What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-06-04 compared with 2021-03-05 · 148 added, 54 removed, 181 unchanged (53% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes as of January 31, 2021, and for the three months ended January 31, 2021 and 2020, included elsewhere herein.

The following discussion and analysis should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes as of April 30, 2021, and for the three and six months ended April 30, 2021 and 2020, included elsewhere herein.

For additional information pertaining to our business, including risk factors which should be considered before investing in our common stock, refer to our Annual Report on Form 10-K for the fiscal year ended October 31, 2020.

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We also manufacture cabinet doors and other components for OEMs in the kitchen and bathroom cabinet industry.

In addition, we provide certain other non-fenestration components and products, which include solar panel sealants, trim moldings, vinyl decking, fencing, water retention barriers, and conservatory roof components.

In addition, we provide certain other non-fenestration components and products, which include solar panel sealants, trim moldings, vinyl decking, vinyl fencing, water retention barriers, and conservatory roof components.

We use low-cost, short lead-time production processes and engineering expertise to provide our customers with specialized products for their specific window, door, and cabinet applications.

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residential wood cabinet demand.

In January 2021, the NAHB forecasted calendar-year housing starts to be 1.4 million for calendar years 2020, 2021, and 2022.

The February 2021 Ducker forecast indicated that window shipments in the R&R market are expected to increase approximately 2% for calendar year 2020 and approximately 3% for each of the 2021 and 2022 calendar years.

In May 2021, the NAHB forecasted calendar-year housing starts to be 1.5 million for the 2021 calendar-year and 1.6 million for 2022 and 2023.

The May 2021, Ducker forecast indicated that total window shipments are expected to increase approximately 8.5% for calendar-year 2021 and approximately 2% for each of the 2022 and 2023 calendar-years.

The estimated increase in window shipments for the year ended December 31, 2021 includes an increase in new construction shipments of approximately 13% and an increase in R&R shipments of approximately 4%.

In February 2021, Catalina Research estimated that residential semi-custom cabinet demand in the U.S.

is estimated to decline 2.8% in 2020 but rebound to growth of 3.6% for 2021.

In line with market forecasts, we expect that some sales originally planned for the year ended October 31, 2021 may be realized during the years ended October 31, 2021 and 2022.

In May 2021, Catalina Research estimated that residential semi-custom cabinet demand in the U.S.

is estimated to increase 8.0% in 2021 and 6.5% in 2022.

Several commodities in our business are subject to pricing fluctuations, including polyvinyl resin (PVC), titanium dioxide (TiO2), petroleum products, aluminum and wood.

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Results of Operations

Three Months Ended January 31, 2021 Compared to Three Months Ended January 31, 2020

Three Months Ended January 31,

Three Months Ended April 30, 2021 Compared to Three Months Ended April 30, 2020

Three Months Ended April 30,

2021 2020 Change $ % Variance

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NA Fenestration

Three Months Ended January 31,

Three Months Ended April 30,

2021 2020 $ Change % Variance

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Operating income margin 11 % 7 %

Net sales increased $17.6 million, or 16%, for the three months ended January 31, 2021 compared to the same period in 2020, which was driven by a $14.8 million increase in volumes and an increase in price and raw material surcharges of $2.8 million.

Net sales increased $37.6 million, or 35%, for the three months ended April 30, 2021 compared to the same period in 2020, which was primarily driven by a $33.5 million increase in volumes, including a recovery from prior year COVID-19 impacts, and an increase in price and raw material surcharges of $4.1 million.

Cost of Sales.

The cost of sales increased $10.7 million for the three months ended January 31, 2021 compared to the same period in 2020.

The cost of sales increased $27.3 million, or 32%, for the three months ended April 30, 2021 compared to the same period in 2020.

Cost of sales increased primarily due to higher volumes during the period.

Selling, General and Administrative.

S elling, general and administrative expenses decreased $0.7 million for the three months ended January 31, 2021 compared to the same period in 2020, primarily due to lower compensation and general expenses year-over-year.

S elling, general and administrative expenses increased $3.2 million, or 32%, for the three months ended April 30, 2021 compared to the same period in 2020, primarily due to higher compensation and increased general expenses year-over-year.

Restructuring Charges.

Restructuring charges for the three months ended January 31, 2020 relate to facility lease expense for a U.S.

Restructuring charges for the three months ended April 30, 2020 relate to facility lease expense for a U.S.

vinyl extrusion plant which was closed in January 2017.

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Depreciation and Amortization.

Depreciation and amortization expense decreased $1.9 million for the three months ended January 31, 2021 compared to the same period in 2020.

Depreciation and amortization expense associated with property, plant, and equipment placed into service during the trailing twelve months ended January 31, 2021 was more than offset by the run-off of depreciation expense associated with existing assets and disposals during this period.

Depreciation and amortization expense decreased $1.1 million for the three months ended April 30, 2021 compared to the same period in 2020, reflecting the run-off of depreciation expense related to existing assets and disposals during the period.

EU Fenestration

Three Months Ended January 31,

Three Months Ended April 30,

2021 2020 $ Change % Variance

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Operating income margin 17 % 2 %

Net sales increased $12.4 million, or 34%, for the three months ended January 31, 2021 compared to the same period in 2020.

Net sales increased $9.6 million as a result of higher volumes, $1.7 million of foreign currency rate changes, and $1.1 million of base price increases.

Net sales increased $32.4 million, or 111%, for the three months ended April 30, 2021 compared to the same period in 2020, which was primarily driven by a $28.3 million increase in volumes, including a recovery from prior year COVID-19 impacts and the reopening of manufacturing facilities in the U.K.

which were forced to close for several weeks in the second quarter of 2020, $2.9 million of foreign currency rate changes, and $1.2 million of base price increases.

Cost of Sales.

The cost of sales increased $6.6 million for the three months ended January 31, 2021 compared to the same period in 2020.

The cost of sales increased $20.4 million, or 97%, for the three months ended April 30, 2021 compared to the same period in 2020.

Cost of sales increased primarily due to higher volumes during the period.

Selling, General and Administrative.

Selling, general and administrative expense increased $0.7 million, or 12%, for the three months ended January 31, 2021 compared to the same period in 2020.

The increase is primarily due to higher general expenses and foreign currency impacts.

Selling, general and administrative expense increased $2.1 million, or 40%, for the three months ended April 30, 2021 compared to the same period in 2020.

The increase is primarily due to higher compensation, general expenses and foreign currency impacts year-over-year.

NA Cabinet Components

Three Months Ended January 31,

Three Months Ended April 30,

2021 2020 $ Change Variance %

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Operating loss margin — % (2) %

Net sales increased $4.0 million for the three months ended January 31, 2021 compared to the same period in 2020.

Approximately $4.3 million of the increase in sales was due to higher volumes, which was partially offset by lower price and index provisions year-over-year.

Net sales increased $12.9 million, or 25%, for the three months ended April 30, 2021 compared to the same period in 2020, which was driven by an $11.4 million increase in volumes, including a recovery from prior year COVID-19 impacts, and an increase in price and raw material indexes of $1.5 million.

Cost of Sales .

Cost of sales increased $2.1 million, or 5%, for the three months ended January 31, 2021 compared to the same period in 2020 primarily as a result of higher volumes.

Cost of sales increased $10.9 million, or 25%, for the three months ended April 30, 2021 compared to the same period in 2020.

Cost of sales increased primarily due to higher volumes during the period and rising lumber prices, which are recovered on a lag.

Selling, General and Administrative .

Selling, general and administrative expense remained relatively flat for the three months ended January 31, 2021 compared to the same period in 2020.

Selling, general and administrative expense increased $1.3 million, or 33%, for the three months ended April 30, 2021 compared to the same period in 2020, primarily due to higher compensation and general expenses year-over-year.

Restructuring Charges .

Restructuring charges for the three months ended January 31, 2020 related to severance, equipment moving, and other charges incurred for a plant closure.

Restructuring charges for the three months ended April 30, 2020 related to severance, equipment moving, and other charges incurred for a plant closure.

Unallocated Corporate & Other

Three Months Ended January 31,

Three Months Ended April 30,

2021 2020 $ Change Variance %

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Depreciation and amortization 0.1 0.1 — —%

Operating loss $ (7.5) $ (0.7) $ (6.8) (971)%

Net sales for Unallocated Corporate & Other represents the elimination of inter-segment sales for the three months ended January 31, 2021 and 2020.

Operating (loss) income $ (4.4) $ 2.1 $ (6.5) (310)%

Net sales for Unallocated Corporate & Other represents the elimination of inter-segment sales for the three months ended April 30, 2021 and 2020.

Cost of Sales .

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Selling, General and Administrative .

Selling, general and administrative expenses increased $6.7 million for the three months ended January 31, 2021 compared to the same period in 2020.

This increase is attributable to $4.5 million of higher compensation expense related to the valuations of our stock based compensation awards, $1.6 million of medical expenses due to a higher claims experience during the three months ended January 31, 2021 as compared to the prior year period, and $1.4 million of expense related to the disposal of a plant.

These increases were partially offset by a reduction in executive severance and transaction charges.

Selling, general and administrative expenses increased $6.3 million, or 242%, for the three months ended April 30, 2021 compared to the same period in 2020.

This increase is attributable to $5.2 million of higher compensation expense related to the valuations of our stock based compensation awards and executive bonuses and $1.5 million of medical expenses due to a higher claims experience during the three months ended April 30, 2021 as compared to the prior year period.

These increases were partially offset by a reduction in executive severance and legal charges.

Changes related to Non-Operating Items:

Interest Expense .

Interest expense decreased $0.9 million for the three months ended January 31, 2021 compared to the same period in 2020 as a result of lower interest rates and lower borrowings during the period.

The increase in other, net of $0.2 million for the three months ended January 31, 2021 compared to the same period in 2020 primarily to an increase in the pension service benefit.

Interest expense decreased $1.0 million for the three months ended April 30, 2021 compared to the same period in 2020 as a result of lower interest rates and lower borrowings during the period.

Income Taxes .

We recorded income tax expense of $3.4 million on pre-tax income of $11.3 million for the three months ended January 31, 2021, an effective rate of 30.4% and income tax expense of $0.4 million on pre-tax income of $0.4 million for the three months ended January 31, 2020, an effective rate of 97.7%.

We recorded income tax expense of $6.5 million on pre-tax income of $21.0 million for the three months ended April 30, 2021, an effective rate of 30.7%, and income tax expense of $2.1 million on pre-tax income of $7.6 million for the three months ended April 30, 2020, an effective rate of 27.9%.

The $4.4 million increase in income tax expense year-over-year corresponds with the increase in pre-tax income .

Six Months Ended April 30, 2021 Compared to Six Months Ended April 30, 2020

Six Months Ended April 30,

2021 2020 Change $ % Variance

(Dollars in millions)

Net sales $ 500.5 $ 384.1 $ 116.4 30 %

Cost of sales (excluding depreciation and amortization) 384.9 307.2 77.7 (25) %

Selling, general and administrative 60.5 40.8 19.7 (48) %

Restructuring charges — 0.4 (0.4) 100 %

Depreciation and amortization 21.9 24.8 (2.9) 12 %

Operating income 33.2 10.9 22.3 205 %

Interest expense (1.4) (3.1) 1.7 55 %

Other, net 0.5 0.3 0.2 67 %

Income tax expense (9.9) (2.6) (7.3) (281) %

Net income $ 22.4 $ 5.5 $ 16.9 307 %

Our period-over-period results by reportable segment follow.

Changes Related to Operating Income by Reportable Segment:

NA Fenestration

Six Months Ended April 30,

2021 2020 $ Change % Variance

(Dollars in millions)

Net sales $ 274.3 $ 219.0 $ 55.3 25%

Cost of sales (excluding depreciation and amortization) 211.8 173.8 38.0 (22)%

Selling, general and administrative 25.6 23.0 2.6 (11)%

Restructuring charges — 0.2 (0.2) 100%

Depreciation and amortization 10.0 12.9 (2.9) 22%

Operating income $ 26.9 $ 9.1 $ 17.8 196%

Operating income margin 10 % 4 %

Net sales increased $55.3 million , o r 25%, for the six months ended April 30, 2021 compared to the same period in 2020, which was primarily driven by a $48.3 million increase in volumes, including a recovery from prior year COVID-19 impacts, and an increase in price and raw material surcharges of $7.0 million.

Cost of Sales.

The cost of sales increased $38.0 million, or 22%, for the six months ended April 30, 2021 as compared to the same period in 2020.

Cost of sales increased primarily due to higher volumes during the period.

Selling, General and Administrative.

S elling, general and administrative expenses increased $2.6 million, or 11%, for the six months ended April 30, 2021 as compared to the same period in 2020.

This increase was due primarily to higher compensation year-over-year.

Restructuring Charges.

Restructuring charges for the six months April, 30 2020 relate to facility lease expense for a U.S.

vinyl extrusion plant which was closed in January 2017.

We exited the lease during December 2020.

Depreciation and Amortization.

Depreciation and amortization expense decreased $2.9 million compared to the six months ended April 30, 2021 and 2020, reflecting the run-off of depreciation expense related to existing assets and disposals during the period.

EU Fenestration

Six Months Ended April 30,

2021 2020 $ Change Variance %

(Dollars in millions)

Net sales $ 110.7 $ 66.0 $ 44.7 68%

Cost of sales (excluding depreciation and amortization) 73.2 46.2 27.0 (58)%

Selling, general and administrative 14.0 11.3 2.7 (24)%

Depreciation and amortization 5.1 4.7 0.4 (9)%

Operating income $ 18.4 $ 3.8 $ 14.6 384%

Operating income margin 17 % 6 %

Net sales increased $44.7 million, or 68%, comparing the six months ended April 30, 2021 to the same period in 2020, which was primarily driven by a $37.5 million increase in volumes, including a recovery from prior year COVID-19 impacts and the reopening of manufacturing facilities in the U.K.

which were forced to close for several weeks in the second quarter of 2020, $4.8 million of foreign currency rate changes, and $2.4 million of base price increases.

Cost of Sales.

The cos t of sales increased $27.0 million, or 58%, for the six months ended April 30, 2021 compared to the same period in 2020.

Cost of sales increased primarily due to higher volumes during the period.

Selling, General and Administrative.

Selling, general and administrative expense increased $2.7 million, or 24%, for the six months ended April 30, 2021 compared to the same period in 2020.

The increase is primarily due to higher compensation, general expenses and foreign currency impacts year-over-year.

NA Cabinet Components

Six Months Ended April 30,

2021 2020 $ Change Variance %

(Dollars in millions)

Net sales $ 117.6 $ 100.7 $ 16.9 17%

Cost of sales (excluding depreciation and amortization) 101.0 88.0 13.0 (15)%

Selling, general and administrative 10.2 8.8 1.4 (16)%

Restructuring charges — 0.2 (0.2) 100%

Depreciation and amortization 6.6 6.9 (0.3) 4%

Operating loss $ (0.2) $ (3.2) $ 3.0 94%

Operating loss margin — % (3) %

Net sales increased $16.9 million , or 17% , for the six months ended April 30, 2021 compared to the same period in 2020 , which was driven by a $15.8 million increase in volumes, including a recovery from prior year COVID-19 impacts, and an increase in price and raw material indexes of $1.1 million.

Cost of Sales .

Cost of sales increased $13.0 million , or 15%, for the six months ended April 30, 2021 compared with the same period in 2020, primarily as a result of higher volumes and rising lumber prices, which are recovered on a lag.

Selling, General and Administrative .

Selling, general and administrative expense increased $1.4 million, or 16%, for the six months ended April 30, 2021 compared to the same period in 2020, primarily due to higher compensation and general expenses year-over-year.

Restructuring Charges .

Restructuring charges of $0.2 million in the six months ended April 30, 2020 related to severance, equipment moving, and other charges incurred for a plant closure.

Unallocated Corporate & Other

Six Months Ended April 30,

2021 2020 $ Change Variance %

(Dollars in millions)

Net sales $ (2.1) $ (1.6) $ (0.5) (31)%

Cost of sales (excluding depreciation and amortization) (1.1) (0.8) (0.3) (38)%

Selling, general and administrative 10.7 (2.3) 13.0 (565)%

Depreciation and amortization 0.2 0.3 (0.1) 33%

Operating (loss) income $ (11.9) $ 1.2 $ (13.1) (1,092)%

Net sales for Unallocated Corporate & Other represents the elimination of inter-segment sales for the six months ended April 30, 2021 and 2020.

Cost of Sales .

Cost of sales for Unallocated Corporate & Other consists of the elimination of inter-segment sales, profit in inventory, and other costs.

Selling, General and Administrative .

Selling, general and administrative expenses increased $13.0 million, or 565%, for the six months ended April 30, 2021 compared to the same period in 2020.

This increase is attributable to $9.7 million of higher compensation expense related to the valuations of our stock based compensation awards and executive bonuses, $3.1 million of medical expenses due to a higher claims experience during the six months ended April 30, 2021 as compared to the prior year period, and $1.4 million of loss on the sale of a plant.

These increases were partially offset by a reduction in executive severance and legal charges.

Changes related to Non-Operating Items:

Interest Exp ense .

Interest expense decreased $1.7 million for the six months ended April 30, 2021 compared to the same period in 2020 as a result of lower interest rates and lower borrowings during the period.

Income Taxes .

We recorded income tax expense of $9.9 million on pre-tax income of $32.3 million for the six months ended April 30, 2021, an effective rate of 30.6%, and income tax expense of $2.6 million on a pre-tax income of $8.1 million for the six months ended April 30, 2020, an effective rate of 31.7%.

The $7.3 million increase in income tax expense year-over-year corresponds with the increase in pre-tax income.

Liquidity and Capital Resources

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We maintain a $325.0 million revolving credit facility (the Credit Facility) that matures in 2023 (5-year term) and requires interest payments calculated at a variable market rate depending upon our Consolidated Leverage Ratio.

The applicable rate during the three months ended January 31, 2021 ranged from LIBOR + 1.50% to LIBOR + 1.25%.

The applicable rate during the six months ended April 30, 2021 ranged from LIBOR + 1.50% to LIBOR + 1.25%.

Our cost of capital could increase depending upon the Consolidated Leverage Ratio at the end of any given quarter.

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For further details of the Credit Facility, refer to Note 4, “Debt and Finance Lease Obligations” to the accompanying unaudited condensed consolidated financial statements contained elsewhere herein.

As of January 31, 2021, we had $43.4 million of cash and equivalents, $98.0 million outstanding under the Credit Facility, $4.5 million of outstanding letters of credit and $15.6 million outstanding under finance leases and other debt.

We had $222.5 million available for use under the Credit Facility at January 31, 2021.

We repatriated $1.0 million and $3.1 million of foreign cash during the three months ended January 31, 2021 and 2020, respectively.

As of April 30, 2021, w e had $49.3 million of cash and equivalents, $73.0 million outstanding under the Credit Facility, $4.5 million of outstanding letters of credit and $15.7 million outstanding under finance leases and other debt.

We had $247.5 million available for use under the Credit Facility at April 30, 2021.

We repatriated $8.8 million and $3.1 million of f oreign cash during the six months ended April 30, 2021 and 2020, respectively.

We expect to repatriate excess cash moving forward and use the funds to retire debt or meet current working capital needs.

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In light of the COVID-19 pandemic, the Company has implemented a range of actions aimed at reducing costs and preserving liquidity.

We believe our business model, our current cash reserves and the recent steps we have taken to strengthen our balance sheet leave us well-positioned to manage our business as a going concern and remain in compliance with our debt covenants.

We believe our business model, our current cash reserves and the recent steps we have taken to strengthen our balance sheet leave us well-positioned to manage our business and remain in compliance with our debt covenants.

Analysis of Cash Flow

The following table summarizes our cash flow results for the three months ended January 31, 2021 and 2020:

Three Months Ended

The following table summarizes our cash flow results for the six months ended April 30, 2021 and 2020:

Six Months Ended

(In millions)

Cash used for operating activities $ (3.4) $ (3.7)

Cash provided by operating activities $ 29.0 $ 2.5

Cash used for investing activities $ (8.1) $ (16.3)

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Operating Activities .

Cash used for operating activities for the three months ended January 31, 2021 remained relatively flat compared to the three months ended January 31, 2020.

Improvements in net income were offset by unfavorable working capital impacts.

To date, slower paying customers as a result of COVID-19 have not significantly impacted our liquidity, but this could become a concern in the future.

Cash provided by operating activities for the six months ended April 30, 2021 increased $26.5 million compared to the six months ended April 30, 2020 .

Higher net income year-over-year due to increased demand and improvements in working capital management were the primary drivers of this operating cash growth.

Investing Activities.

Cash used for investing activities decreased $4.1 million for the three months ended January 31, 2021 compared to the same period in 2020 as a result of lower capital expenditures.

Cash used f or investing activities decreased $8.2 million for the six months ended April 30, 2021 compared to the same period in 2020, primarily as a result of lower capital expenditures.

Financing Activities.

Cash used for financing activities was $0.6 million for the three months ended January 31, 2021, which included $5.5 million of net debt repayments, $2.6 million of dividends paid to our shareholders, and $1.9 million of treasury stock repurchases.

Our use of cash was partially offset by $10.0 million of proceeds from stock option exercises.

Cash used for financing activities was $24.3 million for the six months ended April 30, 2021, which included $30.6 million of net debt repayments, $5.3 million of dividends paid to our shareholders, and $4.0 million of treasury stock repurchases.

Our use of cash was partially offset by $16.1 million of proceeds from stoc k option exercises.

Liquidity Requirements

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Other uses of cash include paying cash dividends to our shareholders and repurchasing our common stock.

During the three months ended January 31, 2021 and 2020, we repatriated $1.0 million and $3.1 million, respectively, of foreign earnings from our foreign locations.

We maintain cash balances in foreign countries which total $11.5 million as of January 31, 2021.

During the six months ended April 30, 2021 and 2020, we repatriated repatriations $8.8 million and $3.1 million, respectively, of foreign earnings from our foreign locations.

We maintain cash balances in foreign countries which total $15.0 million as of April 30, 2021.

Critical Accounting Policies and Estimates

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For a description of our critical accounting policies and estimates, see our Annual Report on Form 10-K for the fiscal year ended October 31, 2020.

Our critical accounting policies and estimates have not changed materially during the three months ended January 31, 2021.

Our critical accounting policies and estimates have not changed materially during the six months ended April 30, 2021.

While there have been no changes in the application of principles, methods, and assumptions used to determine our significant estimates, we may be required to revise certain accounting estimates and judgments related to the economic and business impact of the COVID-19 pandemic, such as, but not limited to, those related to the valuation of goodwill, intangibles, long-lived assets, accounts receivable, and inventory, which could have a material adverse effect on our financial position and results of operations.

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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