What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-12-15 compared with 2022-12-16 · 85 added, 107 removed, 252 unchanged (43% of the section changed)

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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, 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 applications.

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We currently have three reportable business segments:

(1) North American Fenestration segment (“NA Fenestration”), comprising three operating segments, manufacturing vinyl profiles, IG spacers, screens and other fenestration components;

(1) North American Fenestration segment (“NA Fenestration”), comprising three operating segments, consisting of manufacturing vinyl profiles, IG spacers, screens, custom compound mixing and other fenestration components;

(2) European Fenestration segment (“EU Fenestration”), comprising our U.K.-based vinyl extrusion business, manufacturing vinyl profiles and conservatories, and the European insulating glass business manufacturing IG spacers;

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Recent Transactions and Events

and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the start of the military conflict between Russia and Ukraine.

Although the length and impact of the ongoing military conflict is highly unpredictable, the conflict in Ukraine could lead to market or operational disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain interruptions.

Russia, Europe’s largest provider of natural gas, has significantly reduced the export of natural gas compared to the same time last year resulting in the increase in natural gas prices and the potential for natural gas shortages.

If this trend continues, this would not only negatively impact our European manufacturing facilities, this may also negatively impact our customers and their demand for our products.

On November 1, 2022, we entered into an Asset Purchase Agreement with LMI and the equity owners of LMI, Lauren International, Ltd.

and Meteor-US-Beteiligungs GMBH.

Under the Purchase Agreement, we acquired substantially all of the operating assets comprising LMI’s polymer mixing and rubber compound production business and also agreed to assume certain liabilities relating to the Acquisition.

LMI is allocated entirely to our North American Fenestration reportable operating segment.

As consideration for the Purchased Assets, we paid $91.3 million in cash utilizing funds borrowed under our Credit Facility.

In connection with the Acquisition, we amended our existing finance lease with Lauren Real Estate Holding LLC for the purpose of adding an additional lease renewal option and increasing rental space by approximately 60,000 square feet of rental space which was added to the 313,595 square feet of rentable area located in Cambridge, Ohio.

and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the military conflicts currently ongoing in Ukraine and Gaza.

Although the length and impact of these ongoing military conflicts are highly unpredictable, the conflicts could lead to market or operational disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain interruptions.

Russia, Europe’s largest provider of natural gas, has significantly reduced the export of natural gas compared to the beginning of the conflict resulting in the increase in natural gas prices and the potential for natural gas shortages.

In addition, one of t he suppliers of a vapor barrier used in t he production of our insulating glass spacers is located in Israel and may experience a disruption as a result of the ongoing conflict in Gaza.

If these trends continues, this would not only negatively impact our European manufacturing facilities, this may also impact our customers and their demand for our products.

We continue to monitor these situations and their impact on our business.

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

Many of the limitations and mandates on operations have been lifted, however, the COVID-19 pandemic and its related effects continue to have an adverse effect on many sectors of the economy and we may be further impacted.

The war in Ukraine and the impact of COVID-19 on the global economy including inflation and the price of raw materials, supply chain disruptions, and the volatility in interest rates including home mortgage rates are unpredictable and there may be developments outside our control requiring us to adjust our operating plan.

The conflicts in Ukraine and Gaza and their impacts on the global economy, including inflation and the price of raw materials, supply chain disruptions, and the volatility in interest rates including home mortgage rates, are unpredictable and there may be developments outside our control requiring us to adjust our operating plan.

Market Overview and Outlook

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We have historically evaluated the market using data from the National Association of Homebuilders (NAHB) with regard to housing starts, and published reports by Ducker Worldwide, LLC (Ducker), a consulting and research firm, with regard to window shipments in the U.S.

We obtain market data from Catalina research, a consulting and research firm, for insight into the U.S.

residential wood cabinet demand.

In November 2022, the NAHB forecasted calendar-year housing starts (excluding manufactured units) to be 1.5 million, 1.4 million and 1.5 million in 2022, 2023 and 2024 calendar-years, respectively.

The November 2022, Ducker forecast indicated that window shipments in the R&R market are expected to increase approximately 3% and 2% in the calendar-years ended 2022 and 2023, respectively, and window shipments in the new construction market are expected to decrease 4% and 13% in the calendar-years ended 2022 and 2023, respectively, resulting in overall window shipment declines of 1% in 2022 and 5% in 2023.

Derived from reports published by Ducker, the overall increase in window shipments for the trailing twelve months ended September 30, 2022 was 3%.

During this period, new construction activities increased 2% and R&R increased 4%.

In November 2022, Catalina Research estimated that residential semi-custom cabinet demand in the U.S.

is estimated to increase 13% in 2022 and decrease 4% in 2023.

In November 2023, the NAHB forecasted calendar-year housing starts (excluding manufactured units) to be 1.4 million in the 2023, 2024 and 2025 calendar-years.

The November 2022 Ducker forecast indicated that window shipments in the R&R market are expected to decrease approximately 6% and increase 1% in the calendar-years ended 2023 and 2024, respectively, and window shipments in the new construction market are expected to decrease 10% and increase 5% in the calendar-years ended 2023 and 2024, respectively, resulting in overall window shipment decline of 8% in 2023 and increase 3% in 2024.

Derived from reports published by Ducker, the overall decrease in window shipments for the trailing twelve months ended September 30, 2023 was 8%.

During this period, new construction activities decreased 13% and R&R decreased 3%.

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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NA Cabinet Components manufactures kitchen and bathroom cabinet doors and components, amongst other products, using a variety of woods from traditional hardwoods to engineered wood products.

Currently, most of the revenue in the NA Cabinet Components is earned in the U.S., so domestic housing starts and R&R activity constitute the primary drivers of this business as well.

Currently, most of the revenue in the NA Cabinet Components segment is earned in the U.S., so domestic housing starts and R&R activity constitute the primary drivers of this business as well.

The cabinet door market is stratified as follows:

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

For the majority of our customers and critical suppliers, we have price adjusters in place which effectively share the base pass-through price changes for our primary commodities with our customers commensurate with the market at large.

For the majority of our customers and critical suppliers, we have price

adjusters in place which effectively share the base pass-through price changes for our primary commodities with our customers commensurate with the market at large.

Our long-term exposure to these price fluctuations is somewhat mitigated due to the contractual component of the adjuster program.

However, these adjusters are not in place with all customers and for all

commodities, and there is a level of exposure to such volatility due to the lag associated with the timing of price updates in accordance with our customer agreements, particularly with regard to hardwoods.

However, these adjusters are not in place with all customers and for all commodities, and there is a level of exposure to such volatility due to the lag associated with the timing of price updates in accordance with our customer agreements, particularly with regard to hardwoods.

In addition, some of these commodities 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.

We continue 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.

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.

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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For the Years Ended October 31,

2022 2021 $ Change Variance %

2023 2022 $ Change % Change

(Dollars in thousands)

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Selling, general and administrative 123,957 117,108 6,849 6%

Restructuring charges — 39 (39) 100%

Depreciation and amortization 42,866 40,109 2,757 7%

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For the Years Ended October 31,

2022 2021 $ Change Variance %

2023 2022 $ Change % Change

(Dollars in thousands)

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Selling, general and administrative 56,979 58,735 (1,756) (3)%

Restructuring charges — 39 (39) 100%

Depreciation and amortization 20,539 16,253 4,286 26%

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Operating income margin 11 % 11 %

Net sales increased $109.1 million, or 19%, for the twelve months ended October 31, 2022 compared to the same period in 2021, which was primarily driven by an increase in price and raw material surcharges of $68.5 million and a $40.7 million increase in volumes.

Net sales decreased $20.0 million, or 3%, for the twelve months ended October 31, 2023 compared to the same period in 2022, which was primarily driven by an $86.9 million decrease in volumes mainly due to softer market demand, a return to normal seasonality, customer destocking, and a decrease in price and raw material surcharges of $8.7 million, partially offset by a $75.6 million contribution from the addition of LMI in 2023.

Cost of Sales.

Cost of sales increased $87.5 million, or 19%, for the twelve months ended October 31, 2022 compared to the same period in 2021.

Cost of sales, including labor, increased primarily due to higher volumes during the period as well as

the inflation of raw materials.

Selling, General and Administrative.

Our selling, general and administrative expenses increased by $5.8 million, or 11%, for the twelve mont hs ended October 31, 2022 compared to the same period in 2021.

This increase was due primarily to an increase in compensation expense, professional fees and general expenses year-over-year.

Cost of sales decreased $20.1 million, or 4%, for the twelve months ended October 31, 2023 compared to the same period in 2022.

Cost of sales, including labor, decreased primarily due to lower volumes and deflation of raw materials during the period partially offset by the addition of LMI’s cost of sales in 2023.

Selling, General and Administrati ve.

Our selling, general and administrative expenses decreased by $1.8 million, or 3%, for the twelve months ended October 31, 2023 compared to the same period in 2022.

This decrease was due primarily to decreases in labor costs year-over-year.

Depreciation and Amortization.

Depreciation and amortization expense decreased $2.5 million, or 13%, f or the twelve months ended October 31, 2022 compared to the same period in 2021 , reflecting the run-off of depreciation expense related to existing assets and disposals during the period.

Depreciation and amortization expense increased $4.3 million, or 26%, f or the twelve months ended October 31, 2023 compared to the same period in 2022, primarily due to the acquisition of LMI’s property, plant and equipment and intangible assets.

EU Fenestration

For the Years Ended October 31,

2022 2021 $ Change Variance %

2023 2022 $ Change % Change

(Dollars in thousands)

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Operating income margin 20 % 15 %

Net sales increased $10.5 million, or 4%, when comparing the twelve months ended October 31, 2022 compared to the same period in 2021 , which was primarily driven by a $47.4 million of base price increases partially offset by $22.1 million of foreign currency rate changes and a $14.8 million decrease in volumes.

Net sales decreased $11.3 million, or 4%, when comparing the twelve months ended October 31, 2023 compared to the same period in 2022, which was primarily driven by a $19.2 million decrease in volumes largely due to softer market demand, a return to normal seasonality, and customer destocking, and $4.1 million of foreign currency rate change, partially offset by $12.0 million of base price increases.

Cost of Sales .

The cost of sales increased $8.2 million, or 5%, for the twelve months ended October 31, 2022 compared to the same period in 2021.

Cost of sales increased primarily due to inflation of raw materials partially offset by a decrease in volumes and foreign currency impacts.

The cost of sales decreased $21.8 million, or 12%, for the twelve months ended October 31, 2023 compared to the same period in 2022.

Cost of sales decreased primarily due to a decrease in volumes, deflation in the price of raw materials and foreign currency impacts.

Selling, General and Administrative .

Our selling, general and admi nistrative exp ense increased $0.5 million, or 2%, for the twelve months ended October 31, 2023 compared to the same period in 2022.

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

The increase is primarily due to an increase in labor costs partially offset by a decrease in professional fees and foreign currency impacts year-over-year.

NA Cabinet Components

For the Years Ended October 31,

2022 2021 $ Change Variance %

2023 2022 $ Change % Change

(Dollars in thousands)

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Operating income margin 2 % 1 %

Net sales increased $29.6 million, or 12%, for the twelve months ended October 31, 2022 compared to the same period in 2021, which was primarily driven by a $57.1 million increase in price and raw material indexes partially offset by $27.5 million decrease in volumes due to labor and material shortages throughout the supply chain.

Net sales decreased $60.3 million, or 22%, for the twelve months ended October 31, 2023 compared to the same period in 2022, which was primarily driven by a $49.5 million decrease in volumes due to softer market demand driven by weaker consumer confidence and a $10.8 million decrease in raw material indexes.

Cost of Sales .

The cost of sales increased $25.6 million, or 12%, for the twelve months ended October 31, 2022 compared to the same period in 2021, primarily as a result of lumber price inflation, which is recovered on a lag, partially offset by lower volumes during the period.

The cost of sales decreased $58.5 million, or 25%, for the twelve months ended October 31, 2023 compared to the same period in 2022, primarily as a result of lower volumes year-over-year and lumber price deflation.

Selling, General and Administrative .

Our selling, general and administrative expense increased $1.1 million, or 5%, for the twelve months ended October 31, 2022 compared to the same period in 2021.

The increase is primarily due to an increase in general expenses year-over-year.

Our selling, general and administrative expense decreased $0.9 million, or 4%, for the twelve months ended October 31, 2023 compared to the same period in 2022.

The decrease is primarily due to lower labor costs partially offset by an increase in professional fees and the loss on an asset caused by wind damage to a manufacturing facility.

Depreciation and Amortization.

Depreciation and amortization expense decreased $1.6 million, or 12%, for the twelve

months ended October 31, 2023 as compared to the same period in 2022, reflecting the run-off of depreciation expense related to existing assets.

Unallocated Corporate & Other

For the Years Ended October 31,

2022 2021 $ Change Variance %

2023 2022 $ Change % Change

(Dollars in thousands)

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Selling, General and Administrative .

Our selling, general and administrative expenses decreased $7.7 million, or 63%, for the twelve months ended October 31, 2022 compared to the same period in 2021.

This decreased due to $4.0 million of decreased compensation expense including the valuations of our stock based compensation awards, a decrease of $3.2 million related to medical expense claims, and a decrease of $0.5 million related to workers’ compensation claims partially offset by an increase of $1.4 million professional fees during the twelve months ended October 31, 2022 compared to the same period in 2021.

Additionally, we recorded a $1.4 million loss on the sale of a plant during the twelve months ended December 31, 2021, for which we did not have a comparable expense in the corresponding twelve months ended October 31, 2022.

Our selling, general and administrative expenses increased $9.0 million, or 195%, for the twelve months ended October 31, 2023 compared to the same period in 2022.

This increase is primarily attributable to an increase in transaction fees and compensation expense including the valuations of our stock-based compensation awards during the twelve months ended October 31, 2023 compared to the same period in 2022.

Changes Related to Non-Operating Items:

Interest Expense .

Interest expense remained flat for the twelve months ended October 31, 2022 compared to the same period in 2021.

Interest expense increased $5.6 million, or 218%, for the twelve months ended October 31, 2023 compared to the same period in 2022 as a result of higher borrowings outstanding during the period and an increase in interest rates.

The weighted average interest rate for borrowings outstanding for the twelve months ended October 31, 2023 was 6.01% compared with 2.16% for the twelve months ended October 31, 2022.

Other, net increased $0.3 million for the twelve months ended October 31, 2022 compared to the same period in 2021.

The increase is primarily due to an increase in foreign currency transaction gains partially offset by pension benefits year-over-year.

Other loss increased $6.6 million for the twelve months ended October 31, 2023 compared to the same period in 2022.

The increase is primarily due to pension settlement exp ense.

Income Taxes .

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The October 31, 2023 effective rate is lower than the U.S.

federal statutory rate of 21% primarily due to the rate differential of non-U.S.

income taxes, U.S.

foreign tax credits and tax benefits associated with stock-based compensation, partially offset by U.S.

taxes and non-U.S.

earnings and the true-up of our accruals and related deferred taxes from prior year filings.

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

foreign tax credits.

federal statutory rate of 21% primarily due to the U.K.

patent box benefit, tax return to accrual adjustments, and changes in uncertain tax positions, offset by state and local income tax, non U.S.

income tax and nondeductible expenses.

The effective rate for the twelve months ended October 31, 2022 was impacted by U.S.

patent box benefit, state and local income taxes, non U.S.

income tax and nondeductible expenses.

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, 2022, we had $55.1 million of cash and cash equiv alents, $13.0 million outstanding under our credit facilities, $5.0 million of outstanding letters of credit and $19.2 million outstanding under finance leases.

As of October 31, 2023, we had $58.5 million of cash and cash equiv alents, $15.0 million outstanding under our credit facilities, $5.0 million of outstanding letters of credit and $55.0 million outstanding leases under finance leases and other debt.

Of the $55.0 million outstanding under finance leases and other debt, $51.5 million relates to real estate leases.

We had $305.0 million available for use under a revolving credit facility at October 31, 2023.

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2023 2022 2021

(In millions)

(In thousands)

Cash flows provided by operating activities $ 147,052 $ 97,965 $ 78,588

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Operating Activities

Operating cash flow for the year ended October 31, 2022 increased $19.4 million while cash flow for the year ended October 31, 2021 decreased by $22.2 million.

The increase in operating cash flows is primarily due to higher net income year-over-year due to increased pricing offset by unfavorable changes in working capital.

The unfavorable changes in working capital were largely driven by changes in accounts receivable and payable, as well as an increase in accrued incentives year over year.

Cash provided by operating activities increased $49.1 million for the year ended October 31, 2023 compared to the year ended October 31, 2022.

The increase in operating cash flows is primarily due to favorable changes to working capital partially offset by lower net income year-over-year due to a decrease in customer demand.

The favorable changes in working capital were largely driven by a decrease in inventory value due to raw material price deflation partially offset by a decrease in accounts payable.

Investing Activities

Cash used for investing activities for the year ended October 31, 2022 increased $14.3 million compared to the year ended October 31, 2021 due to an increase of $9.1 million in capital expenditures and a decrease of $5.2 million proceeds from the disposition of capital assets.

Cash used for investing activities for the year ended October 31, 2023 increased $95.5 million compared to the year ended October 31, 2022, primarily as a result of the acquisition of the LMI Custom Mixing assets.

At October 31, 2023, we had firm purchase commitments of approximately $1.4 million for the purchase or construction of capital assets.

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Financing Activities

For the year end ed October 31, 2022, cash used for financing activities was $45.9 million and related primarily to net debt repayments of $26.7 million, payment of dividends of $10.6 million and share repurchases of $6.6 million.

For 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.

Cash used for financing activities was $16.2 million for the year ended October 31, 2023 compared to the year ended October 31, 2022, which included $10.6 million of dividends paid to our shareholders, and $5.6 million related to the purchase of treasury stock.

Liquidity Requirements

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We maintain cash balances in foreign countries which tot aled $17.8 million and $13.6 million as of October 31, 2023 and 2022.

During the years ended October 31, 2022 and 2021, we repatria ted $28.9 million and $28.4 million, respectively, of foreign earnings from our international divisions.

During the years ended October 31, 2023 and 2022, we repatr iated $47.1 million and $28.9 million, respectively, of foreign earnings from our international divisions.

We believe that we have sufficient funds and adequate financial resources available to meet our anticipated liquidity needs.

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Issuer Purchases of Equity Securities

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.

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

During December 2021, our Board of Directors approved a new stock repurchase program that authorized the repurchase of up to $75.0 million worth of shares of our common stock.

During the years ended October 31, 2022, 2021 and 2020, we purchased 291,000, 478,311 and 450,000 shares, respectively, at a cost of $6.6 million, $11.2 million and $ 7.

2 million, respectively, under these programs.

During the years ended October 31, 2023, 2022 and 2021, we purchased 275,000, 291,000 and 478,311 shares, respectively, at a cost of $5.6 million, $6.6 million and $11.2 million, respectively, under these programs.

Critical Accounting Policies and Estimates

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We believe the estimates and assumptions used in our impairment assessment are reasonable based on available market information, but variations in any of the assumptions could result in materially different calculations of fair value and determinations of whether or not an impairment is indicated during current or future periods.

At our annual testing date, August 31, 2022, we had five reporting units with goodwill balances:

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 one of the two reporting units in the NA Fenestration segment and the two reporting units in the EU Fenestration segment.

At our annual testing date, August 31, 2023, we had six reporting units with goodwill balances:

three 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 for the three of the reporting units in the NA Fenestration segment and 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 Components segment and the second reportable unit in the NA Fenestration segment.

We determined the fair value of these reportable units exceeded the carrying value b y 12.0% and 384.9%, respectively, and concluded that no impairment was necessary.

We also updated the quantitative assessments for the reportable unit in th e NA Cabinet Components segment.

We determined the fair value of these reportable units exceeded the carrying value by 12.9% an d concluded that no impairment was necessary.

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, 2022 and 2021 to taled $1.4 million and are related to certain federal and state tax items regarding the interpretation of tax laws and regulations.

As of October 31, 2023 and 2022 our liability for uncertain tax positions was $0.3 million and $1.4 million, respectively.

These tax positions 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, 2023, 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.

Our total gross deferred tax assets at October 31, 2022 and 2021 totaled $13.9 million and $13.8 million, respectively, against which we had recorded a valuation allowance of $0.5 million and $1.2 million, respectively.

Our total gross deferred tax assets as of October 31, 2023 and 2022 were $11.8 million and $13.9 million, respectively, for which we reserved a valuation allowance of $0.6 million and $0.5 million for the corresponding periods.

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

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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, 2022, 2021 and 2020, our inventory reserves are approximately 3%, 3% , and 10% of gross inventory, respectively.

For the years ended October 31, 2023, 2022 and 2021, our inventory reserves are approximately 3% of gross inventory.

Retirement Plans

We sponsor a defined benefit pension plan and an unfunded postretirement plan that provides health care and life insurance benefits for a limited pool of eligible retirees and dependents.

We have historically sponsored a defined benefit pension plan.

On January 1, 2020, we enacted changes to our pension plan whereby the benefits for all participants were frozen and thereafter those participants will receive increased benefits in the company sponsored defined contribution plan in lieu of participation in a defined benefit plan.

During the three months ended October 31, 2022, we notified participants that our pension plan will be terminated effective November 1, 2022, with final settlement expected to occur in fiscal 2024.

The measurement of liabilities related to these plans is based on our assumptions related to future events, including expected return on plan assets and healthcare cost trend rates.

The discount rate reflects the rate at which benefits could be effectively settled on the measurement date.

We determine our discount rate using a FTSE Above Median Model whereby target yields are developed from bonds across a range of maturity points, and a curve is fitted to those targets.

Spot rates (zero coupon bond yields) are developed from the curve and used to discount benefit payments associated with each future year.

This model assumes spot rates will remain level beyond the 30-year point.

We determine the present value of plan benefits by applying the discount rates to projected benefit cash flows.

Actual pension plan asset investment performance, as well as other economic experience such as discount rate and demographic experience, will either reduce or increase unamortized pension losses at the end of any fiscal year, which ultimately affects future pension costs.

As of October 31, 2022, our projected benefit obligation (PBO) and accumulated benefit obligation (ABO) each exceeded the fair value of the plan assets by $3.9 million .

As a comparison, our PBO and ABO exceeded the fair value of plan assets by $4.7 million as of October 31, 2021.

During fiscal 2022, no contributions to the pension plan were needed 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.

Accordingly, actual funding may differ greatly from current estimates.

During the three months ended October 31, 2023, we contributed $6.3 million to the pension plan and settled the pension benefit obligation and the defined benefit pension plan as terminated.

As a result, our accumulated benefit obligation was zero as of October 31, 2023.

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, 2022 and 2021, a net actuarial loss of $3.6 million an d $4.5 million, respectively, was included in our accumulated other comprehensive income.

As of October 31, 2023

and 2022, a net actuarial loss of zero an d $3.6 million, respectively, was included in our accumulated other comprehensive income.

There were no net prior service costs or transition obligations for the years ended October 31, 2023 and 2022.

The effect on fiscal years after 2022 will depend on the actual experience of the plans.

Mortality assumptions used to determine the obligations f or our pension plans are based on the Pri-2012 base mortality table with MP-2021 mortality improvement scale.

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 2023, we do not expect to need to contribute to our pension plan to meet our minimum contribution requirements.

Pension contributions beyond 2023 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, 2022, we have recorded a long-term liability for deferred pension benefits totaling $3.9 million .

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

Our supplemental benefit plan and deferred compensation plan liabilities fluctuate based on changes in the market value of certain equity securities, including our common stock.

Our supplemental benefit plan and deferred compensation plans were terminated in June 2023.

As a result, our liabilities for these plans will be distributed in June 2024 in accordance with IRS requirements.

As of October 31, 2023, our liability under the supplemental benefit plan and the deferred compensation plan was approximat ely $2.0 million and $3.9 million, re spectively.

3 unchanged sentences

We have experienced the impact of inflation on our cost of raw materials, labor, freight and overhead, particularly during the year ended October 31, 2023.

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

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

Recent Accounting Pronouncements

3 unchanged sentences

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

What changed 10-K

Item 7. Management’s Discussion and Analysis