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Item 2. Management’s Discussion and Analysis

2022-06-23 compared with 2022-03-24 · 178 added, 95 removed, 201 unchanged (58% of the section changed)

1 unchanged sentence

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 ended November 27, 2021 for important background information related to our business. 

Net revenue in the first quarter of 2022 increased 18.0 percent from the first quarter of 2021.

Net revenue increased 14.7 percent due to price, 6.1 percent due to sales volume and 0.9 percent due to the acquisition of Fourny and Apollo.

Negative currency effects of 3.7 percent compared to the first quarter of 2021 were primarily driven by a weaker Euro, Turkish lira and Argentinian peso, partially offset by a stronger Chinese renminbi compared to the U.S.

Gross profit margin decreased 160  basis points primarily due to higher ra w material costs partially offset by higher sales volume. 

Net revenue in the second quarter of 2022 increased 20.0 percent from the second quarter of 2021.

Net revenue increased 18.5 percent due to price, 3.4 percent due to sales volume and 2.0 percent due to the acquisition of Fourny and Apollo.

Negative currency effects of 3.9 percent compared to the second quarter of 2021 were primarily driven by a weaker Euro, Turkish lira and Argentinian peso, partially offset by a stronger Brazilian real and Chinese renminbi 

compared to the U.S.

Gross profit margin decreased 80  basis points primarily due to higher raw material costs and higher net revenue.

Net revenue in the first six months of 2022 increased 19.1 percent from the first six months of 2021.

Net revenue increased 16.8 percent due to price, 4.6 percent due to sales volume and 1.5 percent due to the acquisition of Fourny and Apollo.

Negative currency effects of 3.8 percent compared to the first six months of 2021 were primarily driven by a weaker Euro, Turkish lira and Argentinian peso, partially offset by a stronger Chinese renminbi and Brazilian real compared to the U.S.

Gross profit margin decreased 120  basis points primarily due to higher raw material costs and higher net revenue .  

Net income attributable to H.B.

Fuller in the first quarter of 2022 was $38.3 million compared to $29.8 million in the first quarter of 2021.

On a diluted earnings per share basis, the first quarter of 2022 was $0.69 per share compared to $0.56 per share for the first quarter of 2021.

Fuller in the second quarter of 2022 was $47.2 million compared to $49.1 million in the second quarter of 2021.

On a diluted earnings per share basis, the second quarter of 2022 was $0.86 per share compared to $0.90 per share for the second quarter of 2021.

Net income attributable to H.B.

Fuller in the first six months of 2022 was $85.5 million compared to $78.9 million in the first six months of 2021.

On a diluted earnings per share basis, the first six months of 2022 was $1.55 per share compared to $1.47 per share for the first six months of 2021.

Market Conditions  

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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”).

We have incurred costs of $18.9  million under this plan as of February 26, 2022.

We expect to incur total 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 $19.7 

million under this plan as of May 28, 2022.

We expect to incur total costs of approxim ately $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.

The 2020 Restructuring Plan was implemented in the fourth quarter of 2019 and is currently expected to be completed in fiscal 2022.

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Three Months Ended

Six Months Ended

($ in millions)

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 first quarter of 2022 compared to the same periods in 2021:

The following table shows the net revenue variance analysis for the second quarter and first six months of 2022 compared to the same periods in 2021:

Three Months Ended

February 26, 2022 vs.

February 27, 2021

Six Months Ended

May 28, 2022 vs.

Organic growth

Organic growth was 20.8 percent in the first quarter of 2022 compared to the first quarter of 2021 driven by a 38.3 percent increase in Construction Adhesives, a 20.7 percent increase in Hygiene, Health and Consumable Adhesives and a 16.5 percent increase in Engineering Adhesives.

Organic growth was 21.9 percent in the second quarter of 2022 compared to the second quarter of 2021 driven by a 24.5 percent increase in Hygiene, Health and Consumable Adhesives, a 21.8 percent increase in Engineering Adhesives and a 14.3 percent increase in Construction Adhesives .

The increase is predominately driven by an increase in product pricing and sales volume.

The 0.9 percent increase from M&A is due to the acquisition of Fourny and Apollo. 

The negative 3.7 percent currency impact was primarily driven by a weaker Euro, Turkish lira and Argentinian peso, partially offset by a stronger Chinese renminbi compared to the U.S.

The 2.0 percent increase from M&A is due to the acquisition of Fourny and Apollo. The negative 3.9 percent currency impact was primarily driven by a weaker Euro, Turkish lira and Argentinian peso, partially offset by a stronger Brazilian real and Chinese renminbi compared to the U.S.

Organic growth was 21.4 percent in the first six months of 2022 compared to the first six months of 2021 driven by a 23.8 percent increase in Construction Adhesives, a 22.7 percent increase in Hygiene, Health and Consumable Adhesives and a 19.3 percent increase in Engineering Adhesives.

The increase is predominately driven by an increase in product pricing and sales volume.

The  1.5 percent increase from M&A is due to the acquisition of Fourny and Apollo. The negative 3.8 percent currency impact was primarily driven by a weaker Euro, Turkish lira and Argentinian peso, partially offset by a stronger Chinese renminbi and Brazilian real compared to the U.S.

Cost of sales:

Three Months Ended

Six Months Ended

($ in millions)

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Percent of net revenue

Cost of sales in the first quarter of 2022 compared to the first quarter of 2021 increased 160 basis points as a percentage of net revenue.

Raw material cost as a percentage of net revenue increased 430 basis points in the first quarter of 2022 compared to the first quarter of 2021 due to higher raw material costs.

Other manufacturing costs as a percentage of revenue decreased 270 basis points in the first quarter of 2022 compared to the first quarter of 2021 due to higher net revenue.

Cost of sales in the second quarter of 2022 compared to the second quarter of 2021 increased 80 basis points as a percentage of net revenue.

Raw material cost as a percentage of net revenue increased 300 basis points in the second quarter of 2022 compared to the second quarter of 2021 due t o higher raw material costs .

Other manufacturing costs as a percentage of revenue decreased 220 basis points in the second quarter of 2022 compared to the second quarter of 2021 due to higher net revenue.

Cost of sales in the first six months of 2022 compared to the first six months of 2021 increased 120 basis points as a percentage of net revenue.

Raw material cost as a percentage of net revenue increased 360 basis points in the first six months of 2022 compared to the first six months of 2021 due to higher raw material costs.

Oth er manufacturing costs as a percentage of revenue decreased 240 basis points in the first six months of 2022 compared to the first six months of 2021 due to higher net revenue.

Gross profit:

Three Months Ended

Six Months Ended

($ in millions)

Percent of net revenue

Gross profit in the first quarter of 2022 increased 10.7 percent and gross profit margin decreased 160 basis points compared to the first quarter of 2021.

The decrease in gross profit margin was primarily due to higher raw material costs partially offset by higher sales volume.

Gross profit in the second quarter of 2022 increased 16.5 percent and gross profit margin decreased 80 basis points compared to the second quarter of 2021.

The decrease in gross profit margin was primarily d ue to higher raw material costs and higher net revenue.

Gross pr ofit in the first six months of 

2022  increased 13.8  percent and gross profit margin decreased 120  basis points compared to the first six months of 2021 .

The decrease in gross profit margin was primarily due to higher raw material costs and higher net revenue.

Selling, general and administrative (SG&A) expenses:

Three Months Ended

Six Months Ended

($ in millions)

Percent of net revenue

SG&A expenses for the first quarter of 2022 increased $11.9 million, or 8.3 percent, compared to the first quarter of 2021.

SG&A expenses for the second quarter of 2022 increased $17.6 million, or 11.9 percent, compared to the second quarter of 2021.

The increase is primarily du e to higher compensation and acquisition project costs and the impact of the Fourny and Apollo acquisitions.

SG&A expenses for the first six months of 2022 increased $29.5 million, or 10.1 percent, compared to the first six months of 2021.

The increase is primarily due to higher compensation and acquisition project costs and the impact of the Fourny and Apollo acquisitions.

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Three Months Ended

Six Months Ended

($ in millions)

Other income, net

Other income, net in the first quarter of 2022 included $7.4 million of net defined benefit pension benefits and $0.2 million of other income, partially offset by $1.5 million of currency transaction losses.

Other income, net in the first quarter of 2021 included $7.9 million of net defined benefit pension benefits and $1.8 million of other income, offset by $1.8 million of currency transaction losses.

Other income, net in the second quarter of 2022 included $4.1 million of net defined benefit pension benefits and $1.4 million of other income, offset by $5.5 million of currency transaction losses.

The $4.1 million of net defined benefit pension benefits included a $3.3 million settlement loss related to the termination of our Canadian defined benefit pension plan. 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 in Brazil.

Other income, net in the first six months of 2022 included $11.5 million of net defined benefit pension benefits and $1.6 million of other income, partially offset by $7.0 million of currency transaction losses.

The $11.5 million of net defined benefit pension benefits included a $3.3 million settlement loss related to the termination of our Canadian defined benefit pension plan. 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.

Interest expense:

Three Months Ended

Six Months Ended

($ in millions)

Interest expense

Interest expense in the first quarter of 2022 was $18.2 million compared to $20.4 million in the first quarter of 2021.

Interest expense in the first quarter of 2022 compared to the first quarter of 2021 was lower due to lower interest rates.

Interest expense in the second quarter of 

2022 was $19.8  million compared to $19.9  million in the second quarter of 2021 .

Interest expense in the second quarter of 

2022 compared to the second quarter of 2021 was lower due to lower interest rates partially offset by higher debt balances.

Interest expense in the first six months of 

2022 was $38.0  million compared to $40.3  million in the first six months of 2021 .

Interest expense in the first six months of 

2022 compared to the first six months of 2021 was lower due to lower interest rates partially offset by higher debt balances.

Interest income:

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Six Months Ended

($ in millions)

Interest income

Interest income in the first quarter of 2022 was $1.9 million.

Interest income in the first quarter of 2021 was $2.7 million.

Income taxes:

Interest income in the second quarter of 2022 and 2021 was $2.1 million and $2.5 million, respectively, consisting primarily of interest on cross-currency swap activity and other miscellaneous interest income.

Interest income in the first six months of 2022 and 2021 was $4.0 million and $5.2 million, respectively, consisting primarily of interest on cross-currency swap activity and other miscellaneous interest income.

Income taxes: 

Three Months Ended

Six Months Ended

($ in millions)

Effective tax rate

Income tax expense of $10.1 million in the first quarter of 2022 includes $2.9 million of discrete tax benefit.

Excluding the discrete tax benefit, the overall effective tax rate was 27.8 percent. The discrete tax benefit relates to impacts of legal entity mergers offset by various foreign tax matters.

Income tax expense of $10.6 million in the first quarter of 2021 includes less than $0.1 million of discrete tax expense relating to the revaluation of cross-currency swap agreements due to appreciation of the Euro versus the U.S.

Dollar and various foreign tax matters. Excluding the discrete tax expense, the overall effective tax rate was 27.4 percent.

Income tax expense of $23.6 million in the second quarter of 2022 includes $4.1 million of discrete tax expense.

Excluding the discrete tax expense, the overall effective tax rate was 27.9 percent. The discrete tax expense relates to impacts of the revaluation of cross-currency swap agreements due to depreciation of the Euro versus the U.S.

Dollar and other various foreign tax matters. 

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.

The discrete tax benefit relates to various U.S.

and foreign tax matters.

Income tax expense of $33.8 million in the first six months of 2022 includes $1.2 million of discrete tax expense.

Excluding the discrete tax expense, the overall effective tax rate was 27.9 percent. The discrete tax expense relates to the revaluation of cross-currency swap agreements due to depreciation of the Euro versus the U.S.

Dollar, as well as various foreign tax matters offset by the tax effect 

of legal entity mergers.

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 w as 27.2 percent. The discrete tax benefit relates to various U.S.

and foreign tax matters.

Income from equity method investments:

Three Months Ended

Six Months Ended

($ in millions)

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The income from equity method investments relates to our 50 percent ownership of the Sekisui-Fuller joint venture in Japan.

The lower income for the first quarter of 2022 compared to the same period of 2021 relates to lower net income in our joint venture.

The lower income for the second quarter and first six months of 2022 compared to the same period of 2021 relates to lower net income in our joint venture.

Net income attributable to H.B.

Three Months Ended

Six Months Ended

($ in millions)

2 unchanged sentences

The net income attributable to H.B.

Fuller for the first quarter of 2022 was $38.3 million compared to $29.8 million for the first quarter of 2021.

The diluted earnings per share for the first quarter of 2022 was $0.69 per share as compared to $0.56 per share for the first quarter of 2021.

Fuller for the second quarter of 2022 was $47.2 million compared to $49.1 million for the second quarter of 2021.

The diluted earnings per share for the second quarter of 2022 was $0.86 per share as compared to $0.90 per share for the second quarter of 2021.

The net income attributable to H.B.

Fuller for the first six months of 2022 was $85.5 million compared to $78.9 million for the first six months of 2021.

The diluted earnings per share for the first six months of 2022 was $1.55 per share as compared to $1.47 per share for the first six months of 2021.

Operating Segment Results

6 unchanged sentences

Three Months Ended

February 26, 2022

February 27, 2021

Six Months Ended

($ in millions)

6 unchanged sentences

Three Months Ended

February 26, 2022

February 27, 2021

Six Months Ended

($ in millions)

6 unchanged sentences

Three Months Ended

Six Months Ended

($ in millions)

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Three Months Ended

February 26, 2022 vs.

February 27, 2021

Six Months Ended

May 28, 2022 vs.

Organic growth

Net revenue increased 16.0 percent in the first quarter of 2022 compared to the first quarter of 2021.

The increase in organic growth was attributable primarily to an increase in product pricing and sales volume.

The negative currency effect was due to a weaker Euro, Turkish lira and Argentinian peso, partially offset by a stronger Chinese renminbi compared to the U.S.

As a percentage of net revenue, raw material costs increased 490 basis points due to higher raw material costs partially offset by higher net revenue.

Other manufacturing costs as a percentage of net revenue decreased 240 basis points primarily due to higher net revenue.

SG&A expenses as a percentage of net revenue decreased 190 basis points due to higher net revenue. Segment operating income increased 7.7 percent and segment operating margin as a percentage of net revenue decreased 60 basis points compared to the first quarter of 2021.

Net revenue increased 20.0 percent in the second quarter of 2022 compared to the second quarter of 2021.

The increase in organic growth was attri butable to an increase in product pricing and sales volume.

The neg ative currency effect was due to a weaker Euro, Turkish lira and Argentinian peso, partially offset by a stronger Brazilian real and Chinese renminbi compared to the U.S.

As a percentage of net revenue, raw material costs increased 420 basis points du e to higher raw material costs partially offset by higher net revenue.

Other manufacturing costs as a percentage of net revenue decreased 230 basis points primarily d ue to higher net revenue.

SG&A expenses as a percentage of net revenue decreased 110 basis points due to higher net revenue . Segment operating income increased 11.3 percent and segment operating margin as a percentage of net revenue decreased 80 basis points compared to the second quarter of 2021.

Net revenue increased 18.1 percent in the first six months of 2022 compared to the first six months of 2021.

The increase in organic growth was attributable to an increase in product pricing and sales volume.

The n egative currency effect was due to a weaker Euro, Turkish lira, Argentinian peso and Colombian peso, partially offset by a stronger Chinese renminbi and Brazilian real compared to the U.S.

As a percentage of net revenue, raw material costs increased 460 basis points due to higher raw material costs partially offset by higher net revenue.

O ther manufacturing costs as a percentage of net revenue decreased 240 basis points primarily due to higher net revenue.

SG& A expenses as a percentage of net revenue decreased 150 basis points due to higher net revenue. Segment operating income increased 9.6 percent and segment operating margin as a percentage of net revenue decreased 70 basis points compared to the first six months of 2021.

Engineering Adhesives

Three Months Ended

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($ in millions)

3 unchanged sentences

Three Months Ended

February 26, 2022 vs.

February 27, 2021

Six Months Ended

May 28, 2022 vs.

Organic growth

Net revenue increased 13.2 percent in the first quarter of 2022 compared to the first quarter of 2021.

The increase in organic growth was attributable primarily due to an increase in product pricing and sales volume.

The negative currency effect was due to a weaker Euro and Turkish lira, partially offset by a stronger Chinese renminbi compared to the U.S.

Net revenue increased 17.4 percent in the second quarter of 2022 compared to the second quarter of 2021.

The increase in organic growth was attributable primaril y due to an increase in product pricing and sales volume.

The negative currency effect was due to a weaker Euro and Turkish lira, partially offset by a stronger Chinese renminbi compa red to the U.S.

Raw material costs as a percentage of net revenue increased 240 basis points due to higher raw material costs partially offset by higher net revenue.

Other manufacturing costs as a percentage of net revenue decreased 250 basis points due to higher net revenue. SG&A expenses as a percentage of net revenue decreased 130 basis points due to higher net revenue.

Segment operating income increased 7.2 percent and segment operating margin decreased 50 basis points compared to the first quarter of 2021.

Oth er manufacturing costs as a percentage of net revenue decreased 210 basis po ints due to higher net revenue. SG& A expenses as a percentage of net revenue decreased 160 basis points du e to higher net revenue.

Segm ent operating income increased 33.6 percent and segment operating margin increased 130 basis points compared to the second quarter of 2021.

Net revenue increased 15.4 percent in the first six months of 2022 compared to the first six months of 2021.

The increase in organic growth was attributable primarily du e to an increase in product pricing and sales volume.

The neg ative currency effect was due to a weaker Euro and Turkish lira, partially offset by a stronger Chinese renminbi c ompared to the U.S.

Raw material costs as a percentage of net revenue increased 330 basis points d ue to higher raw material costs partially offset by higher net revenue.

Ot her manufacturing costs as a percentage of net revenue decreased 220 basis points due to higher net revenue. SG& A expenses as a percentage of net revenue decreased 150 basis points due to higher net revenue.

S egment operating income increased 20.8 percent and segment operating margin increased 40 basis points compared to the first six months of 2021.

Construction Adhesives

Three Months Ended

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($ in millions)

Segment operating income (loss)

Segment operating income

Segment operating margin

1 unchanged sentence

Three Months Ended

February 26, 2022 vs.

February 27, 2021

Six Months Ended

May 28, 2022 vs.

Organic growth

Net revenue increased 45.6 percent in the first quarter of 2022 compared to the first quarter of 2021.

Net revenue increased 27.5 percent in the second quarter of 2022 compared to the second quarter of 2021.

The increase in organic growth was attributable primarily t o an increase in product pricing partially offset by a decrease in sales volume.

The increase in net revenue from M&A was due to the acquisition of Fourny and Apollo during the first quarter of 2022. The negative currency effect was due to a weaker Euro and Australian dollar compared to the U.S.

Raw material costs as a percentage of net revenue increased 70 basis points due to higher raw material costs partially offset by higher net revenue.

Other manufacturing costs as a percentage of net revenue decreased 170  basis points due to higher net revenue and the impact of acquisitions. SG&A expenses as a percentage of net revenue decreased 110  basis points due to higher net revenue.

Segment operating income increased 79.4  percent and segment operating margin increased 210  basis points compared to the second quarter of 2021.

Net revenue increased 34.7 percent in the first six months of 2022 compared to the first six months of 2021.

The increase in organic growth was attributable primarily to an increase in product pricing and sales volume.

The increase in net revenue from M&A was due to the acquisition of Fourny and Apollo during the first quarter of 2022. 

The negative currency effect was due to a weaker Euro and Australian dollar compared to the U.S.

Raw material costs as a percentage of net revenue increased 150 basis points due to higher raw material costs partially offset by higher net revenue.

Other manufacturing costs as a percentage of net revenue decreased 290  basis points due to higher net revenue and the impact of acquisitions. SG&A expenses as a percentage of net revenue decreased 370  basis points due to higher net revenue.

Segment operating income increased 193.6 percent and segment operating margin increased 1,000 basis points compared to the first quarter of 2021.

Segment oper ating income increased 875.0 percent and segment operating margin increased 510 basis points compared to the first six months of 2021.

Corporate Unallocated

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($ in millions)

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NMP = Non-meaningful percentage

Segment operating loss in the first quarter of 2022 increased 67.1 percent compared to the first quarter of 2021 reflecting increased acquisition project costs.

Corporate Unallocated includes acquisition and integration-related charges, restructuring-related charges, and costs related to the implementation of Project ONE.

Segment operating loss in the second quarter and first six months of 2022 increased 22.0 percent and 42.6 percent compared to the second quarter and first six months of 2021, respectively, reflecting increased acquisition project costs.

Financial Condition, Liquidity and Capital Resources

Total cash and cash equivalents as of February 26, 2022 were $63.5 million compared to $61.8 million as of November 27, 2021 and $81.2 million as of February 27, 2021.

The majority of the $63.5 million in cash and cash equivalents as of February 26, 2022 was held outside the United States.

Total long and short-term debt was $1,914.1 million as of February 26, 2022, $1,616.5 million as of November 27, 2021 and $1,758.2 million as of February 27, 2021.

Total cash and cash equivalents as of May 28, 2022 were $68.1 million compared to $61.8 million as of November 27, 2021 and $69.6 million as of May 29, 2021.

The majority of the $68.1 million in cash and cash equivalents as of May 28, 2022 was held outside the United States.

Total long and short-term debt was $1,935.8 million as of May 28, 2022, $1,616.5 million as of November 27, 2021 and $1,712.4 million as of May 29, 2021.

The total debt to total capital ratio as measured by Total Debt divided by (Total Debt plus Total Stockholders’

Equity) was 53.8 percent as of February 26, 2022 as compared to 50.2 percent as of November 27, 2021 and 54.8 percent as of February 27, 2021.

Equity) was 54.5 percent as of May 28, 2022 as compared to 50.2 percent as of November 27, 2021 and 52.2 percent as of May 29, 2021.

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 in the United States has historically been sufficient and we expect it will continue to be sufficient to fund U.S.

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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.

At February 26, 2022, we were in compliance with all covenants of our contractual obligations as shown in the following table:

At May 28, 2022, we were in compliance with all covenants of our contractual obligations as shown in the following table:

Debt Instrument

Result as of February 26, 2022

Result as of May 28, 2022

Secured Indebtedness / TTM EBITDA

34 unchanged sentences

Reconciliation of "Net cash provided by operating activities" to Free cash flow after dividends

Three Months Ended

Six Months Ended

($ in millions)

February 26, 2022

February 27, 2021

Net cash provided by operating activities

Net cash (used in) provided by operating activities

Purchased property, plant and equipment

3 unchanged sentences

Cash Flows from Operating Activities:

Three Months Ended

Six Months Ended

($ in millions)

Net cash (used in) provided by operating activities

Net income including non-controlling interest was $38.3 million in the first three months of 2022 compared to $29.8 million in the first three months of 2021.

Depreciation and amortization expense totaled $36.0 million in the first three months of 2022 compared to $35.7 million in the first three months of 2021.

Deferred income taxes was a use of cash of $6.0 million in 2022 compared to $2.3 million in the first three months of 2021.

Accrued compensation was a use of cash of $44.1 million in 2022 compared to $18.1 million last year. Other assets was a use of cash of $3.2 million in the first three months of 2022 compared to $1.9 million in the first three months of 2021.

Other liabilities was a use of cash of $8.8 million in the first three months of 2022 compared to $17.9 million in the first three months of 2021.

Changes in net working capital (trade receivables, inventory and trade payables) accounted for a use of cash of $27.6 million compared to a source of cash of $7.1 million last year.

Net income including non-controlling interest was $85.5 million in the first six months of 2022 compared to $78.9 million in the first six months of 2021.

Depreciation and amortization expense totaled $72.7 million in the first six months of 2022 compared to $71.6 million in the first six months of 2021.

Deferred income taxes was a use of cash of $5.0 million in 2022 compared to $1.2 million in the first six months of 2021.

Accrued compensation was a use of cash of $40.4 million in 2022 compared to $8.8 million last year. Other assets was a use of cash of $21.9 million in the first six months of 2022 compared to $21.7 million in the first six months of 2021.

Other liabilities was a use of cash of $23.6 million in the first six months of 2022 compared to $29.0 million in the first six months of 2021.

Changes in net working capital (trade receivables, inventory and trade payables) accounted for a use of cash of $103.7 million compared to a use of cash of $28.1 million last year.

The table below provides the cash flow impact due to changes in the components of net working capital:

Three Months Ended

Six Months Ended

($ in millions)

3 unchanged sentences

Trade receivables, net –

Trade receivables, net was a source of cash of $13.3 million and $3.3 million in the first three months of 2022 and 2021, respectively.

The higher source of cash in 2022 compared to 2021 was due to more cash collected on trade receivables in the current year compared to the prior year.

The DSO were 65 days at February 26, 2022 and 63 days at February 27, 2021. 

Trade receivables, net was a use of cash of $35.5 million and $43.2 million in the first six months of 2022 and 2021, respectively.

The lower use of cash in 2022 compared to 2021 was due to more cash collected on trade receivables in the current year compared to the prior year.

The DSO were 59 days at May 28, 2022 and 61 days at May 29, 2021. 

Inventory –

Inventory was a use of cash of $87.4 million and $63.6 million in the first three months of 2022 and 2021, respectively.

The higher use of cash in 2022 is due to increasing inventory costs in 2022 compared to 2021.

Inventory days on hand were 81 days as of February 26, 2022 and 70 days as of February 27, 2021.

Inventory was a use of cash of $95.4 million and $100.4 million in the first six months of 2022 and 2021, respectively.

The lower use of cash in 2022 is due to lower inventory purchases in 2022 compared to 2021.

Inventory days on hand were 70 days as of May 28, 2022 and 67 days as of May 29, 2021.

Trade payables –

Trade payables was a source of cash of $46.5 million and $67.4 million in the first three months of 2022 and 2021, respectively.

Trade payables was a source of cash of $27.2 million and $115.5 million in the first six months of 2022 and 2021, respectively.

The lower source of cash in 2022 compared to 2021 reflects higher payments on trade payables in the current year compared to the prior year.

Cash Flows from Investing Activities:

Three Months Ended

Six Months Ended

($ in millions)

Net cash used in investing activities

Purchases of property, plant and equipment were $48.9 million during the first three months of 2022 compared to $35.3 million for the same period of 2021. 

Purchases of property, plant and equipment were $69.1 million during the first 

six months of 

2022  compared to $50.7 million for the same period of 2021 . 

This difference reflects the timing of capital projects and expenditures related to growth initiatives. 

During the first three months of 2022, we paid cash to acquire TissueSeal for $22.2 million, Fourny for $14.5 million, net of cash acquired and Apollo for $192.6 million, net of cash acquired. 

During the first six months of 2022, we paid cash to acquire TissueSeal for $22.2 million, Fourny for $14.5 million, net of cash acquired, and Apollo for $192.6 million, net of cash acquired. 

Cash Flows from Financing Activities:

Three Months Ended

Six Months Ended

($ in millions)

Net cash provided by (used in) financing activities

Borrowings on our revolving credit facility were $307.5 million in the first three months of 2022 to finance acquisitions and for general working capital purposes.

We did not make any payments of long-term debt in the first three months of 2022 and payments of long-term debt in the first three months of 2021 were $11.0 million.

Net payments of notes payable were $7.6 million in the first three months of 2022 and were flat in the same period of 2021.

Cash dividends paid were $8.9 million in the first three months of 2022 compared to $8.5 million in the same period of 2021.

Repurchases of common stock were $3.6 million in the first three months of 2022 compared to $2.6 million in the same period of 2021.

Borrowings on our revolving credit facility were $335.0 

million in the first six months of 

2022  to finance acquisitions and for general working capital purposes.

We did not make any payments of long-term debt in t he first six months of 

2022  and payments of long-term debt in the first six months of 

2021 were $68.0 million.

Net proceeds of notes payable were $3.6 million in the first six months of 

2022  and $9.3 million in the same period of 2021 .

Cash dividends paid were $19.0 million in the first six months of 2022 compared to $17.2 million in the same period of 2021 .

Repurchases of common stock were $3.6 million in the first six months of 

2022 compared to $2.6 million in the same period of 2021 .

Forward-Looking Statements and Risk Factors

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What changed 10-Q

Item 2. Management’s Discussion and Analysis