What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-01-24 compared with 2022-01-25 · 138 added, 126 removed, 405 unchanged (39% of the section changed)

12 unchanged sentences

Currency exchange rates compared to the U.S.

While we encountered inflationary pressures in fiscal year 2022, which factored into higher raw material and operating costs, these inflationary pressures were offset by higher net revenue. We expect inflationary pressures to continue into fiscal year 2023. 

We purchase thousands of raw materials, the majority of which are petroleum/natural gas derivatives.

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We continually monitor capacity utilization figures, market supply and demand conditions, feedstock costs and inventory levels, as well as derivative and intermediate prices, which affect our raw materials.

With approximately 75 percent of our cost of sales accounted for by raw materials, our financial results are extremely sensitive to changing costs in this area.

With approximately 75 percent of our cost of sales accounted for by raw materials, our financial results are extremely sensitive to changing costs in this area.

The pace of economic growth directly impacts certain industries to which we supply products.

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dollar, our revenues and costs decrease as the foreign currency-denominated financial statements translate into fewer U.S.

The fluctuations of the Euro and the Chinese renminbi against the U.S.

The fluctuations of the Euro, the Tur kish lira and the Chinese renminbi against the U.S.

dollar have the largest impact on our financial results as compared to all other currencies.

In 2021, currency fluctuations had a positive impact on net revenue of approximately $64.0 million as compared to 2020.

In 2022, currency fluctuations had a negative impact on net revenue of approximately $191.7 million as compared to 2021.

K ey financial results and transactions for 2022 included the following:

Net revenue increased 17.5 percent from 2020 primarily driven by a 9.6 percent increase in sales volume, a 5.6 percent increase in product pricing and a 2.3 percent increase due to currency fluctuations.

Gross profit margin decreased to 25.8 percent from 27.1 percent in 2020 primarily due to higher raw material costs partially offset by higher net revenue.

Cash flow generated by operating activities was $213.3 million in 2021 as compared to $331.6 million in 2020.

Net revenue increased 14.4 percent from 2021 primarily driven by a 15.4 percent increase in product pricing, a 1.6 percent increase due to acquisitions and a 1.2 percent increase in sales volume, partially offset by a 5.8 percent decrease due to currency fluctuations. Additionally, every five or six years, we have a 53rd week in our fiscal year.

2022 was a 53-week year which increased our revenue by approximately 2.0 percent.

Gross profit margin was relatively consistent year over year. 

Gross profit margins were 25.7 percent in 2022 and 25.8 percent in 2021.

Cash flow generated by operating activities was $256.5 million in 2022 as compared to $213.3 million in 2021.

Our total year organic sales growth, which we define as the combined variances from sales volume and product pricing, increased 16.6 percent for 2022 compared to 2021.

In 2022 , our diluted earnings per share was $3.26  compared to $2.97  in 

The higher earnings per share in 2021 compared to 2020 was primarily due to higher net revenue, higher other income, net and lower interest expense, partially offset by higher raw material and operating costs a nd higher income tax expense.

The higher earnings per share in 

2022 compared to 

2021 was primarily due to higher net revenue, partially offset by higher raw material, operating costs, interest expense, other income, net, and higher income tax expense. 

Information pertaining to fiscal year 2020 was included in the Company’s Annual Report on Form 10-K for the year ended November 27, 2021, under Part II, Item 7 “Management’s Discussion and Analysis of Financial Position and Results of Operations,”

which was filed with the SEC on January 25, 2022.

Changes in Accounting Principle s

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Prior periods were not restated for this adoption.

In the first quarter of 2020, we adopted new accounting standards related to the accounting for leases which requires us to recognize the assets and liabilities arising from all leases, including those classified as operating leases under previous accounting guidance, on the balance sheet and requires disclosure of key information about leasing arrangements.

Prior periods were not restated for this adoption.

See Note 1 to our Consolidated Financial Statements for further information.

In December 2012, our Board of Directors approved a multi-year project to replace and enhance our existing core information technology platforms.

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During 2023 and beyond, we will continue implementation in North America, EIMEA and Asia Pacific.

Total expenditures for Project ONE are estimated to be $170 to $185 million, of which 55-60% is expected to be capital expenditures. Our total project-to-date expenditures are approximately $133 million, of which approximately $73 million are capital expenditures. Given the complexity of the implementation, the total investment to complete the project may exceed our estimate.

Total expenditures for Project ONE are estimated to be $200 to $210 million, of which 55-60% is expected to be capital expenditures. Our total project-to-date expenditures are approximatel y $163 million, of which approximately $94 million are capital expenditures. Given the complexity of the implementation, the total investment to complete the project may exceed our estimate.

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”).

We have incurred costs of $18.6 million under this plan as of November 27, 2021.

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.

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

We have incurred costs of $20.3 million under this plan as of December 3, 2022, which is substantially complete.

Critical Accounting Policies and Significant Estimates

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We believe the critical accounting policies and areas that require the most significant judgments and estimates to be used in the preparation of the Consolidated Financial Statements relate to goodwill impairment;

pension and other postretirement plans;

pension and other postretirement assumptions;

long-lived assets recoverability;

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In performing the impairment test, we determined the fair value of our reporting units through the income approach by using discounted cash flow (“DCF”) analyses.

Determining fair value requires the Company to make judgments about appropriate discount rates, perpetual growth rates and the amount and timing of expected future cash flows.

Determining fair value requires the Company to make judgments about appropriate forecasted revenue and related revenue growth rate, the earnings before interest, taxes, depreciation and amortization ("EBITDA") margins rate and the weighted average cost of capital.

The cash flows employed in the DCF analysis for each reporting unit are based on the reporting unit's budget, long-term business plan and recent operating performance.

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In assessing the reasonableness of the determined fair values, we also reconciled the aggregate determined fair value of the Company to the Company's market capitalization, which, at the date of our 2022 impairment test, included a 6 percent control premium.

For the 2021 impairment test, the fair value of the reporting units exceeded the respective carrying values by 38 percent to 129 percent ("headroom").

Significant assumptions used in the DCF analysis included discount rates that ranged from 8.2 percent to 9.1 percent and long-term revenue growth rates.  

For the 2022 impairment test, the fair value of the reporting units exceeded the respective carrying values by 10 percent to 84 percent ("headroom").

Significant assumptions used in the DCF analysis included discount rates that ranged from 9.4 percent to 10.9 percent and long-term revenue growth rates. The Construction Adhesives reporting unit, with $425.8 million of goodwill assigned to it as of December 3, 2022, had headroom of 10 percent.

An increase in the discount rate of 70 basis points or a decrease in the long-term growth rates of 25 percent would result in the fair value of the Construction Adhesives reporting unit falling below its carrying value.

The Engineering Adhesives and Hygiene, Health and Consumable Adhesives reporting units had significant fair value in excess of carrying value.

Management will continue to monitor these reporting units for changes in the business environment that could impact recoverability.

The recoverability of goodwill is dependent upon the continued growth of cash flows from our business activities.

If the economy or business environment falter and we are unable to achieve our assumed revenue growth rates or profit margin percentages, our projections used would need to be remeasured, which could impact the carrying value of our goodwill in one or more of our reporting units.

Most significantly, for our Construction Adhesives reporting unit, a decrease in the planned volume revenue growth would negatively impact the fair value of the reporting unit and the calculation of excess carrying value.

See Note 5 to the Consolidated Financial Statements for further information regarding goodwill.

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The discount rate for the U.S.

pension plan was 2.76 percent at November 27, 2021, 2.53 percent at November 28, 2020 and 3.19 percent at November 30, 2019.

pension plan was 5.36 percent at December 3, 2022, 2.76 percent at November 27, 2021 and 2.53 percent at November 28, 2020.

Net periodic pension cost for a given fiscal year is based on assumptions developed at the end of the previous fiscal year.

A discount rate change of 0.5 percentage points at November 27, 2021 would impact U.S.

pension and other postretirement plan (income) expense by approximately $0.1  million (pre-tax) in fiscal 2021.

A discount rate change of 0.5 percentage points at December 3, 2022 would impact U.S.

pension and other postretirement plan (income) expense by less than $0.1  million (pre-tax) in fiscal 2023.

Discount rates for non-U.S.

plans are determined in a manner consistent with the U.S.

The expected long-term rate of return on plan assets assumption for the U.S.

pension plan was 7.25 percent in 2021 and 7.50 in 2020 and 2019.

The expected long-term rat e of return on plan assets assumption for the U.S.

pension plan was 7.00 percent in 

2022 , 7.25 percent in 

2021 and 7.50 percent in 

Our expected long-term rate of return on U.S.

plan assets was based on our target asset allocation assumption of 60 percent equities and 40 percent fixed-income.

plan assets was based on our target asset allocation assumption of 55 percent equities and 45 percent fixed-income.

Management, in conjunction with our external financial advisors, determines the expected long-term rate of return on plan assets by considering the expected future returns and volatility levels for each asset class that are based on historical returns and forward looking observations.

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20-year period

* Beginning in 2006, our target allocation migrated from 100 percent equities to our current allocation of 60 percent equities and 40 percent fixed-income.

The historical actual rate of return for the fixed income of 8.2 percent is since inception (15 years, 11 months).

* Beginning in 2022, our target allocation migrated from 60 percent equities and 40 percent fixed-income to 55 percent equities and 45 percent fixed income. The historical actual rate of return for the fixed income of 5.9 percent is since inception (16 years, 11 months).

The expected long-term rate of return on plan assets assumption for non-U.S.

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pension plan, the compensation amount was locked-in as of May 31, 2011 and thus the benefit no longer includes compensation increases.

The 4.50 percent rate for 2020 and 2019 is for the supplemental executive retirement plan only; for 2021, there is no compensation increase as subsequent to November 27, 2021, there were no active employees in the supplemental executive retirement plan. 

The 4.50 percent rate for 2020 is for the supplemental executive retirement plan only; for 2022 and 2021, there is no compensation increase as subsequent to November 27, 2021, there were no active employees in the supplemental executive retirement plan. 

Projected salary increase assumptions for non-U.S.

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Increases in the valuation allowance result in additional expense to be reflected within the tax provision in the Consolidated Statements of Income.

As of November 27, 2021, the valuation allowance to reduce deferred tax assets totaled $11.3 million.

As of December 3, 2022, the valuation allowance to reduce deferred tax assets totaled $14.4 million.

We recognize tax benefits for tax positions for which it is more-likely-than-not that the tax position will be sustained by the applicable tax authority at the largest amount of tax benefit that is greater than fifty percent likely of being realized upon ultimate settlement.

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Settlement with respect to a tax position would usually require cash.

Based upon our analysis of tax positions taken on prior year returns and expected tax positions to be taken for the current year tax returns, we have identified gross uncertain tax positions of $13.3 million as of November 27, 2021.

We have not recorded U.S.

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Organic revenue growth

Extra week (53 week year)

Net revenue growth

Organic revenue growth was a positive 15.2 percent in 2021 compared to 2020 driven by a 22.2 percent increase in Engineering Adhesives, a 16.1 percent increase in Construction Adhesives and a 9.2 percent increase in Hygiene, Health and Consumable Adhesives.

The positive 2.3  percent currency impact was primarily driven by a stronger Euro and Chinese renminbi partially offset by a weaker Brazilian real, Turkish lira and Argentinian peso 

compared to the U.S.

Organic revenue growth was 16.6 percent in 2022 compared to 2021 driven by a 20.0 percent increase in Hygiene, Health and Consumable Adhesives, a 15.9 percent increase in Engineering Adhesives and a 7.0 percent increase in Construction Adhesives.

The increase was driven by a 15.4 percent increase in product pricing and a 1.2 percent increase in sales volume.

The 1.6 percent from M&A is due to the acquisitions of Fourny and Apollo.

The negative 5.8  percent currency impact was primarily driven by a weaker Euro, Turkish lira, Chinese renminbi, British pound and 

Argentinian peso compared to the U.S.

Additionally, net revenue in 2022 was higher than 2021 by 2.0 percent from an additional week of revenue in 2022 as it was a 53 week fiscal year compared to a 52 week fiscal year in 2021.

Cost of sales

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Cost of sales in 2022 compared to 2021 increased 10 basis points as a percentage of net revenue.

Raw material cost as a percentage of net revenue increased 230 basis points in 2021 compared to 2020 due to higher raw material costs.

Raw material cost as a percentage of net revenue increased 230 basis points in 2022 compared to 2021 due to higher raw material costs.

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

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Percent of net revenue

Gross profit in 2021 increased 11.7 percent and gross profit margin decreased 130 basis points compared to 2020.

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

Gross profit in 2022 increased 14.0 percent and gross profit margin decreased 10 basis points compared to 2021. 

Selling, general and administrative (SG&A) expenses

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Percent of net revenue

SG&A expenses for 2021 increased $54.4 million, or 10.1 percent, compared to 2020.

The increase is primarily due to higher discretionary spending and compensation costs compared to the prior year and unfavorable impact of foreign currency exchange rates on spending outside the U.S. SG&A expenses as a percent of revenue decreased by 120 basis points compared with the prior year.

SG&A expenses for 2022 increased $48.3 million, or 8.1 percent, compared to 2021.

The increase is primarily due to higher compensation and acquisition project costs and the impact of acquisitions. SG&A expenses as a percent of revenue decreased by 100 basis points compared with the prior year due to higher net revenue.

Other income, net

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Other income, net

Other income, net includes foreign transaction losses of $6.0 million and $3.1 million in 2021 and 2020, respectively.

Loss on disposal of assets were $0.6 million and $0.1 million in 2021 and 2020, respectively.

Defined benefit pension benefit was $32.1 million and $17.9 million in 2021 and 2020, respectively.

Other income of $7.4 million and $0.7 million was also included in 2021 and 2020, respectively.

Other income, net includes foreign transaction losses of $12.9 million and $6.0 million in 2022 and 2021, respectively.

There was a $1.4 million gain on disposal of assets in 2022 and a $0.6 million loss in 2021.

Defined benefit pension benefit was $26.8 million and $32.1 million in 2022 and 2021, respectively.

The $26.8 million of defined benefit pension benefit in 2022 includes a $3.3 million settlement loss related to the termination of our Canadian defined benefit pension plan.

Other income, net also includes a $2.4 million loss and $7.4 million of income in 2022 and 2021, respectively.

Other income in 2021 includes gains related to legal entity mergers and a transactional tax legal settlement in Brazil.

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Interest expense

Interest expense was $78.1 million and $86.8 million in 2021 and 2020, respectively.

The decrease in interest expense is due to lower U.S.

debt balances and lower interest rates.

We capitalized $0.9 million and $0.6 million of interest expense in 2021 and 2020, respectively.

Interest expense was $91.5 million and $78.1 million in 2022 and 2021, respectively.

The increase in interest expense is due to higher interest rates and higher debt balances.

We capitalized $1.5 million and $0.9 million of interest expense in 2022 and 2021, respectively.

Interest income

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Interest income

Interest income in 2021 and 2020 was $9.5 million and $11.4 million, respectively.

The decrease in interest income in 2021 compared to 2020 is due to lower interest rates and lower cash balances.

Income tax expense: 

Interest income in 2022 and 2021 was $7.8 million and $9.5 million, respectively, consisting primarily of interest on cross-currency swap activity and other miscellaneous interest income.

Income tax expense:

($ in millions)

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Effective tax rate

Inc ome tax expense of $63.0  million in 

Income tax expense of $77.2  million in 

2022 includes 

$9.3  million of discrete tax expense, primarily related to the revaluation of cross-currency swap agreements due to depreciation of the Euro versus the U.S.

dollar, changes in valuation allowances 

and several foreign discrete items.

Excluding the discrete tax expense of $4.3  million, the overall effective tax rate was 27.1  percent.

Income tax expense of $41.9 million in 2020 includes $1.1 million of discrete tax expense, primarily related to tax expense for uncertain tax positions and several foreign discrete items, offset by U.S.

benefits for state deferred rate changes and a benefit related to the revaluation of cross-currency swap agreements due to appreciation of the Euro versus U.S.

dollar and several foreign discrete items, offset in part by U.S.

tax benefit for state deferred tax rate change and excess tax benefit for stock compensation.

Excluding the discrete tax expense of $9.3  million, the overall effective tax rate was 26.9 

Income tax expense of $63.0  million in 

2021  includes $4.3  million of discrete tax expense, primarily related to the revaluation of cross-currency swap agreements due to depreciation of the Euro versus U.S.

dollar, changes in valuation allowances and several foreign discrete items.

Excluding the discrete tax expense of $4.3  million, the overall effective tax rate was 27.1  percent. 

The increase in the overall effective tax rate for 

The decrease in the overall effective tax rate for 

2022 compared to 2021 , excluding the impact of discrete items, is primarily due to the change in the foreign rate differential resulting from a change in mix of earnings across jurisdictions.

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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 higher income for 2021 compared to 2020 relates to higher net income in our joint venture.

The lower income for 2022 compared to 2021 is due to the unfavorable impact of the weakening of the Japanese yen against the U.S.

dollar partially offset by higher net income in our joint venture.

Net income attributable to H.B.

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Construction Adhesives

Segment total

Corporate Unallocated

Segment Operating Income (Loss)

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Organic revenue growth

Extra week (53 week year)

Net revenue growth

Net revenue increased 15.2 percent in 2022 compared to 2021.

The 9.2 percent increase in organic growth was attributable to an increase in sales volume and favorable product pricing.

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

As a percentage of net revenue, raw material costs increased 160 basis points due to higher raw material costs partially offset by higher net revenue.

The 20.0 percent increase in organic growth was attributable to favorable product pricing.

The negative currency effect was due to the weaker Euro, Turkish lira, Argentinian peso and Egyptian pound compared to the U.S.

dollar. Additionally, net revenue in 2022 was higher than 2021 by 2.1 percent from an additional week of revenue in 2022 as it was a 53 week fiscal year compared to a 52 week fiscal year in 2021. As a percentage of net revenue, raw material costs increased 300 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 30 basis points in 2021 as compared to 2020.

Segment operating income increased 5.8 percent and segment operating margin as a percentage of net revenue decreased 40 basis points in 2021 as compared to 2020.

SG&A expenses as a percentage of net revenue decreased 90 basis points in 2022 as compared to 2021 due to higher net revenue. Segment operating income increased 19.8 percent and segment operating margin as a percentage of net revenue increased 40 basis points in 2022 as compared to 2021.

Engineering Adhesives

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Organic revenue growth

Extra week (53 week year)

Net revenue growth

Net revenue increased 11.7 percent in 2022 compared to 2021.

The 22.2 percent increase in organic growth was attributable to higher sales volume and favorable product pricing.

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

Raw material costs as a percentage of net revenue increased 320 basis points due to higher raw material costs partially offset by higher net revenue.

The 15.9 percent increase in organic growth was attributable to favorable product pricing and increase in sales volume.

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

dollar. Additionally, net revenue in 2022 was higher than 2021 by 2.0 percent from an additional week of revenue in 2022 as it was a 53 week fiscal year compared to a 52 week fiscal year in 2021. 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 170 basis points due to higher net revenue.

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Organic revenue growth

Extra week (53 week year)

Net revenue growth

Net revenue increased 20.1 percent in 2022 compared to 2021.

The 16.1 percent increase in organic growth was attributable to higher sales volume and favorable product pricing.

The positive currency effect was due to the stronger Australian dollar, Canadian dollar and Euro compared to the U.S.

The 7.0 percent increase in organic growth was attributable to favorable product pricing, partially offset by lower sales volume.

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

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

Additionally, net revenue in 2022 was higher than 2021 by 1.9 percent from an additional week of revenue in 2022 as it was a 53 week fiscal year compared to a 52 week fiscal year in 2021.

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 220 basis points primarily due to higher net revenue.

Other manufacturing costs as a percentage of net revenue decreased 160 basis points primarily due to higher net revenue and the impact of acquisitions.

SG&A expenses as a percentage of net revenue decreased 100 basis points also due to higher net revenue.

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

Segment operating loss increased 29.8 percent in 2021 reflecting increased organizational realignment costs compared to 2020. 

Segment operating loss increased 2.5 percent in 2022 reflecting increased acquisition project costs compared to 2021. 

Financial Condition, Liquidity and Capital Resources

Total cash and cash equivalents as of November 27, 2021 were $61.8 million compared to $100.5 million as of November 28, 2020.

Total long and short-term debt was $1,616.5 million as of November 27, 2021 and $1,773.9 million as of November 28, 2020.

Total cash and cash equivalents as of December 3, 2022 were $79.9 million compared to $61.8 million as of November 27, 2021.

Total long and short-term debt was $1,765.1 million as of December 3, 2022 and $1,616.5 million as of November 27, 2021.

We believe that cash flows from operating activities will be adequate to meet our short-term and long-term liquidity and capital expenditure needs.

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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 November 27, 2021, we were in compliance with all covenants of our contractual obligations as shown in the following table:

At December 3, 2022, we were in compliance with all covenants of our contractual obligations as shown in the following table:

Debt Instrument

Result as of November 27, 2021

Result as of December 3, 2022

Total Indebtedness / TTM EBITDA

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Foreign exchange contracts

Interest rate swaps

Interest rate and cross currency swaps

 Net investment hedges

Net financial liabilities

Of the $61.8 million in cash and cash equivalents as of November 27, 2021, $58.4 million was held outside the U.S.

Of the $58.4 million of cash held outside the U.S., earnings on $56.0 million are indefinitely reinvested outside of the U.S.

Of the $79.9 million in cash and cash equivalents as of December 3, 2022, $75.2  million was held outside the U.S.

Of the $75.2 million of cash held outside the U.S., earnings on $73.3 million are indefinitely reinvested outside of the U.S.

It is not practical for us to determine the U.S.

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Notes Payable

Notes payable were $25.0 million at November 27, 2021 and $16.9 million at November 28, 2020.

Notes payable were $28.9 million at December 3, 2022 and $25.0 million at November 27, 2021.

These amounts primarily represented various foreign subsidiaries’

short-term borrowings that were not part of committed lines.

The weighted-average interest rates on these short-term borrowings were 8.1 percent in 2021 and 2020.

The weighted-average interest rates on these short-term borrowings were 16.2 percent in 2022 and 8.1 percent in  2021.

Long-Term Debt

Long-term debt consisted of a secured term loan (“Term Loan B”) and two unsecured public notes (“Public Notes”). The Term Loan B has a principal amount of $1,001.2 million and bears a floating interest rate at LIBOR plus 2.00 percent (2.09 percent at November 27, 2021) and matures in fiscal year 2024. The 10-year Public Notes have a principal amount of $300.0 million, bear fixed interest at 4.00 percent and mature in 2027.

Long-term debt consisted of a secured term loan (“Term Loan B”) and two unsecured public notes (“Public Notes”). The Term Loan B has a principal amount of $1,001.2 million and bears a floating interest rate at LIBOR plus 2.00 percent (6.19 percent at December 3, 2022) and matures in fiscal year 2024. The 10-year Public Notes have a principal amount of $300.0 million, bear fixed interest at 4.00 percent and mature in 2027.

We are subject to a par call of 1.00 percent except within three months of the maturity date.

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 We currently have no intention to prepay the Public Notes.

Additional details on the Public Notes and the Term Loan B Credit Agreement can be found in Form 8-K dated February 9, 2017 , Form 8-K dated October 20, 2017 and Form 8-K dated October 20, 2020 , respectively. Interest payable on our long-term debt totaled $3.4 

million as of November 27, 2021.

We executed interest rate swap agreements for the purpose of obtaining a fixed interest rate on $800.0 million of the $2,150.0 million Term Loan B.

We have designated forecasted interest payments resulting from the variability of 1-month LIBOR in relation to $800.0 million of the Term Loan B as the hedged item in cash flow hedges.

The combined fair value of the interest rate swaps in total was a liability of $12.3 million at November 27, 2021 and was included in other liabilities in the Consolidated Balance Sheets.

We are applying the hypothetical derivative method to assess hedge effectiveness for these interest rate swaps.

Changes in the fair value of a hypothetically perfect swap with terms that match the critical terms of our $800.0 million variable rate Term Loan B are compared with the change in the fair value of the swaps.

We entered into interest rate swap agreements to convert our $300.0 million Public Notes that were issued on October 20, 2020 to a variable interest rate of 1-month LIBOR plus 3.28 percent.

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The remaining swap liability will be accounted for as a discount on long-term debt and will be amortized to interest expense over the remaining life of the Public Notes of seven years.

Lines of Credit

We have a revolving credit agreement with a consortium of financial institutions at November 27, 2021. This credit agreement creates a secured multi-currency revolving credit facility that we can draw upon to repay existing indebtedness, finance working capital needs, finance acquisitions, and for general corporate purposes up to a maximum of $400.0 million.

Interest on the revolving credit facility is payable at LIBOR plus 1.50 percent (1.59 percent at November 27, 2021). A facility fee of 0.25 percent of the unused commitment under the revolving credit facility is payable quarterly. The interest rate and the facility fee are based on a leverage grid. The credit facility expires on July 22, 2024. As of November 27, 2021, our lines of credit were undrawn.

Revolving Credit Facility 

We have a revolving credit agreement with a consortium of financial institutions at December 3, 2022. This revolving credit agreement creates a secured multi-currency revolving credit facility that we can draw upon to repay existing indebtedness, finance working capital needs, finance acquisitions and for general corporate purposes up to a maximum of $700 million. 

On January 24, 2022, we relied on the accordion feature in our credit agreement to increase the commitment under the existing credit facility from $400 million to $600 million.

On February 28, 2022, we executed an amendment to amend and restate the revolving credit agreement to move from borrowing under LIBOR to borrowing under SOFR along with further upsizing the revolving credit facility by $100 million to $700 million in total aggregate commitments. Interest on the revolving credit facility is payable at the SOFR plus a credit spread adjustment (0.11448 percent) plus 1.75 percent (5.94 percent at December 3, 2022). A facility fee of 0.25 percent of the unused commitment under the revolving credit facility is payable quarterly. The interest rate and the facility fee are based on a leverage grid. The revolving credit facility expires on July 22, 2024. As of December 3, 2022, we had $175.5 million drawn under the revolving credit facility.

Additional details on the revolving credit agreement can be found in Form 8-K dated October 20, 2020 .

For further information related to debt outstanding and debt capacity, see Note 7 to the Consolidated Financial Statements.

Uncertainty relating to the LIBOR phase out at the end of 2021 may adversely impact the value of, and our obligations under, our Term Loan B, Public Notes and revolving credit facility.

Uncertainty relating to the LIBOR phase out may adversely impact the value of, and our obligations under, our Term Loan B and Public Notes.

See the applicable discussion under Item 1A.

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Goodwill and Other Intangible Assets

As of November 27, 2021, goodwill totaled $1,298.8 million (30.4 percent of total assets) and other intangible assets, net of accumulated amortization, totaled $687.1 million (16.1 percent of total assets).

The components of goodwill and other identifiable intangible assets, net of amortization, by segment at November 27, 2021 are as follows:

As of December 3, 2022, goodwill totaled $1,392.6 million (31.2 percent of total assets) and other intangible assets, net of accumulated amortization, totaled $702.1 million (15.7 percent of total assets).

The components of goodwill and other identifiable intangible assets, net of amortization, by segment are as follows:

Hygiene, Health

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Net cash provided by operating activities

Net income including non-controlling interest was $161.5 million in 2021 and $123.8 million in 2020.

Depreciation and amortization expense totaled $143.2 million in 2021 compared to $138.8 million in 2020.

Depreciation and amortization expense in 

2021 and 2020 reflect assets acquired in our business acquisitions.

Changes in net working capital (trade receivables, inventory and trade payables) accounted for a use of cash of $83.9 million and a source of cash of $24.0 million in 2021 and 2020, respectively.

Net income including non-controlling interest was $180.4 million in 2022 and $161.5 million in 2021.

Depreciation and amortization expense totaled $147.0 million in 2022 compared to $143.2 million in 2021.

The higher depreciation and amortization expense in 2022 is related to the assets acquired in our business acquisitions.

Changes in net working capital (trade receivables, inventory and trade payables) accounted for a use of cash of $103.2 million and $83.9 million in 2022 and 2021, respectively.

Following is an assessment of each of the net working capital components:

Trade Receivables, net –

Changes in trade receivables resulted in a $124.8 million use of cash in 2021 compared to a $14.8 million use of cash in 2020.

The higher use of cash in 2021 compared to 2020 was related to higher net revenue compared to the prior year.

The DSO was 62 days at November 27, 2021 and 60 days at November 28, 2020.

Changes in trade receivables resulted in a $24.8 million use of cash in 2022 compared to a $124.8 million use of cash in 2021.

The lower use of cash in 2022 compared to 2021 was related to higher collections in the current year compared to the prior year.

The DSO was 62 days at December 3, 2022 and November 27, 2021.

Inventory –

Changes in inventory resulted in a $135.4 million use of cash in 2021 compared to a $15.7 million source of cash in 2020.

The use of cash in 2021 compared to the source of cash in  2020 was due to increasing inventory levels and higher raw materials costs in 2021 compared to 2020. Inventory days on hand were 65 days at the end of 2021 compared to 55 days at the end of 2020.

Changes in inventory resulted in a $55.8 million use of cash in 2022 compared to a $135.4 million use of cash in 2021.

In 2022, inventory levels increased from 2021 as a result of acquisitions and also reflecting higher raw material costs and efforts to maintain service levels. Inventory days on hand were 71 days at the end of 2022 compared to 65 days at the end of 2021.

Trade Payables –

Changes in trade payables resulted in a $176.3 million and $23.1 million source of cash in 2021and 2020, respectively.

The increase in the source of cash was primarily related to the timing of payments and extension of payment terms globally.

Contributions to our pension and other postretirement benefit plans were $3.8 million and $5.5 million in 2021 and 2020, respectively.

Income taxes payable resulted in a $4.1 million use of cash and a $5.5 million source of cash in 2021 and 2020, respectively.

Other assets resulted in a $79.1 million use of cash and a $38.4 million source of cash in 2021 and 2020, respectively.

The use of cash in 2021 is primarily driven by an increase in pension and post-retirement assets related to year-end pension valuation and an increase in derivative assets.

Accrued compensation was a $27.7 million source of cash compared to a $2.6 million source of cash in 2021 and 2020, respectively, relating to higher accruals for our employee incentive plans.

Other operating activity was a $108.6 million source of cash in 2021 and a $15.7 million use of cash in 2020.

Other operating activity in 2021 includes equity adjustments of approximately $55.0 million related to year-end pension valuations.

Changes in trade payables resulted in a $22.6 million use of cash in 2022 and a $176.3 million source of cash in 2021.

The use of cash in 2022 compared to the source of cash in 2021 primarily related to the timing of payments.

Contributions to our pension and other postretirement benefit plans were $3.0 million and $3.8 million in 2022 and 2021, respectively.

Income taxes payable resulted in a $12.9 million and a $4.1 million use of cash in 2022 and 2021, respectively.

Other asse ts resulted in a $46.5 million source of cash and a $79.1 million use of cash in 

2022 and 2021 , respectively.

The source of cash in 

2022 is primarily driven by an decrease in pension and post-retirement assets related to year-end pension valuation and a decrease in derivative assets .

Accrued compensation was a $1.1 million and a $27.7 million source of cash in 2022 and 2021, respectivel y, relating to higher accruals for our employee incentive plans.

Ot her operating activity was a $6.2 million and a $108.6 million source of cash in 2022 and 2021, respectively.

Other operating activity includ es equity adjustments of approximately ($25.0) million and $55.0 million related to year-end pension valuations 

in 2022 and 2021, respectively.

Cash Flows Used In Investing Activities

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Net cash used in investing activities

Purchases of property, plant and equipment were $96.1 million in 2021 compared to $87.3 million in 2020. The higher purchases in 2021 reflect the timing of capital projects and expenditures related to growth initiatives.

Proceeds from the sale of property, plant and equipment were $3.0 million in 2021 compared to $1.5 million in 2020. 

In 2021, we acquired STR Holdings, Inc.

Purchases of property, plant and equipment were $130.0 million in 2022 compared to $96.1 million in 2021. The higher purchases in 2022 reflect the timing of capital projects and expenditures related to growth initiatives.

Proceeds from the sale of property, plant and equipment were $1.6 million in 2022 compared to $2.9 million in 2021. 

Purchased businesses, net of cash acquired, were $250.8 million in 2022 compared to $5.4 million in 2021. 

In 2022, we acquired Tissue Seal for $22.2 million, Fourny for $14.3 million, Apollo for $194.4 million, ZKLT for $13.5 million and GSSI for $6.4 million. In 2021, we acquired STR Holdings, Inc.

for $5.4 million.

In 2020, we acquired D.H.M Adhesives, Inc.

for $9.5 million and also purchased other business assets for $5.6 million.

See Note 2 to the Consolidated Financial Statements for further information on acquisitions.

In 2021, we received payment of a government grant related to the building of a plant in China of $5.8 million and in 2021 and 2020, we expended cash related to the building of this plant of $1.8 million and $8.6 million, respectively.

In 2021, we received payment of a government grant related to the building of a plant in China of $5.8 million and we expended cash related to the building of this plant of $1.8 million.

Cash Flows Used In Financing Activities

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Net cash used in financing activities

In 2021 and 2020, we repaid $156.5 million and $518.0 million of long-term debt, respectively, and in 2020, we issued $300.0 million of unsecured public notes.

In 2022 and 2021, we repaid $159.5 million and $156.5 million of long-term debt, respectively.

See Note 7 to the Consolidated Financial Statements for further discussion of debt borrowings and repayments.

Cash paid for dividends were $34.9 million and $33.5 million in 2021 and 2020, respectively.

Cash generated from the exercise of stock options was $32.3 million and $12.3 million in 2021 and 2020, respectively.

Repurchases of common stock related to statutory minimum tax withholding upon vesting of restricted stock were $2.7 million in 2021 compared to $3.4 million in 2020.

There were no repurchases from our share repurchase program in 2021 and 2020.

Cash paid for dividends were $39.2 million and $34.9 million in 2022 and 2021, respectively.

Cash generated from the exercise of stock options was $30.1 million and $32.3 million in 2022 and 2021, respectively.

Repurchases of common stock related to statutory minimum tax withholding upon vesting of restricted stock were $4.0 million in 2022 compared to $2.7 million in 2021.

There were no repurchases from our share repurchase program in 2022 and 2021.

We are subject to mandatory prepayments in the first quarter of each fiscal year equal to 50% of Excess Cash Flow, as defined in the Term Loan B Credit Agreement, of the prior fiscal year less any voluntary prepayments made during that fiscal year.

The Excess Cash Flow Percentage shall be reduced to 25% when our Secured Leverage Ratio is below 4.25:1.00 and to 0% when our Secured Leverage Ratio is below 3.75:1.00.

The prepayment for the 2021 measurement period was satisfied through amounts prepaid during 2021.

We have estimated the 2022 prepayment to be zero.

We expect 2022 capital expenditures to be between $100.0 million and $110.0 million.

The prepayment for the 2022 measurement period was satisfied through amounts prepaid prior to 2022.

We expect 2023 capital expenditures to be approximately $120.0 million.

Forward-Looking Statements and Risk Factors

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis