Forward-Looking Statements
This Quarterly Report on Form 10-Q and the information incorporated by reference contains "forward-looking statements" within the meaning of the safe harbor provisions of theU.S. Private Securities Litigation Reform Act of 1995, including information regarding the Company's financial outlook, future plans, objectives, business prospects and anticipated financial performance. Forward-looking statements can be identified by words such as "will," "believe," "anticipate," "expect," "estimate," "intend," "plan," or variations of these words, or similar expressions. These forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on the Company's current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, these statements inherently involve a wide range of inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. The Company's actual actions, results, and financial condition may differ materially from what is expressed or implied by the forward-looking statements. Specific factors that could cause such a difference include, without limitation, impacts from the novel coronavirus ("COVID-19") pandemic on our business, operations, customers and capital position; the impact of COVID-19 on local, national and global economic conditions; the effects of various governmental responses to the COVID-19 pandemic; raw material availability, increases in raw material costs, or other production costs; risks associated with our strategic growth initiatives or the failure to achieve the anticipated benefits of such initiatives; unanticipated downturn in business relationships with customers or their purchases; competitive pressures on sales and pricing; changes in the markets for the Company's business segments; changes in trends and demands in the markets in which the Company competes; operational problems at our manufacturing facilities or unexpected failures at those facilities; future economic and financial conditions inthe United States and around the world; inability of the Company to meet future capital requirements; claims, litigation and regulatory actions against the Company; changes in laws and regulations affecting the Company; and other risks and uncertainties detailed from time to time in the Company's filings with theSEC , including without limitation, the risk factors disclosed in Item 1A, "Risk Factors," in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2020 . Given these factors, as well as other variables that may affect our operating results, readers should not rely on forward-looking statements, assume that past financial performance will be a reliable indicator of future performance, nor use historical trends to anticipate results or trends in future periods. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date thereof. The Company expressly disclaims any obligation or intention to provide updates to the forward-looking statements and the estimates and assumptions associated with them.
Executive Overview
The Company conducts its business activities in two reportable segments: The Material Handling Segment and the Distribution Segment.
The Company designs, manufactures, and markets a variety of plastic and rubber products. The Material Handling Segment manufactures a broad selection of plastic reusable containers, pallets, small parts bins, bulk shipping containers, storage and organization products, OEM parts, custom plastic products, consumer fuel containers and tanks for water, fuel and waste handling. Products in the Material Handling Segment are primarily injection molded, rotationally molded or blow molded. The Distribution Segment is engaged in the distribution of tools, equipment and supplies used for tire, wheel and under vehicle service on passenger, heavy truck and off-road vehicles, as well as the manufacturing of tire repair and retreading products. The Company's results of operations for the quarter and six months endedJune 30, 2021 are discussed below. InMarch 2020 , the COVID-19 pandemic began to affect theU.S. economy and has created additional uncertainty for the Company's operations. Regulatory actions in response to COVID-19 have varied across jurisdictions and have included closure of nonessential businesses. While the effects from the pandemic appear to be improving compared to 2020, the duration and extent of these measures put in place to slow the spread of COVID-19 remain unknown, including possible reimplementation of any measures that have been removed or relaxed. Through the date of this report, most of the Company's businesses are considered essential because they supply food and agricultural, automotive, healthcare, industrial and consumer end markets. Accordingly, those businesses have continued to operate. During 2020, the Company experienced temporary closures of certain facilities as a result of the pandemic, including certain manufacturing facilities in the Material Handling Segment and our Distribution business inCentral America , in parts of March andApril 2020 . Beyond the impact of these temporary closures, some of our businesses have been and may continue to be affected by the broader economic effects from COVID-19 and related regulatory actions, including customer demand for our products. The Company believes it is well-positioned to manage through this uncertainty as it has a strong balance sheet with sufficient liquidity and borrowing capacity as well as a diverse product offering and customer base. 21 --------------------------------------------------------------------------------
Results of Operations:
Comparison of the Quarter EndedJune 30, 2021 to the Quarter EndedJune 30, 2020 Net Sales : (dollars in millions) Quarter Ended June 30, Segment 2021 2020 Change % Change Material Handling$ 137,227 $ 80,855 $ 56,372 69.7 % Distribution 50,156 37,541 12,615 33.6 % Inter-company sales (14 ) (2 ) (12 ) Total net sales$ 187,369 $ 118,394 $ 68,975 58.3 % Net sales for the quarter endedJune 30, 2021 were$187.4 million , an increase of$69.0 million or 58.3% compared to the quarter endedJune 30, 2020 . Net sales increased due to higher volume/mix of$31.3 million and due to$30.9 million of incremental sales from theElkhart Plastics acquisition in the Material Handling Segment onNovember 10, 2020 .Elkhart Plastics' historical annual sales are approximately$100 million . Net sales also increased due to higher pricing of$5.6 million and the effect of favorable currency translation of$1.2 million . Beginning inFebruary 2021 , the Company began to implement a series of pricing increases across a majority of its portfolio of products in response to rapidly rising raw material costs. The Company expects to see incremental benefits of price as it progresses through the year. Comparisons to 2020 are also affected by the onset of the COVID-19 pandemic inMarch 2020 . TheJuly 30, 2021 acquisition of Trilogy, as described in Note 3, is expected to add approximately$35 million of sales on an annual basis. Net sales in the Material Handling Segment increased$56.4 million or 69.7% for the quarter endedJune 30, 2021 compared to the quarter endedJune 30, 2020 . Net sales increased due to higher volume/mix of$19.2 million across all markets and due to$30.9 million of incremental sales due to theElkhart Plastics acquisition onNovember 10, 2020 . Net sales also increased due to higher pricing of$5.1 million and the effect of favorable currency translation of$1.2 million . Net sales in the Distribution Segment increased$12.6 million or 33.6% for the quarter endedJune 30, 2021 compared to the quarter endedJune 30, 2020 , due to higher volume/mix of$12.1 million and higher pricing of$0.5 million . Cost of Sales & Gross Profit: Quarter Ended June 30, (dollars in millions) 2021 2020 Change % Change Cost of sales$ 132,375 $ 75,821 $ 56,554 74.6 % Gross profit$ 54,994 $ 42,573 $ 12,421 29.2 % Gross profit as a percentage of sales 29.4 % 36.0 % Gross profit increased$12.4 million , or 29.2%, for the quarter endedJune 30, 2021 compared to the quarter endedJune 30, 2020 , due to increased contribution from higher volume/mix as described underNet Sales above and theElkhart Plastics acquisition onNovember 10, 2020 . Partially offsetting these contributions were higher raw material costs, primarily resin, which were not fully recovered by pricing actions and led to an unfavorable price-to-cost relationship. As a result, gross profit margin was 29.4% for the quarter endedJune 30, 2021 compared with 36.0% for the quarter endedJune 30, 2020 .
Selling, General and Administrative Expenses:
Quarter Ended June 30, (dollars in millions) 2021 2020 Change % Change SG&A expenses$ 40,121 $ 30,317 $ 9,804 32.3 % SG&A expenses as a percentage of sales 21.4 % 25.6 % Selling, general and administrative ("SG&A") expenses for the quarter endedJune 30, 2021 were$40.1 million , an increase of$9.8 million or 32.3% compared to the same period in the prior year. Increases in SG&A expenses in the second quarter 2021 were primarily due to$4.5 million of incremental SG&A from theNovember 10, 2020 Elkhart Plastics acquisition and$3.5 million of higher salaries and incentive compensation cost accruals, which were low in the 2020 comparison period because achievement thresholds were not expected to be met due to the COVID-19 pandemic. SG&A expenses also increased due to$1.1 million of higher legal and professional fees,$1.2 million of higher variable selling expenses and other net expense increases of$0.5 million partially offset by lower amortization of$1.0 million . 22 --------------------------------------------------------------------------------
Gain on Disposal of Fixed Assets:
During the quarter ended
Net Interest Expense: Quarter Ended June 30, (dollars in millions) 2021 2020 Change % Change Net interest expense$ 999 $ 1,194 $ (195 ) (16.3 )% Average outstanding borrowings, net$ 72,469 $ 78,000 $ (5,531 ) (7.1 )% Weighted-average borrowing rate 5.13 % 6.28 % Net interest expense for the quarter endedJune 30, 2021 was$1.0 million , a decrease of$0.2 million , or 16.3%, compared with$1.2 million for the quarter endedJune 30, 2020 . The lower net interest expense was due to the lower borrowing rate and lower borrowings in the current year. Income Taxes: Quarter Ended June 30, (dollars in millions) 2021 2020 Income from continuing operations before income taxes$ 14,870 $ 11,062 Income tax expense$ 3,795 $ 2,694 Effective tax rate 25.5 % 24.4 %
The Company's effective tax rate was 25.5% for the quarter ended
Comparison of the Six Months EndedJune 30, 2021 to the Six Months EndedJune 30, 2020 Net Sales : (dollars in thousands) Six Months Ended June 30, Segment 2021 2020 Change % Change Material Handling$ 267,120 $ 164,931 $ 102,189 62.0 % Distribution 94,706 75,736 18,970 25.0 % Inter-company elimination (28 ) (23 ) (5 ) Total net sales$ 361,798 $ 240,644 $ 121,154 50.3 % Net sales for the six months endedJune 30, 2021 were$361.8 million , an increase of$121.2 million or 50.3% compared to the six months endedJune 30, 2020 . Net sales increased due to higher volume/mix of$55.4 million and due to$58.0 million of incremental sales from theElkhart Plastics acquisition in the Material Handling Segment onNovember 10, 2020 .Elkhart Plastics' historical annual sales are approximately$100 million . Net sales also increased due to higher pricing of$6.1 million and the effect of favorable currency translation of$1.7 million . Beginning inFebruary 2021 , the Company began to implement a series of pricing increases across a majority of its portfolio of products in response to rapidly rising raw material costs. The Company expects to see incremental benefits of price as it progresses through the year. Comparisons to 2020 are also affected by the onset of the COVID-19 pandemic inMarch 2020 . TheJuly 30, 2021 acquisition of Trilogy, as described in Note 3, is expected to add approximately$35 million of sales on an annual basis. Net sales in the Material Handling Segment increased$102.2 million or 62.0% for the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 . Net sales increased due to higher volume/mix of$36.5 million across all markets and due to$58.0 million of incremental sales due to theElkhart Plastics acquisition onNovember 10, 2020 . Net sales also increased due to higher pricing of$6.0 million and the effect of favorable currency translation of$1.7 million . Net sales in the Distribution Segment increased$19.0 million or 25.0% for the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 , due to higher volume/mix of$18.9 million and higher pricing of$0.1 million . 23 --------------------------------------------------------------------------------
Cost of Sales & Gross Profit: Six Months Ended June 30, (dollars in thousands) 2021 2020 Change % Change Cost of sales$ 256,391 $ 155,588 $ 100,803 64.8 % Gross profit$ 105,407 $ 85,056 $ 20,351 23.9 % Gross profit as a percentage of sales 29.1 % 35.3 % Gross profit increased$20.4 million , or 23.9%, for the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 , due to increased contribution from higher volume/mix as described underNet Sales above and theElkhart Plastics acquisition onNovember 10, 2020 . Partially offsetting these contributions were higher raw material costs, primarily resin, which were not fully recovered by pricing actions and led to an unfavorable price-to-cost relationship. As a result, gross profit margin was 29.1% for the six months endedJune 30, 2021 compared with 35.3% for the six months endedJune 30, 2020 .
Selling, General and Administrative Expenses:
Six Months Ended June 30, (dollars in thousands) 2021 2020 Change % Change SG&A expenses$ 79,669 $ 61,433 $ 18,236 29.7 % SG&A expenses as a percentage of sales 22.0 % 25.5 % SG&A expenses for the six months endedJune 30, 2021 were$79.7 million , an increase of$18.2 million or 29.7% compared to the same period in the prior year. Increases in SG&A expenses in the first half of 2021 were primarily due to$8.2 million of incremental SG&A from theNovember 10, 2020 Elkhart Plastics acquisition and$6.6 million of higher salaries and incentive compensation cost accruals, which were low in the 2020 comparison period because achievement thresholds were not expected to be met due to the COVID-19 pandemic. SG&A expenses also increased due to$2.1 million of higher legal and professional fees,$2.0 million of higher variable selling expenses, a$0.8 million charge related to executive severance, inclusive of$0.3 million of stock compensation acceleration, and other net expense increases of$0.4 million partially offset by lower amortization of$1.9 million .
Gain on Disposal of Fixed Assets:
During the six months ended
Gain on Sale of Notes Receivable:
During the six months endedJune 30, 2020 , the Company recorded a pre-tax gain of$11.9 million related to the sale to HC of the fully-reserved promissory notes and related accrued interest receivable in exchange for$1.2 million and the release from a lease guarantee with a carrying value of$10.7 million related to one of HC's facilities as discussed in Note 4. Net Interest Expense: Six Months Ended June 30, (dollars in thousands) 2021 2020 Change % Change Net interest expense$ 1,994 $ 2,263 $ (269 ) (11.9 )% Average outstanding borrowings, net$ 73,148 $ 78,000 $ (4,852 ) (6.2 )% Weighted-average borrowing rate 5.23 % 6.26 % Net interest expense for the six months endedJune 30, 2021 was$2.0 million , a decrease of$0.3 million , or 11.9%, compared with$2.3 million during the six months endedJune 30, 2020 . The lower net interest expense was due to the lower borrowing rate and lower borrowings in the current year. 24 --------------------------------------------------------------------------------
Income Taxes: Six Months Ended June 30, (dollars in thousands) 2021 2020 Income from continuing operations before income taxes$ 24,740 $ 33,291 Income tax expense$ 6,360 $ 8,197 Effective tax rate 25.7 % 24.6 % The Company's effective tax rate was 25.7% for the six months endedJune 30, 2021 , compared to 24.6% for the six months endedJune 30, 2020 . The increase in the effective tax rate was primarily the result of higher non-deductible expenses.
Liquidity and Capital Resources:
The Company's primary sources of liquidity are cash on hand, cash generated from operations and availability under the Loan Agreement (defined below). AtJune 30, 2021 , the Company had$13.5 million of cash,$224.3 million available under the Loan Agreement and outstanding debt of$68.1 million , including the finance lease liability of$10.2 million . Based on this liquidity and borrowing capacity, the Company believes it is well-positioned to continue to manage through the uncertainty caused by COVID-19. The Company believes that cash on hand, cash flows from operations and available capacity under its Loan Agreement will be sufficient to meet expected business requirements including capital expenditures, dividends, working capital, debt service, and to fund future growth, including selective acquisitions.
Operating Activities
Net cash provided by operating activities was$21.3 million for the six months endedJune 30, 2021 , compared to$11.8 million in the same period in 2020. The increase was primarily due to less cash being used for working capital and higher income, excluding the 2020 non-cash gain on the sale of notes receivable.
Investing Activities
Net cash used by investing activities was$6.6 million for the six months endedJune 30, 2021 compared to cash used of$5.1 million for the same period in 2020. In 2021, the Company paid the working capital adjustment of$1.2 million related to theNovember 10, 2020 acquisition ofElkhart Plastics as discussed in Note 3, and received proceeds from the sale of a facility of$2.8 million as discussed in Note 5. In 2020, the Company paid a working capital adjustment of$0.7 million related to the 2019 acquisition of Tuffy as discussed in Note 3, and received proceeds from the sale of notes receivable of$1.2 million as discussed in Note 4. Capital expenditures were$8.2 million and$5.6 million for the six months endedJune 30, 2021 and 2020, respectively. Full year 2021 capital expenditures are expected to be approximately$15 million to$18 million .
Financing Activities
Cash used by financing activities was$29.5 million for the six months endedJune 30, 2021 compared to$9.9 million for the same period in 2020. The Company repaid the$40.0 million Senior Unsecured Note that matured inJanuary 2021 with a combination of cash and proceeds under the Loan Agreement (defined below). Net borrowings on the credit facility for the six months endedJune 30, 2021 were$19.9 million . Fees paid for the amendment and extension of the Loan Agreement inMarch 2021 totaled$1.1 million . Net proceeds from the issuance of common stock in connection with incentive stock option exercises were$2.4 million . The Company also used cash to pay dividends of$9.8 million and$9.7 million for the six months endedJune 30, 2021 and 2020, respectively. InMarch 2021 , a 15-year finance lease for a new manufacturing and distribution facility inBristol, Indiana commenced. While the Company has taken possession of the newBristol facility, construction remains in process as ofJune 30, 2021 to complete it for its intended use. As further described in Note 5, this lease agreement was in connection with a plan for consolidation of theAmeri-Kart rotational molding facilities within the Material Handling Segment. As ofJune 30, 2021 , the balance of the finance lease liability is$10.2 million , of which$0.5 million is classified as current.
The
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Credit Sources
InMarch 2021 , the Company entered into a Sixth Amended and Restated Loan Agreement (the "Sixth Amendment"), which amended the Fifth Amended and Restated Loan Agreement (collectively, the "Loan Agreement") datedMarch 2017 . The Sixth Amendment increased the senior revolving credit facility's borrowing limit to$250 million from$200 million , extended the maturity date toMarch 2024 fromMarch 2022 , and increased flexibility of the financial and other covenants and provisions. As ofJune 30, 2021 ,$224.3 million was available under the Loan Agreement, after borrowings and$5.8 million of letters of credit issued related to insurance and other financing contracts in the ordinary course of business, including the$2 million provided to the EPA as discussed in Note 11. Borrowings under the Loan Agreement bear interest at the LIBOR rate, prime rate, federal funds effective rate, the Canadian deposit offered rate, or the eurocurrency reference rate depending on the type of loan requested by the Company, in each case plus the applicable margin as set forth in the Loan Agreement. AtJune 30, 2021 ,$38 million face value of Senior Unsecured Notes are outstanding. The series of notes range in face value from$11 million to$15 million , with interest rates ranging from 5.25% to 5.45%, payable semiannually As described in Note 12,$26.0 million of the Senior Unsecured Notes mature onJanuary 15, 2024 and$12.0 million mature onJanuary 15, 2026 . As ofJune 30, 2021 , the Company was in compliance with all of its debt covenants. The most restrictive financial covenants for all of the Company's debt are an interest coverage ratio (defined as earnings before interest, taxes, depreciation and amortization, as adjusted, divided by interest expense) and a leverage ratio (defined as total debt divided by earnings before interest, taxes, depreciation and amortization, as adjusted). The ratios as of and for the period endedJune 30, 2021 are shown in the following table: Required Level Actual Level Interest Coverage Ratio 3.00 to 1 (minimum) 16.79 Leverage Ratio 3.25 to 1 (maximum) 0.99 26
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