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Item 2. Management’s Discussion and Analysis

2024-11-05 compared with 2024-08-06 · 106 added, 104 removed, 81 unchanged (72% 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 December 31, 2023, under Part II, Item 7 of that Form 10-K.

Our discussions here focus on our results during the quarter and six months ended June 30, 2024, or as of, June 30, 2024, and the comparable periods of 2023, 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 September 29, 2024, or as of, September 29, 2024, and the comparable periods of 2023, 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 periods ended June 30, 2024 and July 2, 2023 both include 26 weeks.

The three-month periods ended June 30, 2024 and July 2, 2023 both include 13 weeks.

The nine-month periods ended September 29, 2024 and October 1, 2023 both include 39 weeks.

The three-month periods ended September 29, 2024 and October 1, 2023 both include 13 weeks.

Forward-Looking Statements

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Executive Overview

During the quarter ended June 30, 2024, we had consolidated net sales of $346.6 million, up 5.2% compared to $329.6 million in the second quarter last year, primarily due to higher customer demand — particularly in the education and corporate office market segments.

Consolidated operating income was $38.2 million for the second quarter of 2024 compared to $28.9 million in the second quarter last year, primarily due to higher sales and higher gross profit margin as a result of increased volume, higher selling prices, and lower raw material costs.

Consolidated net income for the quarter ended June 30, 2024, was $22.6 million or $0.38 per diluted share, compared to $15.8 million or $0.27 per diluted share in the second quarter last year.

During the first six months of 2024, we had consolidated net sales of $636.4 million, up 1.8% compared to $625.4 million in the first six months of last year, primarily due to higher customer demand — particularly in the education market segment partially offset by decreases in the retail and healthcare market segments.

Consolidated operating income was $62.6 million for the first six months of 2024, compared to $38.4 million in the same period last year, primarily due to higher sales and higher gross profit margin as discussed above.

During the first six months of 2023, inflationary pressures on raw materials and lower manufacturing fixed cost absorption adversely impacted our gross profit margin.

Consolidated net income for the six months ended June 30, 2024, was $36.7 million or $0.63 per diluted share, compared to $15.1 million or $0.26 per diluted share in the same period last year.

During the quarter ended September 29, 2024, we had consolidated net sales of $344.3 million, up 10.7% compared to $311.0 million in the third quarter last year, primarily due to higher customer demand — particularly in the retail and education market segments.

Consolidated operating income was $42.2 million for the third quarter of 2024 compared to $31.0 million in the third quarter last year, primarily due to higher sales and higher gross profit margin as a result of higher sales volume, raw material cost deflation, and favorable fixed cost absorption.

Consolidated net income for the quarter ended September 29, 2024, was $28.4 million or $0.48 per diluted share, compared to $9.9 million or $0.17 per diluted share in the third quarter last year.

During the first nine months of 2024, we had consolidated net sales of $980.6 million, up 4.7% compared to $936.4 million in the first nine months of last year, primarily due to higher customer demand — particularly in the education, retail, and residential living market segments partially offset by decreases in the healthcare and hospitality market segments.

Consolidated operating income was $104.8 million for the first nine months of 2024, compared to $69.4 million in the same period last year, primarily due to higher sales and higher gross profit margin as a result of higher average sales prices and raw material cost deflation.

Consolidated net income for the nine months ended September 29, 2024, was $65.2 million or $1.11 per diluted share, compared to $25.0 million or $0.43 per diluted share in the same period last year.

Cybersecurity Event

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The investigation of the Cyber Event was completed in fiscal year 2023.

We have cyber risk insurance and anticipate that a portion of our costs and expenses related to the Cyber Event will ultimately be recovered by insurance.

Our IT systems face a myriad of cybersecurity threats, including, without limitation, hacking, computer viruses, denial of service attacks, malware, ransomware, phishing scams, compromised or irretrievable backups, and other cyber attacks.

Any of these events which deny us use of vital IT systems may seriously disrupt our normal business operations and lead to production or shipping stoppages, revenue loss, and reputational harm.

We also expect to incur ongoing costs for enhanced data security against unauthorized access to, or manipulation of, our systems and data.

We have cyber risk insurance and have recovered $0.5 million of our costs and expenses during the nine months ended September 29, 2024.

We anticipate that additional costs, expenses or losses related to the Cyber Event will ultimately be recovered by insurance.

Impact of Macroeconomic Trends

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Consolidated Results

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 six-month periods ended June 30, 2024 and July 2, 2023:

Three Months Ended Six Months Ended

June 30, 2024 July 2, 2023 June 30, 2024 July 2, 2023

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 September 29, 2024 and October 1, 2023:

Three Months Ended Nine Months Ended

September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023

Net sales 100.0 % 100.0 % 100.0 % 100.0 %

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Restructuring, asset impairment, and other gains, net

— (0.8) — (0.4)

Operating income 12.3 10.0 10.7 7.5

Interest/Other expense (income), net

Interest/Other expense, net

1.8 4.8 1.9 3.5

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Consolidated Net Sales

Below is information regarding our consolidated net sales, and analysis of those results, for the three-month and six-month periods ended June 30, 2024, and July 2, 2023:

Below is information regarding our consolidated net sales, and analysis of those results, for the three-month and nine-month periods ended September 29, 2024, and October 1, 2023:

Three Months Ended Percentage

Change Six Months Ended Percentage

June 30, 2024 July 2, 2023 June 30, 2024 July 2, 2023

Change Nine Months Ended Percentage

September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023

(in thousands) (in thousands)

Consolidated net sales $ 344,270 $ 311,006 10.7 % $ 980,648 $ 936,380 4.7 %

For the quarter ended June 30, 2024, consolidated net sales increased $17.1 million (5.2%) versus the comparable period in 2023, primarily due to higher sales volume (approximately 4%) and higher prices (approximately 1%).

Currency fluctuations had a negative impact on consolidated net sales of approximately $2.0 million (0.6%) for the second quarter of 2024, due primarily to the weakening of the Euro, Chinese Renminbi, and Australian dollar against the U.S.

On a market segment basis, the sales increase was primarily in the education, corporate office, public buildings, and residential living market segments partially offset by decreases in the healthcare, retail, and hospitality market segments.

For the six months ended June 30, 2024, consolidated net sales increased $11.0 million (1.8%) versus the comparable period in 2023, primarily due to higher sales pricing (approximately 2%).

Currency fluctuations had a negative impact on consolidated net sales of approximately $2.1 million (0.3%) for the first six months of 2024, due to the weakening of the Chinese Renminbi and Australian dollar against the U.S.

On a market segment basis, the sales increase was primarily in the education, residential living, and public buildings market segments partially offset by decreases in the retail, healthcare, hospitality, and consumer residential market segments.

For the quarter ended September 29, 2024, consolidated net sales increased $33.3 million (10.7%) versus the comparable period in 2023, primarily due to higher sales volume (approximately 9%) and higher average sales prices (approximately 2%).

Currency fluctuations had a positive impact on consolidated net sales of approximately $1.4 million (0.4%) for the third quarter of 2024, due primarily to the strengthening of the Euro, Australian dollar, and British Pound sterling against the U.S.

On a market segment basis, the sales increase was primarily in the retail, education, corporate office, residential living, and public buildings market segments partially offset by decreases in the hospitality and healthcare market segments.

For the nine months ended September 29, 2024, consolidated net sales increased $44.3 million (4.7%) versus the comparable period in 2023, primarily due to higher volume (approximately 3%) and higher average sales prices (approximately 2%).

Currency fluctuations had a negative impact on consolidated net sales of approximately $0.7 million (0.1%) for the first nine months of 2024, due to the weakening of the Chinese Renminbi, Canadian dollar, and Australian dollar against the U.S.

dollar partially offset by the strengthening of the British Pound sterling against the U.S.

On a market segment basis, the sales increase was primarily in the education, retail, residential living, and public buildings market segments partially offset by decreases in the healthcare and hospitality market segments.

Consolidated Cost and Expenses

The following table presents our consolidated cost of sales and selling, general and administrative expenses for the three-month and six-month periods ended June 30, 2024, and July 2, 2023:

The following table presents our consolidated cost of sales and selling, general and administrative expenses for the three-month and nine-month periods ended September 29, 2024, and October 1, 2023:

Three Months Ended Percentage

Change Six Months Ended Percentage

June 30, 2024 July 2, 2023 June 30, 2024 July 2, 2023

Change Nine Months Ended Percentage

September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023

(in thousands) (in thousands)

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Consolidated Cost of Sales

For the quarter ended June 30, 2024, consolidated cost of sales increased $6.2 million (2.9%) compared to the second quarter of 2023, primarily due to higher sales partially offset by lower raw material costs.

Currency translation had a positive impact on consolidated cost of sales in the second quarter of 2024 and partially reduced our costs by approximately $1.4 million (0.6%) compared to the same period last year.

As a percentage of net sales, our cost of sales decreased to 64.6% for the second quarter of 2024 versus 66.1% for the second quarter of 2023.

For the six months ended June 30, 2024, consolidated cost of sales decreased $14.4 million (3.4%) versus the comparable period in 2023, primarily due to lower raw material costs.

Currency translation had a positive impact on consolidated cost of sales for the first six months of 2024 and partially reduced our costs by approximately $1.5 million (0.4%) compared to the same period last year.

As a percentage of net sales, our cost of sales decreased to 63.4% for the first six months of 2024 versus 66.8% for the first six months of 2023.

For the quarter ended September 29, 2024, consolidated cost of sales increased $15.9 million (7.9%) compared to the third quarter of 2023, primarily due to higher sales partially offset by raw material cost deflation and favorable fixed cost absorption.

Currency translation had a negative impact on consolidated cost of sales in the third quarter of 2024 and partially increased our costs by approximately $0.9 million (0.4%) compared to the same period last year.

As a percentage of net sales, our cost of sales decreased to 62.9% for the third quarter of 2024 versus 64.5% for the third quarter of 2023.

For the nine months ended September 29, 2024, consolidated cost of sales increased $1.5 million (0.2%) versus the comparable period in 2023, primarily due to higher sales partially offset by raw material cost deflation.

Currency translation had a positive impact on consolidated cost of sales for the first nine months of 2024 and partially reduced our costs by approximately $0.6 million (0.1%) compared to the same period last year.

As a percentage of net sales, our cost of sales decreased to 63.2% for the first nine months of 2024 versus 66.0% for the first nine months of 2023.

Consolidated Gross Profit

For the quarter ended June 30, 2024, gross profit, as a percentage of net sales, was 35.4% compared with 33.9% in the same period last year.

The increase in gross profit percentage was primarily due to (i) lower raw material costs (approximately 1%), (ii) higher sales pricing (approximately 1%), partially offset by (iii) unfavorable fixed cost absorption (approximately 1%).

For the six months ended June 30, 2024, gross profit, as a percentage of net sales, was 36.6% compared with 33.2% in the same period last year.

The increase in gross profit percentage was primarily due to (i) lower raw material costs (approximately 2%) and (ii) higher sales pricing (approximately 1%).

For the quarter ended September 29, 2024, gross profit, as a percentage of net sales, was 37.1% compared with 35.5% in the same period last year.

The increase in gross profit percentage was primarily due to lower costs (approximately 2%) driven by raw material cost deflation and lower fixed costs per unit due to higher volume.

For the nine months ended September 29, 2024, gross profit, as a percentage of net sales, was 36.8% compared with 34.0% in the same period last year.

The increase in gross profit percentage was primarily due to raw material cost deflation (approximately 2%) and higher average sales prices (approximately 1%).

Consolidated Selling, General and Administrative (“SG&A”) Expenses

For the quarter ended June 30, 2024, consolidated SG&A expenses decreased $1.1 million (1.2%) versus the comparable period in 2023.

Currency fluctuations had no material impact on consolidated SG&A expenses in the second quarter of 2024 compared to the same period last year.

SG&A expenses were lower for the second quarter of 2024 primarily due to (i) lower professional fees of $2.2 million primarily due to lower legal fees and non-recurring consulting expenses compared to the prior year period and (ii) lower severance costs of $0.5 million driven by employee headcount reduction initiatives in the prior year.

These decreases were partially offset by $1.7 million of higher labor and variable compensation costs.

As a percentage of net sales, SG&A expenses decreased to 24.4% for the second quarter of 2024 versus 25.9% for the second quarter of 2023.

For the six months ended June 30, 2024, consolidated SG&A expenses decreased $1.4 million (0.8%) versus the comparable period in 2023.

Currency translation had no material impact on consolidated SG&A expenses in the first six months of 2024 compared to the same period last year.

SG&A expenses were lower for the first six months of 2024 primarily due to (i) lower severance costs of $2.5 million driven by employee headcount reduction and cost saving initiatives in the prior year period, (ii) lower professional fees of $2.3 million as discussed above, (iii) lower Cyber Event costs of $1.3 million due to completion of the investigation in the prior year, and (iv) lower marketing expenses of $1.1 million due to global restructuring initiatives.

These decreases were partially offset by (i) higher labor and variable compensation costs of $3.9 million and (ii) higher software license fees of $1.8 million.

As a percentage of net sales, SG&A expenses decreased to 26.8% for the first six months of 2024 versus 27.5% for the first six months of 2023.

For the quarter ended September 29, 2024, consolidated SG&A expenses increased $6.2 million (7.8%) versus the comparable period in 2023.

Currency fluctuations had no material impact on consolidated SG&A expenses in the third quarter of 2024 compared to the same period last year.

SG&A expenses were higher for the third quarter of 2024 primarily due to higher people costs of $5.7 million driven by increased variable compensation as a result of higher operating income compared to the same period last year.

As a percentage of net sales, SG&A expenses decreased to 24.8% for the third quarter of 2024 versus 25.5% for the third quarter of 2023.

For the nine months ended September 29, 2024, consolidated SG&A expenses increased $4.8 million (1.9%) versus the comparable period in 2023.

Currency translation had no material impact on consolidated SG&A expenses in the first nine months of 2024 compared to the same period last year.

SG&A expenses were higher for the first nine months of 2024 primarily due to (i) higher people costs of $12.2 million driven by the factors discussed above for the current quarter, partially offset by (ii) lower professional fees of $3.6 million primarily due to lower non-recurring consulting expenses, (iii) lower severance costs of $2.8 million driven by employee headcount reduction and cost saving initiatives in the prior year period, and (iv) lower Cyber Event costs of $1.4 million due to completion of the investigation in the prior year.

As a percentage of net sales, SG&A expenses decreased to 26.1% for the first nine months of 2024 versus 26.8% for the first nine months of 2023.

Assets Disposed

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See Note 14 entitled “Assets Disposed” of Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

Other Expense, net

During the nine months ended September 29, 2024, the Company received insurance proceeds of approximately $2.4 million related to a property casualty loss that occurred in fiscal year 2023.

The insurance proceeds were recognized in other expense, net, in the consolidated condensed statements of operations.

During the quarter ended October 1, 2023, the Company substantially liquidated its foreign subsidiaries in Brazil and Russia and $6.2 million of cumulative translation adjustments were reclassified from accumulated other comprehensive loss and recognized in other expense, net, in the consolidated condensed statements of operations.

Interest Expense

During the quarter ended June 30, 2024, interest expense was $6.2 million, a decrease of $2.1 million from the comparable period in 2023, primarily due to lower outstanding term loan borrowings under the Facility.

For the six months ended June 30, 2024, interest expense was $12.6 million, a decrease of $4.2 million from the comparable period in 2023, primarily due to lower outstanding term loan borrowings as discussed above.

During the quarter ended September 29, 2024, interest expense was $5.7 million, a decrease of $2.4 million from the comparable period in 2023, primarily due to lower outstanding term loan borrowings under the Facility.

For the nine months ended September 29, 2024, interest expense was $18.3 million, a decrease of $6.7 million from the comparable period in 2023, primarily due to lower outstanding term loan borrowings as discussed above.

Provision for Income Taxes

The effective tax rate for the three and nine months ended September 29, 2024, was 21.2% and 24.4%, respectively, compared to 38.7% and 32.0% for the same periods in 2023.

The effective tax rate for 2024 was positively impacted by the release of a valuation allowance on interest expense carryforwards, utilization of previously unrealized interest expense carryforwards and an increase in tax benefits related to share-based compensation, partially offset by a decrease in U.S.

tax benefits related to foreign tax credit utilization, foreign derived intangible income, and the repatriation of previously taxed foreign earnings.

The effective tax rate for 2023 was negatively impacted by the limitation on the deductibility of interest expense under Internal Revenue Code section 163(j) and non-deductible charges related to the substantial liquidation of subsidiaries in Brazil and Russia.

Segment Operating Results

During the first quarter of 2024, the Company implemented a cost center realignment initiative to centralize certain global/shared functions.

For the first six months of 2024, SG&A expenses for these global support functions were allocated to adjusted operating income (“AOI”) for each reportable segment consistent with the allocation methodology used to allocate corporate overhead in prior periods.

For the three and nine months ended September 29, 2024, SG&A expenses for these global support functions were allocated to adjusted operating income (“AOI”) for each reportable segment consistent with the allocation methodology used to allocate corporate overhead in prior periods.

Prior year AOI amounts below were not recast as there was no material impact to the measure of segment profit for each reportable segment.

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AMS Segment – Net Sales and AOI

The following table presents AMS segment net sales and AOI for the three-month and six-month periods ended June 30, 2024, and July 2, 2023:

Three Months Ended Percentage Change Six Months Ended Percentage Change

June 30, 2024 July 2, 2023 June 30, 2024 July 2, 2023

The following table presents AMS segment net sales and AOI for the three-month and nine-month periods ended September 29, 2024, and October 1, 2023:

Three Months Ended Percentage Change Nine Months Ended Percentage Change

September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023

(in thousands) (in thousands)

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(1) Includes allocation of corporate SG&A expenses and allocation of global support SG&A expenses as discussed above.

Excludes Cyber Event impact, property casualty loss impact, and restructuring, asset impairment, severance, and other, net.

Excludes Cyber Event impact and restructuring, asset impairment, severance, and other, net.

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

During the second quarter of 2024, net sales in AMS increased 6.8% versus the comparable period in 2023, primarily due to higher sales volume and pricing.

On a market segment basis, the AMS sales increase was primarily in the education, public buildings, and residential living market segments partially offset by decreases in the healthcare market segment.

During the first six months of 2024, net sales in AMS increased 3.9% versus the comparable period in 2023, primarily due to higher sales pricing and volume.

On a market segment basis, the AMS sales increase was primarily in education, public buildings, and residential living market segments partially offset by decreases in the corporate office, retail and healthcare market segments.

AOI in AMS increased 12.1% during the second quarter of 2024 compared to the prior year period, primarily due to higher sales and lower raw material costs compared to the same period last year.

As a percentage of net sales, AOI increased to 12.5% during the second quarter of 2024 compared to 11.9% in the same period last year.

AOI in AMS increased 27.5% during the first six months of 2024 compared to the prior year period, primarily due to lower raw material costs and higher sales.

During the first six months of 2023, AOI in AMS was adversely impacted by inflation and higher input costs.

As a percentage of net sales, AOI increased to 11.7% during the first six months of 2024 compared to 9.5% in the same period last year.

During the third quarter of 2024, net sales in AMS increased 17.9% versus the comparable period in 2023, primarily due to higher sales volume and average sales prices.

On a market segment basis, the AMS sales increase was primarily in the retail, education, corporate office, and public buildings market segments.

During the first nine months of 2024, net sales in AMS increased 8.4% versus the comparable period in 2023, primarily due to higher sales volume and average sales prices.

On a market segment basis, the AMS sales increase was primarily in education, retail, public buildings, and residential living market segments partially offset by decreases in the healthcare market segment.

AOI in AMS increased 38.0% during the third quarter of 2024 compared to the prior year period, primarily due to higher sales and higher gross profit driven by raw material cost deflation and favorable fixed cost absorption.

As a percentage of net sales, AOI increased to 15.3% during the third quarter of 2024 compared to 13.1% in the same period last year.

AOI in AMS increased 31.7% during the first nine months of 2024 compared to the prior year period, primarily due to higher sales and higher gross profit driven by raw material cost deflation.

As a percentage of net sales, AOI increased to 13.0% during the first nine months of 2024 compared to 10.7% in the same period last year.

EAAA Segment – Net Sales and AOI

The following table presents EAAA segment net sales and AOI for the three-month and six-month periods ended June 30, 2024, and July 2, 2023:

Three Months Ended Percentage Change Six Months Ended Percentage Change

June 30, 2024 July 2, 2023 June 30, 2024 July 2, 2023

The following table presents EAAA segment net sales and AOI for the three-month and nine-month periods ended September 29, 2024, and October 1, 2023:

Three Months Ended Percentage Change Nine Months Ended Percentage Change

September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023

(in thousands) (in thousands)

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

During the second quarter of 2024, net sales in EAAA increased 2.6% versus the comparable period in 2023, primarily due to higher sales volume.

Currency fluctuations had a negative impact on EAAA sales of approximately $1.8 million (1.4%) for the second quarter of 2024 compared to the same period last year due to the weakening of the Euro, Chinese Renminbi and Australian dollar against the U.S.

On a market segment basis, the EAAA sales increase was primarily in the corporate office and education market segments partially offset by decreases in the public buildings and hospitality market segments.

During the first six months of 2024, net sales in EAAA decreased 1.3% versus the comparable period in 2023, primarily due to lower sales volume.

Currency fluctuations had a negative impact on EAAA sales of approximately $1.9 million (0.7%) for the first six months of 2024 compared to the same period last year due to the weakening of the Australian dollar and Chinese Renminbi against the U.S.

On a market segment basis, the EAAA sales decrease was primarily in the public buildings, healthcare, and hospitality market segments partially offset by increases in the corporate office market segment.

AOI in EAAA increased 230.8% during the second quarter of 2024 versus the comparable period in 2023, primarily due to the impact of lower raw material costs and higher sales.

During the second quarter of 2023, AOI in EAAA was adversely impacted by inflation and higher input costs.

Currency fluctuations had no material impact on EAAA AOI for the second quarter of 2024 compared to the same period last year.

As a percentage of net sales, AOI increased to 9.6% during the second quarter of 2024 compared to 3.0% in the same period last year.

AOI in EAAA increased 159.2% during the first six months of 2024 versus the comparable period in 2023, primarily due to the impact of lower raw material costs in the current year and the unfavorable impact of inflation in the prior year.

Currency fluctuations had no material impact on AOI for the first six months of 2024 compared to the same period in 2023.

As a percentage of net sales, AOI increased to 8.0% during the first six months of 2024 compared to 3.0% in the same period last year.

During the third quarter of 2024, net sales in EAAA increased 1.0% versus the comparable period in 2023.

Currency fluctuations had a positive impact on EAAA sales of approximately $1.6 million (1.2%) for the third quarter of 2024 compared to the same period last year due to the strengthening of the Euro, Australian dollar, and the British Pound sterling against the U.S.

On a market segment basis, the EAAA sales increase was primarily in the education and residential living market segments partially offset by decreases in the hospitality and corporate office market segments.

During the first nine months of 2024, net sales in EAAA decreased 0.5% versus the comparable period in 2023, primarily due to lower sales volume.

Currency fluctuations had no material impact on EAAA sales for the first nine months of 2024 compared to the same period last year.

On a market segment basis, the EAAA sales decrease was primarily in the public buildings, hospitality, and healthcare market segments partially offset by increases in the corporate office, education, and residential living market segments.

AOI in EAAA increased 24.9% during the third quarter of 2024 versus the comparable period in 2023, primarily due to higher gross profit driven by raw material cost deflation.

Currency fluctuations had no material impact on EAAA AOI for the third quarter of 2024 compared to the same period last year.

As a percentage of net sales, AOI increased to 8.4% during the third quarter of 2024 compared to 6.8% in the same period last year.

AOI in EAAA increased 86.9% during the first nine months of 2024 versus the comparable period in 2023, primarily due to higher gross profit driven by raw material cost deflation.

Currency fluctuations had no material impact on EAAA AOI for the first nine months of 2024 compared to the same period in 2023.

As a percentage of net sales, AOI increased to 8.1% during the first nine months of 2024 compared to 4.3% in the same period last year.

Financial Condition, Liquidity and Capital Resources

At June 30, 2024, the Company had $94.2 million in cash.

At that date, the Company had $83.9 million in term loan borrowings, $7.3 million in revolving loan borrowings, and $1.6 million in letters of credit outstanding under our Facility, and we had $300.0 million of Senior Notes outstanding.

As of June 30, 2024, we had additional borrowing capacity of $291.0 million under the Facility.

At September 29, 2024, the Company had $115.6 million in cash.

At that date, the Company had $41.2 million in term loan borrowings, no revolving loan borrowings, and $0.7 million in letters of credit outstanding under our Facility, and we had $300.0 million of Senior Notes outstanding.

As of September 29, 2024, we had additional borrowing capacity of $299.3 million under the Facility.

We anticipate that our liquidity is sufficient to meet our obligations for the next 12 months, and we expect to generate sufficient cash to meet our long-term obligations.

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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 $145 million and $278 million for the three-month and six-month periods ended June 30, 2024, respectively, and net sales for the non-guarantor subsidiaries were approximately $142 million and $283 million for the three-month and six-month periods ended July 2, 2023, respectively.

Total indebtedness of the non-guarantor subsidiaries was approximately $128 million and $133 million as of June 30, 2024 and December 31, 2023, respectively.

Net sales for the non-guarantor subsidiaries were approximately $149 million and $427 million for the three-month and nine-month periods ended September 29, 2024, respectively, and net sales for the non-guarantor subsidiaries were approximately $148 million and $431 million for the three-month and nine-month periods ended October 1, 2023, respectively.

Total indebtedness of the non-guarantor subsidiaries was approximately $130 million and $133 million as of September 29, 2024 and December 31, 2023, respectively.

Balance Sheet

Accounts receivable, net, were $179.6 million at June 30, 2024, compared to $163.4 million at December 31, 2023.

The increase of $16.2 million was primarily due to the impact of higher net sales as a result of increased customer demand in the second quarter of 2024.

Inventories, net, were $281.1 million at June 30, 2024, compared to $279.1 million at December 31, 2023.

Accounts receivable, net, were $173.9 million at September 29, 2024, compared to $163.4 million at December 31, 2023.

The increase of $10.5 million was primarily due to the impact of higher net sales as a result of increased customer demand in 2024.

Inventories, net, were $283.1 million at September 29, 2024, compared to $279.1 million at December 31, 2023.

The increase of $4.0 million was primarily due to finished goods inventory build attributable to higher expected customer demand in the remainder of 2024, partially offset by lower raw material costs.

Analysis of Cash Flows

The following table presents a summary of cash flows for the six-month periods ended June 30, 2024 and July 2, 2023, respectively:

Six Months Ended

June 30, 2024 July 2, 2023

The following table presents a summary of cash flows for the nine-month periods ended September 29, 2024 and October 1, 2023, respectively:

Nine Months Ended

September 29, 2024 October 1, 2023

(in thousands)

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Cash and cash equivalents at end of period $ 115,601 $ 119,633

Cash provided by operating activities was $34.2 million for the six months ended June 30, 2024, which represents a decrease of $13.8 million from the prior year comparable period.

Higher sales during the first six months of 2024 contributed to higher accounts receivable balances resulting in a use of cash for the current period.

The prior year comparable period includes a source of cash from accounts receivable collections compared with the first six months of 2024, primarily attributable to delays in customer billings from the Cyber Event, in which those delayed billings were collected in the first quarter of 2023.

Additionally, the increase in inventories during the first six months of 2024, as described above, resulted in a greater use of cash compared with the same period in the prior year.

Cash used in investing activities was $11.6 million for the six months ended June 30, 2024, which represents an increase of $6.8 million from the prior year comparable period.

The increase was attributable to higher capital expenditures partially offset by cash proceeds received during the first six months of 2024 from the sale of manufacturing equipment and insurance proceeds for property casualty losses.

The first six months of 2023 include cash proceeds of approximately $6.6 million from the sale of the Company’s Thailand manufacturing facility.

Cash used in financing activities was $37.0 million for the six months ended June 30, 2024, which represents a decrease of $12.1 million from the prior year comparable period.

The decrease was primarily attributable to lower debt repayments on borrowings under the Facility during the first six months of 2024 compared to the prior year period.

Cash provided by operating activities was $110.4 million for the nine months ended September 29, 2024, which represents a decrease of $3.8 million from the prior year comparable period.

Higher sales during the first nine months of 2024 contributed to higher accounts receivable balances resulting in a use of cash for the current period.

The prior year comparable period includes a source of cash from accounts receivable collections compared with the first nine months of 2024, primarily attributable to delays in customer billings from the Cyber Event, in which those delayed billings were collected in the first quarter of 2023.

Additionally, the increase in inventories during the first nine months of 2024, as described above, resulted in a greater use of cash compared with the same period in the prior year.

Cash used in investing activities was $16.7 million for the nine months ended September 29, 2024, which represents an increase of $6.0 million from the prior year comparable period.

The increase was attributable to higher capital expenditures partially offset by cash proceeds received during the first nine months of 2024 from the sale of manufacturing equipment and insurance proceeds for property casualty losses.

The first nine months of 2023 include cash proceeds of approximately $6.6 million from the sale of the Company’s Thailand manufacturing facility.

Cash used in financing activities was $89.5 million for the nine months ended September 29, 2024, which represents an increase of $8.7 million from the prior year comparable period.

The increase was primarily attributable to higher prepayments of term loan borrowings during the first nine months of 2024 compared to the prior year period.

Cash flows from operations, cash and cash equivalents, and other sources of liquidity are expected to be available and sufficient to meet foreseeable cash requirements.

However, the Company’s cash flows from operations can be affected by numerous factors including raw material availability and cost, and demand for our products.

As of July 21, 2024, the consolidated backlog of unshipped orders was approximately $244.2 million.

As of October 20, 2024, the consolidated backlog of unshipped orders was approximately $242.3 million.

As disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, backlog was approximately $195.5 million as of February 4, 2024.

1 unchanged sentence

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What changed 10-Q

Item 2. Management’s Discussion and Analysis