In "Management's discussion and analysis on financial condition and results of operations" in this quarterly report on Form 10-Q, we discuss non-U.S. GAAP financial measures related to currency-neutral sales revenues, as well as adjusted operating income to adjust for restructuring costs and the gain on the sale of assets that are reflected in one period but not the other in order to show comparative operational performance. We present these non-U.S. GAAP financial measures because we believe they assist investors in comparing our performance across reporting periods on a consistent basis by eliminating items that we do not believe are indicative of our core operating performance. Such non-U.S. GAAP financial measures assist investors in understanding the ongoing operating performance of the Company by presenting financial results between periods on a more comparable basis. Such measures should be considered in addition to, and not in lieu of, the financial measures calculated and presented in accordance with accounting principles generally accepted inthe United States of America ("U.S. GAAP"). Currency-neutral sales are calculated using actual exchange rates in use during the comparative prior year period to enhance the visibility of the underlying business trends excluding the impact of translation arising from foreign currency exchange rate fluctuations. We include a reconciliation of adjusted operating income to its comparableU.S. GAAP financial measures. References to currency-neutral revenues and adjusted operating income should not be considered in isolation or as a substitute for other financial measures calculated and presented in accordance withU.S. GAAP and may not be comparable to similarly titled nonU.S GAAP financial measures used by other companies. In evaluating these non-U.S. GAAP financial measures, investors should be aware that in the future we may incur expenses or be involved in transactions that are the same as or similar to some of the adjustments in this presentation. Our presentation of non-U.S. GAAP financial measures should not be construed to imply that its future results will be unaffected by any such adjustments. Non-U.S. GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of our results as reported underU.S. GAAP. Please see Note 2 regarding segment results of operations. The Company's business is aggregated into two reportable segments based on geography of operations: North American Operations and International Operations. Segment income is measured for internal reporting purposes by excluding corporate expenses, which are included in the unallocated column in the following tables as well as Note 2. These tables above are included to better explain our consolidated operational performance by showing more detail by business segment and reconcilingU.S. GAAP operating income and adjusted operating income. 21
-------------------------------------------------------------------------------- The following table represents key results of operations on a consolidated basis for the periods indicated: Three Months Ended (unaudited) Nine Months Ended (unaudited) 3/31/2021 3/31/2020 $ Change favorable % Change 3/31/2021 3/31/2020 $ Change favorable % Change (Amounts in thousands) (unfavorable) (unfavorable) Net sales$ 54,944 $ 49,998 $ 4,946 9.9 %$ 158,408 $ 158,976 $ (568) (0.4) % Gross margin 18,149 14,844 3,305 22.3 % 51,326 51,183 143 0.3 % % of net sales 33.0 % 29.7 % 32.4 % 32.2 % Selling, general and administrative expenses 13,511 14,780 1,269 8.6 % 41,126 46,912 5,786 12.3 % % of net sales 24.6 % 29.6 % 26.0 % 29.5 % Restructuring charges 788 0 (788) (100.0) % 1,518 0 (1,518) (100.0) % Gain on sale of building 0 0 - - % (3,204) 0 3,204 100.0 % GAAP Operating income as reported 3,850 64 3,786 5916.1 % 11,886 4,271 7,615 178.3 % Other income (expense), net 663 223 440 197.3 % 236 (833) 1,069 128.3 % Income before income taxes 4,513 287 4,226 1472.6 % 12,122 3,438 8,684 252.6 % Income tax expense (benefit) 1,496 (326) (1,822) 558.9 % 1,132 787 (345) (43.8) % Net income$ 3,017 $ 613 $ 2,404 392.2 %$ 10,990 $ 2,651 $ 8,339 314.6 %
Three Months Ended Nine Months Ended (Amounts in thousands) 03/31/2021 3/31/2020 $ Change favorable % Change 3/31/2021 3/31/2020 $ Change favorable % Change (unfavorable) (unfavorable) Operating income as reported$ 3,850 $ 64 $ 3,786 5916 %$ 11,886 $ 4,271 $ 7,615 178 % Removing restructuring charges (adding back) 788 - (788) - 1,518 - (1,518) - Less gain on sale of building - - - - (3,204) - 3,204 - Adjusted operating income$ 4,638 $ 64 $ 4,574 7147 %$ 10,200 $ 4,271 $ 5,929 139 % 3.8 basis % of net sales 8.4 % 0.1 % 8.3 basis points 6.4 % 2.7 % point 22
-------------------------------------------------------------------------------- The following table represents key results of operations for three months endingMarch 31, 2021 and 2020 based on our business aggregated into two reportable segments according to geography of operations : North American Operations and International Operations: Three Months Ended March 2021 (unaudited) Three Months Ended March 2020 (unaudited) (Amounts in thousands) North America International Corporate Total North America International Corporate Total Net sales$ 32,519 $ 22,425 -$ 54,944 33,369 16,629 0 49,998 Gross margin (loss) 9,741 8,408 - 18,149 8,802 6,149 (107) 14,844 % of net sales 30.0 % 37.5 % 33.0 % 26.4% 37.0% 29.7% Selling, general and administrative expenses 6,628 5,111 1,773 13,511 7,465 5,701 1,614 14,780 % of net sales 20.4 % 22.8 % 24.6 % 22.4% 34.3% 29.6% Restructuring charges 182 605 - 788 - - - - Operating income$ 2,931 $ 2,692 $ (1,773) $ 3,850 1,337 448 (1,721) 64 % of net sales 9.0 % 12.0 % 7.0 % 4.0 % 2.7 % 0.1 %
Three Months EndedMarch 2021 Three Months EndedMarch 2020
(Amounts in thousands) North America International Corporate Total
North America International Corporate Total Operating income as reported$ 2,931 $ 2,692 $ (1,773) $
3,850
182 605 - 788 - - - - Adjusted operating income$ 3,113 $ 3,297 $ (1,773) $ 4,638 $ 1,337 $ 448 $ (1,721) $ 64 % of net sales 9.6 % 14.7 % 8.4 % 4.0 % 2.7 % 0.1 % 23
-------------------------------------------------------------------------------- The following table represents key results of operations for nine months endingMarch 31, 2021 and 2020 based on our business aggregated into two reportable segments according to geography of operations: North American Operations and International Operations: Nine Months Ended March 2021 (unaudited) Nine Months Ended March 2020 (unaudited) (Amounts in thousands) North America International Corporate Total North America International Corporate Total Net sales$ 85,609 $ 72,799 $ -$ 158,408 $ 97,475 $ 61,501 $ -$ 158,976 Gross margin 24,500 26,826 - 51,326 28,472 22,679 32 51,183 % of net sales 28.6 % 36.8 % 32.4 % 29.2 % 36.9 % 32.2 % Selling, general and administrative expenses 18,257 17,340 5,529 41,126$ 22,255 $ 19,610 $ 5,047 $ 46,912 % of net sales - - - - - - Restructuring charges 836 682 - 1,518 - - - - Gain on sale of building (3,204) - - (3,204) - - - - Operating income$ 8,611 $ 8,804 $ (5,529) $ 11,886 $ 6,217 $ 3,069 $ (5,015) $ 4,271 % of net sales 10.1 % 12.1 % 7.5 % 6.4 % 5.0 % 2.7 %
Nine Months EndedMarch 2021 Nine Months EndedMarch 2020
(Amounts in thousands) North America International Corporate
Total North America International Corporate Total Operating income as reported$ 8,611 $ 8,804 $ (5,529) $ 11,886 $ 6,217 $ 3,069 $ (5,015) $ 4,271 Restructuring charges 836 682 - 1,518 - - - - Gain on sale of building (3,204) - - (3,204) - - - - Adjusted operating income$ 6,243 $ 9,486 $ (5,529) $ 10,200 $ 6,217 $ 3,069 $ (5,015) $ 4,271 % of net sales 7.3 % 13.0 % 6.4 % 6.4 % 5.0 % 2.7 %
Three and Nine Months Periods Ended
Net sales in the quarter endedMarch 31, 2021 were$55.0 million , up$5.0 million , an improvement of 10.0% compared to$50.0 million in the quarter endedMarch 31, 2020 .Net Sales in the nine months endedMarch 31, 2021 of$158.4 million , compared to$159.0 million for the same nine month period endingMarch 31, 2020 , were lower by$0.6 million or 0.4%. Foreign currency translation negatively impacted reported sales by$2.6 million for the three months endedMarch 31, 2021 . On a foreign currency neutral basis, sales in the quarter endingMarch 31, 2021 increased 15.0% from the quarter endingMarch 31, 2020 . Over the nine month period endingMarch 31, 2021 , the unfavorable currency impact on reportedNet Sales was$12.8 million . Therefore, on a currency neutral basis,Net Sales have increased by 7.7% for the first nine months of this fiscal year compared to last fiscal year. Operating income in the quarter endedMarch 31, 2021 of$3.8 million or 7% of sales, was an improvement of$3.7 million over the same three month period endingMarch 31, 2020 . Operating income in the nine month periods endingMarch 31, 2021 andMarch 31, 2020 was increased by 178% to$11.9 million from$4.3 million in the prior fiscal year. Adjusting to compare operationally, in the three months endedMarch 31, 2021 , removing restructuring cost of$0.8 million , adjusted operating income was$4.6 million or 8.4% of sales versus$0.1 million or 0.1% of sales for the three month period endingMarch 31, 2020 . In the nine months period endedMarch 31, 2021 as compared to 2020, when removing the impact of$1.5 million in restructuring charges and the$3.2 million gain on the sale of ourNorth Carolina facility in December, 2020, adjusted operating income was$10.2 million or 6.4% of sales versus$4.3 million or 2.7% of sales in the same nine-month period ending in March, 2020.
This improvement is the result of aligning our cost structure to current
pandemic demand and on-going restructuring, and strong sales growth
internationally, especially in
24 -------------------------------------------------------------------------------- resulted in a reduction of selling, general and administrative expenses of$1.3 million in the three months endingMarch 31, 2021 , and$5.8 million in the nine months endingMarch 31, 2021 , compared to the same periods respectively endingMarch 31, 2020 . As presented on separate lines on the Consolidated Statements of Operations are a gain on the sale of theNorth Carolina facility of$3.2 million and$1.5 million in restructuring charges of which$0.8 million in theU.S. and$0.7 million internationally associated with the fiscal year 2021 plan as disclosed in theJune 30, 2020 Form 10-K as well as Note 14. Net income improved by$2.4 million to$3.0 million in the quarter endedMarch 31, 2021 , and by$8.3 million to$11.0 million in the nine month period endingMarch 31, 2021 compared to the same periods respectively endingMarch 31, 2020 .Net Sales The Company's net sales for the quarter endedMarch 31, 2021 were$55.0 million versus$50.0 million for the same period a year prior.North America sales of$32.5 million , a decline of$0.9 million in quarter endedMarch 31, 2021 from$33.4 million in 2020, were more than offset by an increase of$5.8 million in International sales to$22.4 million in the quarter endedMarch 31, 2021 versus$16.6 million in 2020. The Company continues to achieve sales growth internationally when compared to last year. The quarter endingMarch 31, 2021 has seen a resurgence in North American sales relative to International sales, as order intake and shipped sales in our North American product lines are steadily returning to pre- pandemic levels. During the nine months endedMarch 31, 2021 as compared to 2020, North American sales decreased$11.8 million or 12.2% while International sales increased$11.3 million or 18.4%. However, on a currency neutral basis, International Sales have increased by 38.9% for the nine months endingMarch 31, 2021 compared to the same nine months a year earlier. This is primarily due to a much weaker Brazilian currency, where sales measured in local currency have increased by 69.0% in the nine month period endingMarch 31, 2021 compared to the year prior. Gross Margin Gross margin increased$3.3 million or 22.3% for the three months, and$0.1 million for the nine months ending onMarch 31, 2021 as compared to the year prior. Total gross margin as a percentage of sales improved by 3.3 percentage points, from 29.7% to 33.0% for the three month period endingMarch 31, 2021 compared toMarch 31, 2020 . The quarter on quarter improvement is a result of lower production overheads and capacity achieved as a result of our restructuring program, and higher plant utilization due to higher production levels. For the nine month comparative period endingMarch 31, 2021 , total gross margin as percent of sales improved by 0.2 percentage points from 32.2% to 32.4%. The restructuring benefits of reducing production capacity and costs were starting to be realized beginning in the quarter endingMarch 31, 2021 . For the three months endingMarch 31, 2021 , North American gross margin measured as a percent ofNet Sales improved by 3.60 percentage points from 26.4% to 30.0%, compared to the three month period endingMarch 31, 2020 , on a similar level ofNet Sales for the quarter. International gross margin improved by 0.5 percentage points from 37.0% at the end of the three month period endingMarch 31, 2020 to 37.5% for the three month period endingMarch 31, 2021 . For the nine month period endingMarch 31, 2021 , North American gross margin measured as a percent ofNet Sales declined from 29.2% to 28.6% due to lower plant utilization on much lower production volumes, when compared to the nine month period endingMarch 31, 2020 . International gross margin measured the same way declined from 36.9% to 36.8% fromMarch 31, 2020 toMarch 31, 2021 respectively. Selling, General and Administrative Expenses Selling, general and administrative expenses decreased$1.3 million or 8.6% during the quarter endedMarch 31, 2021 compared to 2020. The Company continues to align our cost structure to demand with a reduction in selling, general and administrative headcount of 122 when comparing these two quarters. Selling, general and administrative expenses decreased$5.8 million or 12.3% during the nine months endedMarch 31, 2021 compared to 2020. Corporate expenses are up$0.5 million or 9.6% while the rest of selling, general and administrative costs are down 12.7%.
Income Taxes
25
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For the three month period endedMarch 31, 2021 , the Company recognized tax expense of$1.5 million on a profit before tax of$4.5 million or an effective tax rate of 33%. The tax rate for fiscal 2021 was higher than theU.S. statutory tax rate of 21% primarily due to the GILTI provisions, and the jurisdictional mix of earnings, particularlyBrazil with a statutory rate of 34%. For the three month period endedMarch 31, 2020 , the Company recognized tax expense of$(0.3) million on a profit before tax of$0.3 million or an effective tax rate of (100)%. The tax rate for fiscal 2020 was lower than theU.S. statutory tax rate of 21% primarily due to the GILTI provisions, the jurisdictional mix of earnings, particularlyBrazil with a statutory rate of 34%, and the impact of permanent deductible and nondeductible items and research credits. The impact of these items on the tax rate is substantial based on the Company's profit being$0.3 million in the third quarter of 2020. For the nine month period endedMarch 31, 2021 , the Company recognized a tax provision of$1.1 million on a profit before tax of$12.1 million or an effective tax rate of 9%. Before the discrete benefits relating to legislation enacted during the first quarter of fiscal 2021 in the amount of($2.7) million related to the impact of the GILTI high-tax exclusion and($0.2) million related to the impact of the increase inUK corporate tax rate on the net deferred tax asset, tax expense was$4.1 million or 34% of pre-tax income. This was higher than theU.S. statutory tax rate of 21% primarily due to the GILTI provisions, and the jurisdictional mix of earnings, particularlyBrazil with a statutory rate of 34%, offset by tax credits and permanent deductions generated from research expenses. For the nine month period endedMarch 31, 2020 . the Company recognized tax expense of$0.8 million on a profit before tax of$3.4 million or an effective tax rate of 24%. The tax rate for fiscal 2020 was higher than theU.S. statutory tax rate of 21% primarily due to the GILTI provisions, and the jurisdictional mix of earnings, particularlyBrazil with a statutory rate of 34%. . Net Income Net income for the quarter endedMarch 31, 2021 and 2020 was$3.0 million and$0.6 million respectively, an increase of$2.4 million . Net income for the nine months endedMarch 31, 2021 and 2020 increased to$11.0 million , up$8.3 million , a 315% increase over the$2.7 million in 2020.
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