What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-07-01 compared with 2021-01-07 · 64 added, 125 removed, 91 unchanged (68% of the section changed)

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Forward-looking statements

This discussion contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

This Quarterly Report on Form 10-Q, including the section Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

These statements reflect our current views with respect to future events and financial performance.

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We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

We are a leader in certain technologies involving the design and development of value-added glass and metal products and services for enclosing commercial buildings and framing and displays.

We are a leader in the design and development of value-added glass and metal products and services for enclosing commercial buildings and framing and displays.

Our four reporting segments are:

Architectural Framing Systems, Architectural Glass, Architectural Services and Large-Scale Optical (LSO).

The ongoing COVID-19 pandemic continues to cause volatility and uncertainty in global and domestic markets impacting worldwide economic activity.

We have experienced some delays in commercial construction projects and orders as a result of COVID-19.

In our Architectural Glass and Architectural Framing segments, orders have been delayed or have slowed, as

customers and end markets face some uncertainty and delays in timing of work.

In our Architectural Services segment, some construction site closures or project delays have occurred, and job sites have had to adjust to increased physical distancing and health-related precautions.

Within our Large-Scale Optical (LSO) segment, most customers reopened and the segment's two manufacturing locations resumed normal operations during our second fiscal quarter, after being shutdown for most of our first and second quarters due to governmental orders.

We have also been impacted by quarantine-related absenteeism among our workforce, resulting in labor and capacity constraints at some of our facilities.

The extent to which COVID-19 will continue to impact our business will depend on future developments and public health advancements, which have been buoyed recently by the commencement of vaccine production and distribution.

In response to COVID-19, we have implemented a variety of countermeasures to promote the health and safety of our employees during this pandemic, including health screening, physical distancing practices, enhanced cleaning, use of personal protective equipment, business travel restrictions, and remote work capabilities, in addition to quarantine-related paid leave and other employee assistance programs.

The following selected financial data should be read in conjunction with the Company’s Form 10-K for the year ended February 27, 2021 and the consolidated financial statements, including the notes to consolidated financial statements, included therein.

Highlights of Third Quarter of Fiscal 2021 Compared to Third Quarter of Fiscal 2020

Consolidated net sales decreased 7.2 percent, or $24.3 million, and decreased 12.2 percent, or $128.2 million, for the three- and nine-month periods ended November 28, 2020, respectively, compared to the same periods in the prior year, primarily reflecting end market and COVID-19-related volume declines in the Architectural Framing Systems and Architectural Glass segments.

Highlights of First Quarter of Fiscal 2022 Compared to First Quarter of Fiscal 2021

Consolidated net sales increased 12.8 percent, or $36.9 million, for the three-month period ended May 29, 2021, compared to the same period in the prior year, primarily driven by volume growth in the LSO, Architectural Services and Architectural Glass segments.

LSO was closed for most of the first quarter of fiscal 2021, due to COVID-19.

The relationship between various components of operations, as a percentage of net sales, is presented below:

Three Months Ended Nine Months Ended

November 28, 2020 November 30, 2019 November 28, 2020 November 30, 2019

Three Months Ended

May 29, 2021 May 30, 2020

Net sales 100.0 % 100.0 %

Cost of sales 79.2 79.2

Gross profit 22.2 22.0 22.3 23.0

Gross margin 20.8 20.8

Selling, general and administrative expenses 15.8 18.6

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Effective tax rate 25.3 % 28.2 %

Gross profit as a percent of sales was 22.2 percent and 22.3 percent for the three- and nine-month periods ended November 28, 2020, compared to 22.0 percent and 23.0 percent for the three- and nine-month periods ended November 30, 2019.

The increase in the third quarter of fiscal 2021 compared to the same period in fiscal 2020 was driven by strong project execution in the Architectural Services segment.

The decrease in the nine-month period of fiscal 2021 compared to fiscal 2020 was largely driven by lower volumes due to market-related and COVID-19 project delays.

Gross profit as a percent of sales (gross margin) was 20.8 percent in each of the three-month periods ended May 29, 2021 and May 30, 2020.

Gross margin was positively impacted by strong recovery of the LSO segment (which closed for most of the first quarter last year to comply with COVID-related directives) and improved margins in the Architectural Glass segment, which offset margin declines within the Architectural Framing Systems and Architectural Services segments.

Each of our segments experienced inflation in operating costs, especially freight and materials costs, during the quarter.

While we are undertaking measures to offset these costs, we expect this trend to continue through fiscal 2022.

Selling, general and administrative (SG&A) expenses

SG&A expenses as a percent of sales were 6.3 percent and 13.7 percent for the three- and nine-month periods ended November 28, 2020, compared to 15.6 percent and 16.1 percent for the prior year three- and nine-month periods.

SG&A decreased as a percent of sales compared to the same periods in the prior year primarily due to a $19.3 million gain on the sale-leaseback of a building and $7.4 million of income related to a New Markets Tax Credit transaction, both of which were recognized in the third quarter of fiscal 2021.

In addition, we received a benefit of $4.2 million during the third quarter of fiscal 2021, and $5.5 million year-to-date in fiscal 2021, from a Canadian wage subsidy program offered to support Canadian businesses due to the widespread impacts of the COVID-19 pandemic.

In total, these items had a favorable impact on SG&A as a percentage of sales

of 9.9 percentage points and 3.5 percentage points for the three- and nine-month periods ended November 28, 2020, respectively.

SG&A expenses as a percent of sales were 15.8 percent for the three-month period ended May 29, 2021, compared to 18.6 percent for the prior year three-month period.

SG&A decreased as a percent of sales compared to the same period in the prior year primarily due to ongoing well controlled spending across all segments of the business, as well as a benefit of $2.7 million during the first quarter of fiscal 2022, from a Canadian wage subsidy program offered to support Canadian businesses due to the ongoing impacts of the COVID-19 pandemic.

Income tax expense

The effective tax rate in the third quarter of fiscal 2021 was 23.5 percent, compared to 23.2 percent in the same period last year, and 23.8 percent for the first nine months of fiscal 2021, compared to 23.9 percent in the prior year period.

The effective tax rate in the first quarter of fiscal 2022 was 25.3 percent, compared to 28.2 percent in the same period last year, primarily due to favorable provisions in the Coronavirus, Aid, Relief and Economic Security Act ("CARES Act") impacting the first quarter of fiscal 2022 and the negative impact of unfavorable permanent items in relation to reduced earnings in the first quarter of fiscal 2021.

Segment Analysis

Architectural Framing Systems

Three Months Ended Nine Months Ended

(In thousands) November 28, 2020 November 30, 2019 % Change November 28, 2020 November 30, 2019 % Change

Three Months Ended

(In thousands) May 29, 2021 May 30, 2020 % Change

Net sales $ 151,840 $ 150,164 1.1 %

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Operating margin 5.3 % 4.9 %

Architectural Framing Systems net sales declined $28.8 million, or 17.4 percent, and $93.7 million, or 17.6 percent, for the three- and nine-month periods ended November 28, 2020, compared to the prior-year periods, primarily reflecting market-related and COVID-19 project delays and lower order volume for short lead-time products.

Operating margin increased 150 basis points for the three-month period of the current year and decreased 40 basis points for the nine-month period of the current year, compared to the same periods in the prior year.

The increase in the third quarter of fiscal 2021 compared to the third quarter of fiscal 2020 was due to cost actions and improved productivity that served to offset the impact of volume declines from end market softness and COVID-19.

The decrease in the nine-month period in the current year compared to the same period in the prior year reflects leverage on the lower revenue, partially offset by cost reduction actions and improved productivity.

In addition, this segment benefited from a Canadian wage subsidy of $4.2 million in the third quarter of fiscal 2021 and $5.5 million for the nine-month period of fiscal 2021, as a result of a Canadian program offered to support Canadian businesses due to the widespread impacts of the COVID-19 pandemic.

As of November 28, 2020, segment backlog was approximately $408 million, compared to approximately $404 million at the end of the prior quarter, and $375 million at the end of the third quarter of the prior year.

Architectural Framing Systems net sales increased $1.7 million, or 1.1 percent, for the three-month period ended May 29, 2021, compared to the prior-year period, primarily reflecting improved pricing.

This improvement was partially offset by unfavorable project performance and mix, compared to the prior-year period.

Operating margin increased 40 basis points for the three-month period of the current year, compared to the same period in the prior year, reflecting benefits from cost-saving actions, which offset increased costs for materials and freight.

In addition, this segment benefited from a Canadian wage subsidy of $2.7 million in the first quarter of fiscal 2022, as a result of a program to support Canadian businesses due to the ongoing impacts of the COVID-19 pandemic.

As of May 29, 2021, segment backlog was approximately $423 million, compared to approximately $411 million at the end of the prior quarter, and $421 million at the end of the first quarter of the prior year.

Backlog represents the dollar amount of signed contracts or firm orders, generally as a result of a competitive bidding process, which may be expected to be recognized as revenue in the future.

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Architectural Glass

Three Months Ended Nine Months Ended

(In thousands) November 28, 2020 November 30, 2019 % Change November 28, 2020 November 30, 2019 % Change

Three Months Ended

(In thousands) May 29, 2021 May 30, 2020 % Change

Net sales $ 83,031 $ 76,911 8.0 %

Operating income 10,825 4,092 164.5 % 15,306 16,951 (9.7) %

Operating income 2,128 (494) N/M

Operating margin 2.6 % (0.6) %

Net sales decreased $4.7 million, or 5.2 percent, and $40.6 million, or 14.1 percent, for the three- and nine-month periods ended November 28, 2020, compared to the same periods in the prior year.

The decreases reflect lower volumes primarily due to market-related and COVID-19 project delays.

Operating margin increased 820 and 30 basis points for the three- and nine-month periods of the current year, compared to the same periods in the prior year.

Fiscal 2021 third quarter results included $7.4 million of operating income related to a New Markets Tax Credit transaction.

In addition, operating margins in both periods of the current year were impacted by volume declines due to end market softness and COVID-19.

Net sales increased $6.1 million, or 8.0 percent, for the three-month period ended May 29, 2021, compared to the same period in the prior year, driven by increased volume and a more favorable sales mix.

Segment operating income increased to $2.1 million, with operating margin of 2.6 percent, for the three-month period ended May 29, 2021, compared to an operating loss of $0.5 million and operating margin of (0.6) percent in the same period of the prior year.

The improved profitability was driven by increased productivity in core glass operations, the more favorable sales mix, and higher volumes, which offset the impact of higher material and freight costs.

Architectural Services

Three Months Ended Nine Months Ended

(In thousands) November 28, 2020 November 30, 2019 % Change November 28, 2020 November 30, 2019 % Change

Three Months Ended

(In thousands) May 29, 2021 May 30, 2020 % Change

Net sales $ 75,656 $ 63,551 19.0 %

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Operating margin 6.0 % 8.4 %

Architectural Services net sales increased $7.6 million, or 11.1 percent, and $18.1 million, or 9.3 percent, for the three- and nine-month periods ended November 28, 2020, compared to the same periods in the prior year, driven by increased volume from executing projects in backlog.

Operating margin increased 170 and 190 basis points for the three- and nine-month periods of the current year, compared to the same periods in the prior year, primarily driven by strong project execution.

As of November 28, 2020, segment backlog was approximately $597 million, compared to approximately $665 million as of the end of the prior quarter, and $607 million at the end of the third quarter of the prior year.

Architectural Services net sales increased $12.1 million, or 19.0 percent, for the three-month period ended May 29, 2021, compared to the same period in the prior year, driven by increased volume from executing projects in backlog.

Operating margin decreased 240 basis points to 6.0 percent for the three-month period of the current year, compared to the same period in the prior year, primarily reflecting isolated performance challenges on certain projects and a less favorable project mix.

As of May 29, 2021, segment backlog was approximately $559 million, compared to approximately $571 million as of the end of the prior quarter, and $685 million at the end of the first quarter of the prior year.

Backlog is described within the Architectural Framing Systems discussion above.

Large-Scale Optical (LSO)

Three Months Ended Nine Months Ended

(In thousands) November 28, 2020 November 30, 2019 % Change November 28, 2020 November 30, 2019 % Change

Three Months Ended

(In thousands) May 29, 2021 May 30, 2020 % Change

Net sales $ 24,228 $ 6,312 283.8 %

Operating income 26,114 6,754 286.6 % 25,131 15,561 61.5 %

Operating income (loss) 5,847 (3,132) N/M

Operating margin 24.1 % (49.6) %

LSO net sales increased $0.9 million or 3.5 percent, and decreased $18.0 million, or 27.1 percent, for the three- and nine-month periods ended November 28, 2020, compared to the same periods in the prior year.

In the third quarter, customer demand increased significantly following the segment's COVID-related shutdown earlier in the year.

The decrease in sales for the current year nine-month period compared to the same period in the prior year reflects the required COVID-related closure of most of the segment’s customers and the segment’s manufacturing locations for most of the first and second quarters of fiscal 2021.

The segment had operating income of $26.1 million and $25.1 million and operating margin of 103.4 percent and 51.9 percent for the three- and nine-month periods ended November 28, 2020, respectively, compared to operating income of $6.8 million and $15.6 million and operating margin of 27.7 percent and 23.4 percent in the same periods in the prior year.

The increases for the fiscal 2021 periods are primarily related to a $19.3 million gain on the sale-leaseback of a segment building during the current year third quarter.

Additionally, operating margin in the nine-month period reflects the impact of the segment's temporary shutdown and the related impact from lower volume.

LSO net sales increased $17.9 million or 283.8 percent, for the three-month period ended May 29, 2021, compared to the same period in the prior year.

In the prior year first quarter, the segment's customers and manufacturing operations were closed for a large part of the quarter to comply with COVID-related government directives.

The segment had operating income of $5.8 million and operating margin of 24.1 percent for the three-month period ended May 29, 2021, compared to operating loss of $3.1 million and operating margin of (49.6) percent in the same period of the prior year primarily driven by the increased sales volume.

Liquidity and Capital Resources

Selected cash flow data Nine Months Ended

(In thousands) November 28, 2020 November 30, 2019

Selected cash flow data Three Months Ended

(In thousands) May 29, 2021 May 30, 2020

Operating Activities

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Capital expenditures (4,705) (8,606)

Proceeds from sale of property, plant and equipment 23,724 591

Financing Activities

Borrowings on line of credit — 139,500

(Repayment) borrowings on debt (5,400) 150,000

Payments on line of credit — (146,500)

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Operating Activities.

Cash provided by operating activities was $120.5 million for the first nine months of fiscal 2021, an increase of $66.9 million compared to the prior-year period, reflecting strong working capital management.

Net cash provided by operating activities was $6.9 million for the first three months of fiscal 2022, a decrease of $17.1 million compared to the prior-year period, reflecting increased working capital needs related to revenue growth.

Investing Activities.

Net cash provided by investing activities was $5.5 million for the first nine months of fiscal 2021, driven by proceeds of $23.7 million on the sale-leaseback of a building, offset by capital expenditures of $17.1 million.

In the first nine months of the prior year, net cash used by investing activities was $41.4 million, driven by capital expenditures of $41.2 million.

Given the uncertain economic environment in fiscal 2021, we will continue to limit our capital spending to all health and safety related investments as well as the most critical high return projects that support our long-term strategic plan and profitable growth targets.

Net cash used by investing activities was $4.1 million for the first three months of fiscal 2022, driven by capital expenditures of $4.7 million.

In the first three months of the prior year, net cash used by investing activities was $9.7 million, driven by capital expenditures of $8.6 million.

Financing Activities.

Net cash used by financing activities was $85.7 million for the first nine months of fiscal 2021, compared to $30.9 million in the prior-year period, primarily due to $47.5 million of net payments in the current year, compared to net borrowings of $5.5 million in the prior-year period.

At November 28, 2020, we were in compliance with the financial covenants under our revolving credit facility and term loan.

We paid dividends totaling $14.5 million ($0.5625 per share) in the first nine months of fiscal 2021, compared to $13.8 million ($0.5250 per share) in the comparable prior-year period.

During the first nine months of fiscal 2021, we repurchased 852,029 shares under our authorized share repurchase program, for a total cost of $20.7 million.

In the first nine months of fiscal 2020, we repurchased 531,997 shares under the share repurchase program, for a total cost of $20.0 million.

Net cash used by financing activities was $14.3 million for the first three months of fiscal 2022, compared to $17.3 million in the prior-year period, reflecting both borrowings and debt repayments in the prior year, and higher share repurchases in the current year first quarter.

At May 29, 2021, we were in compliance with the financial covenants under our revolving credit facility and term loan.

We paid dividends totaling $5.0 million ($0.2000 per share) in the first three months of fiscal 2022, compared to $4.9 million ($0.1875 per share) in the comparable prior-year period.

During the first three months of fiscal 2022, we repurchased 341,000 shares under our authorized share repurchase program, for a total cost of $12.2 million.

In the first three months of fiscal 2021, we repurchased 231,492 shares under the share repurchase program, for a total cost of $4.7 million.

Since the inception of the share repurchase program in 2004, we have purchased a total of 7,473,616 shares, at a total cost of $219.5 million.

We currently have remaining authority to repurchase an additional 776,384 shares under this program.

We will continue to evaluate making future share repurchases, considering our cash flow, debt levels and market conditions, including the continuing effects of the COVID-19 pandemic, in the context of all our capital allocation options ensuring that we maximize the long-term value for our shareholders.

We will continue to evaluate making future share repurchases, considering our cash flow, debt levels and market conditions, in the context of all our capital allocation options ensuring that we maximize the long-term value for our shareholders.

Other Financing Activities.

The following summarizes our significant contractual obligations that impact our liquidity as of November 28, 2020:

The following summarizes our significant contractual obligations that impact our liquidity as of May 29, 2021:

Payments Due by Fiscal Period

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We expect to make contributions of $0.7 million to our defined-benefit pension plans in fiscal 2022, which will equal or exceed our minimum funding requirements.

As of November 28, 2020, we had reserves of $4.3 million for unrecognized tax benefits.

We expect approximately $0.4 million of the unrecognized tax benefits to lapse during the next 12 months.

As of May 29, 2021, we had reserves of $3.8 million for unrecognized tax benefits.

We are unable to reasonably estimate in which future periods the remaining unrecognized tax benefits will ultimately be settled.

We are required, in the ordinary course of business, to provide surety or performance bonds that commit payments to our customers for any non-performance.

At November 28, 2020, $1.1 billion of these types of bonds were outstanding, of which $527.8 million is in our backlog.

At May 29, 2021, $1.2 billion of these types of bonds were outstanding, of which $527.3 million is in our backlog.

These bonds do not have stated expiration dates.

We have never been required to make payments under surety or performance bonds with respect to our existing businesses.

We are taking advantage of the option to defer remittance of the employer portion of Social Security tax as provided in the Coronavirus, Aid, Relief and Economic Security Act ("CARES Act"), and estimate that this deferral will allow us to retain approximately $13 million in cash during calendar year 2020 that would have otherwise been remitted to the federal government.

At the end of the third quarter of fiscal 2021, we had deferred tax payments of $11.8 million, which are included within other non-current liabilities on our consolidated balance sheets.

The deferred tax payments will be repaid equally in calendar years 2021 and 2022.

The CARES Act, along with other foreign government initiatives, also provides for job retention programs, which have allowed some of our businesses to receive payroll tax credits or subsidies during calendar year 2020.

During calendar 2020, we took advantage of the option to defer remittance of the employer portion of Social Security tax as provided in the CARES Act.

This deferral allowed us to retain cash during calendar year 2020 that would have otherwise been remitted to the federal government.

At the end of fiscal 2021, we had deferred tax payments of $13.6 million, which are included within accrued payroll and other benefits and other non-current liabilities on our consolidated balance sheets.

The deferred tax payments will be repaid in two equal portions in calendar years 2021 and 2022.

Due to our ability to generate strong cash from operations and our borrowing capability under our committed revolving credit facility, we believe that our sources of liquidity will continue to be adequate to fund our working capital requirements, planned capital expenditures and dividend payments for at least the next 12 months.

COVID-19 Consideration.

While we believe we have adequate sources of liquidity to continue to fund our business for at least the next 12 months, the extent to which the ongoing COVID-19 pandemic may impact our results of operations or liquidity is uncertain.

To date, we have experienced some delays in commercial construction projects and orders due to COVID-19.

While the construction and construction-related industries are considered an "essential business or service" in most jurisdictions in which we operate, the uncertain economic environment has resulted in order delays and there have been instances of site closures and project delays.

Increased social distancing and health-related precautions are required on many work sites, which have caused and may continue to cause additional project delays and additional costs to be incurred.

Within the LSO segment, after being closed for most of the first and second quarters, we resumed normal operations at the segment's two manufacturing locations and most of our customer's retail locations continue to operate after being required to close earlier this year.

We expect this global pandemic to continue to have an impact on our revenue and our results of operations, the size and duration of which we are currently unable to predict.

At this time, we do not expect that the impact from the coronavirus pandemic will have a significant effect on our liquidity.

As demonstrated so far this fiscal year, we have taken steps to increase available cash on hand including, but not limited to, active working capital management and targeted reductions in discretionary operating expenses and capital expenditures.

Given the continuously evolving developments with respect to this pandemic, we cannot reasonably estimate the magnitude of the impact to our results of operations, liquidity or financial position.

To the extent that our customers and suppliers are adversely impacted by the COVID-19 pandemic, this could reduce the availability, or result in delays, of materials or supplies, or delays in customer payments, which in turn could materially interrupt our business operations, thereby negatively affecting our results of operations, and/or impact our liquidity.

The extent to which COVID-19 will continue to impact our business will depend on future developments and public health advancements, which have been buoyed by vaccine production and distribution.

Off-balance sheet arrangements.

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.

Our full-year earnings guidance is a range of $2.20 to $2.40 per diluted share.

This guidance includes $7 to $10 million of expected pre-tax costs related to investments in transformation initiatives.

We continue to expect a full-year tax rate of approximately 24.5 percent, and full-year capital expenditures of approximately $45 million.

Related Party Transactions

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Critical Accounting Policies

No material changes have occurred in the disclosure of our critical accounting policies set forth in our Annual Report on Form 10-K for the fiscal year ended February 29, 2020, other than as described in our Current Report on Form 10-Q for the fiscal quarter ended May 30, 2020 and as noted below.

Goodwill and indefinite-lived intangible asset impairment

We have historically evaluated goodwill for impairment annually at our year-end, or more frequently if events or changes in circumstances indicate the carrying value of the goodwill may not be recoverable.

In the third quarter of fiscal 2021, we changed the date of our annual goodwill impairment testing from our year-end to the first day in our fiscal fourth quarter.

This change results in better alignment of the annual impairment testing with our strategic and annual planning processes.

This change was determined to not be material and had no impact on our current or historical consolidated financial statements.

During the first quarter of fiscal 2021, we identified qualitative indicators of impairment, including a significant decline in our stock price and market capitalization, along with concerns resulting from the COVID-19 pandemic at four of our nine identified reporting units.

Therefore, we performed an interim goodwill impairment evaluation as of May 30, 2020.

Based on the results of the interim quantitative goodwill impairment analysis, the estimated fair value of each reporting unit exceeded its carrying value and, therefore, goodwill impairment was not indicated as of May 30, 2020.

However, the estimated fair value did not exceed carrying value by a significant margin at two reporting units within the Architectural Framing Systems segment, EFCO and Sotawall, which had goodwill balances of $90.4 million and $26.7 million, respectively, at May 30, 2020.

We utilized a discount rate of 11.0 percent in determining the discounted cash flows for EFCO and a discount rate of 10.4 percent in determining the discounted cash flows for Sotawall.

We utilized a long-term growth rate of 3.0 percent in our fair value analysis for all reporting units.

If our discount rates were to increase by 100 basis points at Sotawall and EFCO, the fair value of these reporting units would fall below carrying value, which would indicate impairment of the goodwill.

Additionally, this discounted cash flow analysis is dependent upon achieving forecasted levels of revenue and profitability.

If revenue or profitability were to fall below forecasted levels, or if market conditions were to decline in a material or sustained manner, impairment could be indicated at these reporting units, and potentially at other reporting units.

During the third quarter, we combined two reporting units into one reporting unit, following certain structural and leadership changes at the Company, specifically within the Architectural Framing Systems segment.

Within this segment, as a result of integration efforts that are ongoing, leadership over our Tubelite and Alumicor reporting units has been combined and functional leaders in areas such as operations, sales, marketing and general and administrative areas are responsible for allocating resources and reviewing results of the combined business.

The goodwill of these individual reporting units was aggregated to the combined reporting unit.

We evaluated goodwill on a qualitative basis prior to and subsequent to this change and have concluded that no adjustment to the carrying value of goodwill was necessary as a result of this change.

In addition, no qualitative indicators of impairment were identified during the third quarter, and therefore, no interim quantitative goodwill impairment evaluation was performed.

Indefinite-lived intangible assets

We hold intangible assets for certain acquired trade names and trademarks which are determined to have indefinite useful lives.

Similar to the change in goodwill measurement date discussed above, we historically evaluated the reasonableness of the useful life and tested indefinite-lived intangible assets for impairment annually at our year-end, or more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired.

In the third quarter of fiscal 2021, we changed the date of our annual impairment testing from our year-end to the first day in our fiscal fourth quarter.

During the first quarter of fiscal 2021, we identified qualitative indicators of impairment, including deteriorating macroeconomic conditions resulting from the COVID-19 pandemic.

Therefore, the Company performed a quantitative indefinite-lived intangible asset impairment evaluation as of May 30, 2020.

If the carrying amount of an indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.

If an impairment loss is recognized, the adjusted carrying amount becomes the asset's new accounting basis.

Fair value is measured using the relief-from-royalty method.

This method assumes the trade name or trademark has value to the extent that the owner is relieved of the obligation to pay royalties for the benefits received from the asset.

This method requires us to estimate the future revenue from the related asset, the appropriate royalty rate, and the weighted average cost of capital.

The assessment of fair value involves significant judgment and projections about future performance.

In determining the discounted future revenue in our fair value analysis, we used discount rates that are appropriate with the risks and uncertainties inherent in the respective businesses in the range of 10.9 percent to 11.5 percent, royalty rates of 1.5 to 2.0 percent, and a long-term growth rate of 3.0 percent.

Based on our analysis at May 30, 2020, the fair value of each of our trade names exceeded its carrying amount and impairment was not indicated.

During the third quarter of fiscal 2021, no additional qualitative indicators of impairment were identified and therefore, no interim quantitative indefinite-lived intangible asset impairment evaluation was completed.

We continue to conclude that the useful life of our indefinite-lived intangible assets is appropriate.

If future revenue were to fall below forecasted levels or if market conditions were to decline in a material or sustained manner, due to COVID-19 or otherwise, impairment could be indicated on one or more of our indefinite-lived intangible assets.

There have been no material changes to our critical accounting policies from those disclosed in our Annual Report on Form 10-K for the fiscal year ended February 27, 2021.

Quantitative and Qualitative Disclosures About Market Risk

No material changes have occurred to the disclosures of quantitative and qualitative market risk set forth in our Annual Report on Form 10-K for the fiscal year ended February 29, 2020.

Refer to the Company’s Annual Report on Form 10-K for the fiscal year ended February 27, 2021 for a complete discussion on the Company’s market risk.

There have been no material changes in market risk from those disclosed in our Annual Report on Form 10-K for the fiscal year ended February 27, 2021.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis