Overview
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 endedNovember 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 increased 17.4 percent due to sales volume and 1.4 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 theU.S. dollar. Gross profit margin decreased 110 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 increased 14.0 percent due to sales volume and 0.7 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 theU.S. dollar. Gross profit margin decreased 50 basis points primarily due to higher raw material costs partially offset by higher sales volume.
Net income attributable to
Net income attributable toH.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. Market Conditions OnMarch 11, 2020 , theWorld Health Organization declared the outbreak of the novel coronavirus ("COVID-19") a pandemic. COVID-19 continues to affect major economic and financial markets due to government restrictions, including travel restrictions, quarantines, shelter in place orders and shutdowns. However, we believe improvements in global COVID-19 trends provide a positive outlook. The Company has been deemed an essential business and all of our global manufacturing operations have remained open. We continue to monitor the situation to help ensure the well-being of our employees, customers and suppliers to minimize disruptions and provide for the safe and reliable supply of products to our customers. See "Risk Factors" in Item 1A in our Annual Report on Form 10-K for the year endedNovember 28, 2020 as filed with theSecurities and Exchange Commission for further information of the possible impact of the COVID-19 pandemic on our business. Restructuring Plan 2020 Restructuring Plan During the fourth quarter of 2019, we approved a restructuring plan related to organizational changes and other actions to optimize operations in connection with the realignment of the Company into three global business units ("2020 Restructuring Plan"). 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$16.3 million under this plan as ofMay 29, 2021 . The 2020 Restructuring Plan was implemented in the fourth quarter of 2019 and is currently expected to be completed in 2022. 21
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Table of Contents Results of Operations Net revenue: Three Months Ended Six Months Ended May 29, May 30, 2021 vs May 29, May 30, 2021 vs ($ in millions) 2021 2020 2020 2021 2020 2020 Net revenue$ 827.9 $ 674.6 22.7 %$ 1,553.8 $ 1,321.2 17.5 % 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: Three Months Ended Six Months Ended May 29, 2021 vs. May 30, 2020 May 29, 2021 vs. May 30, 2020 Organic growth 18.8 % 14.7 % M&A 0.0 % 0.0 % Currency 3.9 % 2.8 % Total 22.7 % 17.5 % 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 theU.S. dollar. 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 theU.S. dollar. Cost of sales: Three Months Ended Six Months Ended May 29, May 30, 2021 vs May 29, May 30, 2021 vs ($ in millions) 2021 2020 2020 2021 2020 2020 Raw materials$ 454.9 $ 357.8 27.1 %$ 839.9 $ 703.0 19.5 % Other manufacturing costs 155.4$ 131.9 17.8 % 304.0 263.0 15.6 % Cost of sales$ 610.3 $ 489.7 24.6 %$ 1,143.9 $ 966.0 18.4 % Percent of net revenue 73.7 % 72.6 % 73.6 % 73.1 % 22
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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. Gross profit: Three Months Ended Six Months Ended May 29, May 30, 2021 vs May 29, May 30, 2021 vs ($ in millions) 2021 2020 2020 2021 2020 2020 Gross profit$ 217.6 $ 184.9 17.7 %$ 409.9 $ 355.2 15.4 % Percent of net revenue 26.3 % 27.4 % 26.4 % 26.9 % 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. 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. The decrease in gross profit margin was primarily due to higher raw material costs partially offset by higher sales volume.
Selling, general and administrative (SG&A) expenses:
Three Months Ended Six Months Ended May 29, May 30, 2021 vs May 29, May 30, 2021 vs ($ in millions) 2021 2020 2020 2021 2020 2020 SG&A$ 148.4 $ 128.0 15.9 %$ 292.4 $ 269.5 8.5 % Percent of net revenue 17.9 % 19.0 % 18.8 % 20.4 %
SG&A expenses for the second quarter of 2021 increased
SG&A expenses for the first six months of 2021 increased$22.9 million , or 8.5 percent, compared to the first six months of 2020. The increase is primarily due to higher compensation costs compared to the prior year. Other income, net: Three Months Ended Six Months Ended May 29, May 30, 2021 vs May 29, May 30, 2021 vs ($ in millions) 2021 2020 2020 2021 2020 2020 Other income, net$ 11.9 $ 3.0 296.7 %$ 19.7 $ 8.0 146.3 % 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 inBrazil . 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$1.4 million of currency transaction losses. 23
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Table of Contents Interest expense: Three Months Ended Six Months Ended May 29, May 30, 2021 vs May 29, May 30, 2021 vs ($ in millions) 2021 2020 2020 2021 2020 2020 Interest expense$ 19.9 $ 21.6 (7.9 )%$ 40.3 $ 44.4 (9.2 )% 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 lowerU.S. debt balances and lower interest rates. Interest expense in the first six months of 2021 was$40.3 million compared to$44.4 million in the first six months of 2020. Interest expense in the first six months of 2021 compared to the first six months of 2020 was lower due to lowerU.S. debt balances and lower interest rates. Interest income: Three Months Ended Six Months Ended May 29, May 30, 2021 vs May 29, May 30, 2021 vs ($ in millions) 2021 2020 2020 2021 2020 2020 Interest income$ 2.5 $ 2.9 (13.8 )%$ 5.2 $ 5.8 (10.3 )%
Interest income in the second quarter of 2021 was
Interest income in the first six months of 2021 was
Income taxes: Three Months Ended Six Months Ended May 29, May 30, 2021 vs May 29, May 30, 2021 vs ($ in millions) 2021 2020 2020 2021 2020 2020 Income taxes$ 16.7 $ 11.5 45.2 %$ 27.3 $ 17.1 59.6 % Effective tax rate 26.2 % 27.9 % 26.7 % 31.0 % 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 variousU.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$2.0 million of discrete tax expense. Excluding the discrete tax expense, the overall effective tax rate was 27.5 percent. The discrete tax benefit and expense relate to variousU.S. and foreign tax matters. 24
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Income from equity method investments:
Three Months Ended Six Months Ended May 29, May 30, 2021 vs May 29, May 30, 2021 vs ($ in millions) 2021 2020 2020 2021 2020 2020 Income from equity method investments$ 2.2 $ 1.9 15.8 %$ 4.1 $ 3.5 17.1 % The income from equity method investments relates to our 50 percent ownership of theSekisui-Fuller joint venture inJapan . 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.
Net income attributable to
Three Months Ended Six Months Ended May 29, May 30, 2021 vs May 29, May 30, 2021 vs ($ in millions) 2021 2020 2020 2021 2020 2020 Net income attributable to H.B. Fuller$ 49.1 $ 31.6 55.4 %$ 78.9 $ 41.5 90.1 % Percent of net revenue 5.9 % 4.7 % 5.1 % 3.1 % The net income attributable toH.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. The net income attributable toH.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$0.79 per share for the first six months of 2020. Operating Segment Results We have three reportable segments: Hygiene, Health and Consumable Adhesives, Engineering Adhesives and Construction Adhesives. Operating results of each of these segments are regularly reviewed by our chief operating decision maker to make decisions about resources to be allocated to the segments and assess their performance.
The tables below provide certain information regarding the net revenue and operating income of each of our operating segments.
Corporate Unallocated amounts include business acquisition and integration costs, organizational restructuring charges and project costs associated with our implementation of Project ONE.
Net Revenue by Segment: Three Months Ended Six Months Ended May 29, 2021 May 30, 2020 May 29, 2021 May 30, 2020 Net % of Net % of Net % of Net % of ($ in millions) Revenue Total Revenue Total Revenue Total Revenue Total Hygiene, Health and Consumable Adhesives$ 364.8 44 %$ 344.7 51 %$ 700.5 45 %$ 657.2 50 % Engineering Adhesives 345.4 42 % 236.0 35 % 658.0 42 % 485.0 37 % Construction Adhesives 117.7 14 % 93.9 14 % 195.3 13 % 179.0 13 % Segment total$ 827.9 100 %$ 674.6 100 %$ 1,553.8 100 %$ 1,321.2 100 % Corporate Unallocated - - - - - - - - Total$ 827.9 100 %$ 674.6 100 %$ 1,553.8 100 %$ 1,321.2 100 % 25
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Segment Operating Income (Loss):
Three Months Ended Six Months Ended May 29, 2021 May 30, 2020 May 29, 2021 May 30, 2020 Segment Segment Segment Segment Operating Operating Operating Operating Income % of Income % of Income % of Income % of ($ in millions) (Loss) Total (Loss) Total (Loss) Total (Loss) Total Hygiene, Health and Consumable Adhesives$ 38.9 56 %$ 35.0 62 %$ 68.9 59 %$ 57.7 67 % Engineering Adhesives 32.1 47 % 20.2 35 % 62.5 53 % 35.5 42 % Construction Adhesives 6.3 9 % 6.5 11 % 1.6 1 % 5.2 6 % Segment total$ 77.3 112 %$ 61.7 108 %$ 133.0 113 %$ 98.4 115 % Corporate Unallocated (8.2 ) (12 )% (4.8 ) (8 )% (15.5 ) (13 )% (12.7 ) (15 )% Total$ 69.1 100 %$ 56.9 100 %$ 117.5 100 %$ 85.8 100 %
Hygiene, Health and Consumable Adhesives
Three Months Ended Six Months Ended May 29, May 30, 2021 vs May 29, May 30, 2021 vs ($ in millions) 2021 2020 2020 2021 2020 2020 Net revenue$ 364.8 $ 344.7 5.8 %$ 700.5 $ 657.2 6.6 % Segment operating income$ 38.9 $ 35.0 11.1 %$ 68.9 $ 57.7 19.4 % Segment operating margin 10.7 % 10.2 % 9.8 % 8.8 %
The following table provides details of the Hygiene, Health and Consumable Adhesives net revenue variances:
Three Months Ended Six Months Ended May 29, 2021 vs. May 30, 2020 May 29, 2021 vs. May 30, 2020 Organic growth 3.3 % 5.4 % Currency 2.5 % 1.2 % Total 5.8 % 6.6 % 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 theU.S. dollar. 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 theU.S. dollar. 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. 26
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Table of Contents Engineering Adhesives Three Months Ended Six Months Ended May 29, May 30, 2021 vs May 29, May 30, 2021 vs ($ in millions) 2021 2020 2020 2021 2020 2020 Net revenue$ 345.4 $ 236.0 46.3 %$ 658.0 $ 485.0 35.7 % Segment operating income$ 32.1 $ 20.2 58.9 %$ 62.5 $ 35.5 76.1 % Segment operating margin 9.3 % 8.6 % 9.5 % 7.3 % The following tables provide details of the Engineering Adhesives net revenue variances: Three Months Ended Six Months Ended May 29, 2021 vs. May 30, 2020 May 29, 2021 vs. May 30, 2020 Organic growth 39.7 % 30.2 % Currency 6.6 % 5.5 % Total 46.3 % 35.7 % 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. The currency effect was due to a stronger Euro and Chinese renminbi compared to theU.S. dollar. 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. The currency effect was due to a stronger Euro and Chinese renminbi compared to theU.S. dollar. 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. Construction Adhesives Three Months Ended Six Months Ended May 29, May 30, 2021 vs May 29, May 30, 2021 vs ($ in millions) 2021 2020 2020 2021 2020 2020 Net revenue$ 117.7 $ 93.9 25.4 %$ 195.3 $ 179.0 9.1 % Segment operating income$ 6.3 $ 6.5 (3.1 )%$ 1.6 $ 5.2 (69.2 )% Segment operating margin 5.4 % 6.9 % 0.8 % 2.9 % The following tables provide details of the Construction Adhesives net revenue variances: Three Months Ended Six Months Ended May 29, 2021 vs. May 30, 2020 May 29, 2021 vs. May 30, 2020 Organic growth 23.2 % 7.4 % Currency 2.2 % 1.7 % Total 25.4 % 9.1 % 27
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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 theU.S. dollar. 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 theU.S. dollar. 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. Corporate Unallocated Three Months Ended Six Months Ended May 29, May 30, 2021 vs May 29, May 30, 2021 vs ($ in millions) 2021 2020 2020 2021 2020 2020 Net revenue $ - $ - 0.0 % $ - $ - 0.0 % Segment operating loss$ (8.2 ) $ (4.8 ) 70.8 %$ (15.5 ) $ (12.7 ) 22.0 % Segment operating margin NMP NMP NMP NMP
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.
Financial Condition, Liquidity and Capital Resources
Total cash and cash equivalents as ofMay 29, 2021 were$69.6 million compared to$100.5 million as ofNovember 28, 2020 and$70.3 million as ofMay 30, 2020 . The majority of the$69.6 million in cash and cash equivalents as ofMay 29, 2021 was held outsidethe United States . Total long and short-term debt was$1,712.4 million as ofMay 29, 2021 ,$1,773.9 million as ofNovember 28, 2020 and$1,928.0 million as ofMay 30, 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 ofMay 29, 2021 as compared to 56.1 percent as ofNovember 28, 2020 and 61.3 percent as ofMay 30, 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 inthe United States has historically been sufficient and we expect it will continue to be sufficient to fundU.S. operations,U.S. capital spending andU.S. pension and other postretirement benefit contributions in addition to fundingU.S. acquisitions, dividend payments, debt service and share repurchases as needed. For those international earnings considered to be reinvested indefinitely, we currently have no intention to, and plans do not indicate a need to, repatriate these funds forU.S. operations. 28
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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. AtMay 29, 2021 , we were in compliance with all covenants of our contractual obligations as shown in the following table: Result as of May 29, Covenant Debt Instrument Measurement 2021 Secured Indebtedness / Not greater TTM EBITDA Term Loan B Credit Agreement than 5.9
2.5
Secured Indebtedness / Not greater TTM EBITDA Revolving Credit Agreement than 5.9
2.4
TTM EBITDA / Consolidated Interest Not less Expense Revolving Credit Agreement than 2.0 5.5 ? TTM = Trailing 12 months ? EBITDA for Term Loan B covenant purposes is defined as consolidated net income, plus interest expense, expense for taxes paid or accrued, depreciation and amortization, certain non-cash impairment losses,
extraordinary non-cash losses incurred other than in the ordinary course of
business, nonrecurring extraordinary non-cash restructuring charges and the
non-cash impact of purchase accounting, expenses related to the Royal
Adhesives acquisition not to exceed
integration of Royal Adhesives during the fiscal years ending in 2017, 2018
and 2019 not exceeding
began prior to the Royal Adhesives acquisition incurred in fiscal years ending
in 2017 and 2018 not exceeding
charges relating to the SAP implementation during fiscal years ending in 2017
through 2021 not exceeding
extraordinary non-cash gains. For the Total Indebtedness / TTM EBITDA ratio,
TTM EBITDA is adjusted for the pro forma results from Material Acquisitions
and Material Divestitures as if the acquisition or divestiture occurred at the
beginning of the calculation period. The full definition is set forth in the
Term Loan B Credit Agreement and can be found in the Company's Form 8-K filing
datedOctober 20, 2017 . ? EBITDA for Revolving Credit Facility covenant purposes is defined as
consolidated net income, plus interest expense, expense for taxes paid or
accrued, depreciation and amortization, non-cash impairment losses related to
long-lived assets, intangible assets or goodwill, nonrecurring or unusual
non-cash losses incurred other than in the ordinary course of business,
nonrecurring or unusual non-cash restructuring charges and the non-cash impact
of purchase accounting, fees, premiums, expenses and other transaction costs
incurred or paid by the borrower or any of its Subsidiaries on the effective
date in connection with the transactions, this agreement and the other loan
documents, the 2020 supplemental indenture and the transactions contemplated
hereby and thereby, one-time, non-capitalized charges and expenses relating to
the Company's SAP implementation during fiscal years ending in 2017
through 2024, in an amount not exceeding
year of the Company, charges and expenses relating to the ASP Royal
Acquisition, including but not limited to advisory and financing costs, during
the Company's fiscal years ending in 2020 and 2021, in an aggregate amount (as
to such years combined) not exceeding
related to the reorganization of the Company and its subsidiaries from five
business units to three business units to reduce costs during the Company's
fiscal years ending in 2020 and 2021 in an aggregate amount (as to such
years combined) not exceeding
to the Company's manufacturing and operations project to improve
delivery, implement cost savings and reduce inventory during the Company's
fiscal years ending in 2020, 2021 and 2022 in an aggregate amount (as to such
years combined) not exceeding$15.5 million .
? Consolidated Interest Expense for the Revolving Credit Facility is defined as
the interest expense (including without limitation the portion of capital
lease obligations that constitutes imputed interest in accordance with GAAP)
of the Company and its subsidiaries calculated on a consolidated basis for
such period with respect to all outstanding indebtedness of the Company and
its subsidiaries allocable to such period in accordance with GAAP.
We believe we have the ability to meet all of our contractual obligations and commitments in fiscal 2021.
Selected Metrics of Liquidity
Key metrics we monitor are net working capital as a percent of annualized net revenue, trade receivable days sales outstanding ("DSO"), inventory days on hand, free cash flow after dividends and debt capitalization ratio.
May 29 ,May 30, 2021 2020
Net working capital as a percentage of annualized net revenue1
16.7 % 19.2 % Accounts receivable DSO (in days)2 61
60
Inventory days on hand (in days)3 67
76
Free cash flow after dividends4$ 11.8 $ 37.3 Total debt to total capital ratio5 52.2 % 61.3 % 1 Current quarter net working capital (trade receivables, net of allowance for doubtful accounts plus inventory minus trade payables) divided by annualized net revenue (current quarter multiplied by four). 2 Trade receivables net of the allowance for doubtful accounts at the balance sheet date multiplied by 91 (13 weeks) and divided by the net revenue for the quarter.
3 Total inventory multiplied by 91 and divided by cost of sales (excluding delivery costs) for the quarter.
4 Year-to-date net cash provided by operating activities, less purchased property, plant and equipment and dividends paid. See reconciliation of net cash provided by operating activities to free cash flow after dividends below.
5 Total debt divided by (total debt plus total stockholders' equity).
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Free cash flow after dividends, a non-GAAP financial measure, is defined as net cash provided by operations less purchased property, plant and equipment and dividends paid. Free cash flow after dividends is an integral financial measure used by the Company to assess its ability to generate cash in excess of its operating needs, therefore, the Company believes this financial measure provides useful information to investors. The following table reflects the manner in which free cash flow after dividends is determined and provides a reconciliation of free cash flow after dividends to net cash provided by operating activities, the most directly comparable financial measure calculated and reported in accordance withU.S. GAAP. Reconciliation of "Net cash provided by operating activities" to Free cash flow after dividends Six Months Ended ($ in millions) May 29, 2021 May 30, 2020
Net cash provided by operating activities $ 79.8
50.7
54.5
Less: Dividends paid 17.2
16.6
Free cash flow after dividends $ 11.8 $
37.3
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