What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-09-30 compared with 2021-07-01 · 69 added, 61 removed, 94 unchanged (58% of the section changed)

18 unchanged sentences

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 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.

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

Consolidated net sales increased 2.0 percent, or $6.3 million, and increased 7.1 percent, or $43.2 million, for the three- and six-month periods ended August 28, 2021, compared to the same periods in the prior year, primarily driven by volume growth in the Architectural Services and LSO segments.

LSO was closed for most of the first and second quarters 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

May 29, 2021 May 30, 2020

Three Months Ended Six Months Ended

August 28, 2021 August 29, 2020 August 28, 2021 August 29, 2020

Net sales 100.0 % 100.0 % 100.0 % 100.0 %

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Selling, general and administrative expenses 15.7 16.6 15.8 17.5

Operating income 4.9 2.2

Operating (loss) income (0.9) 7.3 2.0 4.9

Interest expense, net 0.3 0.4 0.4 0.5

Other income, net 0.1 0.4

Earnings before income taxes 4.4 1.4

Income tax expense 1.1 0.4

Net earnings 3.3 % 1.0 %

Other income (expense), net — 0.4 — —

(Loss) earnings before income taxes (1.2) 7.2 1.6 4.5

Income tax (benefit) expense (0.6) 1.7 0.3 1.1

Net (loss) earnings (0.6) % 5.5 % 1.3 % 3.4 %

Effective tax rate 47.6 % 23.7 % 16.8 % 24.4 %

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.

Gross profit as a percent of sales (gross margin) was 14.7 percent and 17.8 percent for the three- and six-month periods ended August 28, 2021, compared to 23.8 percent and 22.4 percent for the three- and six-month periods ended August 29, 2020.

Gross margin decreased in the current year three- and six-month periods compared to the prior year, primarily due to $18.5 million of restructuring charges included in cost of goods sold incurred during the second quarter of fiscal 2022, as well as inflationary pressure on raw materials and freight within the Architectural Glass and Architectural Framing Systems segments.

These costs were partially offset by positive impacts from continued recovery of the LSO segment (which closed for most of the first and second quarters last year, based on COVID-related government directives).

Selling, general and administrative (SG&A) expenses

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.

SG&A expenses as a percent of sales were 15.7 percent and 15.8 percent for the three- and six-month periods ended August 28, 2021, compared to 16.6 percent and 17.5 percent for the prior year three- and six-month periods.

SG&A decreased as a percent of sales compared to the same period in the prior year primarily due to ongoing controlling of spending across all segments of the business, partially offset by higher Corporate and other costs related to investments in transformation initiatives and increased health care costs.

In addition, we recognized a benefit of $1.8 million and $4.5 million during the three- and six-month periods ended August 28, 2021, respectively, compared to $1.3 million in the prior year three- and six-month periods, 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 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.

The effective income tax rate in the second quarter of fiscal 2022 was a benefit of 47.6 percent, compared to expense of 23.7 percent in the same period last year.

During the second quarter, the tax rate was favorably impacted by the release of a $1.2 million valuation allowance on certain state net operating losses, which is the result of tax planning identified due to the realignment and simplification of our business structure.

The effective tax rate was 16.8 percent for the first six months of fiscal 2022, compared to 24.4 percent in the prior year period, with the rate decrease also primarily related to the release of the valuation allowance, as well as lower year-to-date net income.

Segment Analysis

Architectural Framing Systems

Three Months Ended

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

Three Months Ended Six Months Ended

(In thousands) August 28, 2021 August 29, 2020 % Change August 28, 2021 August 29, 2020 % Change

Net sales $ 149,972 $ 152,927 (1.9) % $ 301,812 $ 303,091 (0.4) %

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Operating margin 5.5 % 7.6 % 5.4 % 6.3 %

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.

Architectural Framing Systems net sales decreased $3.0 million, or 1.9 percent, and decreased $1.3 million, or 0.4 percent for the three- and six-month periods ended August 28, 2021, compared to the prior-year periods, primarily reflecting lower volume, partially offset by improved pricing.

Operating margin decreased 210 basis points and 90 basis points for the three- and six-month periods of the current year, compared to the same periods in the prior year, reflecting increased costs for materials and freight, the impact of lower volume, as well as $2.0 million of restructuring costs incurred during the current year second quarter, partially offset by improved pricing and benefits from restructuring actions implemented in fiscal 2021.

As previously announced, this segment incurred restructuring-related termination costs in the quarter related to realignment of the segment to increase focus on target markets, better serve customers, improve operational execution, and reduce overall costs.

In addition, this segment benefited from a Canadian wage subsidy of $1.8 million and $4.5 million during the three- and six-month periods ended August 28, 2021, respectively, compared to $1.3 million in the prior-year three- and six-month periods, as a result of a program to support Canadian businesses due to the ongoing impacts of the COVID-19 pandemic.

As of August 28, 2021, segment backlog was approximately $406 million, compared to approximately $423 million at the end of the prior quarter, and $404 million at the end of the second 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

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

Three Months Ended Six Months Ended

(In thousands) August 28, 2021 August 29, 2020 % Change August 28, 2021 August 29, 2020 % Change

Net sales $ 79,373 $ 86,584 (8.3) % $ 162,404 $ 163,495 (0.7) %

Operating income 2,128 (494) N/M

Operating (loss) income (16,995) 4,976 N/M (14,867) 4,482 N/M

Operating margin (21.4) % 5.7 % (9.2) % 2.7 %

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.

Net sales decreased $7.2 million, or 8.3 percent, and $1.1 million, or 0.7 percent, for the three- and six-month periods ended August 28, 2021, compared to the same period in the prior year, primarily reflecting lower volume.

In the current quarter, the segment had operating loss of $17.0 million and negative operating margin of 21.4 percent, compared to operating income of $5.0 million and operating margin of 5.7 percent in the same period of the prior year.

These results were primarily driven by $17.4 million of restructuring costs incurred during the current year second quarter, as well as increased costs for materials and freight, and the impact of lower volume and price, partially offset by an improved sales mix and increased factory productivity.

As previously announced, this segment incurred restructuring charges related to the closure of two operating facilities and the associated employee termination costs in the quarter.

This restructuring will enable the segment to emphasize more premium, high-performance products in its business.

For the six months ended August 28, 2021, the segment had an operating loss of $14.9 million and negative operating margin of 9.2 percent, compared to operating income of $4.5 million and operating margin of 2.7 percent in the prior year, primarily due to the restructuring costs incurred during the second quarter of the current year.

Architectural Services

Three Months Ended

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

Three Months Ended Six Months Ended

(In thousands) August 28, 2021 August 29, 2020 % Change August 28, 2021 August 29, 2020 % Change

Net sales $ 83,031 $ 73,670 12.7 % $ 158,686 $ 137,221 15.6 %

1 unchanged sentence

Operating margin 8.7 % 8.9 % 7.4 % 8.7 %

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.

Architectural Services net sales increased $9.4 million, or 12.7 percent, and $21.5 million, or 15.6 percent, for the three- and six-month periods ended August 28, 2021, compared to the same periods in the prior year, driven by increased volume from executing projects in backlog.

Operating margin decreased 20 basis points and 130 basis points for the three- and six-month periods of the current year, compared to the same periods in the prior year, primarily reflecting a less favorable project mix.

Additionally, the six-month period was negatively impacted by isolated performance challenges on certain projects experienced during the first quarter of fiscal 2022.

As of August 28, 2021, segment backlog was approximately $572 million, compared to approximately $559 million as of the end of the prior quarter, and $665 million at the end of the second quarter of the prior year.

Backlog is described within the Architectural Framing Systems discussion above.

Large-Scale Optical (LSO)

Three Months Ended

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

Three Months Ended Six Months Ended

(In thousands) August 28, 2021 August 29, 2020 % Change August 28, 2021 August 29, 2020 % Change

Net sales $ 23,543 $ 16,860 39.6 % $ 47,772 $ 23,171 106.2 %

1 unchanged sentence

Operating margin 23.3 % 12.7 % 23.7 % (4.2) %

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.

LSO net sales increased $6.7 million or 39.6 percent, and $24.6 million or 106.2 percent for the three- and six-month periods ended August 28, 2021, compared to the same periods in the prior year, reflecting favorable mix and increased volume, as demand recovered from the impact of COVID in the prior year.

In fiscal 2021, the segment's customers and manufacturing operations were closed for a large part of the first and second quarters to comply with COVID-related government directives.

In the current quarter, the segment had operating income of $5.5 million and operating margin of 23.3 percent, compared to operating income of $2.1 million and operating margin of 12.7 percent in the same period of the prior year, primarily driven by the improved sales mix and increased volume.

For the six months ended August 28, 2021, the segment had operating income of $11.3 million and operating margin of 23.7 percent, compared to operating loss of $1.0 million and negative operating margin of 4.2 percent, reflecting the improved mix and volume noted above.

Liquidity and Capital Resources

Selected cash flow data Three Months Ended

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

Selected cash flow data Six Months Ended

(In thousands) August 28, 2021 August 29, 2020

Operating Activities

8 unchanged sentences

Operating Activities.

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.

Net cash provided by operating activities was $54.9 million for the first six months of fiscal 2022, a decrease of $30.4 million compared to the prior-year period, reflecting a decline in net earnings of $11.8 million in the current-year period compared to the prior-year period, as well as, the impact of temporary actions related to COVID in the prior-year period.

Investing Activities.

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.

Net cash used by investing activities was $8.8 million for the first six months of fiscal 2022, driven primarily by capital expenditures of $10.1 million.

In the first six months of the prior year, net cash used by investing activities was $15.2 million, driven by capital expenditures of $14.2 million.

Capital expenditures in the current year declined $4.1 million from the prior year due to slower spending within the Architectural Glass segment.

Financing Activities.

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.

Net cash used by financing activities was $32.2 million for the first six months of fiscal 2022, compared to $66.1 million in the prior-year period, reflecting net debt repayments of $45 million in the prior year.

Additionally, in the first six months of the current year, we made share repurchases totaling $22.4 million, compared to $4.7 million in the prior year six-month period.

At August 28, 2021, we were in compliance with the financial covenants under our revolving credit facility and term loan.

We paid dividends totaling $10.1 million ($0.4000 per share) in the first six months of fiscal 2022, compared to $9.8 million ($0.3750 per share) in the comparable prior-year period.

During the first six months of fiscal 2022, we repurchased 589,533 shares under our authorized share repurchase program, for a total cost of $22.0 million.

In the first six 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 7,722,149 shares, at a total cost of $229.3 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, in the context of all our capital allocation options ensuring that we maximize the long-term value for our shareholders.

We currently have

remaining authority to repurchase an additional 527,851 shares under this program.

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, with the goal of maximizing long-term value for our shareholders.

Other Financing Activities.

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

The following summarizes our significant contractual obligations that impact our liquidity as of August 28, 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 May 29, 2021, we had reserves of $3.8 million for unrecognized tax benefits.

As of August 28, 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 May 29, 2021, $1.2 billion of these types of bonds were outstanding, of which $527.3 million is in our backlog.

At August 28, 2021, $1.2 billion of these types of bonds were outstanding, of which $490.1 million is in our backlog.

These bonds do not have stated expiration dates.

6 unchanged sentences

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.

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.

The extent to which COVID-19 will continue to impact our business will depend on numerous evolving factors including, but not limited to, the emergence of new variants of the coronavirus, such as the Delta variant, and the effectiveness of ongoing public health initiatives, 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.

The company previously provided guidance of full-year GAAP earnings in the range of $2.20 to $2.40 per diluted share.

The company is now providing guidance of full-year adjusted earnings in the range of $2.20 to $2.40 per diluted share, which excludes the impact of restructuring costs.

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.

We expect a tax rate of approximately 24.5 percent in the second half of fiscal 2022, and full-year capital expenditures of approximately $35 million.

Related Party Transactions

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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

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