What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-12-17 compared with 2020-12-11 · 83 added, 266 removed, 290 unchanged (55% of the section changed)

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

The following discussion and analysis contains forward-looking statements based on our current assumptions, expectations, estimates and projections about our business and the homebuilding industry, and therefore, it should be read in conjunction with our consolidated financial statements and related notes thereto, as well as the "Cautionary Note Regarding Forward-Looking Statements" discussed elsewhere within this Annual Report on Form 10-K.

The following discussion and analysis contains forward-looking statements based on our current assumptions, expectations, estimates and projections about our business and the homebuilding industry, and therefore, it should be read in conjunction with our consolidated financial statements and related notes thereto, as well as our “ Cautionary Note Regarding Forward-Looking Statements” discussed elsewhere within this Annual Report on Form 10-K.

For a listing of potential risks and uncertainties which impact our business and industry, see “Item 1A.

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Examples of fenestration components include (1) energy-efficient flexible insulating glass spacers, (2) extruded vinyl profiles, (3) window and door screens, and (4) precision-formed metal and wood products.

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 production processes and engineering expertise to provide our customers with specialized products for their specific window, door, and cabinet applications.

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COVID-19 Impacts

On March 11, 2020, the World Health Organization,(WHO), declared the outbreak of COVID-19 to be a global pandemic and recommended containment and mitigation measures.

On March 11, 2020, the WHO declared the outbreak of COVID-19 to be a global pandemic and recommended containment and mitigation measures.

Our first priority with regard to the COVID-19 pandemic is to do everything we can to ensure the safety, health and welfare of our employees, customers, suppliers and other partners.

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As federal, state and local governments react to the public health crisis, significant uncertainties have been created in the economy.

The COVID-19 pandemic and its related effects continue to have a significant adverse effect on many sectors of the economy and we may be further impacted.

The COVID-19 pandemic and its related effects continue to have a significant adverse affect on many sectors of the economy and we may be further impacted.

As part of our response to the COVID-19 pandemic, we have taken the following measures:

• We are continuing to provide our products to support critical infrastructure needs while following national, state, and local guidelines required to continue operations during the existence of the pandemic and related local declarations of emergency.

All manufacturing facilities in the United States and Germany remained operational for the duration of the pandemic while both U.K.

plants shut down in late March 2020 and became operational again during May 2020.

However, local or regional hotspots of the pandemic could result in other locations being temporarily idled due to the need to deep clean areas where an employee who has tested positive for COVID-19 worked.

• While we currently expect any negative impact on sales to be temporary and minimal, the duration of the COVID-19 pandemic, the actions to contain the pandemic and treat its impacts, and the effects on our operations are highly uncertain and cannot be predicted at this time.

• We reassessed and adjusted our operational needs, including reducing our 2020 capital expenditure plans by approximately 25% to 30%.

• We have taken precautionary measures intended to help minimize the risk of the virus to our employees, including temporarily requiring some employees to work remotely.

We work with our customers to the extent idling affects fulfillment timing.

• We have taken precautionary measures intended to help minimize the risk of the virus to our employees by implementing social distancing, sanitizing the workspace, and requiring employees to report any COVID-19 symptoms to ensure safety as infection surges dictate.

• We continue to monitor the rapidly evolving situation and guidance from international and domestic authorities, including federal, state and local public health authorities and may take additional actions based on their recommendations.

In these circumstances, there may be developments outside our control requiring us to adjust our operating plan.

Tax Cuts and Job Act

On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (the Act) that included sweeping tax reform which affected U.S.

corporations, including a reduction of the statutory federal corporate tax rate from 35% to 21%.

We made an initial assessment of the Act and recorded a discrete benefit of $6.5 million, which included a charge of $1.2 million for a one-time mandatory transition tax on deemed repatriation of previously tax-deferred and unremitted foreign earnings during the fiscal year ended October 31, 2018.

We completed the accounting for the income tax effects of the Act and recorded a charge of $0.4 million for the re-measurement of the one-time mandatory transition tax during the year ended October 31, 2019.

The Act also imposed additional tax law changes that became effective during fiscal 2019, which include new requirements for a global intangible low-taxed income provision (GILTI) and a deduction for foreign-derived intangible income (FDII), which resulted in a net charge of $1.2 million during the year ended October 31, 2019.

Market Overview and Outlook

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residential wood cabinet demand.

In November 2020, the NAHB forecasted calendar-year housing starts (excluding manufactured units) to be 1.4 million in 2020, 1.3 million in 2021, and 1.4 million in 2022.

The November 2020 Ducker forecast indicated that window shipments in the R&R market are expected to decrease approximately 1% for calendar year 2020 and increase 2% and 3% in 2021 and 2022, respectively.

Derived from reports published by Ducker, the overall decrease in window shipments for the trailing twelve months ended September 30, 2020 was 0.3%.

During this period, new construction activities increased 1.1% and R&R decreased 1.4%.

In November 2021, the NAHB forecasted calendar-year housing starts (excluding manufactured units) to be 1.6 million in 2021, 2022 and 2023 calendar-years.

The November 2021, Ducker forecast indicated that window shipments in the R&R market are expected to increase approximately 4.5%, 4% and 3% in the calendar-years ended 2021, 2022, 2023, respectively, and window shipments in the new construction market are expected to grow 13%, 2%, and 1% in the calendar-years ended 2021, 2022, and 2023, respectively, resulting in overall window shipment improvements of 8% in 2021, 3% in 2022, and 2% in 2023.

Derived from reports published by Ducker, the overall increase in window shipments for the trailing twelve months ended September 30, 2021 was 8.9%.

During this period, new construction activities increased 14.2% and R&R increased 4.7%.

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

will decline approximately 6% in 2020, however, 2021 is estimated to grow 3.7%.

In line with market forecasts, we expect that some sales originally planned for the year ended October 31, 2020 may be realized during the years ended October 31, 2021 and 2022.

is estimated to increase 13.4% in 2021 and 5.2% in 2022.

vinyl business (commonly referred to as “Liniar”) is largely focused on the sale of vinyl house systems under the trade name “Liniar” to smaller window manufacturers in the U.K.

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These manufacturers seek the quality and technology of the specific products identified by the Liniar trade name.

In addition, Liniar services non-fenestration markets including the manufacture of roofing for conservatories, vinyl decking and vinyl water retention barriers

used for landscaping.

In addition, Liniar services non-fenestration markets including the manufacture of roofing for conservatories, vinyl decking and vinyl water retention barriers used for landscaping.

We believe there are growth opportunities within these markets in the U.K.

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Our business is seasonal, particularly our fenestration business, as inclement weather during the winter months tends to slow down construction, particularly as related to “outside of the house” construction.

To some extent, we believe our kitchen and bathroom cabinet door business lessens the impact of seasonality on our operating results, as the cabinet business is “inside of the house” and less susceptible to weather.

To some extent, we believe our kitchen

and bathroom cabinet door business lessens the impact of seasonality on our operating results, as the cabinet business is “inside of the house” and less susceptible to weather.

We are impacted by regulation of energy standards.

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In addition, some of these commodities, such as silicone, are in high demand, particularly in Europe, which can affect the cost of the raw materials, a portion of which we may not be able to fully recover.

Thus far we have not experienced any supply or logistics disruptions as lower demand has not required us to source the same level of supply.

On June 23, 2016, citizens of the U.K.

voted to exit the European Union (E.U.) (referred to as Brexit).

In October 2019, the U.K.

ratified a withdrawal agreement, and subsequently the U.K.

left the E.U.

on January 31, 2020.

A transition period is in place until December 31, 2020 while the U.K.

negotiate additional arrangements.

The current E.U.

rules for trade, travel, and business for the U.K.

will lapse on December 31, 2020 with any new rules taking effect January 1, 2021.

Given the lack of comparable precedent, it is difficult for us to predict the future impacts on our U.K.

based operations, which accounted for approximately 15% of our total sales for the year ended October 31, 2020.

Due to the fact that we manufacture and sell a majority of our U.K.

products within the U.K., there is minimal risk to our ability to physically deliver goods and complete sales.

As such, we believe we are well positioned within the U.K.

to respond to potential changes to underlying demand as a result of the final Brexit outcome.

The primary risk mitigation focus for our U.K.

operations centers on the availability and pricing of raw materials.

While we source the majority of our raw materials from within the U.K., many of the primary upstream raw materials our vendors use are being sourced from outside of the U.K., which could expose us to cross-border issues and raw material price impacts.

We will mitigate this potential impact of Brexit on the import of goods to the U.K.

by strategically managing our inventory levels and logistical channels.

In February 2020, the U.K.

announced its intention to introduce border controls and our U.K.

businesses have positioned themselves well to cope with additional demands and tariffs that this will bring in order to comply and facilitate the flow of goods in and out of the U.K.

We are still clarifying what the impact of associated tariffs could be.

The global economy remains uncertain due to currency devaluations, political unrest, terror threats, global pandemics such as COVID-19, and even the political landscape in the U.S.

We also began to experience some supply disruptions as high demand reduced availability of raw materials.

The global economy remains uncertain due to global supply chain interruptions, inflationary pressures, currency devaluations, political unrest, terror threats, global pandemics such as COVID-19, and even the political landscape in the U.S.

These and other macro-economic factors have impacted the global financial markets, which may have contributed to significant changes in foreign currencies.

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Depreciation and amortization 42.7 4% 47.2 6% (4.5) 10%

Asset impairment charges — —% 74.6 8% (74.6) 100%

Operating income (loss) 55.3 6% (26.4) (3)% 81.7 309%

Operating income 81.8 8% 55.3 6% 26.5 48%

Interest expense (2.5) —% (5.2) (1)% 2.7 52%

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Income tax expense (23.1) (2)% (11.8) (1)% (11.3) (96)%

Net income (loss) $ 38.5 5% $ (46.7) (5)% $ 85.2 182%

Net income $ 57.0 5% $ 38.5 5% $ 18.5 48%

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

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Operating income margin 10 % 8 %

Net sales decreased $20.4 million, or 4%, for the twelve months ended October 31, 2020 compared to the same period in 2019, which was primarily driven by a decrease in volumes of $22.9 million, which includes the impacts of COVID-19.

The decrease in volume was partially offset by increases in prices and surcharges of $2.5 million.

Net sales increased $94.9 million, or 20%, for the twelve months ended October 31, 2021 compared to the same period in 2020, which was primarily driven by a $74.7 million increase in volumes, including a recovery from prior year COVID-19 impacts, and an increase in price and raw material surcharges of $20.2 million.

Cost of Sales.

Cost of sales decreased $14.4 million, or 4%, for the twelve months ended October 31, 2020 compared to the same period in 2019.

Cost of sales decreased due to lower volumes during the period, including a corresponding decrease in selling expenses as a result of the impacts of COVID-19 as mentioned above.

Cost of sales increased $78.6 million, or 21%, for the twelve months ended October 31, 2021 compared to the same period in 2020.

Cost of sales, including labor, increased primarily due to higher volumes and price inflation during the period.

Selling, General and Administrative.

Our selling, general and administrative expenses decreased by $2.6 million, or 5%, for the twelve months ended October 31, 2020 compared to the same period in 2019.

This decrease was due primarily to lower general expenses due to COVID-19 restrictions and lower compensation and benefits year-over-year.

Our selling, general and administrative expenses increased by $5.2 million, or 11%, for the twelve mont hs ended October 31, 2021 compared to the same period in 2020.

This increase was due primarily to higher compensation, including higher incentive accruals based on financial performance, and benefits year-over-year.

Restructuring Charges.

Restructuring charges incurred during the twelve months ended October 31, 2020 and 2019 relate to facility lease expense for a vinyl extrusion plant in the U.S.

which was closed in January 2017 that has not been sublet or otherwise exited as of October 31, 2020.

Restructuring charges incurred during the twelve months ended October 31, 2020 relate to facility lease expense for a vinyl extrusion plant in the U.S.

which was closed in January 2017.

We exited the lease during December 2020.

Depreciation and Amortization.

Depreciation and amortization expense decreased $5.0 million, or 21%, f or the twelve months ended October 31, 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

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Operating income margin 16 % 12 %

Net sales decreased $3.8 million, or 2%, when comparing the twelve months ended October 31, 2020 compared to the same period in 2019.

A decrease in volumes of $5.5 million year-over-year, which includes of the impacts of COVID-19 was partially offset by $1.1 million of base price increases and $0.6 million of favorable foreign currency rate changes.

Net sales increased $90.5 million, or 56%, when comparing the twelve months ended October 31, 2021 compared to the same period in 2020 , which was primarily driven by a $70.7 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, $11.8 million of foreign currency rate changes, and $8.0 million of base price increases.

Cost of Sales .

The cost of sales decreased $5.3 million for the twelve months ended October 31, 2020 compared to the same period in 2019.

Cost of sales decreased due to lower volumes during the period, including a corresponding decrease in selling expenses as a result of the impacts of COVID-19 as mentioned above.

The cost of sales increased $63.2 million, or 58%, for the twelve months ended October 31, 2021 compared to the same period in 2020.

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

Selling, General and Administrative .

Our selling, general and administrative expense decreased $0.3 million for the twelve months ended October 31, 2020 compared to the same period in 2019.

The decrease is due to savings incurred from reduced marketing and other general expenses as a result of COVID-19 restrictions, reimbursements for labor costs in the U.K.

from government aid for COVID-19 furloughs, and lower incentive compensation.

Our selling, general and admi nistrative expense increased $7.2 million, or 32%, for the twelve months ended October 31, 2021 compared to the same period in 2020.

The increase is primarily due to higher

compensation, including higher incentive accruals based on financial performance, general expenses and foreign currency impacts year-over-year.

NA Cabinet Components

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Depreciation and amortization 13.3 13.7 (0.4) 3%

Asset impairment charge — 74.6 (74.6) 100%

Operating loss $ (2.4) $ (74.2) $ 71.8 97%

Operating loss margin (1) % (32) %

Net sales decreased $19.5 million for the twelve months ended October 31, 2020 compared to the same period in 2019.

Approximately $14.0 million of the decrease in sales was due to lower volume related to customer strategic shifts and the impacts of COVID-19.

Sales declined an additional $5.5 million due to lower price impacts.

Operating income (loss) $ 0.9 $ (2.4) $ 3.3 138%

Operating income (loss) margin — % (1) %

Net sales increased $36.0 million, or 17%, for the twelve months ended October 31, 2021 compared to the same period in 2020, which was primarily driven by a $19.8 million increase in price and raw material indexes and a $16.2 million increase in volumes.

Cost of Sales .

The cost of sales decreased $17.4 million for the twelve months ended October 31, 2020 compared to the same period in 2019 as a result of lower volume, including a corresponding decrease in selling expenses as a result of the impacts of COVID-19 as mentioned above.

The cost of sales increased $31.3 million, or 17%, for the twelve months ended October 31, 2021 compared to the same period in 2020 as a primarily as a result of higher volumes and rising lumber prices, which are recovered on a lag.

Selling, General and Administrative .

Our selling, general and administrative expense remained relatively flat for the twelve months ended October 31, 2020 compared to the same period in 2019.

Our selling, general and administrative expense increased $2.1 million, or 11%, for the twelve months ended October 31, 2021 compared to the same period in 2020.

The increase is primarily due to higher compensation, including higher incentive accruals based on financial performance, and general expenses year-over-year .

Restructuring Charges.

Restructuring charges of $0.3 million in the twelve months ended October 31, 2020 related to severance, equipment moving and other charges incurred for a plant closure.

Asset Impairment Charge.

Asset impairment charges incurred during the twelve months ended October 31, 2019 related to goodwill impairment charges.

There were no corresponding asset impairment charges incurred during the twelve months ended October 31, 2020.

For further information, see Note 6, "Goodwill and Intangible Assets," of the accompanying financial statements in this Annual Report on Form 10-K.

Unallocated Corporate & Other

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Selling, General and Administrative .

Our selling, general and administrative expenses decreased $8.5 million, for the twelve months ended October 31, 2020 compared to the same period in 2019.

This decrease is attributable to $4.4 million of lower medical expenses, $2.0 million of lower compensation expense primarily related to the valuations of our stock based compensation awards, lower transaction costs of $1.4 million and lower severance costs related to executive severance and headcount reduction.

Our selling, general and administrative expenses increased $11.8 million, or 2,360%, for the twelve months ended October 31, 2021 compared to the same period in 2020.

This increase is attributable to $7.3 million of higher compensation expense related to the valuations of our stock based compensation awards and executive bonuses due to financial performance, $4.8 million of medical expenses due to a higher claims experience during the twelve months ended October 31, 2021 compared to the same period in 2020, 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 Expense .

Interest expense decreased $4.4 million for the twelve months ended October 31, 2020 compared to the same period in 2019 primarily due to lower interest rates and lower overall debt outstanding.

Inte rest expense decreased $2.7 million for the twelve months ended October 31, 2021 compared to the same period in 2020 primarily due to lower interest rates and lower overall debt outstanding.

The weighted average interest rate for borrowings outstanding for the twelve months ended October 31, 2021 was 1.42% compared with 2.45% for the twelve months ended October 31, 2020.

Other, net increased $0.6 million for the twelve months ended October 31, 2021 compared to the same period in 2020.

Improvements in the impacts of foreign currency transactions were partially offset by a decrease in pension benefits year-over-year.

The increase is primarily due to an increase in pension benefits year-over-year.

Income Taxes .

We recorded income tax expense of $11.8 million on pre-tax income of $50.3 million for the twelve months ended October 31, 2020, an effective rate of 23.5%, and income tax expense of $10.8 million on pre-tax loss of $36.0 million for the twelve months ended October 31, 2019, an effective rate of 30.0%.

We recorded income tax expense of $23.1 million on pre-tax income of $80.1 million for the twelve months ended October 31, 2021, an effective rate of 28.9%, and income tax expense of $11.8 million on pre-tax income of $50.3 million for the twelve months ended October 31, 2020, an effective rate of 23.5%.

The effective rate for the twelve months ended October 31, 2021 was primarily impacted by state income taxes, global intangible low-taxed income , and changes in uncertain tax positions, partially offset by U.S.

foreign tax credits.

The effective rate for the twelve months ended October 31, 2020 was impacted by the true-up of our accruals and related deferred taxes from prior year filings and settled audits.

The effective rate for the twelve months ended October 31, 2019 was primarily impacted by the $74.6 million asset impairment charge in the NA Cabinet Components segment which did not generate a tax benefit, and a net charge of $1.2 million related to GILTI and FDII.

Liquidity and Capital Resources

Historically, our principal sources of funds have been cash on hand, cash flow from operations, and borrowings under our credit facilities.

As of October 31, 2020, we had $51.6 million of cash and cash equivalents, $103.0 million outstanding under our credit facilities, $4.8 million of outstanding letters of credit and $15.3 million outstanding under finance leases.

As of October 31, 2021, we had $40.1 million of cash and cash equiv alents, $38.0 million outstanding under our credit facilities, $4.5 million of outstanding letters of credit and $15.5 million outstanding under finance leases.

We had $282.5 million available for use under a revolving credit facility at October 31, 2021.

On July 29, 2016, we entered into a $450.0 million credit agreement comprising a $150.0 million Term Loan A and a $300.0 million revolving credit facility (collectively, the “2016 Credit Agreement”), under which we borrowed $150.0 million and $150.0 million, respectively.

The proceeds from the 2016 Credit Agreement, along with additional funding of $16.4 million of cash on hand, were used to repay outstanding borrowings under our prior credit facilities of $309.2 million, to pay a 1% prepayment call premium, to settle outstanding interest accrued, and to pay loan fees which totaled $2.8 million.

In addition, we expensed $8.1 million to write-off unamortized deferred financing fees and $5.5 million of unamortized original issuer’s discount associated with our prior credit facilities.

The 2016 Credit Agreement was to mature in 2021 (5-year term) and required interest payments calculated, at our election and depending upon our Consolidated Leverage Ratio, at either a Base Rate plus an applicable margin (0.50% to 1.25%) or the LIBOR Rate plus an applicable margin (1.50% to 2.25%).

We included deferred financing fees of $2.8 million as a contra-liability account, and were amortizing this balance straight-line over the term of the facility.

On October 18, 2018, we amended and restated the 2016 Credit Agreement by entering into a $325.0 million revolving credit facility (the “2018 Credit Facility”), under which we borrowed $205.0 million.

The proceeds from the 2018 Credit Facility, along with additional funding of $10.0 million of cash on hand, were used to repay outstanding borrowings under the 2016 Credit Agreement of $213.5 million, to settle outstanding interest accrued under the prior facility, and to pay loan fees which totaled $1.0 million.

In addition, we expensed $1.1 million to write-off unamortized deferred financing fees associated with the 2016 Credit Agreement.

On October 18, 2018, we entered into a $325.0 million revolving credit facility (the “Credit Facility”), under which we borrowed $205.0 million.

The proceeds from the Credit Facility, along with additional funding of $10.0 million of cash on hand, were used to repay outstanding borrowings under a previous credit agreement of $213.5 million, to settle outstanding interest accrued under the prior facility, and to pay loan fees which totaled $1.0 million.

In addition, we expensed $1.1 million to write-off unamortized deferred financing fees associated with the previous credit agreement.

The Credit Facility matures in 2023 (5-year term) and requires interest payments calculated, at our election and depending upon our Consolidated Leverage Ratio, at either a Base Rate plus an applicable margin (0.25% to 1.00%) or the LIBOR Rate plus an applicable margin (1.25% to 2.00%).

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

Funds from operations may be impacted by softer demand and liquidity concerns of our customers as a result of COVID-19.

In the U.K., we insure against a portion of our credit losses.

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 through the COVID-19 crisis as it continues to unfold.

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 through the COVID-19 crisis as it continues to unfold.

Analysis of Cash Flow

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Operating Activities

Operating cash flow for the year ended October 31, 2020 increased $4.4 million while cash flow for the year ending October 31, 2019 decreased by $8.2 million.

Our ability to continue operations and deliver orders as an essential service provider mitigated some of the effects of COVID-19.

Our efforts to maintain operating levels in accordance with demand allowed us to remain efficient with our working capital and use inventory effectively.

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.

Operating cash flow for the year ended October 31, 2021 decreased $22.2 million while cash flow for the year ended October 31, 2020 increased by $4.4 million.

The decrease in cash provided by operating activities is primarily due to an increase in working capital partially offset by higher net income year-over-year due to increased demand.

The increase in working capital was largely driven by an inventory build and raw material price inflation and an increase in accounts receivable.

Investing Activities

Cash used for investing activities for the year ended October 31, 2020 increased $1.7 million compared to the year ended October 31, 2019 due to an increase of $0.8 million in our investment in capital expenditures and a decline in proceeds from the disposition of capital assets of $0.8 million.

Cash used for investing activities for the year ended October 31, 2021 decreased $6.5 million compared to the year ended October 31, 2020 due to an increase of $4.8 million in proceeds from the disposition of capital assets and a $1.7 million decrease in capital expenditures.

At October 31, 2021, we had firm purchase commitments of approximately $5.2 million for the purchase or construction of capital assets.

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Financing Activities

In 2020, cash used for financing activities was $55.1 million and related primarily to net debt repayments of $40.5 million, payment of dividends of $10.5 million, and share repurchases of $7.2 million.

In 2019, cash used for financing activities was $71.3 million and related primarily to net debt repayments of $54.0 million, payment of dividends of $10.6 million, and share repurchases of $9.6 million.

In the year ended October 31, 2021 , cash used for financing activities was $71.9 million and related primarily to net debt repayments of $65.7 million, share repurchases of $11.2 million and payment of dividends of $10.8 million, partially offset by $16.3 million of proceeds from the exercise of stock options.

In the year ended October 31, 2020, cash used for financing activities was $55.1 million and related primarily to net debt repayments of $40.5 million, payment of dividends of $10.5 million, and share repurchases of $7.2 million.

Liquidity Requirements

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On August 30, 2018, our Board of Directors approved a stock repurchase program that authorized the repurchase of up to $60.0 million worth of shares of our common stock.

Repurchases under the new program will be made in open market transactions or privately negotiated transactions, subject to market conditions, applicable legal requirements and other relevant factors.

The program does not have an expiration date or a limit on the number of shares that may be purchased.

During the years ended October 31, 2020 and 2019, we purchased 450,000 shares and 583,398 shares, respectively, at a cost of $7.2 million and $9.6 million, respectively, under this program.

Repurchases under the program were made in open market transactions or privately negotiated transactions, subject to market conditions, applicable legal requirements and other relevant factors.

During the yea rs ended October 31, 2021, 2020 and 2019, we purchased 478,311, 450,000 and 583,398 shares, respectively, at a cost of $11.2 million, $7.2 million and $9.6 million, respectively, under this program.

As of October 31, 2021, this share repurchase authorization was exhausted and the program is now complete.

Critical Accounting Policies and Estimates

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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.

Revenue from Contracts with Customers

Revenue recognition

We recognize revenue that reflects the consideration we expect to receive for product sales upon transfer to customers.

Revenue for product sales is recognized when control of the promised products is transferred to our customers, and we expect to be entitled to consideration in exchange for transferring those products.

We account for a contract when a customer provides us with a firm purchase order that identifies the products to be provided, the payment terms for those services, and when collectability of the consideration due is probable.

Performance obligations

A performance obligation is a promise to provide the customer with a good or service.

Our performance obligations include product sales, with each product included in a customer contract being recognized as a separate performance obligation.

For contracts with multiple performance obligations, the standalone selling price of each product is generally readily observable.

Revenue from product sales is recognized at a point in time when the product is transferred to the customer, in accordance with the shipping terms, which is generally upon shipment.

We estimate a provision for sales returns and warranty allowances to account for product returns related to general returns and product nonconformance.

Pricing and sales incentives

Pricing is established at or prior to the time of sale with our customers and we record sales at the agreed-upon net selling price, reflective of current and prospective discounts.

Practical expedients and exemptions

We generally expense incremental costs of obtaining a contract when incurred because the amortization period would be less than one year.

Additionally, we do not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.

Shipping and handling costs

We have elected to account for shipping and handling services as fulfillment services in accordance with ASC Topic 606 guidance;

accordingly, freight revenue will be combined with the product deliverable rather than being accounted for as a distinct performance obligation within the terms of the agreement.

Shipping and handling costs incurred by us for the delivery of goods to customers are considered a cost to fulfill the contract and are included in cost of sales in the accompanying consolidated statements of income (loss).

Contract assets and liabilities

Deferred revenue, which is not significant, is recorded when we have remaining unsatisfied performance obligations for which we have received consideration.

Disaggregation of revenue

We produce a wide variety of products that are used in the fenestration industry, including window spacer systems;

extruded vinyl products;

metal fabricated products;

and astragals, thresholds and screens.

In addition, we produce certain non-fenestration products, including kitchen and bath cabinet doors and components, flooring and trim moldings, solar edge tape, plastic decking, fencing, water retention barriers, conservatory roof components, and other products.

Allowance for Doubtful Accounts

We record trade accounts receivable at billed amounts, less an allowance for doubtful accounts.

This allowance is established to estimate the risk of loss associated with our trade receivables which may arise due to the inability of our customers to pay or due to changes in circumstances.

The allowance is maintained at a level that we consider appropriate based on factors that affect collectability, including:

(a) historical trends of write-offs, recoveries and credit losses;

(b) the credit quality of our customers;

and (c) projected economic and market conditions.

Different assumptions or changes in economic circumstances could result in changes to the allowance.

Our historical bad debt expense has been less than 0.1% of sales for the years ended October 31, 2020, 2019 and 2018.

If bad debt expense increased by 1% of net sales, the impact on operating results would have been a decrease in net income of $6.4 million for the year ended October 31, 2020, an increase in net loss of $6.8 million for the year ended October 31, 2019 and a decrease in net income of $9.2 million for the year ended October 31, 2018.

Business Combinations - Contingencies

We apply the acquisition method of accounting for business combinations in accordance with U.S.

GAAP, which requires us to make use of estimates and judgments to allocate the purchase price paid for acquisitions to the fair value of the net assets and liabilities acquired.

We use established valuation techniques and engage reputable valuation specialists to assist us with these valuations.

However, there is a risk that we may not identify all pre-acquisition contingencies or that our estimates may not reflect the actual results when realized.

We use a reasonable measurement period to record any adjustment related to the opening balance sheet (generally, less than one year).

After the measurement period, changes to the opening balance sheet can result in the recognition of income or expense as period costs.

To the extent these items stem from contingencies that existed at the balance sheet date, but are contingent upon the realization of future events, the cost is charged to expense at the time the future event becomes known.

If our purchase accounting estimates are not correct, or if we do not recognize contingent assets or liabilities accurately, we may incur losses.

Impairment or Disposal of Long-Lived Assets

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Forecasts require assumptions about demand for our products and future market conditions.

Although there may be no indicators of impairment in the current period, unanticipated changes to assumptions or circumstances in future periods could result in an impairment charge in the period of the change.

No impairment charges were incurred with regard to our property, plant and equipment for the years ended October 31, 2020, 2019 and 2018.

Although there may be no indicators of impairment in the current period, unanticipated changes to assumptions or circumstances in future

periods could result in an impairment charge in the period of the cha nge.

No impairment charges w ere incurred with regard to our property, plant and equipment for the years ended October 31, 2021, 2020 and 2019.

We monitor relevant circumstances, including industry trends, general economic conditions, and the potential impact that such circumstances might have on the valuation of our identifiable intangibles.

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two reporting units included in our NA Fenestration operating segment, two reporting units included in our EU Fenestration operating segment, and one reporting unit included in our NA Cabinet Components operating segment.

We performed a qualitative assessment of the two reporting units in the NA Fenestration segment and one of the reporting units in the EU Fenestration segment.

We performed a qualitative assessment of the two reporting units in the NA Fenestration segment and one of the two reporting units in the EU Fenestration segment.

This review included an analysis of historical goodwill test results, operating results relative to forecast, projected results over the next five years, and other measures and concluded that there were no indicators of potential impairment associated with these reporting units.

Therefore, no additional testing was deemed necessary for the reporting units in the NA Fenestration segment and the EU Fenestration segment that were assessed qualitatively.

We also updated the quantitative assessments for the reportable unit in the NA Cabinet Compnents segment and the second reportable unit in the EU Fenestration segment.

We also updated the quantitative assessments for the reportable unit in the NA Cabinet Components segment and the second reportable unit in the EU Fenestration segment.

We determined the fair value of these reportable units exceeded the carrying value by 17.6% and 113.6% , respectively, and concluded that no impairment was necessary.

Restructuring

We account for restructuring costs in accordance with U.S.

GAAP, whereby we accrue for one-time severance benefits pursuant to an approved plan of restructuring at the communication date, when affected employees have been notified of the potential severance and sufficient information has been provided for the employee to calculate severance benefits, in the event the employee is involuntarily terminated.

In addition, we accrue costs associated with the termination of contractual commitments including operating leases at the time the lease is terminated pursuant to the lease provisions or in accordance with another agreement with the landlord.

Otherwise, we continue to recognize operating lease expense through the cease-use date.

After the cease-use date, we determine if our operating lease payments are at market.

We assume sublet of the facility at the market rate.

To the extent our lease obligations exceed the fair value rentals, we discount to arrive at the present value and record a liability.

If the facility is not sublet, we expense the amount of the lease in the current period until sublet.

For other costs directly related to the restructuring effort, such as equipment moving costs, we expense in the period incurred.

Effective November 1, 2019, we adopted Accounting Standards Codification Topic 842, "Leases" (ASC Topic 842), which requires leases to be recognized on the balance sheet.

We recognize a right-of-use (ROU) asset and lease liability for each operating and finance lease with a contractual term greater than 12 months at the time of lease inception.

We include ROU assets and lease liabilities for leases that exist within other contracts.

Leases with an original term of 12 months or less are not recognized on the balance sheet, and the rent expense related to those short-term leases is recognized over the lease term.

We do not account for lease and non-lease (e.g.

common area maintenance) components of contracts separately for any underlying asset class.

We lease certain manufacturing plants, warehouses, office space, vehicles and equipment under finance and operating leases.

Lease commencement occurs on the date we take possession or control of the property or equipment.

Original terms for our real estate-related leases are generally between five and twenty years.

Original terms for equipment-related leases, primarily manufacturing equipment and vehicles, are generally between one and ten years.

Some of our leases also include rental escalation clauses.

Renewal options are included in the determination of lease payments when management determines the options are reasonably certain of exercise, considering financial performance, strategic importance and/or invested capital.

If readily determinable, the rate implicit in the lease is used to discount lease payments to present value;

however, substantially all of our leases do not provide a readily determinable implicit rate.

When the implicit rate is not determinable, our estimated incremental borrowing rate is utilized, determined on a collateralized basis, to discount lease payments based on information available at lease commencement.

Total lease costs recorded include fixed operating lease costs and variable lease costs.

Most of our real estate leases require we pay certain expenses, such as common area maintenance costs, of which the fixed portion is included in operating lease costs.

We recognize operating lease costs on a straight-line basis over the lease term.

In addition to the above costs, variable lease costs are recognized when probable and are not included in determining the present value of our lease liability.

The ROU asset is measured at the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date and initial direct costs.

For operating leases, ROU assets are reduced over the lease term by the recognized straight-line lease expense less the amount of accretion of the lease liability determined using the effective interest method.

For finance leases, ROU assets are amortized on a straight-line basis over the shorter of the useful life of the leased asset or the lease term.

Interest expense on each finance lease liability is recognized utilizing the effective interest method.

ROU assets are tested for impairment in the same manner as long-lived assets.

Additionally, we monitor for events or changes in circumstances that may require a reassessment of one of our leases and determine if a remeasurement is required.

We operate in various jurisdictions and therefore our income tax expense relates to income taxes in the U.S., U.K., Canada, and Germany, as well as local and state income taxes.

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Annually, we evaluate our tax positions to determine if there have been any changes in uncertain tax positions or if there has been a lapse in the statute of limitations with regard to such positions.

Our liability for uncertain tax positions at October 31, 2020 and 2019 totaled $0.5 million and $0.6 million, respectively, and related to certain state tax items regarding the interpretation of tax laws and regulations.

We believe we will have sufficient taxable income in the future to fully utilize our unreserved deferred tax assets recorded as of October 31, 2020.

Our liability for uncertain tax positions at October 31, 2021 and 2020 totaled $1.4 million and $0.5 million, respectively, and related to certain federal and state tax items regarding the interpretation of tax laws and regulations.

We believe we will have sufficient taxable income in the future to fully utilize our deferred tax assets recorded as of October 31, 2021, net of our valuation allowance.

There is a risk that our estimates related to the future use of loss carry forwards and our ability to realize our deferred tax assets may not come to fruition, and that the results could materially impact our financial position and results of operations.

We have recorded the benefit associated with the “patent box” deduction in the U.K.

with regard to our operations at Liniar.

We believe that it is more likely than not that our deduction with regard to this position would be sustained upon examination.

Our deferred tax assets at October 31, 2020 and 2019 totaled $20.1 million and $21.0 million, respectively, against which we had recorded a valuation allowance of $1.5 million and $1.6 million, respectively.

We manage our costs of workers’ compensation, group medical, property, casualty and other liability exposures through a combination of self-insurance retentions and insurance coverage with third-party carriers.

Liabilities associated with our portion of this exposure are not discounted.

We estimate our exposure by considering various factors which may include:

(1) historical claims experience, (2) severity factors, (3) estimated claims incurred but not reported and (4) loss development factors, which are used to estimate how claims will develop over time until settled or closed.

While we consider a number of factors in preparing our estimate of risk exposure, we must use our judgment to determine the amounts to accrue in our financial statements.

Actual claims can differ significantly from estimated liabilities if future claims experience differs from historical experience, and if we determine that our assumptions used for analysis or our development factors are flawed.

We do not recognize insurance recoveries until any contingencies relating to the claim have been resolved.

Our total gross deferred tax assets at October 31, 2021 and 2020 totaled $13.8 million and $14.3 million, respectively, against which we had recorded a valuation allowance of $1.2 million and $1.5 mi llion, respectively.

We record inventory at the lower of cost or net realizable value.

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Inventory quantities are regularly reviewed and provisions for excess or obsolete inventory are recorded primarily based on our forecast of future demand and market conditions.

Significant unanticipated changes to our forecasts or changes in the net realizable value of our inventory would require a change in the provision for excess or obsolete inventory.

Significant unanticipated changes to our forecasts or changes in the net realizable value of our inventory would require a change in the pr ovision for excess or obsolete inventory.

For the years ended October 31, 2021, 2020 and 2019, our inventory reserves are approximately 3%, 10% , and 5% of gross inventory, respectively.

Assuming an increase in obsolescence equal to 1% of gross inventory, net income would have decreased by $0.5 million for the year ended October 31, 2020, net loss would have increased by $0.5 million for the year ended October 31, 2019, and net income would have been reduced by $1.0 million for the year ended October 31, 2018.

Retirement Plans

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As of October 31, 2021, our projected benefit obligation (PBO) and accumulated benefit obligation (ABO) each exceeded the fair value of the plan assets by $4.7 million .

As a comparison, our PBO and ABO exceeded the fair value of plan assets by $13.1 million and $12.1 million, respectively, as of October 31, 2019.

As a comparison, our PBO and ABO exceeded the fair value of plan assets by $10.7 million as of October 31, 2020.

During fiscal 2021, we contributed $0.5 million to the pension plan to meet minimum contribution requirements.

Expected contributions are dependent on many variables, including the variability of the market value of the assets as compared to the obligation and other market or regulatory conditions.

In addition, we take into consideration our business investment opportunities and our cash requirements.

In addition, we take into

consideration our business investment opportunities and our cash requirements.

Accordingly, actual funding may differ greatly from current estimates.

As of October 31, 2020, a 1% decrease in the discount rate would result in an increase in the PBO of $5.8 million.

GAAP, we are not required to immediately recognize the effects of a deviation between actual and assumed experience under our pension plan, or to revise our estimate as a result.

This approach allows the favorable and unfavorable effects that fall within an acceptable range to be netted and disclosed as an unrecognized gain or loss.

As of October 31, 2020 and 2019, a net actuarial loss of $9.9 million and $6.7 million, respectively, was included in our accumulated other comprehensive (loss) income.

As of October 31, 2021 and 2020, a net actuarial loss of $4.5 million an d $9.9 million, respectively, was included in our accumulated other comprehensive (loss) income.

There were no net prior service costs or transition obligations for the years ended October 31, 2021 and 2020.

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Mortality assumptions used to determine the obligations for our pension plans are based on the Pri-2012 base mortality table with MP-2020 mortality improvement scale.

Stock-Based Compensation

We have issued stock-based compensation in the form of stock options to directors, employees and officers, and non-vested restricted stock awards to certain key employees and officers.

We apply the provisions of ASC Topic 718 “ Compensation - Stock Compensation ” (ASC 718) to determine the fair value of stock option awards on the date of grant using the Black-Scholes valuation model.

We recognize the fair value as compensation expense on a straight-line basis over the requisite service period of the award based on awards ultimately expected to vest.

Stock options granted to directors vest immediately while the stock options granted to our employees and officers typically vest ratably over a three-year period with service and continued employment as the vesting conditions.

For new option grants to retirement-eligible employees, we recognize expense and vest immediately upon grant, consistent with the retirement vesting acceleration provisions of these grants.

For employees near retirement age, we amortize such grants over the period from the grant date to the retirement-eligibility date if such period is shorter than the standard vesting schedule.

For grants of non-vested restricted stock, we calculate the compensation expense at the grant date as the number of shares granted multiplied by the closing stock price of our common stock on the date of grant.

This expense is recognized ratably over the vesting period.

Our non-vested restricted stock grants to officers and employees cliff vest over a three-year period with service and continued employment as the only vesting criteria.

Our fair value determination of stock-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables.

These variables include, but are not limited to, our expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behavior over the expected term, our dividend rate, risk-free rate and expectation with regards to forfeitures.

Option-pricing models were developed for use in estimating the value of traded options that have no vesting or hedging restrictions and are fully transferable.

Because our employee stock options have certain characteristics that are significantly different from traded options, and because changes in the subjective assumptions can materially affect the estimated value, the valuation models may not provide an accurate measure of the fair value of our employee stock options.

Accordingly, that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.

We have granted other awards which are linked to the performance of our common stock, but will settle in cash rather than the issuance of shares of our common stock.

The value of these awards fluctuates with changes in our stock price, with the resulting gains or losses reflected in the period of the change.

We have recorded current and non-current liabilities related to these awards reflected in our consolidated balance sheets at October 31, 2020 and 2019, included elsewhere within this Annual Report on Form 10-K.

In addition, we have granted performance share awards which settle in cash and shares upon vesting.

The award granted during the year ended October 31, 2018 has vesting criteria based on a market condition (relative total shareholder return) and an internal performance condition (earnings per share growth).

The awards granted during the years ended October 31, 2020 and 2019 use return on net assets as the vesting condition and settle in cash.

We use a Monte Carlo simulation model to value the market condition and our stock price on the date of grant to value the internal performance condition.

We bifurcate the liability and equity portion of the awards (amounts expected to settle in cash and shares, respectively) and recognize expense ratably over the vesting period of three years.

We estimate that the performance measures will be met and shares will vest at target until the year of settlement (third year of cliff vesting).

As of October 31, 2020, we do not expect any performance share awards to vest.

We also awarded performance restricted stock units to key employees and officers in December 2019, 2018, and 2017.

These awards cliff vest upon a three-year service period with the absolute total shareholder return of our common stock over this three-year term as the vesting criteria.

The number of performance restricted stock units earned is variable depending on the metric achieved, and the settlement method is 100% in our common stock, with accrued dividends paid in cash at the time of vesting, assuming the shares had been outstanding throughout the performance period.

To value the performance restricted stock units, we use a Monte Carlo simulation model to arrive at a grant-date fair value.

This amount will be adjusted for forfeitures and expensed over the three-year term of the award with a credit to additional paid-in-capital.

Similar to performance shares, the performance restricted stock units are not considered outstanding shares, do not have voting rights, and are excluded from diluted weighted-average shares used to calculate earnings per share until the performance criteria is probable to result in the issuance of contingent shares.

As of October 31, 2020, we have deemed 32,322 shares related to the December 2017 grants of performance restricted stock units as probable to vest.

Contractual Obligations and Commercial Commitments

Our contractual obligations and commercial commitments include unconditional purchase obligations which consist of commitments to buy miscellaneous parts, inventory, and expenditures related to capital projects in progress.

In addition, during fiscal 2021, we expect to contribute approximately $0.5 million to our pension plan to meet our minimum contribution requirements.

In addition, during fiscal 2022, we do not expect to need to contribute to our pension plan to meet our minimum contribution requirements.

Pension contributions beyond 2022 cannot be determined since the amount of any contribution is heavily dependent on the future economic environment and investment returns on pension plan assets.

Obligations are based on current and projected obligations of the plans, performance of the plan assets, if applicable, and the timing and amount of funding contributions.

At October 31, 2020, we have recorded a long-term liability for deferred pension and postretirement benefits totaling $10.9 million.

At October 31, 2021, we have recorded a long-term liability for deferred pension benefits totaling $4.7 million .

We believe the effect of the plans on liquidity is not significant to our overall financial condition.

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Effects of Inflation

We have experienced the impact of inflation on our cost of raw materials, labor, freight and overhead.

We have experienced the impact of inflation on our cost of raw materials, labor, freight and overhead, particularly during the year ended October 31, 2021.

Although we use contractual price indexing along with periodic base price increases to minimize the effect of inflation on our results, we have not been able to fully recover all of the inflationary cost increases.

We believe inflation has not had a significant effect on our earnings or financial position over the previous three fiscal years.

We cannot provide assurance, however, that our results of operations and financial position will not be materially impacted by inflation in the future.

Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update No.

2016-13, Financial Instruments - Credit Losses (Topic 326).

This amendment replaces the incurred loss impairment methodology in current U.S.

GAAP and requires that financial assets be measured on an amortized cost basis and presented at the net amount expected to be collected.

This new methodology reflects expected credit losses (rather than probable credit losses) and requires consideration of a broader range of supportable information when determining these estimated credit losses, including relevant experience, current conditions and supportable forecasts to determine collectability.

In addition, the amendment provides guidance with regard to the use of an allowance for credit losses for purchased financial assets and available-for-sale debt securities.

This amendment becomes effective for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year.

We expect to adopt this amendment during fiscal 2021, with no material impact on our consolidated financial statements.

In August 2018, the FASB issued ASU No.

2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20).

This amendment modifies the disclosure requirements for employers that sponsor defined benefit pensions or other postretirement plans.

Specifically, the amendment removes disclosures which were no longer considered cost beneficial, clarifies certain disclosure requirements, and adds disclosures identified as relevant.

This amendment becomes effective for fiscal years beginning after December 15, 2020, including interim periods within that fiscal year.

We expect to adopt this amendment during fiscal 2022 with no material impact on our consolidated financial statements.

This ASU sets forth a “current expected credit loss” model, which requires the measurement of all expected credit losses for financial instruments or other assets (e.g., trade receivables), held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts.

We adopted this amendment on November 1, 2020, with no material impact on our condensed consolidated financial statements as pre-existing processes for estimating credit losses for trade receivables aligned with the expected credit loss model.

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-K

Item 7. Management’s Discussion and Analysis