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Item 2. Management’s Discussion and Analysis

2022-01-07 compared with 2021-07-01 · 113 added, 359 removed, 83 unchanged (85% of the section changed)

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The purpose of this discussion and analysis is to enhance the understanding and evaluation of the results of operations, financial position, cash flows, indebtedness, and other key financial information of Acuity Brands, Inc.

(referred to herein as “we,” “our,” “us,” the “Company,” or similar references) and its subsidiaries as of May 31, 2021 and for the three and nine months ended May 31, 2021 and 2020.

(referred to herein as “we,” “our,” “us,” the “Company,” or similar references) and its subsidiaries as of November 30, 2021 and for the three months ended November 30, 2021 and 2020.

The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements included within this report.

Also, please refer to Acuity Brands' Annual Report on Form 10-K for the fiscal year ended August 31, 2021, filed with the Securities and Exchange Commission (the “SEC”) on October 27, 2021 (“Form 10-K”).

The Company was incorporated in 2001 under the laws of the State of Delaware.

We are a market-leading industrial technology company that develops, manufactures, and brings to market products and services including building management systems, lighting, lighting controls, and location-aware applications.

These products and services provide commercial, institutional, industrial, infrastructure, and residential applications throughout North America and select international markets.

During the third quarter of fiscal 2021, we completed a realignment of our operations and structure to better support our business strategy.

As a result, beginning in the third quarter of fiscal 2021, we now report our financial results of operations in two reportable segments, Acuity Brands Lighting and Lighting Controls (“ABL”) and Intelligent Spaces Group (“ISG”), consistent with how our chief operating decision maker currently evaluates operating results, assesses performance, and allocates resources within the Company.

We have recast historical information to conform to the current segment structure.

We achieve growth through the development of innovative new products and services.

Through the Acuity Business System, we achieve customer-focused efficiencies that allow us to increase market share and deliver superior returns.

We are a market-leading industrial technology company.

We use technology to solve problems in spaces and light.

Through our two business segments, Acuity Brands Lighting and Lighting Controls (“ABL”) and the Intelligent Spaces Group (“ISG”) we design, manufacture, and bring to market products and services that make the world more brilliant, productive, and connected.

We achieve growth through the development of innovative new products and services, including lighting, lighting controls, building management systems, and location-aware applications.

We achieve customer-focused efficiencies that allow us to increase market share and deliver superior returns.

We look to aggressively deploy capital to grow the business and to enter attractive new verticals.

We do not consider acquisitions a critical element of our strategy but seek opportunities to expand and enhance our portfolio of solutions, including the following transactions.

One June 4, 2021, the Company announced that it has signed a definitive agreement to purchase ams OSRAM’s North American Digital Systems (“DS”) business.

This acquisition is intended to enable the Company to enhance our LED driver and controls technology portfolio and accelerate our innovation, expand our access to market through a more fulsome OEM product offering, and give us more control over our supply chain.

The transaction is expected to close by end of day on July 1, 2021.

The results of operations for the three months ended November 30, 2021 are not necessarily indicative of the results to be expected for the full fiscal 2022 year due primarily to continued uncertainty of general economic conditions that may impact our key end markets for fiscal 2022, seasonality, and the impact of any acquisitions, among other reasons.

Additionally, we are uncertain of the future impact of the ongoing COVID-19 pandemic or recovery of prior deterioration in economic conditions to our sales channels, supply chain, manufacturing, and distribution as well as overall construction, renovation, and consumer spending.

Financial Condition, Capital Resources, and Liquidity

We have numerous sources of capital, including cash on hand and cash flows generated from operations as well as various sources of financing.

Our ability to generate sufficient cash flow from operations or to access certain capital markets, including banks, is necessary to meet our capital allocation priorities, which are to reinvest in our organic growth, make strategic acquisitions and investments, pay dividends, and repurchase shares.

Sufficient cash flow generation is also critical to fund our operations in the short and long-term and to maintain compliance with covenants contained in our financing agreements.

Our significant contractual cash requirements primarily include principal and interest on long-term debt, payments for operating lease liabilities, and certain purchase obligations incurred in the ordinary course of business that are enforceable and legally binding.

Our obligations related to these items are described further within Management’s Discussion and Analysis of Financial Condition and Results of Operations within our Annual Report filed on Form 10-K.

We believe that we will be able to meet our liquidity needs over the next 12 months based on our cash on hand, current projections of cash flows from operations, and borrowing availability under financing arrangements.

Additionally, we believe that our cash flows from operations and sources of funding, including, but not limited to, future borrowings and borrowing capacity, will sufficiently support our long-term liquidity needs.

In the event of a sustained market deterioration, we may need additional capital, which would require us to evaluate available alternatives and take appropriate actions.

Our cash position at November 30, 2021 was $504.0 million, an increase of $12.7 million from August 31, 2021.

Cash generated from operating activities and cash on-hand were used during the current year to fund our capital allocation priorities as discussed below.

We generated $83.7 million of cash flows from operating activities during the three months ended November 30, 2021 compared with $123.9 million in the prior-year period, a decrease of $40.2 million, due primarily to increased operating working capital, particularly inventories, to support the growth in the business as well as the timing of payments for income taxes and prior year payroll tax deferrals under the Coronavirus Aid, Relief, and Economic Security Act of 2020.

Financing Arrangements

See the Debt and Lines of Credit footnote of the Notes to Consolidated Financial Statements for discussion of our various financing arrangements, including the terms of our $400.0 million five-year unsecured revolving credit facility (“Revolving Credit Facility”) as well as the $500.0 million aggregate principal amount of 2.150% senior unsecured notes due December 15, 2030 (the “Unsecured Notes”).

At November 30, 2021, our outstanding debt balance was $494.5 million compared to our cash position of $504.0 million.

We were in compliance with all financial covenants under our financing arrangements as of November 30, 2021.

At November 30, 2021, we had additional borrowing capacity under the revolving credit facility of $395.9 million under the most restrictive covenant in effect at the time, which represents the full amount of the Revolving Credit Facility less the outstanding letters of credit of $4.1 million issued under the facility.

As of November 30, 2021, our cash on hand combined with the additional borrowing capacity under the revolving credit facility totaled $899.9 million.

The Unsecured Notes were issued by Acuity Brands Lighting, Inc., a wholly-owned subsidiary of Acuity Brands, Inc.

The Unsecured Notes are fully and unconditionally guaranteed on a senior unsecured basis by Acuity Brands, Inc.

and ABL IP Holding LLC, a wholly-owned subsidiary of Acuity Brands, Inc.

The following tables present summarized financial information for Acuity Brands, Inc., Acuity Brands Lighting, Inc., and ABL IP Holding LLC on a combined basis after the elimination of all intercompany balances and transactions between the combined group as well as any investments in non-guarantors as of the dates and during the period presented (in millions):

Summarized Balance Sheet Information November 30, 2021 August 31, 2021

Current assets $ 1,222.6 $ 1,172.0

Amounts due from non-guarantor affiliates 238.5 213.4

Non-current assets 1,381.1 1,391.7

Current liabilities 602.7 595.1

Non-current liabilities 818.7 815.7

Summarized Income Statement Information Three Months Ended November 30, 2021

Net sales $ 781.2

Gross profit 324.7

Net income 84.9

Capital Allocation Priorities

Effective capital allocation is a key driver of stockholder value.

Our capital allocation priorities are to invest in our business for growth, to invest in mergers and acquisitions, to maintain our dividend, and to make share repurchases.

Organic Growth Investments

We invested $9.3 million and $11.4 million during the three months ended November 30, 2021 and 2020, respectively, in property, plant, and equipment, primarily related to investments in new and enhanced information technology capabilities, tooling, equipment, and facility enhancements.

We currently expect to invest approximately 1.5% of net sales on capital expenditures during fiscal 2022.

Strategic Acquisitions and Investments

We seek opportunities to strategically expand and enhance our portfolio of solutions.

There were no acquisitions during the first quarter of fiscal 2022.

We invested in acquisitions of businesses, net of cash acquired, of $75.3 million in the year ended August 31, 2021.

These acquisitions included the following transactions:

• On July 1, 2021, using cash on hand, we acquired certain assets and liabilities of ams OSRAM’s North American Digital Systems (“OSRAM DS”) business.

This acquisition is intended to enhance our light emitting diode (“LED”) driver and controls technology portfolio and accelerate our innovation, expand our access to market through a more fulsome OEM product offering, and give us more control over our supply chain.

• On May 18, 2021, using cash on hand, we acquired all of the equity interests of Rockpile Ventures, an accelerator of edge artificial intelligence startups.

Rockpile Ventures helps early-stage artificial intelligence companies drive co-engineering and co-selling partnerships with major cloud ecosystems, enabling faster adoption from proof-of-concept trials to market scale.

On September 17, 2019, using cash on hand and borrowings under available existing credit arrangements, we acquired all of the equity interests of The Luminaires Group (“TLG”), a leading provider of specification-grade luminaires for commercial, institutional, hospitality, and municipal markets, all of which complement our current and dynamic lighting portfolio.

TLG’s indoor and outdoor lighting fixtures are marketed to architects, landscape architects, interior designers, and engineers through five niche lighting brands:

A-light™, Cyclone™, Eureka®, Luminaire LED™, and Luminis®.

On November 25, 2019, using cash on hand, we acquired all of the equity interests of LocusLabs, Inc (“LocusLabs”).

The LocusLabs software platform supports navigation applications used on mobile devices, web browsers, and digital displays in airports, event centers, multi-floor office buildings, and campuses.

The results of operations for the three and nine months ended May 31, 2021 and 2020 are not necessarily indicative of the results to be expected for the full fiscal year due primarily to continued uncertainty of general economic conditions that may impact our key end markets for fiscal 2021, seasonality, and the impact of any acquisitions, among other reasons.

Please refer to the Acquisitions footnote of the Notes to Consolidated Financial Statements for more information.

We paid dividends on our common stock of $4.7 million ($0.13 per share) and $5.0 million ($0.13 per share) during the three months ended November 30, 2021 and 2020, respectively.

All decisions regarding the declaration and payment of dividends are at the discretion of the Board of Directors (the “Board”) and are evaluated regularly in light of our financial condition, earnings, growth prospects, funding requirements, applicable law, and any other factors the Board deems relevant.

Share Repurchases

During the first quarter of fiscal 2022, we repurchased 0.3 million shares of our outstanding common stock for $52.8 million.

Total cash outflows for share repurchases during the quarter were $56.3 million.

As of November 30, 2021, the maximum number of shares that may yet be repurchased under the share repurchase program authorized by the Board equaled 3.5 million shares.

We expect to repurchase shares on an opportunistic basis subject to various factors including stock price, Company performance, market conditions, and other possible uses of cash.

The COVID-19 Pandemic

The COVID-19 pandemic has resulted in intermittent worldwide government restrictions on the movement of people, goods, and services resulting in increased volatility in and disruptions to global markets.

However, our manufacturing operations are deemed essential and continue to operate.

We remain committed to prioritizing the health and well-being of our associates and their families and ensuring that we operate effectively.

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Additionally, we have required certain employees whose job functions can be performed remotely to work primarily from home.

Government-mandated and voluntary social distancing measures have had, and continue to have, an adverse impact on our results of operations.

The pandemic has caused reduced construction and renovation spending as well as a disruption in our supply chain for certain components, both of which negatively impacted our fiscal 2021 sales.

In fiscal 2020 we experienced a limited number of temporary facility shutdowns due to government-mandated closures.

Although our facilities are now open and new government-mandated restrictions have been gradually lifted, a resurgence in COVID-19 cases may lead to the reimposition of previously lifted business closure requirements, the imposition of new restrictions, or the issuance of new or revised local or national health guidance.

The COVID-19 pandemic has had an adverse impact on our results of operations.

The pandemic has caused reduced construction and renovation spending as well as a disruption in our supply chain for certain components, both of which negatively impacted our operating results.

Although our facilities are open, a resurgence in COVID-19 cases, including as a result of new variants, may lead to the reimposition of previously lifted business closure requirements, the imposition of new restrictions, or the issuance of new or revised local or national health guidance.

We also continue to incur additional health and safety costs including expenditures for personal protection equipment and facility enhancements to maintain proper distancing guidelines issued by the Centers for Disease Control and Prevention.

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Additionally, we elected to defer certain employer payroll taxes as allowable under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES" Act) signed into law on March 27, 2020.

Half of these deferrals are due in December 2021, and the remaining deferrals are due in December 2022.

Half of these deferrals were paid in December 2021, and the remaining deferrals are due in December 2022.

Although we have implemented significant measures to mitigate further spread of the virus, our employees, customers, suppliers, and contractors may continue to experience disruptions to business activities due to potential further government-mandated or voluntary shutdowns, general economic conditions, or other negative impacts of the COVID-19 pandemic.

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Risk Factors of our Form 10-K for further details regarding the potential impacts of COVID-19 to our results of operations, financial position, and cash flows.

Liquidity and Capital Resources

Our principal sources of liquidity are operating cash flows generated primarily from our business operations, cash on hand, and various sources of borrowings.

Our ability to generate sufficient cash flow from operations or to access certain capital markets, including banks, is necessary to fund our operations and capital expenditures, pay dividends, repurchase shares, meet obligations as they become due, and maintain compliance with covenants contained in our financing agreements.

For the first nine months of fiscal 2021, we paid $30.6 million for property, plant, and equipment, primarily for tooling, new and enhanced information technology capabilities, equipment, and facility enhancements.

We currently expect to invest approximately 1.5% of net sales on capital expenditures during fiscal 2021.

During the first nine months of fiscal 2021, we repurchased 3.3 million shares of our outstanding common stock.

As of May 31, 2021, the maximum number of shares that may yet be repurchased under the share repurchase program authorized by the Board equaled 4.4 million shares.

We expect to repurchase the remaining shares available for repurchase on an opportunistic basis subject to various factors including stock price, Company performance, market conditions, and other possible uses of cash.

Our short-term cash needs are expected to include funding operations as currently planned;

funding possible acquisitions;

making capital investments as currently anticipated;

paying quarterly stockholder dividends as currently anticipated;

paying principal and interest on debt as currently scheduled;

making required contributions and distributions related to our employee benefit plans;

and potentially repurchasing shares of our outstanding common stock.

We believe that we will be able to meet our liquidity needs over the next 12 months based on our cash on hand, current projections of cash flow from operations, and borrowing availability under financing arrangements.

Additionally, we believe that our cash flows from operations and sources of funding, including, but

not limited to, future borrowings and borrowing capacity, will sufficiently support our long-term liquidity needs.

In the event of a sustained market deterioration, we may need additional liquidity, which would require us to evaluate available alternatives and take appropriate actions.

We use available cash and cash flows from operations, borrowings, and proceeds from the exercise of stock options to fund operations, capital expenditures, and acquisitions if any;

to repurchase Company stock;

and to pay dividends.

Our cash position at May 31, 2021 was $593.5 million, an increase of $32.8 million from August 31, 2020.

During the nine months ended May 31, 2021, we generated net cash flows from operations of $316.2 million.

During November 2020, we issued long-term debt that contributed net proceeds of $493.9 million to our cash position.

See more details below under the Capitalization section.

Cash generated from operating activities, cash on hand, and funds from borrowings were used during the nine months ended May 31, 2021 primarily to repay borrowings on our Term Loan Facility (defined below) of $395.0 million as well as bank loans of $2.1 million, to fund share repurchases of $340.9 million, to fund capital expenditures of $30.6 million, to pay dividends to stockholders of $14.3 million, and to pay withholding taxes on the net settlement of equity awards of $3.9 million.

We generated $316.2 million of cash flows from operating activities during the nine months ended May 31, 2021 compared with $378.3 million in the prior-year period, a decrease of $62.1 million, due primarily to an increase in accounts receivable that resulted from the improvement in year-over-year sales, partially offset by payroll tax deferrals under the CARES Act as well as lower interest payments on long-term borrowings due to timing.

We believe that investing in assets and programs that will over time increase the overall return on our invested capital is a key factor in driving stockholder value.

We paid $30.6 million and $38.3 million during the first nine months of fiscal 2021 and 2020, respectively, for property, plant, and equipment, primarily related to investments in tooling, new and enhanced information technology capabilities, equipment, and facility enhancements.

Capitalization

On November 10, 2020, Acuity Brands Lighting, Inc., a wholly-owned subsidiary of Acuity Brands, Inc.

issued $500.0 million aggregate principal amount of 2.150% senior unsecured notes due December 15, 2030 (the "Unsecured Notes").

The Unsecured Notes bear interest at a rate of 2.150% per annum and were issued at a price equal to 99.737% of their face value.

Interest on the Unsecured Notes is paid semi-annually in arrears on June 15 and December 15 of each year, which began on June 15, 2021.

The Unsecured Notes are fully and unconditionally guaranteed on a senior unsecured basis by Acuity Brands, Inc.

and ABL IP Holding LLC (“ABL IP Holding”, and, together with Acuity Brands, Inc.

the “Guarantors”), a wholly-owned subsidiary of Acuity Brands, Inc.

Additionally, we capitalized $4.8 million of deferred issuance costs related to the Unsecured Notes that are being amortized over the 10-year term.

As of May 31, 2021, the balance of the Unsecured Notes net of unamortized discount and deferred issuance costs was $494.2 million.

As of May 31, 2021, we also had $4.0 million of tax-exempt industrial revenue bonds that were paid at maturity on June 1, 2021.

The carrying value of these bonds is reflected within Current maturities of debt on the Consolidated Balance Sheets as of May 31, 2021.

Additionally, we had $2.1 million outstanding under fixed-rate bank loans at August 31, 2020 that we repaid during the nine months ended May 31, 2021, prior to their maturity date.

There have been no other material changes outside of the ordinary course of business in our contractual obligations since August 31, 2020.

The following tables present summarized financial information for Acuity Brands, Inc.

Acuity Brands Lighting, Inc., and ABL IP Holding LLC on a combined basis after the elimination of all intercompany balances and transactions between the combined group as well as any investments in non-guarantors as of the dates and during the period presented (in millions):

Summarized Balance Sheet Information May 31, 2021 August 31, 2020

Current assets $ 1,185.1 $ 1,152.6

Non-current assets 1,368.8 1,416.0

Amounts due from non-guarantor affiliates 203.1 183.3

Current liabilities 583.5 530.2

Non-current liabilities 817.7 723.8

Summarized Income Statement Information Nine Months Ended May 31, 2021

Net sales $ 2,046.7

Gross profit 889.1

Net income 204.7

As of May 31, 2021, our capital structure was comprised principally of the Unsecured Notes and equity of our stockholders.

Total debt outstanding was $498.2 million at May 31, 2021 and consisted primarily of fixed-rate obligations.

At August 31, 2020, total debt outstanding was $401.1 million and consisted primarily of variable-rate obligations.

On June 29, 2018, we entered into a credit agreement (the “Credit Agreement”) with a syndicate of banks that provides us with a $400.0 million five-year unsecured revolving credit facility (the “Revolving Credit Facility”) and provided us with a $400.0 million unsecured delayed draw term loan facility (the “Term Loan Facility)”.

We had no borrowings outstanding under the Revolving Credit Facility as of May 31, 2021 or August 31, 2020.

We had no borrowings outstanding under the Term Loan Facility as of May 31, 2021.

We had $395.0 million in borrowings outstanding under the Term Loan Facility as of August 31, 2020, which we fully repaid during the first quarter of fiscal 2021 using the proceeds from the Unsecured Notes.

The Credit Agreement allows for no future borrowings under the Term Loan Facility.

We were in compliance with all financial covenants under the Credit Agreement as of May 31, 2021.

At May 31, 2021, we had additional borrowing capacity under the Credit Agreement of $395.9 million under the most restrictive covenant in effect at the time, which represents the full amount of the Revolving Credit Facility less the outstanding letters of credit of $4.1 million issued under the Revolving Credit Facility.

As of May 31, 2021, we had outstanding letters of credit totaling $8.3 million, primarily for securing collateral requirements under our casualty insurance programs and for providing credit support for our industrial revenue bond, which includes the $4.1 million issued under the Revolving Credit Facility.

See the Debt and Lines of Credit footnote of the Notes to Consolidated Financial Statements for more information.

During the first nine months of fiscal 2021, our consolidated stockholders’ equity decreased $88.4 million to $2.0 billion at May 31, 2021, from $2.1 billion at August 31, 2020.

The decrease was due primarily to repurchases of our outstanding common stock and dividend payments, partially offset by net income earned and favorable foreign currency translation adjustments.

Our debt to total capitalization ratio (calculated by dividing total debt by the sum of total debt and total stockholders’ equity) was 19.6% and 15.9% at May 31, 2021 and August 31, 2020, respectively.

The ratio of debt, net of cash, to total capitalization, net of cash, was (4.9)% and (8.1)% at May 31, 2021 and August 31, 2020, respectively.

We paid dividends on our common stock of $14.3 million ($0.39 per share) and $15.6 million ($0.39 per share) during the nine months ended May 31, 2021 and 2020, respectively.

All decisions regarding the declaration and payment of dividends are at the discretion of the Board and are evaluated regularly in light of our financial condition, earnings, growth prospects, funding requirements, applicable law, and any other factors the Board deems relevant.

Results of Operations

Third Quarter of Fiscal 2021 Compared with Third Quarter of Fiscal 2020

The following table sets forth information comparing the components of net income for the three months ended May 31, 2021 and 2020 (in millions except per share data):

First Quarter of Fiscal 2022 Compared with First Quarter of Fiscal 2021

The following table sets forth information comparing the components of net income for the three months ended November 30, 2021 and 2020 (in millions except per share data):

Three Months Ended

May 31, 2021 May 31, 2020 Increase (Decrease) Percent Change

November 30, 2021 November 30, 2020 Increase (Decrease) Percent Change

Net sales $ 926.1 $ 792.0 $ 134.1 16.9 %

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Interest expense, net 5.9 4.9 1.0 20.4 %

Miscellaneous expense (income), net 2.7 (0.9) 3.6 NM

Miscellaneous expense, net 0.3 1.6 (1.3) NM

Total other expense 6.2 6.5 (0.3) (4.6) %

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Net sales were $899.7 million for the three months ended May 31, 2021 compared with $776.2 million reported for the three months ended May 31, 2020, an increase of $123.5 million, or 15.9%.

For the three months ended May 31, 2021, we reported net income of $85.7 million, an increase of $25.3 million, or 41.9%, compared with $60.4 million for the three months ended May 31, 2020.

For the third quarter of fiscal 2021, diluted earnings per share increased 55.9% to $2.37 compared with $1.52 reported in the year-ago period.

The following table as well as the tables under Segment Results below reconcile certain U.S.

generally accepted accounting principles (“U.S.

GAAP”) financial measures to the corresponding non-U.S.

GAAP measures referred to in the discussion of our results of operations, which exclude the impact of acquisition-related items, amortization of acquired intangible assets, share-based payment expense, and special charges associated primarily with continued efforts to streamline the organization and integrate recent acquisitions.

Although the impacts of some of these items have been recognized in prior periods and could recur in future periods, we typically exclude these charges during internal reviews of performance and use these non-U.S.

GAAP measures for baseline comparative operational analysis, decision making, and other activities.

These non-U.S.

GAAP financial measures, including adjusted selling, distribution, and administrative (“SD&A”) expenses and adjusted SD&A expenses as a percent of net sales, adjusted operating profit and adjusted operating profit margin for total company and by segment, adjusted net income, and adjusted diluted earnings per share, are provided to enhance the user’s overall understanding of our current financial performance.

Specifically, we believe these non-U.S.

GAAP measures provide greater comparability and enhanced visibility into our results of operations.

There are limitations to the use of non-U.S.

GAAP financial measures and such non-U.S.

GAAP financial measures should be considered in addition to, and not as a substitute for or superior to, results prepared in accordance with U.S.

GAAP measures as defined by us may not be comparable to similar non-U.S.

GAAP measures presented by other companies.

Our presentation of such measures, which may include adjustments to exclude unusual or non-recurring items, should not be construed as an inference that our future results will be unaffected by other unusual or non-recurring items.

(In millions, except per share data) Three Months Ended

May 31, 2021 May 31, 2020 Increase (Decrease) Percent Change

Selling, distribution, and administrative expenses $ 268.0 $ 241.3 $ 26.7 11.1 %

Percent of net sales 29.8 % 31.1 % (130) bps

Amortization of acquired intangible assets (10.2) (10.8)

Share-based payment expense (7.1) (7.8)

Acquisition-related items (1)

Adjusted selling, distribution, and administrative expenses $ 249.8 $ 222.7 $ 27.1 12.2 %

Percent of net sales 27.8 % 28.7 % (90) bps

Operating profit $ 118.1 $ 83.0 $ 35.1 42.3 %

Percent of net sales 13.1 % 10.7 % 240 bps

Amortization of acquired intangible assets 10.2 10.8

Share-based payment expense 7.1 7.8

Acquisition-related items (1)

Special charges 0.5 3.3

Adjusted operating profit $ 136.8 $ 104.9 $ 31.9 30.4 %

Percent of net sales 15.2 % 13.5 % 170 bps

Net income $ 85.7 $ 60.4 $ 25.3 41.9 %

Amortization of acquired intangible assets 10.2 10.8

Share-based payment expense 7.1 7.8

Acquisition-related items (1)

Special charges 0.5 3.3

Total pre-tax adjustments to net income 18.7 21.9

Income tax effects (4.0) (5.1)

Adjusted net income $ 100.4 $ 77.2 $ 23.2 30.1 %

Diluted earnings per share $ 2.37 $ 1.52 $ 0.85 55.9 %

Adjusted diluted earnings per share $ 2.77 $ 1.94 $ 0.83 42.8 %

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(1) Acquisition-related items include professional fees.

Net sales for the three months ended May 31, 2021 increased $123.5 million, or 15.9%, to $899.7 million compared with $776.2 million in the prior-year period due primarily to higher volumes.

From a sales channel perspective, sales through the independent sales network and direct sales network increased 14% and 39%, respectively, due primarily to our improved go-to-market activity, which leveraged improvements in the construction market and wider economy.

Additionally, sales within the corporate accounts channel increased 13% as large retailers within this channel have begun to address previously deferred nonessential renovations.

Retail sales declined 26% due primarily to a customer inventory rebalancing in fiscal 2021.

Changes in foreign currency rates and revenues from acquired companies did not have a meaningful impact on net sales for the third quarter of fiscal 2021.

Gross profit for the third quarter of fiscal 2021 increased $59.0 million, or 18.0%, to $386.6 million compared with $327.6 million in the prior-year period, and gross profit margin increased 80 basis points to 43.0% from 42.2%.

The increase in gross profit and margin was primarily due to increased sales volumes as well as product and productivity improvements, partially offset by higher component and freight costs.

Net sales for the three months ended November 30, 2021 increased $134.1 million, or 16.9%, to $926.1 million compared with $792.0 million in the prior-year period as our go-to-market activities, focus on servicing our customers, and continued recovery in our end markets generated higher sales in both our ABL and ISG operating segments.

Sales across both segments also benefited from recent price increases.

Revenues from acquired companies contributed a less than 4% increase in sales compared to the prior year.

Changes in foreign currency rates did not have a meaningful impact on net sales for the first quarter of fiscal 2022.

Gross profit for the first quarter of fiscal 2022 increased $53.4 million, or 16.1%, to $385.8 million compared with $332.4 million in the prior-year period, and gross profit margin decreased 30 basis points to 41.7% from 42.0%.

Throughout the current quarter, material and conversion costs as well as freight costs continued to escalate.

We were largely able to offset the increased costs through price increases and product and productivity improvements.

Gross profit margin was unfavorably impacted by the near-term dilutive effects of recent acquisitions.

Operating Profit

SD&A expenses for the three months ended May 31, 2021 were $268.0 million compared with $241.3 million in the prior-year period, an increase of $26.7 million, or 11.1%.

The increase in SD&A expense was due primarily to higher outbound freight and commissions costs associated with higher sales volumes as well as increased employee-related costs.

SD&A expenses for the third quarter of fiscal 2021 were 29.8% of net sales compared with 31.1% for the prior-year period.

Adjusted SD&A expenses for the three months ended May 31, 2021 were $249.8 million (27.8% of net sales) compared with $222.7 million (28.7% of net sales) in the prior-year period.

We recognized pre-tax special charges of $0.5 million during the third quarter of fiscal 2021 compared with $3.3 million recorded during the third quarter of fiscal 2020.

Further details regarding our special charges are included in the Special Charges footnote of the Notes to Consolidated Financial Statements .

Operating profit for the third quarter of fiscal 2021 was $118.1 million (13.1% of net sales) compared with $83.0 million (10.7% of net sales) for the prior-year period, an increase of $35.1 million, or 42.3%.

The increase in operating profit was due to higher gross profit and lower special charges, partially offset by higher SD&A expenses.

The operating profit margin increase of 240 bps year over year reflects higher gross profit as well as our ability to successfully leverage our fixed costs.

Adjusted operating profit increased $31.9 million, or 30.4%, to $136.8 million for the third quarter of fiscal 2021 compared with $104.9 million for the third quarter of fiscal 2020.

Adjusted operating profit margin increased to 15.2% for the third quarter of fiscal 2021 compared with 13.5% for the year-ago period.

SD&A expenses for the three months ended November 30, 2021 were $270.7 million compared with $246.0 million in the prior-year period, an increase of $24.7 million, or 10.0%.

The increase in SD&A expense was due primarily to higher outbound freight and commissions costs associated with higher sales as well as increased employee-related costs due in part to recent acquisitions.

SD&A expenses for the first quarter of fiscal 2022 were 29.2% of net sales compared with 31.1% for the prior-year period due primarily to improved leveraging of our operating costs.

Operating profit for the first quarter of fiscal 2022 was $115.1 million (12.4% of net sales) compared with $85.7 million (10.8% of net sales) for the prior-year period, an increase of $29.4 million, or 34.3%.

The increase in

operating profit was due to higher gross profit associated with the increase in sales, partially offset by higher SD&A expenses.

The operating profit margin increase of 160 bps year over year was the result of improved leveraging of operating costs, partially offset by lower gross profit margin.

Other Expense

Other expense consists of net interest expense and net miscellaneous expense, which includes non-service related components of net periodic pension cost, gains and losses associated with foreign currency-related transactions, and non-operating gains and losses.

Interest expense, net, was $6.2 million and $5.4 million for the three months ended May 31, 2021 and 2020, respectively.

This increase was due primarily to less interest earned on cash investments compared to the prior year due primarily to unfavorable short-term investment rates.

We reported net miscellaneous expense of $2.7 million and net miscellaneous income of $0.9 million for the three months ended May 31, 2021 and 2020, respectively.

Interest expense, net, was $5.9 million and $4.9 million for the three months ended November 30, 2021 and 2020, respectively.

We reported net miscellaneous expense of $0.3 million and $1.6 million for the three months ended November 30, 2021 and 2020, respectively.

During the first quarter of fiscal 2021, we recorded an impairment charge of $4.0 million for an unconsolidated equity investment.

Excluding the impairment, the year-over-year change in net miscellaneous expense was largely due to gains and losses on foreign currency-related transactions.

Income Taxes and Net Income

Our effective income tax rate was 21.5% and 23.1% for the three months ended May 31, 2021 and 2020, respectively.

The decrease in the effective income tax rate was primarily due to favorable discrete items recognized in the third quarter of fiscal 2021.

Our effective income tax rate was 19.6% and 24.7% for the three months ended November 30, 2021 and 2020, respectively.

The decrease in the effective income tax rate was primarily due to favorable discrete items recognized in the first quarter of fiscal 2022 related to excess tax benefits on share-based payments.

We currently estimate that our blended consolidated effective income tax rate, before any discrete items, will be approximately 23% for fiscal 2022, assuming the rates in our taxing jurisdictions remain generally consistent throughout the year.

Net income for the third quarter of fiscal 2021 increased $25.3 million, or 41.9%, to $85.7 million from $60.4 million reported for the prior-year period.

The increase in net income resulted from an increased operating profit compared to the prior-year period, partially offset by higher net non-operating expenses and income tax expense associated with our increased profit.

Diluted earnings per share for the three months ended May 31, 2021 increased $0.85, or 55.9%, to $2.37 compared with diluted earnings per share of $1.52 for the prior-year period.

Net income for the first quarter of fiscal 2022 increased $28.0 million, or 47.0%, to $87.6 million from $59.6 million reported for the prior-year period.

The increase in net income resulted primarily from an increased operating profit compared to the prior-year period as well as a lower tax rate.

Diluted earnings per share for the three months ended November 30, 2021 increased $0.89, or 56.7%, to $2.46 compared with diluted earnings per share of $1.57 for the prior-year period.

This increase reflects higher net income as well as lower outstanding diluted shares.

Adjusted net income for the third quarter of fiscal 2021 was $100.4 million, compared with $77.2 million in the prior-year period, an increase of $23.2 million, or 30.1%.

Adjusted diluted earnings per share for the three months ended May 31, 2021 increased $0.83, or 42.8%, to $2.77 compared with $1.94 for the prior-year period.

Segment Results

The following table sets forth information comparing the operating results of our segments, ABL and ISG, for the three months ended May 31, 2021 and 2020 (in millions except per share data).

The following table sets forth information comparing the operating results of our segments, ABL and ISG, for the three months ended November 30, 2021 and 2020 (in millions except per share data).

We have recast historical information to conform to the current segment structure.

Three Months Ended

ABL May 31, 2021 May 31, 2020 Increase (Decrease) Percent Change

November 30, 2021 November 30, 2020 Increase (Decrease) Percent Change

Net sales $ 883.6 $ 753.6 $ 130.0 17.3 %

Operating profit 128.1 98.4 29.7 30.2 %

Amortization of acquired intangible assets 6.9 6.9

Share-based payment expense 2.4 2.9

Adjusted operating profit $ 135.8 $ 108.4 $ 27.4 25.3 %

Operating profit margin 14.5 % 13.1 % 140 bps

Adjusted operating profit margin 16.0 % 14.6 % 140 bps

ABL net sales for the three months ended May 31, 2021 increased 14.6% compared with the prior-year period due primarily to improvements within the independent sales network, direct sales network, and corporate accounts channels as our go-to-market activities leveraged improvements in the construction market and wider economy.

These gains were partially offset by lower sales in the retail sales channel.

Operating profit for ABL was $126.5 million (14.9% of ABL net sales) for the three months ended May 31, 2021 compared to $98.6 million (13.3% of ABL net sales) in the prior-year period, an increase of $27.9 million.

The increase in operating profit was due primarily to higher sales volumes as well as product and productivity improvements, partially offset by higher component, freight, and SD&A costs.

The operating profit margin increase year over year reflects higher sales volumes as well as our ability to successfully leverage our fixed costs.

Adjusted operating profit for ABL increased $27.4 million to $135.8 million for the third quarter of fiscal 2021 compared with the prior year period.

Three Months Ended

ISG May 31, 2021 May 31, 2020 Increase (Decrease) Percent Change

Net sales $ 46.4 $ 40.8 $ 5.6 13.7 %

Operating profit (loss) 2.0 ( 0.1 ) 2.1 NM

Amortization of acquired intangible assets 3.3 3.9

Share-based payment expense 0.6 1.3

Adjusted operating profit $ 11.1 $ 5.0 $ 6.1 122.0 %

Operating profit (loss) margin 13.0 % (0.5) % 1350 bps

Adjusted operating profit margin 20.0 % 13.3 % 670 bps

ISG net sales for the three months ended May 31, 2021 increased 46.9% compared with the prior-year period driven primarily by increased sales of building management products due primarily to improved market conditions as well as the benefit of a pull forward of sales from an announced price increase.

ISG operating profit was $7.2 million for three months ended May 31, 2021 compared with a $0.2 million operating loss in the prior-year period, an increase of $7.4 million.

This increase was due primarily to higher sales volumes, partially offset by increased employee costs.

Adjusted operating profit for ISG increased $6.1 million to $11.1 million for the third quarter of fiscal 2021 compared with the prior-year period.

First Nine Months of Fiscal 2021 Compared with First Nine Months of Fiscal 2020

The following table sets forth information comparing the components of net income for the nine months ended May 31, 2021 and 2020 (in millions except per share data):

Nine Months Ended

May 31, 2021 May 31, 2020 Increase (Decrease) Percent Change

Net sales $ 2,468.3 $ 2,435.1 $ 33.2 1.4 %

Cost of products sold 1,412.6 1,407.8 4.8 0.3 %

Gross profit 1,055.7 1,027.3 28.4 2.8 %

Percent of net sales 42.8 % 42.2 % 60 bps

Selling, distribution, and administrative expenses 759.4 767.5 (8.1) (1.1) %

Special charges 1.5 11.8 (10.3) NM

Operating profit 294.8 248.0 46.8 18.9 %

Percent of net sales 11.9 % 10.2 % 170 bps

Other expense:

Interest expense, net 17.7 19.4 (1.7) (8.8) %

Miscellaneous expense, net 6.5 1.5 5.0 NM

Total other expense 24.2 20.9 3.3 15.8 %

Income before income taxes 270.6 227.1 43.5 19.2 %

Percent of net sales 11.0 % 9.3 % 170 bps

Income tax expense 62.4 52.5 9.9 18.9 %

Effective tax rate 23.1 % 23.1 %

Net income $ 208.2 $ 174.6 $ 33.6 19.2 %

Diluted earnings per share $ 5.66 $ 4.40 $ 1.26 28.6 %

NM - not meaningful

Net sales were $2.47 billion for the nine months ended May 31, 2021 compared with $2.44 billion reported for the nine months ended May 31, 2020, an increase of $33.2 million, or 1.4%.

For the nine months ended May 31, 2021, we reported net income of $208.2 million, an increase of $33.6 million, or 19.2%, compared with $174.6 million for the nine months ended May 31, 2020.

For the first nine months of fiscal 2021, diluted earnings per share increased 28.6% to $5.66 compared with $4.40 reported in the year-ago period.

The following table as well as the tables under Segment Results below reconcile certain U.S.

GAAP financial measures to the corresponding non-U.S.

GAAP measures referred to in the discussion of our results of operations, which exclude the impact acquisition-related items, amortization of acquired intangible assets, share-based payment expense, special charges associated primarily with continued efforts to streamline the organization and integrate recent acquisitions, and impairments of investments.

These non-U.S.

GAAP financial measures, including adjusted gross profit and adjusted gross profit margin, adjusted SD&A expenses and adjusted SD&A expenses as a percent of net sales, adjusted operating profit and adjusted operating profit margin for total company and by segment, adjusted other expense, adjusted net income, and adjusted diluted earnings per share, are provided to enhance the user’s overall understanding of our current financial performance.

Specifically, we believe these non-U.S.

GAAP measures provide greater comparability and enhanced visibility into our results of operations.

GAAP financial measures should be considered in addition to, and not as a substitute for or superior to, results prepared in accordance with U.S.

(In millions, except per share data) Nine Months Ended

May 31, 2021 May 31, 2020 Increase (Decrease) Percent Change

Gross profit $ 1,055.7 $ 1,027.3 $ 28.4 2.8 %

Percent of net sales 42.8 % 42.2 % 60 bps

Acquisition-related items (1)

Adjusted gross profit $ 1,055.7 $ 1,028.5 $ 27.2 2.6 %

Percent of net sales 42.8 % 42.2 % 60 bps

Selling, distribution, and administrative expenses $ 759.4 $ 767.5 $ (8.1) (1.1) %

Percent of net sales 30.8 % 31.5 % (70) bps

Amortization of acquired intangible assets (30.4) (30.8)

Share-based payment expense (22.3) (32.5)

Acquisition-related items (1)

Adjusted selling, distribution, and administrative expenses $ 705.8 $ 702.9 $ 2.9 0.4 %

Percent of net sales 28.6 % 28.9 % (30) bps

Operating profit $ 294.8 $ 248.0 $ 46.8 18.9 %

Percent of net sales 11.9 % 10.2 % 170 bps

Amortization of acquired intangible assets 30.4 30.8

Share-based payment expense 22.3 32.5

Acquisition-related items (1)

Special charges 1.5 11.8

Adjusted operating profit $ 349.9 $ 325.6 $ 24.3 7.5 %

Percent of net sales 14.2 % 13.4 % 80 bps

Other expense $ 24.2 $ 20.9 $ 3.3 15.8 %

Impairment of investment (4.0) —

Adjusted other expense $ 20.2 $ 20.9 $ (0.7) (3.3) %

Net income $ 208.2 $ 174.6 $ 33.6 19.2 %

Amortization of acquired intangible assets 30.4 30.8

Share-based payment expense 22.3 32.5

Acquisition-related items (1)

Special charges 1.5 11.8

Impairment of investment 4.0 —

Total pre-tax adjustments to net income 59.1 77.6

Income tax effect (13.3) (17.7)

Adjusted net income $ 254.0 $ 234.5 $ 19.5 8.3 %

Diluted earnings per share $ 5.66 $ 4.40 $ 1.26 28.6 %

Adjusted diluted earnings per share $ 6.90 $ 5.91 $ 0.99 16.8 %

______________________________

(1) Acquisition-related items include profit in inventory and professional fees.

Net sales for the nine months ended May 31, 2021 increased $33.2 million, or 1.4%, to $2.47 billion compared with $2.44 billion in the prior-year period.

From a sales channel perspective, sales through the independent sales network and direct sales network increased as we began to leverage improvements in the construction market and wider economy through our go-to-market activities.

However, corporate accounts sales for the nine months ended May 31, 2021 were lower year over year due to fewer nonessential renovations from large retailers in the first half of the fiscal year.

Additionally, retail sales in fiscal 2021 were lower than the prior-year period due primarily to a stronger pre-pandemic performance in the first half of the prior fiscal year combined with a customer inventory rebalancing in fiscal 2021.

Changes in foreign currency rates and revenues from acquired companies did not have a meaningful impact on our net sales year over year.

Gross profit of $1.06 billion for the first nine months of fiscal 2021 increased $28.4 million, or 2.8%, compared with $1.03 billion in the prior-year period.

Gross profit margin increased to 42.8% for the nine months ended May 31, 2021 compared with 42.2% in the prior-year period.

The improvement in gross profit margin was due primarily to product and productivity improvements.

Adjusted gross profit for the nine months ended May 31, 2021 was $1.06 billion (42.8% of net sales) compared with $1.03 billion (42.2% of net sales) in the prior-year period.

Operating Profit

SD&A expenses for the nine months ended May 31, 2021 were $759.4 million compared with $767.5 million in the prior-year period, a decrease of $8.1 million, or 1.1%.

The decrease in SD&A expenses was due primarily to lower travel expense and sales and marketing costs due to the COVID-19 pandemic.

Additionally, share-based payment expense decreased in fiscal 2021 due to the discontinuation of certain retirement provisions in the equity incentive program that resulted in the acceleration of share-based payment expense for fiscal 2020 grants.

These decreased costs were partially offset by higher employee-related costs.

SD&A expenses for the first nine months of fiscal 2021 were 30.8% of net sales compared with 31.5% for the prior-year period.

Adjusted SD&A expenses for the nine months ended May 31, 2021 were $705.8 million (28.6% of net sales) compared with $702.9 million (28.9% of net sales) in the prior-year period.

We recognized pre-tax special charges of $1.5 million during the first nine months of fiscal 2021, compared with pre-tax special charges of $11.8 million during the first nine months of fiscal 2020.

Further details regarding our special charges are included in the Special Charge footnote of the Notes to Consolidated Financial Statements .

Operating profit for the first nine months of fiscal 2021 was $294.8 million (11.9% of net sales) compared with $248.0 million (10.2% of net sales) for the prior-year period, an increase of $46.8 million, or 18.9%.

The increase in operating profit was due to higher gross profit, lower special charges, and decreased SD&A expenses.

Adjusted operating profit increased by $24.3 million, or 7.5%, to $349.9 million for the first nine months of fiscal 2021 compared with $325.6 million for the first nine months of fiscal 2020.

Adjusted operating profit margin for the first nine months of fiscal 2021 increased 80 basis points to 14.2% compared with 13.4% in the year-ago period.

Other Expense

Interest expense, net, was $17.7 million and $19.4 million for the nine months ended May 31, 2021 and 2020, respectively.

The decrease in interest expense was due primarily to interest savings associated with refinancing our debt.

The current fiscal year interest savings were partially offset by lower interest earned on cash investments compared to the prior year due primarily to unfavorable short-term investment rates.

We reported net miscellaneous expense of $6.5 million and $1.5 million for the nine months ended May 31, 2021 and 2020, respectively.

During the first quarter of fiscal 2021, we recorded an impairment charge of $4.0 million for an unconsolidated equity investment.

Further details regarding the impairment charge are included in the Fair Value Measurements footnote of the Notes to Consolidated Financial Statements .

Income Taxes and Net Income

Our effective income tax rate was 23.1% for the nine months ended May 31, 2021 and 2020.

Net income for the first nine months of fiscal 2021 increased $33.6 million, or 19.2%, to $208.2 million from $174.6 million reported for the prior-year period.

The increase in net income was due primarily to an increased operating profit and lower interest expense, partially offset by higher income tax expense associated with increased profit compared to the prior-year period.

Diluted earnings per share for the nine months ended May 31, 2021 increased $1.26 to $5.66 compared with diluted earnings per share of $4.40 for the prior-year period.

This increase reflects higher net income as well as lower outstanding diluted shares.

Adjusted net income for the first nine months of fiscal 2021 was $254.0 million compared with $234.5 million in the prior-year period, an increase of $19.5 million, or 8.3%.

Adjusted diluted earnings per share for the nine months ended May 31, 2021 increased $0.99, or 16.8%, to $6.90 compared with $5.91 for the prior-year period.

Segment Results

The following table sets forth information comparing the operating results of our segments, ABL and ISG, for the nine months ended May 31, 2021 and 2020 (in millions except per share data).

We have recast historical information to conform to the current segment structure.

Nine Months Ended

ABL May 31, 2021 May 31, 2020 Increase (Decrease) Percent Change

Net sales $ 2,340.4 $ 2,327.8 $ 12.6 0.5 %

Operating profit $ 326.9 $ 304.0 $ 22.9 7.5 %

Amortization of acquired intangible assets 20.8 20.2

Share-based payment expense 8.3 11.1

Acquisition-related items (1)

Adjusted operating profit $ 356.0 $ 336.5 $ 19.5 5.8 %

Operating profit margin 4.3 % (0.2) % 450 bps

Adjusted operating profit margin 15.2 % 14.5 % 70 bps

______________________________

(1) Acquisition-related items include profit in inventory.

ABL net sales for the nine months ended May 31, 2021 increased 0.5% compared with the prior-year period due primarily to higher sales volumes through the independent sales network and direct sales networks as our go-to-market activities began to leverage improvements in the construction market and wider economy during the third quarter of fiscal 2021.

These higher sales volumes were partially offset by declines in the retail sales channel due to a customer inventory rebalancing and stronger pre-pandemic performance.

Additionally, sales within the corporate accounts channel were lower due to fewer nonessential renovations from large retailers in the first half of the fiscal year.

Operating profit for ABL was $326.9 million (14.0% of ABL net sales) for the nine months ended May 31, 2021 compared to $304.0 million (13.1% of ABL net sales) in the prior-year period, an increase of $22.9 million.

The increase in operating profit was due primarily to higher sales, product and productivity improvements, as well as lower travel expenses and sales and marketing costs, partially offset by increased employee related costs.

Adjusted operating profit increased $19.5 million to $356.0 million for the nine months ended May 31, 2021 compared with the prior year period.

Nine Months Ended

ISG May 31, 2021 May 31, 2020 Increase (Decrease) Percent Change

Net sales $ 139.5 $ 116.1 $ 23.4 20.2 %

Operating profit (loss) $ 7.9 $ (2.3) $ 10.2 NM

Amortization of acquired intangible assets 9.6 10.6

Share-based payment expense 2.1 4.5

Adjusted operating profit $ 19.6 $ 12.8 $ 6.8 53.1 %

Operating profit (loss) margin 5.7 % (2.0) % 770 bps

Adjusted operating profit margin 14.1 % 11.0 % 310 bps

ISG net sales for the nine months ended May 31, 2021 increased 20.2% compared with the prior-year period primarily due to increased sales of building management products.

ISG operating profit was $7.9 million for the nine months ended May 31, 2021 compared with a $2.3 million operating loss in the prior-year period, an increase of $10.2 million.

This increase was due primarily to higher sales volumes, partially offset by increased employee related costs.

Adjusted operating profit for ISG increased $6.8 million to $19.6 million for the nine months ended May 31, 2021 compared with the prior year period.

As we look ahead, we expect to see continued improvements in the end markets we serve, and we are positioning ourselves to support higher levels of market growth.

We anticipate some continued volatility in raw material costs and component and labor availability, and we will work to address the impact to our business.

We plan to continue to invest in our business with the intention of becoming a larger, more dynamic company.

ABL net sales for the three months ended November 30, 2021 increased $130.0 million, or 17.3%, to $ 883.6 million compared with $ 753.6 million in the prior-year period due primarily to our go-to-market activities, focus on servicing our customers, and continued recovery in end markets we serve within the independent and direct sales network channels.

Sales within these channels also benefited from recent price increases and revenues from acquired companies.

Additionally, sales within corporate accounts increased year over year as some large accounts began previously deferred maintenance and renovations.

These increases were partially offset by declines in the retail sales channel.

Operating profit for ABL was $128.1 million (14.5% of ABL net sales) for the three months ended November 30, 2021 compared to $98.4 million (13.1% of ABL net sales) in the prior-year period, an increase of $29.7 million.

The increase in operating profit was due primarily to contributions from higher sales partially offset by increased materials and freight costs as well as higher operating costs to support the increase in sales.

ISG net sales for the three months ended November 30, 2021 increased $5.6 million, or 13.7%, to $ 46.4 million compared with $ 40.8 million in the prior-year period driven primarily by strong demand for building and heating, ventilation, and air-conditioning controls as well as price increases.

ISG operating profit was $2.0 million for three months ended November 30, 2021 compared with a $0.1 million operating loss in the prior-year period, an increase of $2.1 million.

This increase was due primarily to contributions from higher sales, partially offset by increased employee costs.

Critical Accounting Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations addresses the financial condition and results of operations as reflected in our Consolidated Financial Statements , which have been prepared in accordance with U.S.

generally accepted accounting principles (“U.S.

As discussed in the Description of Business and Basis of Presentation footnote of the Notes to Consolidated Financial Statements , the preparation of financial statements in conformity with U.S.

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inventory valuation;

amortization and the recoverability of long-lived assets, including goodwill and intangible assets;

goodwill and indefinite-lived intangible assets;

share-based payment expense;

medical, product warranty and recall, and other estimated liabilities;

retirement benefits;

and litigation.

and product warranty and recall costs.

We base our estimates and judgments on our substantial historical experience and other relevant factors, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Actual results could differ from those estimates.

We discuss the development of accounting estimates with the Audit Committee of the Board.

We discuss the development of critical accounting estimates with the Audit Committee of the Board of Directors.

There have been no material changes in our critical accounting estimates during the current period.

6 unchanged sentences

Forward-looking statements include, without limitation:

(a) our projections regarding financial performance, liquidity, capital structure, capital expenditures, investments, share repurchases, and dividends;

(a) our projections regarding financial performance, including our expected margins and ability to leverage operating costs, liquidity, capital structure, capital expenditures, investments, share repurchases, and dividends;

(b) expectations about the impact of any changes in demand, including improvements in our end markets, as well as volatility, challenges, and uncertainty in general economic conditions;

3 unchanged sentences

(f) our estimate of future amortization expense;

(g) our ability to achieve our long-term financial goals and outperform the markets we serve;

(g) our ability to achieve our long-term financial goals and measures;

(h) our expectations about the resolution of securities class action and other legal matters;

(i) our expectations of the impact of the ongoing COVID-19 pandemic;

and (j) our expectation that the OSRAM DS transaction will close by end of day on July 1, 2021 and deliver the expected benefits to the Company and its customers.

(i) our expectations about our ability to enter into a new credit agreement prior to the expiration of the current agreement as well as any impacts of the phase out of the London Inter-Bank Offered Rate (“LIBOR”);

and (j) our expectations of the impact of the ongoing COVID-19 pandemic.

You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this quarterly report.

4 unchanged sentences

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