FULLER H B CO 10-K

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations   Overview   H.B. Fuller Company is a global formulator, manufacturer and marketer of adhesives and other specialty chemica l products. We have three reportable segments: Hygiene, Health and Consumable Adhesives, Engineering Adhesives and Construction Adhesives.    The Hygiene, Health and Consumable Adhesives operating segment manufactures and supplies adhesives products in the assembly, packaging, converting, nonwoven and hygiene, health and beauty, flexible packaging, graphic arts and envelope markets. The Engineering Adhesives operating segment provides high-performance adhesives to the transportation, electronics, medical, clean energy, aerospace and defense, performance wood, insulating glass, textile, appliance and heavy machinery markets. The Construction Adhesives operating segment manufactures and provides specialty adhesives, sealants, tapes, mortars, grouts, and application devices for commercial building roofing systems, heavy infrastructure projects, road/highway/airport transportation applications, telecom/5G utilities, industrial LNG plants, building envelope applications, HVAC insulation systems, and for both residential and commercial flooring underlayment solutions.   Total Company   When reviewing our financial statements, it is important to understand how certain external factors impact us. These factors include:     ● Changes in the prices of our raw materials that are primarily derived from refining crude oil and natural gas,     ● Global supply of and demand for raw materials,     ● Economic growth rates, and     ● Currency exchange rates compared to the U.S. dollar.   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. The price of these derivatives impacts the cost of our raw materials. However, the supply of and demand for key raw materials has a greater impact on our costs. As demand increases in high-growth areas, the supply of key raw materials may tighten, resulting in certain materials being put on allocation. Natural disasters, such as hurricanes, also can have an impact as key raw material producers are shut down for extended periods of time. 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.   14 Table of Contents   The pace of economic growth directly impacts certain industries to which we supply products. For example, adhesives-related revenues from durable goods customers in areas such as appliances, furniture and other woodworking applications tend to fluctuate with the overall economic activity. In business components such as Construction Adhesives and insulating glass in Engineering Adhesives, revenues tend to move with more specific economic indicators such as housing starts and other construction-related activity.   The movement of foreign currency exchange rates as compared to the U.S. dollar impacts the translation of the foreign entities’ financial statements into U.S. dollars. As foreign currencies weaken against the U.S. dollar, our revenues and costs decrease as the foreign currency-denominated financial statements translate into fewer U.S. dollars. 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 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 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  2021 . 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   In the first quarter of 2021, we adopted new accounting standards related to the measurement of credit losses on financial statements requiring financial assets measured at amortized cost basis be presented at the net amount expected to be collected. Prior periods were not restated for this adoption. See Note 1 to our Consolidated Financial Statements for further information.   Project ONE   In December 2012, our Board of Directors approved a multi-year project to replace and enhance our existing core information technology platforms. The scope for this project includes most of the basic transaction processing for the company including customer orders, procurement, manufacturing and financial reporting. The project envisions harmonized business processes for all of our operating segments supported with one standard software configuration. The execution of this project, which we refer to as Project ONE, is being supported by internal resources and consulting services. Implementation of Project ONE began in our North America adhesives business in 2014 and, through 2022, we completed implementation of this system in various parts of our business including Latin America (except Brazil), Australia, and various other businesses in North America and EIMEA. During 2023 and beyond, we will continue implementation in North America, EIMEA and Asia Pacific.   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 $20.3 million under this plan as of December 3, 2022, which is substantially complete.   15 Table of Contents   Critical Accounting Policies and Significant Estimates   Management’s discussion and analysis of our results of operations and financial condition are based upon the Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. 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 assumptions; long-lived assets recoverability; valuation of product, environmental and other litigation liabilities; valuation of deferred tax assets and accuracy of tax contingencies; and valuation of acquired assets and liabilities.   Goodwill   Goodwill is the excess of cost of an acquired entity over the amounts assigned to assets acquired and liabilities assumed in a purchase business combination. Goodwill is allocated to our reporting units, which are our operating segments or one level below our operating segments (the component level). Reporting units are determined by the discrete financial information available for the component and whether it is regularly reviewed by segment management. Components are aggregated into a single reporting unit if they share similar economic characteristics. Our reporting units are as follows: Hygiene, Health and Consumable Adhesives, Engineering Adhesives and Construction Adhesives.   We evaluate our goodwill for impairment annually at the beginning of the fourth quarter or earlier upon the occurrence of substantive unfavorable changes in economic conditions, industry trends, costs, cash flows, or ongoing declines in market capitalization. The quantitative impairment test requires judgment, including the identification of reporting units, the assignment of assets, liabilities and goodwill to reporting units, and the determination of fair value of each reporting unit. The impairment test requires the comparison of the fair value of each reporting unit with its carrying amount, including goodwill. 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 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. Discount rate assumptions are based on an assessment of the risk inherent in the future cash flows of the respective reporting unit and market conditions. Given the inherent uncertainty in determining the assumptions underlying a DCF analysis, actual results may differ from those used in our valuations. 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 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.   16 Table of Contents   Pension and Other Postretirement Plan Assumptions   We sponsor defined-benefit pension plans in both the U.S. and non-U.S. entities. Also in the U.S., we sponsor other postretirement plans for health care and life insurance benefits. Expenses and liabilities for the pension plans and other postretirement plans are actuarially calculated. These calculations are based on our assumptions related to the discount rate, expected return on assets, projected salary increases and health care cost trend rates. Note 10 to the Consolidated Financial Statements includes disclosure of assumptions employed in these measurements for both the non-U.S. and U.S. plans.   The discount rate assumption is determined using an actuarial yield curve approach, which results in a discount rate that reflects the characteristics of the plan. The approach identifies a broad population of corporate bonds that meet the quality and size criteria for the particular plan. We use this approach rather than a specific index that has a certain set of bonds that may or may not be representative of the characteristics of our particular plan. A higher discount rate reduces the present value of the pension obligations. The discount rate for the U.S. 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 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. plans.   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  2020 . Our expected long-term rate of return on U.S. 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. For 2022 , the expected long-term rate of return on the target equities allocation was 8.50 percent and the expected long-term rate of return on the target fixed-income allocation was 5.60 percent. The total plan rate of return assumption included an estimate of the effect of diversification and the plan expense. A change of 0.5 percentage points for the expected return on assets assumption would impact U.S. net pension and other postretirement plan expense by approximately $2.2 million (pre-tax).   Management, in conjunction with our external financial advisors, uses the actual historical rates of return of the asset categories to assess the reasonableness of the expected long-term rate of return on plan assets. The most recent 10-year and 20-year historical equity returns are shown in the table below. Our expected rate of return on our total portfolio is consistent with the historical patterns observed over longer time frames.       Total             Fixed   U.S. Pension Plan Historical Actual Rates of Return   Portfolio     Equities     Income                             10-year period     6.3 %     8.4 %     2.6 % 20-year period     7.2 %     7.5 %     5.9 %*   * 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. pension plans was a weighted-average of 3.49 percent in 2022 compared to 6.15 percent in 2021 and 6.23 percent in 2020. The expected long-term rate of return on plan assets assumption used in each non-U.S. plan is determined on a plan-by-plan basis for each local jurisdiction and is based on expected future returns for the investment mix of assets currently in the portfolio for that plan. Management, in conjunction with our external financial advisors, develops expected rates of return for each plan, considers expected long-term returns for each asset category in the plan, reviews expectations for inflation for each local jurisdiction, and estimates the effect of active management of the plan’s assets. Our largest non-U.S. pension plans are in the United Kingdom and Germany. The expected long-term rate of return on plan assets for the United Kingdom was 2.50 percent and the expected long-term rate of return on plan assets for Germany was 4.50 percent. Management, in conjunction with our external financial advisors, uses actual historical returns of the asset portfolio to assess the reasonableness of the expected rate of return for each plan.   The projected salary increase assumption is based on historic trends and comparisons to the external market. Higher rates of increase result in higher pension expenses. As this rate is also a long-term expected rate, it is less likely to change on an annual basis . Under the U.S. 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 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. plans are determined in a manner consistent with the U.S. plans.   17 Table of Contents   Recoverability of Long-Lived Assets   The assessment of the recoverability of long-lived assets reflects our assumptions and estimates. Factors that we must estimate when performing impairment tests include sales volume, prices, inflation, currency exchange rates, tax rates and capital spending. Significant judgment is involved in estimating these factors, and they include inherent uncertainties. The measurement of the recoverability of these assets is dependent upon the accuracy of the assumptions used in making these estimates and how the estimates compare to the eventual future operating performance of the specific businesses to which the assets are attributed.   Judgments made by us include the expected useful lives of long-lived assets. The ability to realize undiscounted cash flows in excess of the carrying amounts of such assets is affected by factors such as the ongoing maintenance and improvement of the assets, changes in economic conditions and changes in operating performance.   Product, Environmental and Other Litigation Liabilities   As disclosed in Item 3. Legal Proceedings and in Note 1 and Note 14 to the Consolidated Financial Statements, we are subject to various claims, lawsuits and other legal proceedings. Reserves for loss contingencies associated with these matters are established when it is determined that a liability is probable and the amount can be reasonably estimated. The assessment of the probable liabilities is based on the facts and circumstances known at the time that the financial statements are being prepared. For cases in which it is determined that a liability is probable but only a range for the potential loss exists, the minimum amount of the range is recorded and subsequently adjusted as better information becomes available.   For cases in which insurance coverage is available, the gross amount of the estimated liabilities is accrued, and a receivable is recorded for any probable estimated insurance recoveries. A discussion of environmental, product and other litigation liabilities is disclosed in Item 3. Legal Proceedings and Note 14 to the Consolidated Financial Statements.   Based upon currently available facts, we do not believe that the ultimate resolution of any pending legal proceeding, individually or in the aggregate, will have a material adverse effect on our long-term financial condition. However, adverse developments and/or periodic settlements could negatively affect our results of operations or cash flows in one or more future quarters.   Income Tax Accounting   As part of the process of preparing the Consolidated Financial Statements, we are required to estimate income taxes in each of the jurisdictions in which we operate. The process involves estimating actual current tax expense along with assessing temporary differences resulting from differing treatment of items for book and tax purposes. These temporary differences result in deferred tax assets and liabilities, which are included in the Consolidated Balance Sheets. We record a valuation allowance to reduce our deferred tax assets to the amount that is more-likely-than-not to be realized. We have considered future taxable income and ongoing tax planning strategies in assessing the need for the valuation allowance. Increases in the valuation allowance result in additional expense to be reflected within the tax provision in the Consolidated Statements of Income. 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. We do not recognize a financial statement benefit for a tax position that does not meet the more-likely-than-not threshold. We believe that our liabilities for income taxes reflect the most likely outcome. It is difficult to predict the final outcome or the timing of the resolution of any particular tax position. Future changes in judgment related to the resolution of tax positions will impact earnings in the quarter of such change. We adjust our income tax liabilities related to tax positions in light of changing facts and circumstances. 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 $17.6 million as of December 3, 2022 and $13.3 million as of November 27, 2021.   We have not recorded U.S. deferred income taxes for certain of our non-U.S. subsidiaries undistributed earnings as such amounts are intended to be indefinitely reinvested outside of the U.S. Should we change our business strategies related to these non-U.S. subsidiaries, additional U.S. tax liabilities could be incurred. It is not practical to estimate the amount of these additional tax liabilities. See Note 11 to the Consolidated Financial Statements for further information on income tax accounting.   Acquisition Accounting   As we enter into business combinations, we perform acquisition accounting requirements including the following:     ● Identifying the acquirer,   ● Determining the acquisition date,   ● Recognizing and measuring the identifiable assets acquired and the liabilities assumed, and   ● Recognizing and measuring goodwill or a gain from a bargain purchase.   18 Table of Contents   We complete valuation procedures and record the resulting fair value of the acquired assets and assumed liabilities based upon the valuation of the business enterprise and the tangible and intangible assets acquired. Enterprise value allocation methodology requires management to make assumptions and apply judgment to estimate the fair value of assets acquired and liabilities assumed. If estimates or assumptions used to complete the enterprise valuation and estimates of the fair value of the acquired assets and assumed liabilities significantly differed from assumptions made, the resulting difference could materially affect the fair value of net assets.   The calculation of the fair value of the tangible assets, including property, plant and equipment, utilizes the cost approach, which computes the cost to replace the asset, less accrued depreciation resulting from physical deterioration, functional obsolescence and external obsolescence. The calculation of the fair value of the identified intangible assets are determined using cash flow models following the income approach or a discounted market-based methodology approach. Significant inputs include estimated revenue growth rates, gross margins, operating expenses, and estimated attrition, royalty and discount rates. Goodwill is recorded as the difference in the fair value of the acquired assets and assumed liabilities and the purchase price.     Results of Operations   Net revenue   ($ in millions)   2022     2021     2022 vs 2021   Net revenue   $ 3,749.2     $ 3,278.0       14.4 %   We review variances in net revenue in terms of changes related to sales volume and product pricing (referred to as organic revenue growth), business acquisitions and divestitures (M&A) and changes in foreign currency exchange rates. The following table shows the net revenue variance analysis for fiscal 2022 compared to fiscal 2021:       2022 vs 2021   Organic revenue growth     16.6 % Extra week (53 week year)     2.0 % M&A     1.6 % Currency     (5.8 )% Net revenue growth     14.4 %   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. 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.   Cost of sales   ($ in millions)   2022     2021     2022 vs 2021   Raw materials   $ 2,154.1     $ 1,810.0       19.0 % Other manufacturing costs     631.4       622.7       1.4 % Cost of sales   $ 2,785.5     $ 2,432.7       14.5 % Percent of net revenue     74.3 %     74.2 %           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 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.   19 Table of Contents   Gross profit   ($ in millions)   2022     2021     2022 vs 2021   Gross profit   $ 963.7     $ 845.3       14.0 % Percent of net revenue     25.7 %     25.8 %           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   ($ in millions)   2022     2021     2022 vs 2021   SG&A   $ 641.0     $ 592.7       8.1 % Percent of net revenue     17.1 %     18.1 %           SG&A expenses for 2022 increased $48.3 million, or 8.1 percent, compared to 2021. The increase is primarily due to higher compensation and acquisition project costs and the impact of acquisitions. SG&A expenses as a percent of revenue decreased by 100 basis points compared with the prior year due to higher net revenue.   Other income, net   ($ in millions)   2022     2021   Other income, net   $ 12.9     $ 32.9     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 $7.4 million of income in 2022 and 2021, respectively. Other income in 2021 includes gains related to legal entity mergers and a transactional tax legal settlement in Brazil.   Interest expense   ($ in millions)   2022     2021   Interest expense   $ 91.5     $ 78.1     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 $0.9 million of interest expense in 2022 and 2021, respectively.   Interest income   ($ in millions)   2022     2021   Interest income   $ 7.8     $ 9.5     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)   2022     2021   Income tax expense   $ 77.2     $ 63.0   Effective tax rate     30.6 %     29.1 %   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 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  percent.   20 Table of Contents   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 $4.3  million, the overall effective tax rate was 27.1  percent.    The decrease in the overall effective tax rate for  2022 compared to 2021 , excluding the impact of discrete items, is primarily due to the change in the foreign rate differential resulting from a change in mix of earnings across jurisdictions.   Income from equity method investments   ($ in millions)   2022     2021   Income from equity method investments   $ 5.7     $ 7.7     The income from equity method investments relates to our 50 percent ownership of the Sekisui-Fuller joint venture in Japan. 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. Fuller   ($ in millions)   2022     2021     2022 vs 2021   Net income attributable to H.B. Fuller   $ 180.3     $ 161.4       11.7 % Percent of net revenue     4.8 %     4.9 %           Net income attributable to H.B. Fuller was $180.3 million in 2022 compared to $161.4 million in 2021. Diluted earnings per share were $3.26 per share in 2022 and $2.97 per share in 2021.     Operating Segment Results   We are required to report segment information in the same way that we internally organize our business for assessing performance and making decisions regarding allocation of resources. For segment evaluation by the chief operating decision maker, segment operating income is defined as gross profit less SG&A expenses. Inter-segment revenues are recorded at cost plus a markup for administrative costs. Corporate expenses, other than those included in Corporate Unallocated, are allocated to each operating segment.   We have three reportable segments: Hygiene, Health and Consumable Adhesives, Engineering Adhesives and Construction Adhesives.  The tables below provide certain information regarding the net revenue and segment operating income of each of our operating segments. Corporate Unallocated includes business acquisition and integration-related charges, organizational restructuring-related charges, the results of business divestitures and costs related to the implementation of Project ONE.   Net Revenue by Segment       2022     2021       Net     % of     Net     % of   ($ in millions)   Revenue     Total     Revenue     Total   Hygiene, Health and Consumable Adhesives   $ 1,695.9       45 %   $ 1,472.7       45 % Engineering Adhesives     1,532.7       41 %     1,371.8       42 % Construction Adhesives     520.6       14 %     433.5       13 % Total   $ 3,749.2       100 %   $ 3,278.0       100 %   Segment Operating Income (Loss)       2022     2021       Operating     % of     Operating     % of   ($ in millions)   Income (Loss)     Total     Income (Loss)     Total   Hygiene, Health and Consumable Adhesives   $ 165.8       51 %   $ 138.4       55 % Engineering Adhesives     168.8       52 %     135.9       54 % Construction Adhesives     23.0       8 %     14.1       5 % Segment total     357.6       111 %     288.4       114 % Corporate Unallocated     (34.9 )     (11 )%     (35.8 )     (14 )% Total   $ 322.7       100 %   $ 252.6       100 %   The following table provides a reconciliation of segment operating income to income before income taxes and income from equity method investments, as reported in the Consolidated Statements of Income.   ($ in millions)   2022     2021   Segment operating income   $ 322.7     $ 252.6   Other income, net     12.9       32.9   Interest expense     (91.5 )     (78.1 ) Interest income     7.8       9.5   Income before income taxes and income from equity method investments   $ 251.9     $ 216.9     21 Table of Contents   Hygiene, Health and Consumable Adhesives   ($ in millions)   2022     2021     2022 vs 2021   Net revenue   $ 1,695.9     $ 1,472.7       15.2 % Segment operating income   $ 165.8     $ 138.4       19.8 % Segment profit margin %     9.8 %     9.4 %           The following tables provide details of Hygiene, Health and Consumable Adhesives net revenue variances:       2022 vs 2021   Organic revenue growth     20.0 % Extra week (53 week year)     2.1 % Currency     (6.9 )% Net revenue growth     15.2 %   Net revenue increased 15.2 percent in 2022 compared to 2021. 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 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   ($ in millions)   2022     2021     2022 vs 2021   Net revenue   $ 1,532.7     $ 1,371.8       11.7 % Segment operating income   $ 168.8     $ 135.9       24.2 % Segment profit margin %     11.0 %     9.9 %           The following tables provide details of Engineering Adhesives net revenue variances:       2022 vs 2021   Organic revenue growth     15.9 % Extra week (53 week year)     2.0 % Currency     (6.2 )% Net revenue growth     11.7 %   Net revenue increased 11.7 percent in 2022 compared to 2021. 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. SG&A expense as a percentage of net revenue decreased 90 basis points due to higher net revenue. Segment operating income increased 24.2 percent and segment operating margin increased 110 basis points compared to 2021.   Construction Adhesives   ($ in millions)   2022     2021     2022 vs 2021   Net revenue   $ 520.6     $ 433.5       20.1 % Segment operating income (loss)   $ 23.0     $ 14.1       63.1 % Segment profit margin %     4.4 %     3.3 %           The following tables provide details of Construction Adhesives net revenue variances:       2022 vs 2021   Organic revenue growth     7.0 % Extra week (53 week year)     1.9 % M&A     12.4 % Currency     (1.2 )% Net revenue growth     20.1 %   Net revenue increased 20.1 percent in 2022 compared to 2021. 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. dollar. 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 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. Segment operating income increased 63.1 percent and segment operating margin increased 110 basis points compared to 2021.   22 Table of Contents   Corporate Unallocated   ($ in millions)   2022     2021     2022 vs 2021   Segment operating loss   $ (34.9 )   $ (35.8 )     (2.5 )% Segment profit margin %   NMP     NMP             NMP = Non-meaningful percentage   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 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 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. 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. operations, U.S. capital spending and U.S. pension and other postretirement benefit contributions in addition to funding U.S. acquisitions, dividend payments, debt service and share repurchases as needed. For those international earnings considered to be reinvested indefinitely, we currently have no intention to, and plans do not indicate a need to, repatriate these funds for U.S. operations.   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 December 3, 2022, we were in compliance with all covenants of our contractual obligations as shown in the following table:   Covenant Debt Instrument Measurement Result as of December 3, 2022 Total Indebtedness / TTM EBITDA Term Loan B   Credit Agreement Not greater than 5.25 2.3 Total Indebtedness / TTM EBITDA Revolving Credit Agreement Not greater than 5.25 2.3 TTM EBITDA / Consolidated Interest Expense Revolving Credit Agreement Not less than 2.0 5.4     ● TTM = trailing 12 months     ● EBITDA for Term Loan B covenant purposes is defined as consolidated net income, plus interest expense, expense for taxes paid or accrued, depreciation and amortization, certain non-cash impairment losses, extraordinary non-cash losses incurred other than in the ordinary course of business, nonrecurring extraordinary non-cash restructuring charges and the non-cash impact of purchase accounting, expenses related to the Royal Adhesives acquisition not to exceed $40.0 million, expenses relating to the integration of Royal Adhesives during the fiscal years ending in 2017, 2018 and 2019 not exceeding $30 million in aggregate, restructuring expenses that began prior to the Royal Adhesives acquisition incurred in fiscal years ending in 2017 and 2018 not exceeding $28 million in aggregate, and non-capitalized charges relating to the SAP implementation during fiscal years ending in 2017 through 2021 not exceeding $13 million in any single fiscal year, minus extraordinary non-cash gains. For the Total Indebtedness / TTM EBITDA ratio, TTM EBITDA is adjusted for the pro forma results from Material Acquisitions and Material Divestitures as if the acquisition or divestiture occurred at the beginning of the calculation period. The full definition is set forth in the Term Loan B Credit Agreement and can be found in the Company’s 8-K filing dated October 20, 2017.         ● EBITDA for Revolving Credit Facility covenant purposes is defined as consolidated net income, plus interest expense, expense for taxes paid or accrued, depreciation and amortization, non-cash impairment losses related to long-lived assets, intangible assets or goodwill, nonrecurring or unusual non-cash losses incurred other than in the ordinary course of business, nonrecurring or unusual non-cash restructuring charges and the non-cash impact of purchase accounting, fees, premiums, expenses and other transaction costs incurred or paid by the borrower or any of its Subsidiaries on the effective date in connection with the transactions, this agreement and the other loan documents, the 2020 supplemental indenture and the transactions contemplated hereby and thereby, one-time, non-capitalized charges and expenses relating to the Company’s SAP implementation during fiscal years ending in 2017 through 2024, in an amount not exceeding $15.0 million in any single fiscal year of the Company, charges and expenses relating to the ASP Royal Acquisition, including but not limited to advisory and financing costs, during the Company’s fiscal years ending in 2020 and 2021, in an aggregate amount (as to such years combined) not exceeding $40.0 million, charges and expenses related to the reorganization of the Company and its subsidiaries from five business units to three business units to reduce costs during the Company’s fiscal years ending in 2020 and 2021 in an aggregate amount (as to such years combined) not exceeding $24.0 million, and charges and expenses related to the Company’s manufacturing and operations project to improve delivery, implement cost savings and reduce inventory during the Company’s fiscal years ending in 2020, 2021 and 2022 in an aggregate amount (as to such years combined) not exceeding $15.5 million.         ● Consolidated Interest Expense for the Revolving Credit Facility is defined as the interest expense (including without limitation the portion of capital lease obligations that constitutes imputed interest in accordance with GAAP) of the Company and its subsidiaries calculated on a consolidated basis for such period with respect to all outstanding indebtedness of the Company and its subsidiaries allocable to such period in accordance with GAAP.   23 Table of Contents   We believe we have the ability to meet all of our contractual obligations and commitments in fiscal 2022.   Net Financial Assets (Liabilities)   ($ in millions)   2022     2021   Financial assets:                 Cash and cash equivalents   $ 79.9     $ 61.8   Foreign exchange contracts     10.3       5.7   Cash flow hedges     -       14.5   Financial liabilities:                 Notes payable     (28.9 )     (25.0 ) Long-term debt     (1,736.3 )     (1,591.5 ) Foreign exchange contracts     (4.6 )     (6.1 ) Interest rate and cross currency swaps     (42.5 )     (22.9 )        Net investment hedges     (54.0 )     -   Net financial liabilities   $ (1,776.1 )   $ (1,563.5 )   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. tax implications of the repatriation of these funds.   There are no contractual or regulatory restrictions on the ability of consolidated and unconsolidated subsidiaries to transfer funds in the form of cash dividends, loans or advances to us, except for: 1) a credit facility limitation restricting investments, loans, advances or capital contributions from Loan Parties to non-Loan Parties in excess of $100.0 million, 2) a credit facility limitation that provides total investments, loans, advances or guarantees not otherwise permitted in the credit agreement for all subsidiaries shall not exceed $125.0 million in the aggregate, 3) a credit facility limitation that provides total investments, dividends, and distributions shall not exceed the Available Amount defined in these agreements, all three of which do not apply once our secured leverage ratio drops below 4.0x and 4) typical statutory restrictions, which prohibit distributions in excess of net capital or similar tests. The Royal Adhesives acquisition and any investments, loans, and advances established to consummate the Royal Adhesives acquisition, are excluded from the credit facility limitations described above. Additionally, we have taken the income tax position that the majority of our cash in non-U.S. locations is indefinitely reinvested.   Debt Outstanding and Debt Capacity   Notes Payable   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 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 (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. The 8-year Public Notes have a principal amount of $300.0 million, bear fixed interest at 4.25 percent and mature in 2028. We are subject to a par call plus 50 percent of coupon in year 4, plus 25 percent of coupon in year 5 and at par thereafter.  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 $7.4 million as of December 3, 2022.   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. We entered into interest rate swap agreements to convert $150.0 million of our $300.0 million Public Notes that were issued on February 14, 2017 to a variable interest rate of 1-month LIBOR plus 1.86 percent. See Note 7 to the Consolidated Financial Statements for further discussion on the issuance of our Public Notes. The swaps were designated for hedge accounting treatment as fair value hedges. We applied the hypothetical derivative method to assess hedge effectiveness for this interest rate swap. Changes in the fair value of a hypothetically perfect swap with terms that match the critical terms of our fixed rate Public Notes are compared with the change in the fair value of the swaps. On May 1, 2020, we terminated the swap agreement. Upon termination, we received $15.8 million in cash. 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.   24 Table of Contents   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 may adversely impact the value of, and our obligations under, our Term Loan B and Public Notes. See the applicable discussion under Item 1A. Risk Factors.   Goodwill and Other Intangible Assets   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 $702.1 million (15.7 percent of total assets).   The components of goodwill and other identifiable intangible assets, net of amortization, by segment are as follows:       2022                                         Hygiene, Health                               and Consumable     Engineering     Construction           ($ in millions)   Adhesives     Adhesives     Adhesives     Total   Goodwill   $ 329.0     $ 637.9     $ 425.7     $ 1,392.6   Purchased technology and patents     5.7       31.5       15.1       52.3   Customer relationships     105.8       228.5       281.3       615.6   Tradenames     4.5       14.6       9.8       28.9   Other finite-lived intangible assets     1.9       0.1       2.8       4.8   Indefinite-lived intangible assets     -       0.5       -       0.5         2021                                         Hygiene, Health                               and Consumable     Engineering     Construction           ($ in millions)   Adhesives     Adhesives     Adhesives     Total   Goodwill   $ 325.4     $ 662.0     $ 311.4     $ 1,298.8   Purchased technology and patents     7.0       36.4       10.2       53.6   Customer relationships     108.0       253.9       235.6       597.5   Tradenames     4.6       16.5       8.7       29.8   Other finite-lived intangible assets     2.3       0.2       3.2       5.7   Indefinite-lived intangible assets     -       0.5       -       0.5     25 Table of Contents   Selected Metrics of Liquidity and Capital Resources   Key metrics we monitor are net working capital as a percent of annualized net revenue, trade receivables days sales outstanding (DSO), inventory days on hand, free cash flow after dividends and debt capitalization ratio.       December 3,     November 27,       2022     2021   Net working capital as a percentage of annualized net revenue 1     16.7 %     15.7 % Trade receivables DSO (in days) 2     62       62   Inventory days on hand (in days) 3     71       65   Free cash flow after dividends 4   $ 87.3     $ 82.3   Debt capitalization ratio 5     52.3 %     50.2 %   1 Current quarter net working capital (trade receivables, net of allowance for doubtful accounts plus inventory minus trade payables) divided by annualized net revenue (current quarter, multiplied by 4).   2 Trade receivables net of allowance for doubtful accounts multiplied by 91 (13 weeks) and divided by the net revenue for the quarter.   3 Total inventory multiplied by 91 and divided by cost of sales (excluding delivery costs) for the quarter.   4 Net cash provided by operating activities less purchased property, plant and equipment and dividends paid. See reconciliation to net cash provided by operating activities to free cash flow after dividends below.   5 Total debt divided by (total debt plus total stockholders’ equity).   Free cash flow after dividends, a non-GAAP financial measure, is defined as net cash provided by operating activities less purchased property, plant and equipment and dividends paid. Free cash flow after dividends is an integral financial measure used by the Company to assess its ability to generate cash in excess of its operating needs, therefore, the Company believes this financial measure provides useful information to investors. The following table reflects the manner in which free cash flow after dividends is determined and provides a reconciliation of free cash flow after dividends to net cash provided by operating activities, the most directly comparable financial measure calculated and reported in accordance with U.S. GAAP.   Reconciliation of “Net cash provided by operating activities” to "Free cash flow after dividends"   ($ in millions)   2022     2021   Net cash provided by operating activities   $ 256.5     $ 213.3   Less: Purchased property, plant and equipment     130.0       96.1   Less: Dividends paid     39.2       34.9   Free cash flow after dividends   $ 87.3     $ 82.3     Summary of Cash Flows   Cash Flows from Operating Activities   ($ in millions)   2022     2021   Net cash provided by operating activities   $ 256.5     $ 213.3     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.   26 Table of Contents   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 $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 $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 $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 $55.0 million related to year-end pension valuations  in 2022 and 2021, respectively.   Cash Flows Used In Investing Activities   ($ in millions)   2022     2021   Net cash used in investing activities   $ (375.3 )   $ (94.7 )   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 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 $1.8 million.   Cash Flows Used In Financing Activities   ($ in millions)   2022     2021   Net cash used in financing activities   $ 160.3     $ (154.1 )   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 $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 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   The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may be identified by the use of words like "plan," "expect," "aim," "believe," "project," "anticipate," "intend," "estimate," "will," "should," "could" (including the negative or variations thereof) and other expressions that indicate future events and trends. These plans and expectations are based upon certain underlying assumptions, including those mentioned with the specific statements. Such assumptions are in turn based upon internal estimates and analyses of current market conditions and trends, our plans and strategies, economic conditions and other factors. These plans and expectations and the assumptions underlying them are necessarily subject to risks and uncertainties inherent in projecting future conditions and results. Actual results could differ materially from expectations expressed in the forward-looking statements if one or more of the underlying assumptions and expectations proves to be inaccurate or is unrealized. In addition to the factors described in this report, Item 1A. Risk Factors identifies some of the important factors that could cause our actual results to differ materially from those in any such forward-looking statements. In order to comply with the terms of the safe harbor, we have identified these important factors which could affect our financial performance and could cause our actual results for future periods to differ materially from the anticipated results or other expectations expressed in the forward-looking statements. These factors should be considered, together with any similar risk factors or other cautionary language that may be made elsewhere in this Annual Report on Form 10-K.   The list of important factors in Item 1A. Risk Factors does not necessarily present the risk factors in order of importance. This disclosure, including that under Forward-Looking Statements and Risk Factors, and other forward-looking statements and related disclosures made by us in this report and elsewhere from time to time, represents our best judgment as of the date the information is given. We do not undertake responsibility for updating any of such information, whether as a result of new information, future events, or otherwise, except as required by law. Investors are advised, however, to consult any further public company disclosures (such as in filings with the SEC or in our press releases) on related subjects.   27 Table of Contents