What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-09 compared with 2021-08-10 · 101 added, 94 removed, 93 unchanged (68% of the section changed)

1 unchanged sentence

Our discussions below in this Item 2 are based upon the more detailed discussions about our business, operations and financial condition included in our Annual Report on Form 10-K for the fiscal year ended January 3, 2021, under Part II, Item 7 of that Form 10-K.

Our discussions here focus on our results during the quarter and six months ended, or as of, July 4, 2021, and the comparable periods of 2020 for comparison purposes, and, to the extent applicable, any material changes from the information discussed in that Form 10-K or other important intervening developments or information since that time.

Our discussions here focus on our results during the quarter and nine months ended, or as of, October 3, 2021, and the comparable periods of 2020 for comparison purposes, and, to the extent applicable, any material changes from the information discussed in that Form 10-K or other important intervening developments or information since that time.

These discussions should be read in conjunction with that Form 10-K for more detailed and background information.

The six-month period ended July 4, 2021 includes 26 weeks, and the six-month period ended July 5, 2020 includes 27 weeks.

The three-month periods ended July 4, 2021 and July 5, 2020 both include 13 weeks.

The nine-month period ended October 3, 2021 includes 39 weeks, and the nine-month period ended October 4, 2020 includes 40 weeks.

The three-month periods ended October 3, 2021 and October 4, 2020 both include 13 weeks.

Forward-Looking Statements

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The duration of the pandemic will ultimately determine the extent to which our operations are impacted.

During the second quarter of 2021, the COVID-19 pandemic had less of an impact on our overall global operations and financial results as COVID-19 vaccination rates increased, COVID-19 related restrictions loosened, and certain countries began to experience a rebound in economic activity.

Our global supply chain and manufacturing experienced increased impacts of COVID-19 in the quarter.

During the third quarter of 2021, the COVID-19 pandemic had less of an impact on our overall global operations and financial results as COVID-19 vaccination rates increased, COVID-19 related restrictions loosened, and certain countries continued to experience a rebound in economic activity.

Consolidated net sales increased 12.2% during the third quarter of 2021 compared to the same period last year.

Our global supply chain and manufacturing operations experienced increased impacts of COVID-19 in the quarter.

These impacts included raw material shortages, raw material cost increases, higher freight costs, shipping delays, and labor shortages – particularly in the United States.

These impacts to our supply chain and manufacturing increased our costs and adversely affected our gross margins.

During the second quarter of 2021, consolidated net sales increased 13.6% compared to the same period last year.

Higher sales are primarily in the corporate office and retail market segments.

During the second quarter of 2021, we began a phased re-opening of our corporate headquarters and global administrative offices and our salesforce and administrative staff are actively working in these locations in accordance with the Company’s ongoing safety measures, as well as any local government orders and directives which remain very fluid.

During the first six months of 2021, the COVID-19 pandemic continued to impact our global operations, as consolidated net sales increased 0.1% compared to the same period last year.

Net sales for the first six months of 2021 were impacted by lower sales in the corporate office market segment during the first quarter of 2021.

During the six months ended July 4, 2021, the Company recorded $0.9 million of net severance costs in connection with its programs to mitigate the impact of the COVID-19 pandemic as discussed above, which are included in selling, general and administrative expenses in the Consolidated Condensed Statements of Operations.

These impacts to our supply chain and manufacturing operations increased our costs and adversely affected our gross profit and gross margin.

During the first nine months of 2021, consolidated net sales increased 4.2% compared to the same period last year primarily due to the continued economic recovery from the COVID-19 pandemic in certain countries.

During the nine months ended October 3, 2021, the Company recorded $1.2 million of net severance costs in connection with its programs to mitigate the impact of the COVID-19 pandemic, which are included in selling, general and administrative expenses in the Consolidated Condensed Statements of Operations.

In the first quarter of 2021, the Company largely completed its integration of the nora acquisition, and integration of its European and Asia-Pacific commercial areas and determined that it has two operating and reportable segments – namely Americas (“AMS”) and Europe, Africa, Asia and Australia (collectively “EAAA”).

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The results of operations discussion below also includes segment information.

During the quarter ended July 4, 2021, consolidated net sales were $294.8 million compared with net sales of $259.5 million in the second quarter last year.

During the first six months of 2021, consolidated net sales were $548.0 million compared to $547.7 million in the first six months of last year.

Higher net sales during the second quarter of 2021, primarily in the corporate office market segment was due to higher corporate spending and reinvestment.

As discussed above, the COVID-19 pandemic continued to impact the first six months of 2021.

Fluctuations in currency exchange rates had a positive impact on net sales of approximately $13.1 million for the second quarter of 2021 and a positive impact of $25.0 million for the first six months of 2021 compared to the second quarter and first six months of last year, respectively, mostly driven by the strengthening of the Euro, British Pound sterling, Australian dollar and Chinese Renminbi against the U.S.

During the quarter ended October 3, 2021, consolidated net sales were $312.7 million compared with net sales of $278.6 million in the third quarter last year.

During the first nine months of 2021, consolidated net sales were $860.8 million compared to $826.3 million in the first nine months of last year.

Higher net sales during the third quarter of 2021, primarily in the corporate office and education market segments, were due to higher corporate spending, government spending on school renovation projects, and higher prices compared to the same period last year.

Higher net sales during the first nine months of 2021 were primarily due to higher sales in non-corporate office market segments including education, healthcare, and transportation.

As discussed above, the COVID-19 pandemic continued to impact the third quarter and first nine months of 2021, adversely affecting gross profit margins.

Fluctuations in currency exchange rates had a positive impact on net sales of approximately $2.5 million for the third quarter of 2021 and a positive impact of $27.5 million for the first nine months of 2021 compared to the third quarter and first nine months of last year, respectively, mostly driven by the strengthening of the Euro, British Pound sterling, Australian dollar and Chinese Renminbi against the U.S.

Restructuring

On September 8, 2021, the Company committed to a new restructuring plan that continues to focus on efforts to improve efficiencies and decrease costs across its worldwide operations.

The plan involves a reduction of approximately 188 employees and the closure of the Company’s manufacturing facility in Thailand at the end of the first quarter of 2022.

As a result of this plan, the Company expects to incur pre-tax restructuring charges between the third quarter of 2021 and the fourth quarter of 2022 of approximately $4 million to $5 million.

The expected charges are comprised of severance expenses ($2.2 million), retention bonuses ($0.5 million), and asset impairment and other charges ($2.0 million).

The retention costs of approximately $0.5 million will be recognized through the end of fiscal year 2022 as earned over the requisite service periods.

Restructuring charges of $3.9 million comprised of severance and asset impairment charges were recognized during the third quarter of 2021.

The restructuring plan is expected to result in future cash expenditures of approximately $3 million to $4 million for payment of the employee severance and employee retention bonuses and other costs of the shutdown of the Thailand manufacturing facility, as described above.

The Company expects to complete the restructuring plan in fiscal year 2022 and expects the plan to yield annualized savings of approximately $1.7 million.

A portion of the annualized savings is expected to be realized on the income statement in fiscal year 2022, with the remaining portion of the annualized savings expected to be realized in fiscal year 2023.

Goodwill, Intangible Asset and Fixed Asset Impairment

During the first six months of 2021, there were no indicators of goodwill or intangible asset impairment.

During the first nine months of 2021, there were no indicators of goodwill or intangible asset impairment.

During the first quarter of 2020, the Company recognized a charge of $121.3 million for the impairment of goodwill and certain intangible assets.

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Results of Operations

The following table presents, as a percentage of net sales, certain items included in our consolidated condensed statements of operations for the three and six-month periods ended July 4, 2021 and July 5, 2020:

Three Months Ended Six Months Ended

July 4, 2021 July 5, 2020 July 4, 2021 July 5, 2020

The following table presents, as a percentage of net sales, certain items included in our consolidated condensed statements of operations for the three-month and nine-month periods ended October 3, 2021 and October 4, 2020:

Three Months Ended Nine Months Ended

October 3, 2021 October 4, 2020 October 3, 2021 October 4, 2020

Net sales 100.0 % 100.0 % 100.0 % 100.0 %

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Selling, general and administrative expenses 24.9 31.6 27.5 31.0

Restructuring charges 0.0 (0.1) — (0.2)

Restructuring and asset impairment charges 1.2 (0.7) 0.4 (0.4)

Goodwill and intangible asset impairment charge — — — 14.7

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Net income (loss) 3.4 % 2.2 % 4.0 % (11.1) %

Below is information regarding our consolidated net sales, and analysis of those results, for the three and six-month periods ended July 4, 2021, and July 5, 2020:

Below is information regarding our consolidated net sales, and analysis of those results, for the three-month and nine-month periods ended October 3, 2021, and October 4, 2020:

Three Months Ended Percentage

Change Six Months Ended Percentage

July 4, 2021 July 5, 2020 July 4, 2021 July 5, 2020

Change Nine Months Ended Percentage

October 3, 2021 October 4, 2020 October 3, 2021 October 4, 2020

(in thousands) (in thousands)

Consolidated net sales $ 312,707 $ 278,642 12.2 % $ 860,752 $ 826,315 4.2 %

For the quarter ended July 4, 2021, consolidated net sales increased $35.3 million (13.6%) versus the comparable period in 2020, including positive currency fluctuations of approximately $13.1 million (5.1%).

The sales increase was primarily due to higher net sales in the corporate, retail, healthcare, education and transportation market segments.

Currency fluctuations had a positive impact on second quarter 2021 sales compared to the second quarter of 2020 mostly due to the strengthening of the Euro, British Pound sterling, Australian dollar and Chinese Renminbi against the U.S.

For the six months ended July 4, 2021, consolidated net sales increased $0.4 million (0.1%) versus the comparable period in 2020, including positive currency fluctuations of approximately $25.0 million (4.6%).

The sales increase was primarily due to higher sales in the retail and transportation market segments partially offset by decreases in the hospitality and corporate market segments.

Currency fluctuations had a positive impact on the first six months of 2021 sales compared to the same period last year mostly due to the strengthening of the Euro, British Pound sterling, Australian dollar and Chinese Renminbi against the U.S.

For the quarter ended October 3, 2021, consolidated net sales increased $34.1 million (12.2%) versus the comparable period in 2020, including positive currency fluctuations of approximately $2.5 million (0.9%).

The sales increase was primarily due to higher net sales in the corporate, retail, healthcare, education and transportation market segments partially offset by lower sales in the hospitality market segment.

Currency fluctuations had a positive impact on third quarter 2021 sales compared to the third quarter of 2020 mostly due to the strengthening of the Euro, British Pound sterling, Australian dollar and Chinese Renminbi against the U.S.

For the nine months ended October 3, 2021, consolidated net sales increased $34.4 million (4.2%) versus the comparable period in 2020, including positive currency fluctuations of approximately $27.5 million (3.3%).

The sales increase was primarily due to higher sales in the retail, healthcare, education, residential living and transportation market segments partially offset by decreases in the hospitality and corporate market segments.

Currency fluctuations had a positive impact on the first nine months of 2021 sales compared to the same period last year mostly due to the strengthening of the Euro, British Pound sterling, Australian dollar and Chinese Renminbi against the U.S.

Cost and Expenses

The following table presents our consolidated cost of sales and selling, general and administrative expenses for the three and six-month periods ended July 4, 2021, and July 5, 2020:

The following table presents our consolidated cost of sales and selling, general and administrative expenses for the three-month and nine-month periods ended October 3, 2021, and October 4, 2020:

Three Months Ended Percentage

Change Six Months Ended Percentage

July 4, 2021 July 5, 2020 July 4, 2021 July 5, 2020

Change Nine Months Ended Percentage

October 3, 2021 October 4, 2020 October 3, 2021 October 4, 2020

(in thousands) (in thousands)

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Selling, general and administrative expenses 77,735 88,161 (11.8) % 236,867 255,902 (7.4) %

For the quarter ended July 4, 2021, consolidated cost of sales increased $23.6 million (14.5%) compared to the second quarter of 2020, primarily due to higher net sales and the negative impact of currency fluctuations of approximately $8.8 million (5.4%) on the year-over-year comparison.

As a percentage of net sales, our cost of sales increased to 63.0% for the second quarter of 2021 versus 62.5% for the second quarter of 2020, primarily due to price increases for certain raw materials.

For the six months ended July 4, 2021, consolidated cost of sales increased $6.9 million (2.1%) versus the comparable period in 2020, primarily due to higher net sales and the negative impact of currency fluctuations of approximately $16.4 million (4.9%) on the year-over-year comparison.

As a percentage of net sales, our cost of sales increased to 62.6% for the first six months of 2021 versus 61.4% for the first six months of 2020, primarily due to price increases for certain raw materials.

For the quarter ended July 4, 2021, consolidated selling, general and administrative (“SG&A”) expenses decreased $0.2 million (0.3%) versus the comparable period in 2020.

For the quarter ended October 3, 2021, consolidated cost of sales increased $29.9 million (16.9%) compared to the third quarter of 2020, primarily due to higher net sales and the impacts of COVID-19 on our supply chain and manufacturing operations resulting in higher labor costs, higher shipping costs and higher raw material costs.

Currency fluctuations had a negative impact on consolidated costs of sales of approximately $1.9 million (1.1%) on the year-over-year comparison.

As a percentage of net sales, our cost of sales increased to 66.0% for the third quarter of 2021 versus 63.3% for the third quarter of 2020.

For the nine months ended October 3, 2021, consolidated cost of sales increased $36.8 million (7.2%) versus the comparable period in 2020, primarily due to the impacts of COVID-19 on our supply chain and manufacturing operations as discussed above and the negative impact of currency fluctuations of approximately $18.5 million (3.6%) on the year-over-year comparison.

As a percentage of net sales, our cost of sales increased to 63.8% for the first nine months of 2021 versus 62.0% for the first nine months of 2020.

For the quarter ended October 3, 2021, consolidated selling, general and administrative (“SG&A”) expenses decreased $10.4 million (11.8%) versus the comparable period in 2020.

Currency translation had a $0.4 million (0.4%) negative impact on the year-over-year comparison.

SG&A expenses were lower for the second quarter of 2021 primarily due to (1) lower asset impairment and exit activity costs of $5.0 million compared to the prior year period as fiscal 2020 included one-time costs to exit certain FLOR design center locations and (2) lower severance costs of $3.5 million due to employee separations in the prior year period to mitigate the impacts of COVID-19.

These decreases were partially offset by higher labor costs in the second quarter of 2021 as performance-based compensation costs were lower in the prior year period due to the impacts of COVID-19.

As a percentage of sales, SG&A expenses decreased to 27.1% for the second quarter of 2021 versus 30.9% for the second quarter of 2020.

For the six months ended July 4, 2021, consolidated SG&A expenses decreased $8.6 million (5.1%) versus the comparable period in 2020.

SG&A expenses were lower for the third quarter of 2021 primarily due to (1) lower severance costs of $7.5 million due to employee separations in the prior year period to mitigate the impacts of COVID-19 and (2) lower legal fees and other related costs primarily due to the settlement of the SEC matter in the prior year period, including a $5 million expense for a civil money penalty to the SEC.

These decreases were partially offset by higher labor costs in the third quarter of 2021 as performance-based compensation costs were lower in the prior year period due to the impacts of COVID-19.

As a percentage of sales, SG&A expenses decreased to 24.9% for the third quarter of 2021 versus 31.6% for the third quarter of 2020.

For the nine months ended October 3, 2021, consolidated SG&A expenses decreased $19.0 million (7.4%) versus the comparable period in 2020.

Currency translation had a $6.2 million (2.4%) negative impact on the year-over-year comparison.

SG&A expenses were lower for the first six months of 2021 primarily due to (1) lower asset impairment and exit activity costs of $4.7 million compared to the prior year period as fiscal 2020 included one-time costs to exit certain FLOR design center locations, (2) lower severance costs of $2.0 million due to the prior year period impacts of COVID-19 as discussed above, and (3) lower professional fees of $4.2 million and lower marketing and other one-time costs of $2.7 million.

SG&A expenses were lower for the first nine months of 2021 primarily due to (1) lower legal fees and other related costs primarily due to the settlement of the SEC matter in the prior year period as discussed above and (2) lower severance costs of $13.4 million due to the prior year cost reduction initiatives in response to COVID-19.

These decreases were partially offset by higher performance-based compensation as these costs were lower in the prior year period due to the impacts of COVID-19.

As a percentage of sales, SG&A expenses decreased to 29.0% for the first six months of 2021 versus 30.6% for the first six months of 2020.

As a percentage of sales, SG&A expenses decreased to 27.5% for the first nine months of 2021 versus 31.0% for the first nine months of 2020.

Interest Expense

For the quarter ended July 4, 2021, interest expense increased $2.3 million, from $5.0 million in the comparable period last year to $7.3 million.

For the six months ended July 4, 2021, interest expense increased $3.9 million, from $10.6 million in the comparable period last year to $14.5 million.

The increase in both the three and six months ended July 4, 2021 was primarily due to higher fixed-rate interest expense on the senior notes debt, which replaced variable-rate debt under the credit facility, and deferred losses on terminated interest rate swaps that were reclassified from accumulated other comprehensive loss into interest expense during the respective periods.

For the quarter ended October 3, 2021, interest expense increased $2.3 million, from $5.4 million in the comparable period last year to $7.7 million.

For the nine months ended October 3, 2021, interest expense increased $6.3 million, from $16.0 million in the comparable period last year, to $22.3 million.

The increase in both the three months and nine months ended October 3, 2021 was primarily due to higher fixed-rate interest expense on the senior notes debt, which replaced variable-rate debt under the credit facility, and deferred losses recognized on terminated interest rate swaps that were reclassified from accumulated other comprehensive loss into interest expense during the respective periods.

Other Expense

Other expenses decreased $4.5 million and $5.3 million during the three and six months ended July 4, 2021, respectively, compared to 2020 primarily due to a $4.2 million write-down of damaged raw material inventory in 2020, which resulted from a fire at a leased storage facility.

Other expenses decreased $2.0 million and $7.3 million during the three months and nine months ended October 3, 2021, respectively, compared to 2020 primarily due to a $4.2 million write-down of damaged raw material inventory in 2020, which resulted from a fire at a leased storage facility.

Segment Operating Results

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AMS Segment - Net Sales and Adjusted Operating Income (“AOI”)

The following table presents AMS segment net sales and AOI for the three and six month periods ended July 4, 2021, and July 5, 2020:

Three Months Ended Percentage Change Six Months Ended Percentage Change

July 4, 2021 July 5, 2020 July 4, 2021 July 5, 2020

The following table presents AMS segment net sales and AOI for the three-month and nine-month periods ended October 3, 2021, and October 4, 2020:

Three Months Ended Percentage Change Nine Months Ended Percentage Change

October 3, 2021 October 4, 2020 October 3, 2021 October 4, 2020

(in thousands) (in thousands)

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Excludes non-recurring items related to goodwill and intangible asset impairment charges, purchase accounting amortization, restructuring, asset impairment, severance and other costs.

See Note 11 entitled “Segment Information” of Part 1, Item 1 of this Quarterly Report on Form 10-Q for additional information.

During the second quarter of 2021, net sales in AMS increased 3.6% versus the comparable period in 2020 primarily due to higher sales in the retail, healthcare and transportation market segments, partially offset by decreases in the hospitality and public buildings market segments.

During the first six months of 2021, net sales in AMS decreased 8.3% versus the comparable period in 2020 primarily due to the continued impacts of COVID-19.

On a market segment basis, the AMS sales decrease was most significant in the corporate, public buildings and hospitality market segments, partially offset by increases in the retail, transportation and consumer residential market segments.

AOI in AMS decreased 11.9% during the second quarter of 2021 primarily due to higher raw material costs, higher freight costs and higher overtime costs compared to prior year.

Higher SG&A costs due to higher performance-based compensation also contributed to the decrease in AOI.

AOI in AMS decreased 30.5% during the first six months of 2021 primarily due to lower net sales as discussed above.

Lower profit margins due to lower fixed cost leverage in the plant, higher raw material costs, higher freight costs and higher overtime costs as well as higher performance-based compensation also contributed to the decrease in AOI compared to the prior year period.

See Note 11 entitled “Segment Information” of Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

During the third quarter of 2021, net sales in AMS increased 23.7% versus the comparable period in 2020 primarily due to higher sales in the corporate office, education and healthcare market segments, partially offset by decreases in the hospitality market segment.

Higher prices also contributed to the increase in sales for the quarter.

During the first nine months of 2021, net sales in AMS increased 1.8% versus the comparable period in 2020 primarily due to higher sales in non-corporate office market segments including education, healthcare, retail, consumer residential and transportation market segments.

These increases were partially offset by decreases in the corporate office and hospitality market segments.

AOI in AMS increased 6.5% during the third quarter of 2021 compared to the prior year period primarily due to higher sales.

Lower profit margins (AOI as a percentage of net sales) compared to the prior year period were due to higher raw material costs, higher freight costs, higher labor costs, and higher performance-based compensation which adversely impacted AMS’s AOI in the third quarter of 2021.

AOI in AMS decreased 19.4% during the first nine months of 2021 compared to the prior year period primarily due to the impact of lower profit margins as discussed above.

EAAA Segment - Net Sales and AOI

The following table presents EAAA segment net sales and AOI for the three and six-month periods ended July 4, 2021, and July 5, 2020:

Three Months Ended Percentage Change Six Months Ended Percentage Change

July 4, 2021 July 5, 2020 July 4, 2021 July 5, 2020

The following table presents EAAA segment net sales and AOI for the three-month and nine-month periods ended October 3, 2021, and October 4, 2020:

Three Months Ended Percentage Change Nine Months Ended Percentage Change

October 3, 2021 October 4, 2020 October 3, 2021 October 4, 2020

(in thousands) (in thousands)

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Excludes non-recurring items related to goodwill and intangible asset impairment charges, purchase accounting amortization, restructuring, asset impairment, severance and other costs.

See Note 11 entitled “Segment Information” of Part 1, Item 1 of this Quarterly Report on Form 10-Q for additional information.

During the second quarter of 2021, net sales in EAAA increased 27.6% versus the comparable period in 2020.

Currency fluctuations had an approximately $12.2 million (11.3%) positive impact on EAAA’s second quarter 2021 sales compared to 2020 due to the strengthening of the Euro, British Pound sterling, Australian dollar and the Chinese Renminbi against the U.S.

On a market segment basis, the EAAA sales increase was most significant in the corporate, retail, education and public buildings market segments.

During the first six months of 2021, net sales in EAAA increased 10.9% versus the comparable period in 2020.

Currency fluctuations had an approximately $23.6 million (9.9%) positive impact on EAAA’s first six months of 2021 sales compared to 2020 due to the strengthening of the Euro, British Pound sterling, Australian dollar and the Chinese Renminbi against the U.S.

On a market segment basis, the EAAA sales increase was most significant in the public buildings, retail and education market segments.

AOI in EAAA increased 182.2% during the second quarter of 2021 versus the comparable period in 2020.

Currency fluctuations had an approximately $1.4 million (12.2%) positive impact on AOI for the quarter.

The impact of higher net sales and higher gross profit margins contributed to the increase in AOI.

AOI in EAAA increased 92.6% during the first six months of 2021 versus the comparable period in 2020.

Currency fluctuations had an approximately $3.0 million (12.8%) positive impact on AOI for the six-month period of 2021.

See Note 11 entitled “Segment Information” of Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

During the third quarter of 2021, net sales in EAAA increased 0.1% versus the comparable period in 2020.

Currency fluctuations had an approximately $1.9 million (1.4%) positive impact on EAAA’s third quarter 2021 sales compared to third quarter 2020 due to the strengthening of the Euro, British Pound sterling, Australian dollar and the Chinese Renminbi against the U.S.

On a market segment basis, the EAAA sales increase was most significant in the corporate office, retail, and transportation market segments, partially offset by decreases in the education, residential living and leisure market segments.

During the first nine months of 2021, net sales in EAAA increased 7.0% versus the comparable period in 2020.

Currency fluctuations had an approximately $25.6 million (6.8%) positive impact on EAAA’s first nine months of 2021 sales compared to the first nine months of 2020 due to the strengthening of the Euro, British Pound sterling, Australian dollar and the Chinese Renminbi against the U.S.

On a market segment basis, the EAAA sales increase was most significant in the retail, public buildings, corporate office, residential living and transportation market segments partially offset by decreases in the leisure market segment.

AOI in EAAA increased 9.8% during the third quarter of 2021 versus the comparable period in 2020 primarily due to the impact of higher net sales and lower selling expenses.

Currency fluctuations had an approximately $0.1 million (0.4%) positive impact on AOI for the third quarter of 2021.

AOI in EAAA increased 54.8% during the first nine months of 2021 versus the comparable period in 2020.

Currency fluctuations had an approximately $2.7 million (7.1%) positive impact on AOI for the nine-month period of 2021.

The impact of higher net sales and higher gross profit margins partially offset by higher SG&A expenses, comprised of higher performance-based compensation and lower government wage support programs, contributed to the increase in AOI.

Liquidity and Capital Resources

At July 4, 2021, we had $102.4 million in cash.

At October 3, 2021, we had $92.8 million in cash.

At that date, we had $232.6 million in term loan borrowing, no revolving loan borrowings, and $1.6 million in letters of credit outstanding under our Syndicated Credit Facility, and we had $300.0 million of Senior Notes outstanding.

As of July 4, 2021, we had additional borrowing capacity of $298.4 million under the Syndicated Credit Facility and $6.0 million of borrowing capacity under other credit facilities in place at other non-U.S.

As of October 3, 2021, we had additional borrowing capacity of $298.4 million under the Syndicated Credit Facility and $6.0 million of borrowing capacity under other credit facilities in place at other non-U.S.

subsidiaries.

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The Company’s foreign subsidiaries and certain non-material domestic subsidiaries are considered non-guarantors.

Net sales for the non-guarantor subsidiaries were approximately $148 million and $284 million for the three and six-month periods ended July 4, 2021, respectively.

Total indebtedness of the non-guarantor subsidiaries was approximately $65 million and $88 million as of July 4, 2021 and January 3, 2021, respectively.

Net sales for the non-guarantor subsidiaries were approximately $148 million and $432 million for the three-month and nine-month periods ended October 3, 2021, respectively.

Total indebtedness of the non-guarantor subsidiaries was approximately $57 million and $88 million as of October 3, 2021 and January 3, 2021, respectively.

Analysis of Cash Flows

The following table presents a summary of cash flows for the six-month periods ended July 4, 2021 and July 5, 2020, respectively:

Six Months Ended

July 4, 2021 July 5, 2020

The following table presents a summary of cash flows for the nine-month periods ended October 3, 2021 and October 4, 2020, respectively:

Nine Months Ended

October 3, 2021 October 4, 2020

(in thousands)

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Cash and cash equivalents at end of period $ 92,809 $ 103,719

Cash provided by operating activities was $35.1 million for the six months ended July 4, 2021, which represents an increase of $2.7 million from the prior year comparable period.

The increase was primarily due to variable compensation payouts in 2021 related to 2020 performance that were greatly reduced versus the payouts that occurred in 2020 related to 2019 performance.

The lower variable compensation payouts in 2021 were offset by a greater use of cash from working capital.

Specifically, increases in accounts payable and accrued expenses that contributed positively to the change in working capital were offset by higher inventories and higher prepaid expenses attributable primarily to a build-up of inventory due to increased customer demand.

Increases in accounts receivable as a result of higher net sales also contributed to the change in working capital during the year.

Cash used in investing activities was $12.1 million for the six months ended July 4, 2021, which represents a decrease of $23.6 million from the prior year comparable period.

Cash provided by operating activities was $64.1 million for the nine months ended October 3, 2021, which represents a decrease of $33.2 million from the prior year comparable period.

The decrease was primarily due to a greater use of cash for working capital during the first nine months of 2021.

Increases in accounts receivable as a result of higher net sales also contributed to the change in working capital during 2021.

Lower variable compensation payouts in 2021 related to 2020 performance also had a positive impact on cash provided by operating activities, partially offsetting the decrease from changes in working capital.

Cash used in investing activities was $17.4 million for the nine months ended October 3, 2021, which represents a decrease of $29.7 million from the prior year comparable period.

The decrease from the comparable period was primarily due to a decrease in capital expenditures due to reduced capital investment as a result of the impacts of COVID-19.

Cash used in financing activities was $21.3 million for the six months ended July 4, 2021, which represents a decrease of $36.9 million compared with cash provided by financing activities in the prior year comparable period.

Financing activities for 2021 include lower revolving loan borrowings offset by higher repayments of term loan and revolving loan debt.

Lower dividend payments in 2021 compared with the prior year comparable period also contributed to the change.

Cash used in financing activities was $53.1 million for the nine months ended October 3, 2021, which represents an increase of $22.9 million from the prior year comparable period.

The year-over-year increase was primarily due to the Company paying down the outstanding balance on the term loans in 2021 partially offset by lower dividend payments.

Forward-Looking Statement on Impact of COVID-19

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Any or all of these factors could negatively impact our financial position, results of operations, cash flows, and outlook.

We anticipate revenue growth in the third quarter of fiscal year 2021 compared with the third quarter of 2020.

We anticipate revenue growth in the fourth quarter of fiscal year 2021 compared with the fourth quarter of 2020.

We are also anticipating continued impacts to our global supply chain and manufacturing operations.

These impacts are anticipated to include significant cost increases in our raw materials globally and continued labor shortages – particularly in the United States.

These impacts are expected to include significant cost increases in our raw materials globally and continued labor shortages and cost increases – particularly in the United States.

The impacts may also potentially include raw material shortages, higher freight costs, shipping delays, and other disruption.

3 unchanged sentences

However, the Company’s cash flows from operations can be affected by numerous factors including the uncertainty of COVID-19 and its impact on global operations, raw material availability and cost, and demand for our products.

As of July 25, 2021, the consolidated backlog of orders was approximately $231.8 million.

As of October 24, 2021, the consolidated backlog of orders was approximately $244.0 million.

As disclosed in our Annual Report on Form 10-K for the fiscal year ended January 3, 2021, backlog was approximately $177.7 million as of February 7, 2021.

1 unchanged sentence

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