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Item 2. Management’s Discussion and Analysis

2021-09-23 compared with 2021-06-29 · 171 added, 157 removed, 209 unchanged (61% of the section changed)

1 unchanged sentence

The Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the MD&A included in our Annual Report on Form 10-K for the year ended November 28, 2020 for important background information related to our business. 

Net revenue in the second quarter of 2021 increased 22.7 percent from the second quarter of 2020.

Net revenue in the third quarter of 2021 increased 19.6 percent from the third quarter of 2020.

Net revenue increased 10.1 percent due to sales volume and 6.3 percent due to price.

Currency effects of 3.9 percent compared to the second quarter of 2020 were primarily driven by a stronger Euro, Chinese renminbi, Australian and Canadian dollars and Mexican peso, partially offset by the weaker Brazilian real, Turkish lira and Argentinian peso compared to the U.S.

Currency effects of 3.2 percent compared to the third quarter of 2020 were primarily driven by a stronger Euro, Chinese renminbi, Canadian dollar, Mexican peso and Australian dollar, partially offset by the weaker Turkish lira and Argentinian peso compared to the U.S.

Gross profit margin decreased 370 basis points primarily due to higher raw material costs partially offset by higher sales volume. 

Net revenue in the first six months of 2021 increased 17.5 percent from the first six months of 2020.

Net revenue in the first nine months of 2021 increased 18.3 percent from the first nine months of 2020.

Net revenue increased 12.7 percent due to sales volume and 2.6 percent due to price.

Currency effects of 2.8 percent compared to the first six months of 2020 were primarily driven by a stronger Euro, Chinese renminbi, Australian and Canadian dollars and Mexican peso, partially offset by the weaker Brazilian real, Turkish lira and Argentinian peso compared to the U.S.

Currency effects of 3.0 percent compared to the first nine months of 2020 were primarily driven by a stronger Euro, Chinese renminbi, Canadian dollar, Mexican peso, Australian dollar and British pound, partially offset by the weaker Brazilian real, Turkish lira and Argentinian peso compared to the U.S.

Gross profit margin decreased 160 basis points primarily due to higher raw material costs partially offset by higher sales volume. 

Net income attributable to H.B.

Fuller in the second quarter of 2021 was $49.1 million compared to $31.6 million in the second quarter of 2020.

On a diluted earnings per share basis, the second quarter of 2021 was $0.90 per share compared to $0.61 per share for the second quarter of 2020.

Fuller in the third quarter of 2021 was $31.6 million compared to $41.6 million in the third quarter of 2020.

On a diluted earnings per share basis, the third quarter of 2021 was $0.58 per share compared to $0.79 per share for the third quarter of 2020.

Net income attributable to H.B.

Fuller in the first six months of 2021 was $78.9 million compared to $41.5 million in the first six months of 2020.

On a diluted earnings per share basis, the first six months of 2021 was $1.47 per share compared to $0.79 per share for the second quarter of 2020.

Fuller in the first nine months of 2021 was $110.5 million compared to $83.1 million in the first nine months of 2020.

On a diluted earnings per share basis, the first nine months of 2021 was $2.04 per share compared to $1.59 per share for the first nine months of 2020.

Market Conditions  

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In implementing the 2020 Restructuring Plan, we expect to incur costs of approximately $20.0 million ($15.8 million after-tax), which includes cash expenditures for severance and related employee costs globally, costs related to streamlining of processes and other restructuring-related costs.

We have incurred costs of $16.3 million under this plan as of May 29, 2021.

The 2020 Restructuring Plan was implemented in the fourth quarter of 2019 and is currently expected to be completed in 2022.

We have incurred costs of $16.9 million under this plan as of August 28, 2021.

The 2020 Restructuring Plan was implemented in the fourth quarter of 2019 and is currently expected to be completed in fiscal 2022.

Results of Operations

Three Months Ended

Six Months Ended

Nine Months Ended

($ in millions)

We review variances in net revenue in terms of changes related to sales volume, product pricing, business acquisitions and divestitures (“M&A”) and changes in foreign currency exchange rates.

The following table shows the net revenue variance analysis for the second quarter and first six months of 2021 compared to the same periods in 2020:

The following table shows the net revenue variance analysis for the third quarter and first nine months of 2021 compared to the same periods in 2020:

Three Months Ended

Six Months Ended

May 29, 2021 vs.

Nine Months Ended

August 28, 2021 vs.

August 29, 2020

August 28, 2021 vs.

August 29, 2020

Organic growth

Organic growth was 18.8 percent in the second quarter of 2021 compared to the second quarter of 2020 driven by a 39.7 percent increase in Engineering Adhesives, a 23.2 percent increase in Construction Adhesives and a 3.3 percent increase in Hygiene, Health and Consumable Adhesives.

The increase is predominately driven by an increase in sales volume.

The 3.9 percent currency impact was primarily driven by a stronger Euro, Chinese renminbi, Australian and Canadian dollars and Mexican peso partially offset by the weaker Brazilian real, Turkish lira, and Argentinian peso compared to the U.S.

Organic growth was 14.7 percent in the first six months of 2021 compared to the first six months of 2020 driven by a 30.2 percent increase in Engineering Adhesives, a 7.4 percent increase in Construction Adhesives and a 5.4 percent increase in Hygiene, Health and Consumable Construction Adhesives.

The increase is predominately driven by an increase in sales volume.

The 2.8 percent currency impact was primarily driven by a stronger Euro, Chinese renminbi, Australian and Canadian dollars and Mexican peso partially offset by the weaker Brazilian real, Turkish lira, and Argentinian peso compared to the U.S.

Organic growth was 16.4 percent in the third quarter of 2021 compared to the third quarter of 2020 driven by a 19.5 percent increase in Construction Adhesives, a 19.2 percent increase in Engineering Adhesives and a 13.0 percent increase in Hygiene, Health and Consumable Adhesives.

The increase is predominately driven by an increase in sales volume and favorable product pricing.

The 3.2 percent currency impact was primarily driven by a stronger Euro, Chinese renminbi, Canadian dollar, Mexican peso and Australian dollar, partially offset by the weaker Turkish lira and Argentinian peso compared to the U.S.

Organic growth was 15.3 percent in the first nine months of 2021 compared to the first nine months of 2020 driven by a 26.1 percent increase in Engineering Adhesives, a 11.6 percent increase in Construction Adhesives and a 7.9 percent increase in Hygiene, Health and Consumable Construction Adhesives.

The increase is predominately driven by an increase in sales volume and favorable product pricing.

The 3.0 percent currency impact was primarily driven by a stronger Euro, Chinese renminbi, Canadian dollar, Mexican peso, Australian dollar and British pound, partially offset by the weaker Brazilian real, Turkish lira, and Argentinian peso compared to the U.S.

Cost of sales:

Three Months Ended

Six Months Ended

Nine Months Ended

($ in millions)

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Percent of net revenue

Cost of sales in the second quarter of 2021 compared to the second quarter of 2020 increased 110 basis points as a percentage of net revenue.

Raw material cost as a percentage of net revenue increased 190 basis points in the second quarter of 2021 compared to the second quarter of 2020 due to higher raw material costs.

Other manufacturing costs as a percentage of revenue decreased 80 basis points in the second quarter of 2021 compared to the second quarter of 2020 due to higher sales volume.

Cost of sales in the first six months of 2021 compared to the first six months of 2020 increased 50 basis points as a percentage of net revenue.

Raw material cost as a percentage of net revenue increased 90 basis points in the second quarter of 2021 compared to the second quarter of 2020 due to higher raw material costs.

Other manufacturing costs as a percentage of revenue decreased 40 basis points in the second quarter of 2021 compared to the second quarter of 2020.

Cost of sales in the third quarter of 2021 compared to the third quarter of 2020 increased 370 basis points as a percentage of net revenue.

Raw material cost as a percentage of net revenue increased 480 basis points in the third quarter of 2021 compared to the third quarter of 2020 due to higher raw material costs.

Other manufacturing costs as a percentage of revenue decreased 110 basis points in the third quarter of 2021 compared to the third quarter of 2020 due to higher sales volume.

Cost of sales in the first nine months of 2021 compared to the first nine months of 2020 increased 160 basis points as a percentage of net revenue.

Raw material cost as a percentage of net revenue increased 220 basis points in the first nine months of 2021 compared to the first nine months of 2020 due to higher raw material costs.

Other manufacturing costs as a percentage of revenue decreased 60 basis points in the first nine months of 2021 compared to the first nine months of 2020 due to higher sales volume.

Gross profit:

Three Months Ended

Six Months Ended

Nine Months Ended

($ in millions)

Percent of net revenue

Gross profit in the second quarter of 2021 increased 17.7 percent and gross profit margin decreased 110 basis points compared to the second quarter of 2020.

Gross profit in the third quarter of 2021 increased 3.3 percent and gross profit margin decreased 370 basis points compared to the third quarter of 2020.

The decrease in gross profit margin was primarily due to higher raw material costs partially offset by higher sales volume.

Gross profit in the first six months of 2021 increased 15.4 percent and gross profit margin decreased 50 basis points compared to the first six months of 2020.

Gross profit in the first nine months of 2021 increased 11.2 percent and gross profit margin decreased 160 basis points compared to the first nine months of 2020.

The decrease in gross profit margin was primarily due to higher raw material costs partially offset by higher sales volume.

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Three Months Ended

Six Months Ended

Nine Months Ended

($ in millions)

Percent of net revenue

SG&A expenses for the second quarter of 2021 increased $20.4 million, or 15.9 percent, compared to the second quarter of 2020.

The increase is primarily due to higher compensation costs compared to the prior year.

SG&A expenses for the first six months of 2021 increased $22.9 million, or 8.5 percent, compared to the first six months of 2020.

The increase is primarily due to higher compensation costs compared to the prior year.

SG&A expenses for the third quarter of 2021 increased $5.4 million, or 4.2 percent, compared to the third quarter of 2020.

The increase is primarily due to higher discretionary spending compared to the prior year and unfavorable impact of foreign currency exchange rates on spending outside the U.S.

SG&A expenses for the first nine months of 2021 increased $28.3 million, or 7.1 percent, compared to the first nine months of 2020.

The increase is primarily due to higher compensation costs compared to the prior year and unfavorable impact of foreign currency exchange rates on spending outside the U.S.

Other income, net:

Three Months Ended

Six Months Ended

Nine Months Ended

($ in millions)

Other income, net

Other income, net in the second quarter of 2021 included $8.0 million of net defined benefit pension benefits and $5.2 million of other income, offset by $1.3 million of currency transaction losses.

Other income in the second quarter of 2021 includes gains related to a legal entity merger and a transactional tax legal settlement in Brazil. 

Other income, net in the second quarter of 2020 included $4.4 million of net defined benefit pension benefits, $0.2 million of other income, offset by $1.6 million of currency transaction losses.

Other income, net in the first six months of 2021 included $15.9 million of net defined benefit pension benefits and $6.9 million of other income, offset by $3.1 million of currency transaction losses.

Other income, net in the first six months quarter of 2020 included $8.9 million of net defined benefit pension benefits, $0.5 million of other income, offset by $1.4 million of currency transaction losses.

Other income, net in the third quarter of 2021 included $8.0 million of net defined benefit pension benefits, partially offset by $1.4 million of currency transaction losses and $0.4 million of other income.

Other income, net in the third quarter of 2020 included $4.5 million of net defined benefit pension benefits, partially offset by $0.6 million of other expense and $0.2 million of currency transaction losses.

Other income, net in the first nine months of 2021 included $23.9 million of net defined benefit pension benefits and $6.5 million of other income, partially offset by $4.5 million of currency transaction losses.

Other income, net in the first nine months of 2021 includes gains related to a legal entity merger and a transactional tax legal settlement in Brazil.

Other income, net in the first nine months of 2020 included $13.4 million of net defined benefit pension benefits, partially offset by $1.7 million of currency transaction losses.

Interest expense:

Three Months Ended

Six Months Ended

Nine Months Ended

($ in millions)

Interest expense

Interest expense in the second quarter of 2021 was $19.9 million compared to $21.6 million in the second quarter of 2020.

Interest expense in the second quarter of 2021 compared to the second quarter of 2020 was lower due to lower U.S.

debt balances and lower interest rates.

Interest expense in the first six months of 2021 was $40.3 million compared to $44.4 million in the first six months of 2020.

Interest expense in the first six months of 2021 compared to the first six months of 2020 was lower due to lower U.S.

Interest expense in the third quarter of 2021 was $19.4 million compared to $20.2 million in the third quarter of 2020.

Interest expense in the third quarter of 2021 compared to the third quarter of 2020 was lower due to lower U.S.

debt balances.

Interest expense in the first nine months of 2021 was $59.7 million compared to $64.6 million in the first nine months of 2020.

Interest expense in the first nine months of 2021 compared to the first nine months of 2020 was lower due to lower U.S.

debt balances and lower interest rates.

1 unchanged sentence

Three Months Ended

Six Months Ended

Nine Months Ended

($ in millions)

Interest income

Interest income in the second quarter of 2021 was $2.5 million.

Interest income in the second quarter of 2020 was $2.9 million.

Interest income in the first six months of 2021 was $5.2 million.

Interest income in the first six months of 2020 was $5.8 million.

Interest income in the third quarter of 2021 was $2.5 million.

Interest income in the third quarter of 2020 was $2.9 million.

Interest income in the first nine months of 2021 was $7.7 million.

Interest income in the first nine months of 2020 was $8.8 million.

Income taxes:

Three Months Ended

Six Months Ended

Nine Months Ended

($ in millions)

Effective tax rate

Income tax expense of $16.7 million in the second quarter of 2021 includes $0.6 million of discrete tax benefit.

Excluding the discrete tax benefit, the overall effective tax rate was 27.1 percent.

Income tax expense of $11.5 million in the second quarter of 2020 includes less than $0.1 million of discrete tax benefit. Excluding the discrete tax benefit, the overall effective tax rate was 28.0 percent.

The discrete tax benefits relate to various U.S. and foreign tax matters.

Income tax expense of $27.3 million in the first six months of 2021 includes $0.6 million of discrete tax benefit.

Excluding the discrete tax benefit, the overall effective tax rate was 27.2 percent.

Income tax expense of $17.1 million in the first six months of 2020 includes $2.0 million of discrete tax expense. Excluding the discrete tax expense, the overall effective tax rate was 27.5 percent.

The discrete tax benefit and expense relate to various U.S. and foreign tax matters.

Income tax expense of $19.1 million in the third quarter of 2021 includes $5.6 million of discrete tax expense.

Excluding the discrete tax expense, the overall effective tax rate was 27.6 percent. The discrete tax expense relates to the revaluation of cross-currency swap agreements due to depreciation of the Euro versus the U.S.

dollar and various foreign tax matters.

Income tax expense of $5.1 million in the third quarter of 2020 includes $7.2 million of discrete tax benefit relating to the revaluation of cross-currency swap agreements due to appreciation of the Euro versus the U.S.

Dollar and various foreign tax matters. Excluding the discrete tax benefit, the overall effective tax rate was 27.1 percent.

Income tax expense of $46.4 million in the first nine months of 2021 includes $5.1 million of discrete tax expense.

Excluding the discrete tax expense, the overall effective tax rate was 27.4 percent. The discrete tax expense relates to the revaluation of cross-currency swap agreements due to depreciation of the Euro versus the U.S.

dollar and various foreign tax matters.

Income tax expense of $22.2 million in the first nine months of 2020 includes $5.2 million of discrete tax benefit relating to the revaluation of cross-currency swap agreements due to appreciation of the Euro versus the U.S.

Dollar and various foreign tax matters. Excluding the discrete tax expense, the overall effective tax rate was 27.3 percent.

Income from equity method investments:

Three Months Ended

Six Months Ended

Nine Months Ended

($ in millions)

1 unchanged sentence

The income from equity method investments relates to our 50 percent ownership of the Sekisui-Fuller joint venture in Japan.

The higher income for the second quarter and first six months of 2021 compared to the same period of 2020 relates to higher net income in our joint venture.

The higher income for the third quarter and first nine months of 2021 compared to the same period of 2020 relates to higher net income in our joint venture.

Net income attributable to H.B.

Three Months Ended

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($ in millions)

2 unchanged sentences

The net income attributable to H.B.

Fuller for the second quarter of 2021 was $49.1 million compared to $31.6 million for the second quarter of 2020.

The diluted earnings per share for the second quarter of 2021 was $0.90 per share as compared to $0.61 per share for the second quarter of 2020.

Fuller for the third quarter of 2021 was $31.6 million compared to $41.6 million for the third quarter of 2020.

The diluted earnings per share for the third quarter of 2021 was $0.58 per share as compared to $0.79 per share for the third quarter of 2020.

The net income attributable to H.B.

Fuller for the first six months of 2021 was $78.9 million compared to $41.5 million for the first six months of 2020.

The diluted earnings per share for the first six months of 2021 was $1.47 per share as compared to $0.79 per share for the first six months of 2020.

Fuller for the first nine months of 2021 was $110.5 million compared to $83.1 million for the first nine months of 2020.

The diluted earnings per share for the first nine months of 2021 was $2.04 per share as compared to $1.59 per share for the first nine months of 2020.

Operating Segment Results

3 unchanged sentences

The tables below provide certain information regarding the net revenue and operating income of each of our operating segments. 

Corporate Unallocated amounts include business acquisition and integration costs, organizational restructuring charges and project costs associated with our implementation of Project ONE.

Corporate Unallocated amounts include business acquisition and integration costs, organizational restructuring charges and project costs associated with our implementation of SAP ONE.

Net Revenue by Segment:

Three Months Ended

Six Months Ended

Nine Months Ended

August 28, 2021

August 29, 2020

August 28, 2021

August 29, 2020

($ in millions)

6 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

August 28, 2021

August 29, 2020

August 28, 2021

August 29, 2020

($ in millions)

6 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

($ in millions)

3 unchanged sentences

Three Months Ended

Six Months Ended

May 29, 2021 vs.

Nine Months Ended

August 28, 2021 vs.

August 29, 2020

August 28, 2021 vs.

August 29, 2020

Organic growth

Net revenue increased 5.8 percent in the second quarter of 2021 compared to the second quarter of 2020.

The increase in organic growth was attributable primarily to an increase in sales volume and an increase in product pricing.

The positive currency effect was due to the stronger Euro, Chinese renminbi, Mexican peso and Australian dollar partially offset by a weaker Brazilian real, Turkish lira and Argentinian peso compared to the U.S.

As a percentage of net revenue, raw material costs increased 30 basis points.

Other manufacturing costs as a percentage of net revenue decreased 80 basis points due to higher net revenue. SG&A expenses as a percentage of net revenue was flat quarter over quarter. 

Segment operating income increased 11.1 percent and segment operating margin as a percentage of net revenue increased 50 basis points compared to the second quarter of 2020.

Net revenue increased 6.6 percent in the first six months of 2021 compared to the first six months of 2020.

The increase in organic growth was attributable primarily to an increase in sales volume and a slight increase in product pricing.

The positive currency effect was due to the stronger Euro, Chinese renminbi, and Australian and Canadian dollars partially offset by a weaker Brazilian real, Turkish lira and Argentinian peso compared to the U.S.

As a percentage of net revenue, raw material costs decreased 40 basis points.

Other manufacturing costs as a percentage of net revenue decreased 30 basis points.

SG&A expenses as a percentage of net revenue decreased 30 basis points.

Segment operating income increased 19.4 percent and segment operating margin as a percentage of net revenue increased 100 basis points compared to the first six months of 2020.

Net revenue increased 15.4 percent in the third quarter of 2021 compared to the third quarter of 2020.

The increase in organic growth was attributable primarily to an increase in sales volume and favorable product pricing.

The positive currency effect was due to the stronger Euro, Chinese renminbi and Mexican peso, partially offset by a weaker Turkish lira and Argentinian peso compared to the U.S.

As a percentage of net revenue, raw material costs increased 400 basis points due to higher raw material costs partially offset by higher net revenue.

Other manufacturing costs as a percentage of net revenue decreased 90 basis points and SG&A expenses as a percentage of net revenue decreased 110 basis points due to higher net revenue. Segment operating income decreased 6.9 percent and segment operating margin as a percentage of net revenue decreased 200 basis points compared to the third quarter of 2020.

Net revenue increased 9.5 percent in the first nine months of 2021 compared to the first nine months of 2020.

The increase in organic growth was attributable primarily to an increase in sales volume and favorable product pricing.

The positive currency effect was due to the stronger Euro, Chinese renminbi, Canadian dollar, Mexican peso and Australian dollar, partially offset by a weaker Brazilian real, Turkish lira and Argentinian peso compared to the U.S.

As a percentage of net revenue, raw material costs increased 120 basis points due to higher raw material costs partially offset by higher net revenue.

Other manufacturing costs as a percentage of net revenue decreased 50 basis points. SG&A expenses as a percentage of net revenue decreased 70 basis points due to higher net revenue.

Segment operating income increased 9.9 percent and segment operating margin as a percentage of net revenue was flat compared to the first nine months of 2020.

Engineering Adhesives

Three Months Ended

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($ in millions)

3 unchanged sentences

Three Months Ended

Six Months Ended

May 29, 2021 vs.

Nine Months Ended

August 28, 2021 vs.

August 29, 2020

August 28, 2021 vs.

August 29, 2020

Organic growth

Net revenue increased 46.3 percent in the second quarter of 2021 compared to the second quarter of 2020.

The increase in organic growth was attributable to an increase in sales volume and in product pricing.

Net revenue increased 24.0 percent in the third quarter of 2021 compared to the third quarter of 2020.

The increase in organic growth was attributable primarily to an increase in sales volume and favorable product pricing.

The currency effect was due to a stronger Euro and Chinese renminbi compared to the U.S.

Raw material costs as a percentage of net revenue increased 360 basis points due to higher raw material costs.

Other manufacturing costs as a percentage of net revenue decreased 30 basis points.

SG&A expenses as a percentage of net revenue decreased 400 basis points primarily due to higher net revenue.

Segment operating income increased 58.9 percent and segment operating margin increased 70 basis points compared to the second quarter of 2020.

Net revenue increased 35.7 percent in the first six months of 2021 compared to the first six months of 2020.

The increase in organic growth was primarily attributable to an increase in sales volume.

Raw material costs as a percentage of net revenue increased 520 basis points due to higher raw material costs partially offset by higher net revenue.

Other manufacturing costs as a percentage of net revenue decreased 90 basis points and SG&A expenses as a percentage of net revenue decreased 350 basis points due to higher net revenue.

Segment operating income increased 14.4 percent and segment operating margin decreased 80 basis points compared to the third quarter of 2020.

Net revenue increased 31.4 percent in the first nine months of 2021 compared to the first nine months of 2020.

The increase in organic growth was attributable primarily to an increase in sales volume and favorable product pricing.

The currency effect was due to a stronger Euro and Chinese renminbi compared to the U.S.

Raw material costs as a percentage of net revenue increased 200 basis points due to higher raw material costs.

Other manufacturing costs as a percentage of net revenue decreased 40 basis points.

SG&A expenses as a percentage of net revenue decreased 380 basis points primarily due to higher net revenue.

Segment operating income increased 76.1 percent and segment operating margin increased 220 basis points compared to the first six months of 2020.

Raw material costs as a percentage of net revenue increased 320 basis points due to higher raw material costs partially offset by higher net revenue.

Other manufacturing costs as a percentage of net revenue decreased 70 basis points and SG&A expenses as a percentage of net revenue decreased 360 basis points due to higher net revenue.

Segment operating income increased 47.7 percent and segment operating margin increased 110 basis points compared to the first nine months of 2020.

Construction Adhesives

Three Months Ended

Six Months Ended

Nine Months Ended

($ in millions)

3 unchanged sentences

Three Months Ended

Six Months Ended

May 29, 2021 vs.

Nine Months Ended

August 28, 2021 vs.

August 29, 2020

August 28, 2021 vs.

August 29, 2020

Organic growth

Net revenue increased 25.4 percent in the second quarter of 2021 compared to the second quarter of 2020.

The increase in organic growth was attributable to an increase in sales volume, partially offset by slight unfavorable product pricing.

The currency effect was due to a stronger Australian dollar, Euro and Canadian dollar compared to the U.S.

Raw material costs as a percentage of net revenue increased 600 basis points due to higher raw material costs.

Other manufacturing costs as a percentage of net revenue decreased 240 basis points due to higher sales volume.

SG&A expenses as a percentage of net revenue decreased 210 basis points due to higher sales volume.

Segment operating income decreased 3.1 percent and segment operating margin decreased 150 basis points compared to the second quarter of 2020.

Net revenue increased 9.1 percent in the first six months of 2021 compared to the first six months of 2020.

The increase in organic growth was attributable to an increase in sales volume, partially offset by slightly unfavorable product pricing.

The currency effect was due to a stronger Australian dollar, Euro and Canadian dollar compared to the U.S.

Raw material costs as a percentage of net revenue increased 330 basis points due to higher raw material costs.

Other manufacturing costs as a percentage of net revenue decreased 40 basis points.

SG&A expenses as a percentage of net revenue decreased 80 basis points due to higher sales volume.

Segment operating income decreased 69.2 percent and segment operating margin decreased 210 basis points compared to the first six months of 2020.

Net revenue increased 20.9 percent in the third quarter of 2021 compared to the third quarter of 2020.

The increase in organic growth was attributable primarily to an increase in sales volume and favorable product pricing.

The currency effect was due to a stronger Australian dollar compared to the U.S.

Raw material costs as a percentage of net revenue increased 700 basis points due to higher raw material costs partially offset by higher net revenue.

Other manufacturing costs as a percentage of net revenue decreased 310 basis points and SG&A expenses as a percentage of net revenue decreased 230 basis points due to higher net revenue.

Segment operating income decreased 23.3 percent and segment operating margin decreased 160 basis points compared to the third quarter of 2020.

Net revenue increased 13.2 percent in the first nine months of 2021 compared to the first nine months of 2020.

The increase in organic growth was attributable primarily to an increase in sales volume and favorable product pricing.

The currency effect was due to a stronger Australian dollar compared to the U.S.

Raw material costs as a percentage of net revenue increased 470 basis points due to higher raw material costs partially offset by higher net revenue.

Other manufacturing costs as a percentage of net revenue decreased 140 basis points and SG&A expenses as a percentage of net revenue decreased 150 basis points due to higher net revenue.

Segment operating income decreased 47.9 percent and segment operating margin decreased 180 basis points compared to the first nine months of 2020.

Corporate Unallocated

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($ in millions)

2 unchanged sentences

NMP = Non-meaningful percentage

Segment operating loss in the second quarter and first six months of 2021 increased 70.8 percent and 22.0 percent compared to the second quarter and first six months of 2020 reflecting increased organizational realignment costs.

Segment operating loss in the third quarter and first nine months of 2021 increased 4.1 percent and 15.5 percent compared to the third quarter and first nine months of 2020 reflecting increased organizational realignment costs.

Financial Condition, Liquidity and Capital Resources

Total cash and cash equivalents as of May 29, 2021 were $69.6 million compared to $100.5 million as of November 28, 2020 and $70.3 million as of May 30, 2020.

The majority of the $69.6 million in cash and cash equivalents as of May 29, 2021 was held outside the United States.

Total long and short-term debt was $1,712.4 million as of May 29, 2021, $1,773.9 million as of November 28, 2020 and $1,928.0 million as of May 30, 2020.

Total cash and cash equivalents as of August 28, 2021 were $68.1 million compared to $100.5 million as of November 28, 2020 and $74.9 million as of August 29, 2020.

The majority of the $68.1 million in cash and cash equivalents as of August 28, 2021 was held outside the United States.

Total long and short-term debt was $1,664.0 million as of August 28, 2021, $1,773.9 million as of November 28, 2020 and $1,868.9 million as of August 29, 2020.

The total debt to total capital ratio as measured by Total Debt divided by (Total Debt plus Total Stockholders’

Equity) was 52.2 percent as of May 29, 2021 as compared to 56.1 percent as of November 28, 2020 and 61.3 percent as of May 30, 2020.

Equity) was 51.4 percent as of August 28, 2021 as compared to 56.1 percent as of November 28, 2020 and 58.7 percent as of August 29, 2020.

We believe that cash flows from operating activities will be adequate to meet our ongoing liquidity and capital expenditure needs. In addition, we believe we have the ability to obtain both short-term and long-term debt to meet our financing needs for the foreseeable future. Cash available in the United States has historically been sufficient and we expect it will continue to be sufficient to fund U.S.

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Our credit agreements include restrictive covenants that, if not met, could lead to a renegotiation of our credit lines and a significant increase in our cost of financing.

At May 29, 2021, we were in compliance with all covenants of our contractual obligations as shown in the following table:

At August 28, 2021, we were in compliance with all covenants of our contractual obligations as shown in the following table:

Debt Instrument

Result as of May 29, 2021

Result as of August 28, 2021

Secured Indebtedness / TTM EBITDA

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Reconciliation of "Net cash provided by operating activities" to Free cash flow after dividends

Six Months Ended

Nine Months Ended

($ in millions)

August 28, 2021

August 29, 2020

Net cash provided by operating activities

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Cash Flows from Operating Activities:

Six Months Ended

Nine Months Ended

($ in millions)

Net cash provided by operating activities

Net income including non-controlling interest was $78.9 million in the first six months of 2021 compared to $41.5 million in the first six months of 2020.

Depreciation and amortization expense totaled $71.6 million in the first six months of 2021 compared to $68.7 million in the first six months of 2020.

Deferred income taxes was a use of cash of $1.2 million in 2021 compared to $10.4 million in the first six months of 2020.

Accrued compensation was a use of cash of $8.8 million in 2021 compared to $21.6 million last year. 

Other assets was a use of cash of $21.7 million in the first six months of 2021 compared to $13.1 million in the first six months of 2020.

Other liabilities was a use of cash of $29.0 million in the first six months of 2021 compared to a source of cash of $24.7 million in the first six months of 2020.

Changes in net working capital (trade receivables, inventory and trade payables) accounted for a use of cash of $28.1 million compared to a source of cash of $16.9 million last year.

Net income including non-controlling interest was $110.6 million in the first nine months of 2021 compared to $83.2 million in the first nine months of 2020.

Depreciation and amortization expense totaled $107.6 million in the first nine months of 2021 compared to $103.5 million in the first nine months of 2020.

Deferred income taxes was a use of cash of $1.5 million in 2021 compared to $11.0 million in the first nine months of 2020.

Accrued compensation was a use of cash of $1.3 million in 2021 compared to $12.3 million last year. 

Other assets was a use of cash of $26.1 million in the first nine months of 2021 compared to a source of cash of $31.4 million in the first nine months of 2020.

Other liabilities was a use of cash of $53.5 million in the first nine months of 2021 compared to a source of cash of $20.5 million in the first nine months of 2020.

Changes in net working capital (trade receivables, inventory and trade payables) accounted for a use of cash of $26.8 million compared $9.3 million last year.

The table below provides the cash flow impact due to changes in the components of net working capital:

Six Months Ended

Nine Months Ended

($ in millions)

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Trade Receivables, net –

Trade receivables, net was a use of cash of $43.2 million compared to a source of $33.9 million in the first six months of 2021 and 2020, respectively.

The use of cash in 2021 compared to 2020 was due to higher revenue in the first six months of 2021 compared to 2020 and more cash collected on trade receivables in the prior year compared to the current year.

The DSO were 61 and 60 days at May 29, 2021 and  May 30, 2020, respectively. 

Trade receivables, net was a use of cash of $61.9 million compared to a source of $17.3 million in the first nine months of 2021 and 2020, respectively.

The use of cash in 2021 compared to a source of cash in 2020 was due to higher net revenue in the first nine months of 2021 compared to 2020 and more cash collected on trade receivables in the prior year compared to the current year.

The DSO were 63 days at both August 28, 2021 and August 29, 2020. 

Inventory –

Inventory was a use of cash of $100.4 million and $59.2 million in the first six months of 2021 and 2020, respectively.

Inventory was a use of cash of $141.1 million and $17.2 million in the first nine months of 2021 and 2020, respectively.

The higher use of cash in 2021 is due to increasing inventory costs in 2021 compared to 2020.

Inventory days on hand were 67 days as of May 29, 2021 and 76 days as of May 30, 2020.

Inventory days on hand were 70 days as of August 28, 2021 and 67 days as of August 29, 2020.

Trade Payables –

Trade payables was a source of cash of $115.5 million compared to $42.2 million in the first six months of 2021 and 2020, respectively.

The higher source of cash in 2021 compared to 2020 reflects lower payments on trade payables in the current year.

Trade payables was a source of cash of $176.2 million compared to a use of cash of $9.4 million in the first nine months of 2021 and 2020, respectively.

The source of cash in 2021 compared to a use of cash in 2020 reflects lower payments on trade payables in the current year.

Cash Flows from Investing Activities:

Six Months Ended

Nine Months Ended

($ in millions)

Net cash used in investing activities

Purchases of property, plant and equipment were $50.7 million during the first six months of 2021.

This is compared to $54.5 million for the same period of 2020. 

This difference also reflects the timing of capital projects and expenditures related to growth initiatives.  

Purchases of property, plant and equipment were $77.2 million during the first nine months of 2021.

compared to $71.9 million for the same period of 2020. 

This difference reflects the timing of capital projects and expenditures related to growth initiatives.  

Cash Flows from Financing Activities:

Six Months Ended

Nine Months Ended

($ in millions)

Net cash used in financing activities

Repayments of long-term debt were $68.0 million in the first six months of 2021 and $67.0 million in the first six months of 2020. 

Net proceeds of notes payable were $9.3 million in the first six months of 2021 compared to $7.0 million in the same period of 2020.

Cash dividends paid were $17.2 million in the first six months of 2021 compared to $16.6 million in the same period of 2020.

Repurchases of common stock were $2.6 million in the first six months of 2021 compared to $3.2 million in the same period of 2020.

Repayments of long-term debt were $118.0 million in the first nine months of 2021 and $128.0 million in the first nine months of 2020. 

Net proceeds of notes payable were $9.8 million in the first nine months of 2021 compared to $8.4 million in the same period of 2020.

Cash dividends paid were $26.0 million in the first nine months of 2021 compared to $25.0 million in the same period of 2020.

Repurchases of common stock were $2.7 million in the first nine months of 2021 compared to $3.3 million in the same period of 2020.

Forward-Looking Statements and Risk Factors

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis