that an individual cannot be held criminally or civilly liable under any federal or state trade secret law for any disclosure of a trade secret that is made (i) in confidence to federal, state or local government officials, either directly or indirectly, or to an attorney, and is solely for the purpose of reporting or investigating a suspected violation of the law, (ii) under seal in a complaint or other document filed in a lawsuit or other proceeding, or (iii) to Employee’s attorney in connection with a lawsuit for retaliation for reporting a

suspected violation of law (and the trade secret may be used in the court proceedings for such lawsuit) as long as any document containing the trade secret is filed under seal and the trade secret is not disclosed except pursuant to court order.

7.Non-Competition; Non-Solicitation; Non-Disparagement and Non-Interference; Cooperation.

a.Employee shall not, directly or indirectly and whether on Employee’s own behalf or on behalf of any other person, partnership, association, corporation or other entity, engage in or be an owner, director, officer, employee, agent, consultant or other representative of or for, or lend money or equipment to or otherwise support, (x) any business that is engaged in the design, engineering, manufacturing, installation and marketing of exterior building products, including, for avoidance of doubt, in the residential or commercial sectors and with respect to both new construction and repairs and remodeling, that are the same as or similar to those designed, engineered, manufactured, installed or marketed by the Company or its subsidiaries and such Affiliates during the period of employment of Employee and (y) any other business that is a material competitor of a material business that is conducted by the Company or its subsidiaries and such Affiliates during the period of employment of Employee (unless disposed of prior to Employee’s date of termination). Ownership by Employee of equity securities of the Company, or of equity securities in other public or privately-owned companies that compete with the Company constituting less than 1% of the voting securities in such companies, shall be deemed not to be a breach of this covenant. Employee agrees and stipulates that in any action or claim brought by Employee or in any action or claim brought against Employee involving the provisions of this Section 7, Employee hereby waives any claim or defense that the above non-competition covenants are unenforceable, void or voidable, for any reason, including, but not limited to, fraud, misrepresentation, illegality, unenforceable restraint of trade, failure of consideration, illusory contract, mistake, or any other substantive legal defense.

b.Employee shall not, directly or indirectly and whether on Employee’s own behalf or on behalf of any other person, partnership, association, corporation or other entity, either (i) seek to hire or solicit the employment or service of any employee, agent or consultant of the Company or its Affiliates in a commercial capacity; (ii) in any manner attempt to influence or induce any employee, agent or consultant of the Company or its Affiliates to leave the employment or service of the Company or its Affiliates; (iii) use or disclose to any person, partnership, association, corporation or other entity any information concerning the names and addresses of any employees, agents or consultants of the Company or its Affiliates unless such use or disclosure is of a personal nature, is requested by the Company or is required by due process of law; or (iv) call upon, solicit, divert or attempt to call upon, solicit or divert the business of any customer, vendor or acquisition prospect of the Company or any of its Affiliates with whom Employee dealt, directly or indirectly, during Employee’s engagement with the Company or its Affiliates. Employee shall not be prohibited from hiring or soliciting the employment or service of an agent or consultant of the Company or its Affiliates for purposes which do not violate Section 7 of this Agreement. Employee agrees and stipulates that in any action or claim brought by Employee or in any action or claim brought against Employee involving the provisions of this Section 7, Employee hereby

waives any claim or defense that the above non-solicitation covenants are unenforceable, void or voidable, for any reason, including, but not limited to, fraud, misrepresentation, illegality, unenforceable restraint of trade, failure of consideration, illusory contract, mistake, or any other substantive legal defense.

c.To the extent permitted by the law, Employee agrees to refrain from any criticisms or disparaging comments about the Company or any Affiliates (including any current officer, director or employee of the Company), and Employee agrees not to take any action, or assist any person in taking any other action, that is adverse to the interests of the Company or any Affiliate or inconsistent with fostering the goodwill of the Company and its Affiliates; provided, however, that nothing in this Agreement shall apply to or restrict in any way the communication of information by the Company or Employee to any state or federal law enforcement, regulatory or judicial agency or official or to the Board or senior management of the Company or require notice to the Company thereof, and Employee will not be in breach of the covenant contained above solely by reason of testimony which is compelled by process of law. Nothing in this paragraph restricts, or is intended to restrict, any rights of Employee that cannot be lawfully restricted. Nothing in this Agreement shall be interpreted in a manner that limits or restricts Employee from exercising any legally protected whistleblower rights (including pursuant to Rule 21F promulgated under the Securities Exchange Act of 1934, as amended).

The foregoing covenants in this Section 7 shall remain in effect (i) during the period of employment of Employee by the Company, and (ii) for a period of two (2) years following Employee’s termination of employment (whether initiated by Employee or by the Company) for any reason (the “Restricted Period”). The foregoing covenants in Section 6 and this Section 7 shall not apply to Employee’s good faith performance of her duties during the term of this Agreement for the benefit of the Company or its Affiliates.

d.In the event of termination of Employee’s employment for any reason (other than death), Employee agrees to cooperate with the Company and to be reasonably available to the Company for a reasonable period of time thereafter with respect to matters arising out of Employee’s employment hereunder or any other relationship with the Company, whether such matters are business-related, legal, or otherwise. The Company shall reimburse Employee for all expenses incurred by Employee during such period in connection with such cooperation with the Company. Any such cooperation shall be (i) at reasonable times and locations, (ii) upon reasonable notice, and (iii) take into account any responsibilities to which Employee is subject to a subsequent employer or otherwise.

8.Consideration for Covenants; Reasonableness. Employee acknowledges and agrees as follows:

a.The Confidential Information of the Company and its Affiliates is unique and was developed or acquired by them through the expenditure of valuable time and resources; that the Company and its Affiliates derive independent economic value from this Confidential Information not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; that the Company and its Affiliates have taken all prudent and necessary measures to preserve the proprietary

and confidential nature of its Confidential Information, and that the covenants set forth in Sections 6 and 7 are the most reasonable, efficient and practical means to protect the Confidential Information.

b.The covenants set forth in Sections 6 and 7 are necessary to protect the goodwill of the Company and its Affiliates during the employment of Employee hereunder, and to ensure that such goodwill will be preserved and continued for the benefit of the Company and its Affiliates after Employee’s employment terminates.

c.Due to the nature of the business as heretofore conducted by the Company and its Affiliates and as contemplated to be continued and conducted by the Company and its Affiliates, the scope and the duration of the covenants set forth in Sections 6 and 7 of this Agreement are in all respects reasonable.

d.The covenants set forth in Sections 6 and 7 each constitute a separate agreement independently supported by good and adequate consideration and that each such agreement shall be severable from the other provisions of this Agreement and shall survive this Agreement. The existence of any claim or cause of action of Employee against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of the covenants and agreements of Employee set forth in Sections 6 and 7.

9.Surrender of Books and Records. Employee shall on the termination of Employee’s employment in any manner immediately surrender to the Company all lists, books, and records and other documents incident to the business of the Company and its Affiliates, and all other property belonging to any of them, it being understood that all such lists, books, records and other documents are the property of the Company and its Affiliates; provided, however, that Employee shall be permitted to retain a copy of her contacts and calendar as well as a copy of all publicly filed plans and agreements, benefit plans in which Employee participates, employee handbooks applicable to Employee and statements of Employee’s compensation and benefits that have been provided to Employee by the Company, its Affiliates or any of their designated plan service providers.

10.Waiver of Breach. The failure of the Company or Employee at any time to require performance by the other of any provision hereof shall in no way affect any of their respective rights thereafter to enforce the same, nor shall the waiver by the Company or Employee of any breach of any provision hereof be taken or held to be a waiver of any succeeding breach of any provision or as a waiver of the provision itself.

11.Remedies. In the event of Employee’s breach, or threatened breach, of any term or provision contained in Sections 6 or 7 of this Agreement, Employee agrees that the Company and its Affiliates shall suffer irreparable harm not compensable by damages or other legal remedies, and that accordingly the Company shall be entitled to both temporary and permanent injunctive relief without the necessity of independent proof by it as to the inadequacy of legal remedies or the nature or extent of the irreparable harm suffered by it. The right of the Company to such relief shall not be construed to prevent it from pursuing, either consecutively or concurrently, any and all other legal or equitable remedies available to it for such breach or threatened breach, specifically including,

without limitation, the recovery of monetary damages. Without limiting the generality of the relief that may be sought by the Company pursuant to this Section 11, if Employee intentionally and materially violates any provision of Section 6 or 7, the Company may, after (a) giving written notice to Employee of the Board’s reasonable, good faith belief that Employee has or is intentionally and materially violating any of the covenants contained in Section 6 or 7, upon delivery to Employee of a certified copy of a resolution of the Board adopted by the affirmative vote of a majority of the entire membership of the Board following a meeting at which Employee was given an opportunity to be heard on at least five (5) business days’ advance written notice finding that Employee was guilty of such conduct and specifying the particulars thereof, and (b) thereafter giving Employee 15 business days in which to cease and cure such violation, and Employee fails to cease and desist from such violation and/or does not, in the Board’s reasonable and good faith determination, cure such violation, immediately cease all payments that it may be providing to Employee pursuant to this Agreement and, at the reasonable and good faith demand of the Company, Employee shall be required to repay the severance payments that have been paid to Employee after such breach pursuant to Section 5 to the extent that the Company reasonably and in good faith determines that such repayment does not exceed the damages caused thereby; provided, however, that the foregoing shall be in addition to such other remedies as may be available to the Company and shall not be deemed to permit Employee to forego or waive such payments in order to avoid her obligations under Section 6 or 7; provided, further, that any Release previously executed by Employee shall continue in effect except that any such Release shall not preclude Employee from challenging, defending against, or asserting any claim, fact or circumstance related Company’s breach of this provision.

12.Severability. It is the desire and intent of the Parties that the provisions of Sections 6 and 7 be enforced to the fullest extent permissible under the laws and public policies of each jurisdiction in which enforcement is sought. If any provision of Sections 6 or 7 relating to the time period, scope of activities or geographic area of restrictions is declared by a court of competent jurisdiction to exceed the maximum permissible time period, scope of activities or geographic area, the same shall be reduced to the maximum which such court deems enforceable. If any provisions of Sections 6 and 7 other than those described in the preceding sentence are adjudicated to be invalid or unenforceable, the invalid or unenforceable provisions shall be deemed amended (with respect only to the jurisdiction in which such adjudication is made) in such manner as to render them enforceable and to effectuate as nearly as possible the intentions and agreement of the Parties. Furthermore, if any other provision contained in this Agreement should be held illegal, invalid or unenforceable in whole or in part by a court of competent jurisdiction, then it is the intent of the Parties hereto that the balance of this Agreement be enforced to the fullest extent permitted by applicable law and, in lieu of such illegal, invalid or unenforceable provision, there shall be added automatically as part of this Agreement, a provision as similar in its terms to such invalid provision as may be possible and be legal, valid, and enforceable.

13.Attorneys’ Fees. In the event of any suit or judicial proceeding (other than an arbitration proceeding) between the Parties hereto with respect to this Agreement, the court in which such suit is decided may award reasonable attorneys’ fees and costs, as

actually incurred and including, without limitation, attorneys’ fees and costs incurred in appellate proceedings to the party that prevails in such dispute.

14.Survival. Notwithstanding anything to the contrary contained herein, the provisions of this Agreement that contemplate performance by the Parties following termination of this Agreement (including without limitation Sections 5-7 and 28 hereof) shall survive the termination of this Agreement.

15.Notice. All notices hereunder shall be in writing and shall be delivered personally, sent by facsimile transmission or sent by certified, registered or overnight mail, postage prepaid. Such notices shall be deemed to have been duly given upon receipt, if personally delivered, upon telephonic confirmation of receipt if sent by facsimile transmission, and if mailed, five (5) days after the date of mailing (two (2) days in the case of overnight mail), in each case addressed to the Parties at the following addresses or at such other addresses as shall be specified in writing and in accordance with this Section:



If to Employee:						Address shown on the employment records of the Company

If to the Company:						Cornerstone Building Brands, Inc. 5020 Weston Parkway, Suite 400 Cary, North Carolina 27513 Telecopier: (919) 677-3914 Attention: Executive Vice President, General Counsel & Corporate Secretary

16.Entire Agreement. This Agreement supersedes any and all other agreements, either oral or written, between the Parties hereto with respect to the subject matter hereof, and contains all of the covenants and agreements between the Parties with respect thereto. Except as expressly provided herein, the specific arrangements referred to herein are not intended to exclude or limit Employee’s participation in other benefits available to Employee or personnel of the Company generally, or to preclude or limit other compensation or benefits as may be authorized by the Board at any time, or to limit or reduce any compensation or benefits to which Employee would be entitled but for the Agreement.

17.Modification. No change or modification of this Agreement shall be valid or binding upon the Parties hereto, nor shall any waiver of any term or condition in the future be so binding, unless such change or modification or waiver shall be in writing and signed by the Parties hereto.

18.Governing Law and Venue. This Agreement, and the rights and obligations of the Parties hereunder, shall be governed by and construed in accordance with the laws of the State of Delaware and venue for any action pursuant hereto shall be in the appropriate state or federal court in or for Wake County, North Carolina.

19.Acknowledgment Regarding Counsel. Each of the Parties to this Agreement acknowledges that each of them has had the opportunity to seek and has sought counsel to review this Agreement and to obtain and has obtained the advice of such counsel relating thereto.

20.Counterparts. This Agreement may be executed in counterparts, each of which shall constitute an original, but all of which shall constitute one and the same document.

21.Assignment. Subject to compliance with the provisions of this Agreement, the Company shall have the right to assign this Agreement and its obligations hereunder to any of their Affiliates. No such assignment shall operate to relieve the Company or any successor assignor from liability hereunder, and this Agreement shall remain an enforceable obligation of the Company and each such successor. The rights, duties and benefits to Employee hereunder are personal to Employee, and no such right or benefit may be assigned by Employee. For purposes of this Agreement, all references herein to the Company is deemed to be also a reference to any Affiliate of the Company that either has or is required to assume the obligations of the Company pursuant to this section.

22.Tax Withholding. The Company may withhold from any payments or benefits payable under this Agreement all federal, state, city or other taxes required to be withheld pursuant to any law or governmental regulation or ruling.

23.Payment by Subsidiaries. Employee acknowledges and agrees that the Company may satisfy its obligations to make payments to Employee under this Agreement by causing one or more of its subsidiaries or Affiliates to make such payments to Employee. Employee agrees that any such payment made by any such subsidiary or Affiliate shall fully satisfy and discharge the Company’s obligation to make such payment to Employee hereunder. In such event, references in this Agreement to benefits plans and policies “of the Company” shall be deemed to refer to the plans and policies of the applicable subsidiary or Affiliate.

24.Payment to Estate. If Employee dies prior to full satisfaction of the obligations owed to Employee under this Agreement, any monies that may be due Employee under this Agreement as of the date of Employee’s death will be paid to Employee’s estate.

25.Section 409A.

a.If Employee is a “specified employee,” as such term is defined in Section 409A and determined by the Company, and if any portion of the Severance Payment or Bonus Payment is subject to Section 409A, the character and timing of the payment thereof shall be as determined in this Section 25(a). It is hereby specified that as much of the Severance Payment and Bonus Payment as can be paid without the application of Section 409A(a)(2)(B)(i) and Treas. Reg. §1.409A-1(i) shall be paid at times consistent with Section 5.b or Section 5.c as applicable and without application of this Section 25. The remaining portion of the Severance Payment or Bonus Payment shall not be payable before the earlier of (i) the date that is six months after Employee’s termination, (ii) the date of Employee’s death, or (iii) one or more dates that otherwise comply with the requirements of Section 409A.

b.Employee and the Company agree that this Agreement is intended to comply with or be exempt from Section 409A and that any ambiguous provisions will be construed in a manner that is compliant with or exempt from the application of Section 409A. To the extent that any provision in this Agreement must be modified to comply with Section 409A (including, without limitation, Treasury Regulation 1.409A-3(c)), such provision shall be modified (with the mutual consent of the parties, which consent shall not be unreasonably withheld), as the case may be, in such a manner so that all payments due under this Agreement shall comply with Section 409A. Without limiting the generality of the immediately preceding sentence, it is intended that the Severance Payment, Bonus Payment and the Pro Rata Bonus shall be “short-term deferrals” within the meaning of Treas. Reg. §1.409A-1(b)(4) that are exempt from Section 409A. For purposes of Section 409A, each installment in a series of installment payments is intended to be a separate payment. In no event may Employee, directly or indirectly, designate the calendar year of payment. Notwithstanding anything contained herein to the contrary, Employee shall not be considered to have terminated employment with the Company for purposes of this Agreement unless the Employee would be considered to have incurred a “separation from service” from the Company within the meaning of Section 409A.

26.Captions. The captions, headings, and arrangements used in this Agreement are for convenience only and do not in any way affect, limit, amplify, or modify the terms and provisions hereof.

27.Binding Effect. This Agreement shall be binding upon the Parties hereto, together with their respective executors, administrators, successors, personal representatives, heirs and assigns.

28.Indemnification. The Company will indemnify Employee in respect of Employee’s services to the Company and its Affiliates to the same extent as all other directors and executive officers of the Company and its Affiliates, provided that, for avoidance of doubt, such indemnification shall not apply to a dispute between the Company and Employee, including without limitation any dispute as to the scope and extent and enforceability of any generally applicable clawback policy or provision against or in respect of Employee or the compensation of Employee. The indemnification provided by this Section 28 does not limit, and is not exclusive of, any other rights to which Employee may be entitled under the articles of incorporation, charter, bylaws, or the regulations of the Company or any Affiliate, or any agreement, vote of shareholders or disinterested directors, or otherwise, both as to action in Employee’s official capacity and as to action in another capacity while holding such office (including as a director, trustee, agent or fiduciary of the Company or any subsidiary or benefit plan thereof), and will continue as to Employee after Employee has ceased to be a director, trustee, officer, employee or agent and will inure to the benefit of Employee’s heirs, executors, and administrators. In particular, and without limiting Employee’s rights under this Section 28, Employee will additionally be entitled to the full benefit of any indemnification agreement provided by the Company or its Affiliates to its officers and directors and Employee shall participate in any director or officer insurance maintained by the Company and its Affiliates.

[Signature Page Follows]

IN WITNESS WHEREOF, the undersigned have executed this Agreement effective as of the date set forth herein.


EMPLOYEE

/s/ Rose Lee
Rose Lee


CORNERSTONE BUILDING BRANDS, INC.

By:	/s/ Alena Brenner
	Alena Brenner
	Executive Vice President, General Counsel
		and Corporate Secretary

APPENDIX A

DEFINITIONS

The following terms have the indicated meanings for purposes of this Agreement:

(a)“Affiliate” means any entity controlled by, controlling or under common control with a person or entity.

(b)“Bonus Plan” has the meaning set forth in Section 4.b.

(c) “Cause” shall mean any of the following occurring after the Commencement Date: (i) Employee’s willful and continued failure to substantially perform Employee’s duties and other obligations under this Agreement, if such failure continues for a period of thirty (30) days after written notice by the Company of the existence of such failure; (ii) Employee’s willful and material violation of the Company’s code of conduct or other material written policy of which Employee has notice, which violation is not cured within thirty (30) days after written notice by the Company of the existence of such violation; provided however, that only one such notice by the Company need be sent and, if such failure re-occurs thereafter, no further notice and opportunity to cure such failure shall be required; (iii) the willful engaging by Employee in material misconduct which (A) brings the Company or any of its Subsidiaries into public disgrace, or (B) harms the business operations of the Company or any of its Subsidiaries; (iv) Employee’s conviction for committing an act of fraud, embezzlement, theft or other act constituting a felony; or (v) the breach or failure by Employee to perform any of its material covenants contained in this Agreement or any other agreement to which the Company and the Employee are parties; provided, however, that the Board must first provide to Employee written notice clearly and fully describing the particular acts or omissions which the Board reasonably believes in good faith constitutes Cause hereunder, and providing an opportunity, within thirty (30) days following the receipt of such notice, to meet in person with the Board to explain the alleged acts or omissions relied upon by the Board and, to the extent practicable, to cure such acts or omissions. For purposes of this Agreement, any termination of Employee’s employment for Cause shall be effective only upon delivery to Employee of a certified copy of a resolution of the Board, adopted by the affirmative vote of a majority of the entire membership of the Board following a meeting at which Employee was given an opportunity to be heard on at least five (5) business days’ advance written notice, finding that Employee was guilty of the conduct constituting Cause, and specifying the particulars thereof. Further, for the purposes of this Agreement, no act or failure to act on Employee’s part shall be considered willful unless done, or omitted from being done, by Employee not in good faith and without reasonable belief that Employee’s action or omission was in the best interest of the Company.

(d)“Change in Control” has the meaning given to such term under the Equity Plan.

(e)“Confidential Information” means all information, whether oral or written, previously or hereafter developed, that relates to the business as heretofore conducted by the Company, or which is hereafter otherwise acquired or used by the Company or its subsidiaries and Affiliates, that is not generally known to others in the Company’s

area of business or, if known, was obtained wrongfully by such other person or entity or with knowledge that it was proprietary or confidential information of or relating to the business as heretofore conducted by the Company or of or relating to the business of the Company or its subsidiaries and Affiliates. Confidential Information shall include, without limitation, trade secrets, methods or practices, financial results or plans, customer or client lists, personnel information, information relating to negotiations with clients or prospective clients, proprietary software, databases, programming or data transmission methods, or copyrighted materials (including without limitation, brochures, layouts, letters, art work, copy, photographs or illustrations). It is expressly understood that the foregoing list shall be illustrative only and is not intended to be an exclusive or exhaustive list of Confidential Information.

(f)“Good Reason” means any of the following events that occurs without Employee’s prior written consent after the Commencement Date:

(i) any material reduction in the amount of Employee’s then current base salary or target bonus opportunity, in either case other than as part of a reduction of less than ten percent (10%) applied generally across-the-board to all of the senior executive officers of the Company;

(ii) (A) a material reduction in Employee’s title; or (B) a material, adverse reduction in the duties or responsibilities of Employee relative to Employee’s duties or responsibilities as described in Section 2 hereof;

(iii) the breach or failure by the Company to perform any of its material covenants contained in this Agreement or any other agreement to which the Company and the Employee are parties;

(iv) any relocation of Employee’s principal place of employment by more than fifty (50) miles, as long as such relocation increases Employee’s normal daily commute excluding, for the avoidance of doubt, the expected relocation referenced in Section 4(g) of this Agreement); or

(v) the Company’s failure to cause any successor to all or substantially all of the business or assets of the Company to expressly agree to assume the obligations of the Company under this Agreement, unless such assumption occurs automatically by operation of law.

In order for a termination of Employee to constitute a termination for Good Reason, Employee must notify the Company of the circumstances claimed to constitute Good Reason in writing not later than the ninetieth (90th) day after such circumstances have arisen or occurred and must provide the Company with at least thirty (30) days within which to cure such circumstances before terminating employment, and, failing a cure, Employee must terminate Employee’s employment within thirty (30) days following the expiration of such cure period.

(g)“Section 409A” means Section 409A of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder.

Appendix B

General Release

Release and Waiver of Claims. In consideration of the payments and benefits to which you are entitled under that certain Agreement, effective as of August 3, 2021 to which you and Cornerstone Building Brands, Inc. (the “Company”) are parties (the “Agreement”), you hereby waive and release and forever discharge the Company ad its (as applicable) parent entities, subsidiaries, divisions, limited partnerships, affiliated corporations, successors and assigns and their respective past and present directors, managers, officers, stockholders, partners, agents, employees, insurers, attorneys, and servants each in his, her or its capacity as such, and each of them, separately and collectively (collectively, “Releasees”), from any and all existing claims, charges, complaints, liens, demands, causes of action, obligations, damages and liabilities, known or unknown, suspected or unsuspected, whether or not mature or ripe, that you ever had and now have against any Releasee arising out of or in any way related to your employment with or separation from the Company, to any services performed for the Company, to any status, term or condition in such employment, or to any physical or mental harm or distress from such employment or non-employment or claim to any hire, rehire or future employment of any kind by the Company, all to the extent allowed by applicable law. This release of claims includes, but is not limited to, claims based on express or implied contract, compensation plans, covenants of good faith and fair dealing, wrongful discharge, claims for discrimination, harassment and retaliation, violation of public policy, tort or common law, whistleblower or retaliation claims; and claims for additional compensation or damages or attorneys’ fees or claims under federal, state, and local laws, regulations and ordinances, including but not limited to Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Americans with Disabilities Act, the Age Discrimination in Employment Act, the Worker Adjustment and Retraining Notification Act (“WARN”), or equivalent state WARN act, the Employee Retirement Income Security Act, and the Sarbanes-Oxley Act of 2002. You understand that this release of claims includes a release of all known and unknown claims through the date on which this release of claims becomes irrevocable.1

Limitation of Release: Notwithstanding the foregoing, this release of claims will not prohibit you from filing a charge of discrimination with the National Labor Relations Board, the Equal Employment Opportunity Commission or an equivalent state civil rights agency, but you agree and understand that you are waiving your right to monetary compensation thereby if any such agency elects to pursue a claim on your behalf. Further, nothing in this release of claims shall be construed to waive any right that is not subject to waiver by private agreement under federal, state or local employment or other laws, such as claims for workers’ compensation or unemployment benefits or any claims that may arise after the date on which this release of claims becomes irrevocable. In addition, nothing in this release of claims will be construed to affect any of the following claims, all rights in respect of which are reserved:

(a) Any payment or benefit set forth in the Agreement;

(b) Any rights as a shareholder of Cornerstone Building Brands, Inc.;

__________________________

1 Appropriate ADEA time periods to be covered so that the release has the intended effect.

(c) Reimbursement of unreimbursed business expenses properly incurred prior to the termination date in accordance with policy of the Company;

(d) Claims in respect of equity compensation owned by you;

(e) Vested benefits under the general employee benefit plans (other than severance pay or termination benefits under any general plan or policy of the Company, all rights to which are hereby waived and released);

(f) Any claim for unemployment compensation or workers’ compensation administered by a state government to which you are presently or may become entitled;

(g) Any claim that either of the Company has breached this release of claims; and

(h) Indemnification as a current or former director or officer of the Company or any of its subsidiaries (including as a fiduciary of any employee benefit plan), or inclusion as a beneficiary of any insurance policy related to your service in such capacity.

Exhibit 31.1

CERTIFICATION PURSUANT TO RULE 13a-14(b)/15d-14(a)

I, Rose Lee, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Cornerstone Building Brands, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 9, 2021


			/s/ Rose Lee
			Rose Lee
			President and Chief Executive Officer
			(Principal Executive Officer)

Exhibit 31.2

CERTIFICATION PURSUANT TO RULE 13a-14(b)/15d-14(a)

I, Jeffrey S. Lee, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Cornerstone Building Brands, Inc.;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 9, 2021


			/s/ Jeffrey S. Lee
			Jeffrey S. Lee
			Executive Vice President, Chief Financial Officer and Chief Accounting Officer
			(Principal Financial Officer)

Exhibit 32.1

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT

In connection with the quarterly report on Form 10-Q of Cornerstone Building Brands, Inc. (the “Company”) for the quarter ended October 2, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Rose Lee, Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:


			1.			I have reviewed this Report of the Company;


			2.			This Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


			3.			The information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 9, 2021


			/s/ Rose Lee
			Rose Lee
			President and Chief Executive Officer
			(Principal Executive Officer)

A signed original of this written statement required by Section 906 has been provided to Cornerstone Building Brands, Inc. and will be retained by Cornerstone Building Brands, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

This Certification shall not be deemed to be “filed” or part of the Report or incorporated by reference into any of the registrant’s filings with the Securities and Exchange Commission by implication or by any reference in any such filing to the Report.

Exhibit 32.2

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT

In connection with the quarterly report on Form 10-Q of Cornerstone Building Brands, Inc. (the “Company”) for the quarter ended October 2, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jeffrey S. Lee, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:


			1.			I have reviewed this Report of the Company;


			2.			This Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


			3.			The information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 9, 2021


			/s/ Jeffrey S. Lee
			Jeffrey S. Lee
			Executive Vice President, Chief Financial Officer and Chief Accounting Officer
			(Principal Financial Officer)