What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-01-24 compared with 2023-01-24 · 151 added, 172 removed, 371 unchanged (47% of the section changed)

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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 Engineering Adhesives operating segment provides high-performance adhesives to the transportation, electronics, 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.

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

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

The fluctuations of the Euro, Chinese renminbi, British pound sterling, Egyptian pound, Turkish lira, Brazilian real, Canadian dollar, Australian dollar and Mexican peso 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.

In 2023 , currency fluctuations had a negative i mpact on net revenue of approximately $88.5 million as compared to 2022.

K ey financial results and transactions for 2023 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.

Net revenue decreased 6.4 percent from 2022 primarily driven by an 8.4 percent decrease in sales volume and a 2.4 percent decrease due to currency fluctuations, partially offset by a 3.3 percent increase due to acquisitions and 2.9 percent increase in product pricing. Additionally, in 2022, we had a 53-week year compared to a 52-week year in 2023, and 2023 revenue was lower by 1.8 percent due to the extra week in 2022.

Gross profit margin increased to 28.7 percent in 2023 from 25.7 percent in 2022, due to an increase in product pricing and lower raw material costs partially offset by the impact of lower sales volume.

Cash flow generated by operating activities was $378.4 million in 2023 as compared to $256.5 million in 2022.

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.

Our total year organic revenue growth, which we define as the combined variances from sales volume and product pricing, decreased 5.5 percent for 2023 compared to 2022 due to a decrease in sales volume, partially offset by an increase in product pricing.

In 2023 , our diluted earnings per share was $2.59  compared to $3.26  in 

The higher earnings per share in 

The lower earnings per share in 

2023 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,”

2022 was primarily due to lower net revenue, higher operating costs, interest expense and income tax expense, partially offset by lower raw material costs.

Information pertaining to fiscal year 2021 was included in the Company’s Annual Report on Form 10-K for the year ended December 3, 2022, 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 24, 2023.

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.

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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Implementation of Project ONE began in our North America adhesives business in 2014 and, through 2023, 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.

During 2024 and beyond, we will continue implementation in North America, EIMEA, Brazil and Asia Pacific.

Total expenditures for Project ONE are estimated to be $240 to $260 million, of which 60-65% is expected to be capital expenditures. Our total project-to-date expenditures are approximatel y $200 

million, of which approximately $120 million are capital expenditures. Given the complexity of the implementation, the total investment to complete the project may exceed our estimate.

Restructuring Plans

During the second and third quarters of 2023, the Company approved restructuring plans (the “Plans”) related to organizational changes and other actions to optimize operations and integrate acquired businesses.

In implementing the Plans, the Company currently expects to incur costs of approximately $39.1 million to $44.1 million ($30.4 million to $34.4 million after-tax), which include (i) cash expenditures of approximately $28.4 million to $29.6 million ($22.0 million to $23.0 million after-tax) for severance and related employee costs globally and (ii) other restructuring costs related to the streamlining of processes and the payment of anticipated income taxes in certain jurisdictions related to the Plans.

We have incurred costs of $27.0 million under the Plans as of December 2, 2023.

The Plans began to be implemented in the second quarter of fiscal year 2023 and are currently expected to be completed during fiscal year 2026.

The restructuring costs will be spread across the next several fiscal quarters as the measures are implemented with the majority of the charges recognized and cash payments occurring in fiscal 2023 and 2024.

Critical Accounting Policies and Significant Estimates

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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.

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 2023 impairment test, included a 26 percent control premium.

For the 2023 impairment test, the fair value of the reporting units exceeded the respective carrying values by 8 percent to 140 percent.

Significant assumptions used in the DCF analysis included discount rates that ranged from 10.1 percent to 12.3 percent and long-term revenue growth rates. The Construction Adhesives reporting unit, with $432.8 million of goodwill assigned to it as of December 2, 2023, exceeded the respective carrying value by 8 percent.

An increase in the discount rate of 10 basis points or a decrease in the long-term growth rates of 10 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.

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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.

pension plan was 5.66 percent at December 2, 2023, 5.36 percent at December 3, 2022 and 2.76 percent at November 27, 2021.

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 2, 2023 would impact U.S.

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

pension and other postretirement plan (income) expense by $0.1 million (pre-tax) in fiscal 2024.

Discount rates for non-U.S.

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

pension plan was 7.00 percent in 

pension plan was 7.75 

percent in 

2021 and 7.50 percent in 

2023 , 7.00 percent in 

2022 and 7.25 percent in 

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

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20-year period

* 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).

* 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 5.5 percent is since inception (17 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 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 December 3, 2022, the valuation allowance to reduce deferred tax assets totaled $14.4 million.

The valuation allowance to reduce deferred tax assets totaled $15.6 million as of December 2, 2023, and $14.4 million as of December 3, 2022.

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 $17.6 million as of December 3, 2022 and $13.3 million as of November 27, 2021.

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 $14.3 million as of December 2, 2023 and $17.6 million as of December 3, 2022.

We have not recorded U.S.

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Organic revenue growth

Extra week (53 week year)

Extra week in 2022 (53-week year)

Net revenue growth

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.

Organic revenue decreased 5.5 percent in 2023 compared to 2022 and consisted of an 11.0 percent decrease in Construction Adhesives, a 5.1 percent decrease in Hygiene, Health and Consumable Adhesives and a 4.2 percent decrease in Engineering Adhesives.

The decrease is driven by a decrease in sales volume, partially offset by an increase in product pricing.

The 3.3 percent increase from M&A is due to acquisitions that occurred during the year.

The negative 2.4  percent currency impact was primarily driven by a weaker Egyptian pound, Chinese renminbi, Turkish lira and 

Argentinian peso offset by a stronger Euro and Mexican peso compared to the U.S.

Additionally, net revenue in 2023 was lower than 2022 by 1.8 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 2023.

Cost of sales

($ in millions)

Raw materials

Other manufacturing costs

Cost of sales

Percent of net revenue

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.

Cost of sales in 2023 compared to 2022 decreased 300 basis points as a percentage of net revenue.

Lower raw material costs and higher product pricing partially offset by the impact of lower sales volume led to the decrease.

($ in millions)

Percent of net revenue

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

Gross profit in 2023 increased 4.7 percent and gross profit margin increased 300 basis points compared to 2022. The increase in gross profit margin was primarily due to lower raw material costs and higher product pricing partially offset by the impact of lower sales volume.

Selling, general and administrative (SG&A) expenses

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Percent of net revenue

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.

SG&A expenses for 2023 increased $12.8 million, or 2.0 percent compared to 2022.

The increase is due to higher restructuring and acquisition project costs and the impact of acquisitions. SG&A expenses as a percent of revenue increased by 150 basis points compared to the prior year due to lower net revenue and higher restructuring and acquisition project costs.

Other income, net

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Other income, net

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.

Other income, net in 2023 included $20.3 million of net defined benefit pension benefits and $1.2 of other income, partially offset by $11.6 million of currency transaction losses and a $0.1 million loss on disposal of assets.

Other income, net in 2022 included $26.8 million of net defined benefit pension benefits and a $1.4 million gain on disposal of assets, partially offset by $12.9 million of currency transaction losses and $2.4 of other expense.

The $26.8 million of net defined benefit pension benefits for 2022 included a $3.3 million settlement loss related to the termination of our Canadian defined benefit pension plan.

Interest expense

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Interest expense

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.

Interest expense was $134.6 million and $91.5 million in 2023 and 2022, respectively, and was higher primarily due to higher debt balances and higher interest rates.

We capitalized $1.8 million and $1.5 million of interest expense in 2023 and 2022, respectively.

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2023 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 

$26.1  million of discrete tax expense, primarily related to the impact of withholding tax recorded on earnings that are no longer permanently reinvested, as well as other various U.S.

and foreign tax matters.

Excluding the discrete tax expense of $26.1  million, the overall effective tax rate was 

28.8  percent.

Income tax expense of $77.2  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.

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. 

The increase in the overall effective tax rate for 

2023 compared to 2022 , excluding the impact of discrete items, is primarily due to the change in the mix of earnings across jurisdictions, as well as the impact of withholding tax recorded on current earnings that will not be permanently invested.

Income from equity method investments

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The lower income for 2023 compared to 2022 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.

dollar and lower net income in our joint venture.

Net income attributable to H.B.

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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.

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 costs, organizational restructuring charges and project costs related to the implementation of Project ONE.

Net Revenue by Segment

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Organic revenue growth

Extra week (53 week year)

Extra week in 2022 (53-week year)

Net revenue growth

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.

Net revenue decreased 5.6 percent in 2023 compared to 2022.

The decrease in organic revenue growth was attributable to a decrease in sales volume, partially offset by an increase in product pricing.

The 4.6 percent increase in net revenue from M&A was due to acquisitions of Lemtapes in the first quarter of 2023, Beardow Adams in the second quarter of 2023 and Adhezion in the third quarter of 2023. The negative currency effect was due to a weaker Egyptian pound, Turkish lira, Argentinian peso and Chinese renminbi offset by a stronger Mexican peso and Euro compared to the U .S.

dollar. Additionally, net revenue in 2023 was lower than 2022 by 1.8 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 2023. As a percentage of net r evenue, gross margin increased due to lower raw material costs and higher product pricing partially offset by the impact of lower sales volume.

SG&A expenses as a percentage of net revenue increased due to the impact of acquisitions and lower net revenue. Segment operating income increased 29.7 percent and segment operating margin as a percentage of net revenue increased 360 basis points in 2023 as compared to 2022.

Engineering Adhesives

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Organic revenue growth

Extra week (53 week year)

Extra week in 2022 (53-week year)

Net revenue growth

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.

Net revenue decreased 6.8 percent in 2023 compared to 2022.

The decrease in organic revenue growth was attributable to a decrease in sales volume, partially offset by a slight increase in product pricing.

The 1.2 percent increase in net revenue from M&A was due to the acquisitions of ZKLT in the third quarter of 2022 and Aspen in the first quarter of 2023. The negative currency effect was due to a weaker Chinese renminbi and Turkish lira partially offset by a stronger Euro compared to the U.S.

dollar. Additionally, net revenue in 2023 was lower than 2022 by 1.8 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 2023. As a percentage of net revenue, gross margin increased due to lower raw material cost s and higher product pricing partially offset by the impact of lower sales volume.

SG&A expenses as a percentage of net revenue increased due to lower net revenue. Segment operating income increased 11.0 percent and segment operating margin as a percentage of net revenue increased 210 basis points in 2023 as compared to 2022.

Construction Adhesives

($ in millions)

Segment operating income (loss)

Segment operating income

Segment profit margin %

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Organic revenue growth

Extra week (53 week year)

Extra week in 2022 (53-week year)

Net revenue growth

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.

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.

Net revenue decreased 7.7 percent in 2023 compared to 2022.

The decrease in organic revenue growth was attributable to a decrease in sales volume, partially offset by an increase in product pricing.

The 5.4 percent increase in net revenue from M&A was due to the acquisitions of GSSI in the fourth quarter of 2022, XChem in the third quarter of 2023 and Sanglier in the fourth quarter of 2023. The negative currency effect was due to a weaker Australian dollar and Canadian dollar offset by a stronger Euro compared to the U.S.

doll ar. Additionally, net revenue in 2023 was lower than 2022 by 1.6 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 2023. As a percentage of net revenue, gross margin decreased slightly primarily due to the impact of lower sales volume partially offset by higher product pricing and lower raw material costs.

SG&A expenses as a percentage of net revenue increased due to the impact of acquisitions and lower net revenue. Segment operating income decreased 73.9 percent and segment operating margin as a percentage of net revenue decreased 320 basis points in 2023 as compared to 2022.

Corporate Unallocated

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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. 

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

Segment operating loss increased 52.7 percent in 2023 reflecting higher restructuring and acquisition project costs compared to 2022. 

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.

Total cash and cash equivalents as of December 2, 2023 were $179.5 million compared to $79.9 million as of December 3, 2022.

Total long and short-term debt was $1,838.4 million as of December 2, 2023 and $1,765.1 million as of December 3, 2022.

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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Result as of December 2, 2023

Total Indebtedness / TTM EBITDA

Term Loan B  

Credit Agreement

Not greater than 5.25

Total Indebtedness / TTM EBITDA

Revolving Credit Agreement

Secured Total Indebtedness / TTM 1 EBITDA

Revolving Facility and Term Loan A Facility

Not greater than 4.75 2

TTM 1 EBITDA / Consolidated Interest Expense

Revolving Credit Agreement

Revolving Facility and Term Loan A Facility

Not less than 2.0

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.

The Maximum Secured Leverage Ratio prior to June 1, 2024, shall be 4.75 to 1.00 and will step down to 4.50 to 1.00 with respect to quarters ending after June 1, 2024

EBITDA for covenant purposes is defined as consolidated net income, plus (i) interest expense, (ii) expense for taxes paid or accrued, (iii) depreciation and amortization, (iv) certain non-cash impairment losses, (v) extraordinary non-cash losses incurred other than in the ordinary course of business, (vi) nonrecurring extraordinary non-cash restructuring charges and the non-cash impact of purchase accounting, (vii) any non-cash charge for the excess of rent expense over actual cash rent paid due to the use of straight-line rent, non-cash charge pursuant to any management equity plan, stock option plan or any other management or employee benefit, (viii) any non-cash finance charges in respect of any pension liabilities or other provisions and income (loss) attributable to deferred compensation plans, (ix) any non-recurring or unusual cash restructuring charges and operating improvements, (x) cost savings initiative and cost synergies related to acquisitions within 12 months, (xi) non-capitalized charges relating to the Company’s SAP implementation, (xii) fees, costs, expenses and charges incurred in connection with the financing, (xiii) fees, costs, expenses, make-whole or penalty payments and other similar items arising out of acquisitions, investments and dispositions, the incurrence, issuance, repayment or refinancing of indebtedness and any issuance of equity interests;

minus, non-recurring or unusual non-cash gains incurred not in the ordinary course of business.

Provided that the aggregate amounts that may be added back for any period pursuant to clauses (ix), (x) and (xi) shall not exceed 15% of EBITDA for such period (calculated prior to giving effect to all addbacks and adjustments).

For Secured Total Indebtedness / TTM EBITDA ratio, TTM EBITDA is adjusted for the pro forma results from Material Acquisitions and Material Divestitures, both as defined in the Second Amended and Restated Credit Agreement, as if the acquisition or divestiture occurred at the beginning of the calculation period.

The full definition is set forth in the Second Amended and Restated Credit Agreement the Company filed as an exhibit to its 8-K filing dated February 21, 2023.

Consolidated Interest Expense for covenant purposes is defined as the interest expense (including without limitation to 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 allocable to such period in accordance with GAAP, including net costs (or benefits) under Interest Rate Swap Agreements and commissions, discounts and other fees and charges with respect to letters of credit and the interest component of all Attributable Receivables Indebtedness.

We believe we have the ability to meet all of our contractual obligations and commitments in fiscal 2024.

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Foreign exchange contracts

Cash flow hedges

Interest rate swaps

Financial liabilities:

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Foreign exchange contracts

Interest rate and cross currency swaps

 Net investment hedges

Interest rate swaps

Net investment hedges

Net financial liabilities

Of the $179.5 million in cash and cash equivalents as of December 2, 2023, $152.9 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.

Of the $152.9 million of cash held outside the U.S., earnings on $136.0 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.

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.

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. Our credit facilities have the following restrictions related to investments and general limitations:

1) a credit facility limitation restricting investments, loans, advances or capital contributions from Loan Parties to non-Loan Parties in excess of $150.0 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 $150.0 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 when our secured leverage ratio is below 4.0x, and 4) typical statutory restrictions, which prohibit distributions in excess of net capital or similar tests. Additionally, we have taken the income tax position that the majority of our cash in non-U.S.

locations is indefinitely reinvested.

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Notes Payable

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

Notes payable were $1.8 million at December 2, 2023 and $28.9 million at December 3, 2022.

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.

The current weighted-average interest rates on these short-term borrowings wer e approximately 10.75 p ercent in 2023 and 16.2 percent in 2022.

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.

Long-term debt consists of a senior secured term loan (“Term Loan A”) with an aggregate principal amount of $500.0 million and a senior secured term loan (“Term Loan B”) with an aggregate principal amount of $800.0 million.

Interest on Term Loan A is payable at the Secured Overnight Financing Rate ("SOFR") plus an adjustment of 0.10 percent and an interest rate spread of 1.50 percent (6.95 percent at December 2, 2023). The interest rate spread is bas ed on a secured leverage grid.

Term Loan A matures on February 15, 2028.

December 2, 2023 , a balance of $487.5 million was outstanding on Term Loan A.

Interest on Term Loan B is payable at SOFR plus an interest rate spread of 2.25 percent with a SOFR floor of 0.50 percent (7.60 percent at December 2, 2023 ).

Term Loan B matures on February 15, 2030. At December 2, 2023 , a balance of $796.0 million was outstanding on Term Loan B. O n January 12, 2023, we entered into an interest rate swap agreement (amended on February 28, 2023) to convert $400,000 of our variable rate 1-month SOFR to a fixed rate of 3.7260. On March 16, 2023, we entered into interest rate swap agreements to convert $300,000 of our 1-month SOFR rate debt to a fixed rate of 3.7210 percent and to convert $100,000 of our 1-month SOFR rate debt to a fixed rate of 3.8990 percent. 

Long-term debt also consists of 10-year unsecured public notes (“10-year Public Notes”) with an aggregate principal amount of $300.0 million due February 15, 2027 with a fixed coupon of 4.00 percent and 8-year unsecured public notes (“8-year Public Notes”) with an aggregate principal amount of $300.0 million due October 15, 2028 with a fixed coupon of 4.25 percent. We currently have no intention to prepay the Public Notes.

On February 12, 2021, we entered into an interest rate swap agreement to convert our 8-year Public Notes to a variable interest rate of 1-month LIBOR plus 3.28 percent.

See Note 12 to the Consolidated Financial Statements for further discussion of this interest rate swap.

Interest payable on our long-term debt to taled $1.7 mil lion as of December 2, 2023. 

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 .

We have a revolving credit agreement with a consortium of financial institutions at December 2, 2023. 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 $700.0 million.

Interest on the revolving credit facility is payable at SOFR plus an adjustment of 0.10 percent and an interest rate spread of 1.50 percent (6.95 percent at December 2, 2023).

A facility fee of 20 basis points of the unused commitment under the revolving credit facility is payable quarterly.

The interest rate spread and the facility fee are based on a secured lever age grid.

At December 2, 2023 , there was no balance outstand ing on the Revolving Credit Facility.

The Revolving Credit Facility matures on February 15, 2028. 

We are subject to mandatory prepayments in the first quarter of each fiscal year equal to 50 percent of Excess Cash Flow, as defined in our debt 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 percent when our Secured Leverage Ratio is below 4.25:1.00 and to 0 percent when our Secured Leverage Ratio is below 3.75:1.00.

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

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Inventory days on hand (in days) 3

Trade accounts payable DPO (in days) 4

Free cash flow after dividends 5

Debt capitalization ratio 6

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).

1 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 Trade accounts payable multiplied by 91 (13 weeks) and divided by the net revenue for the quarter.

5 Net cash provided by operating activities less purchased property, plant and equipment and dividends paid.

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Net income including non-controlling interest was $145.0 million in 2023 and $180.4 million in 2022.

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

Depreciation and amortization expense totaled $159.8 million in 2023 compared to $147.0 million in 2022.

The higher depreciation and amortization expense in 2023 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.

Changes in net working capital (trade receivables, inventory and trade payables) accounted for a source of cash of $83.5 million compared to a use of cash of $103.2 million in 2023 and 2022, 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.

Changes in trade receivables resulted in a $68.7 million source of cash in 2023 compared to a $24.8 million use of cash in 2022.

The source of cash in 2023 compared to a use of cash in 2022 was related to higher collections in the current year compared to the prior year.

The DSO was 58 days at December 2, 2023 and 62 days at December 3, 2022.

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.

Changes in inventory resulted in a $72.6 million source of cash in 2023 compared to a $55.8 million use of cash in 2022.

The source of cash in 2023, compared to the use of cash in 2022 is due to lower inventory purchases at lower prices in 2023 compared to the prior year. Inventory days on hand were 67 days at the end of 2023 compared to 71 days at the end of 2022.

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 

Changes in trade payables resulted in a $57.8 million and $22.6 million use of cash in 2023 and 2022, respectively. The higher use of cash in 2023 compared to 2022 reflects higher payments on trade payables in the current year compared to the prior year. The DPO was 64 days at both the end of 2023 and 2022.

Contributions to our pension and other postretirement benefit plans were $4.3 million and $3.0 million in 2023 and 2022, respectively.

Income taxes payable resulted in a $41.2 million source of cash and a $12.9 million use of cash in 2023 and 2022, respectively.

Other asse ts resulted in a $7.9 million use of cash and a $46.5 million source of cash in 

2023 and 2022 , 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.

The use of cash in 

2023  compared to a source of cash in 2022  is primarily driven by a smaller decrease in pension and post-retirement assets related to the year-end pension valuation compared to the prior year and an increase in derivative assets in 

2023 compared to a decrease in 

Accrued compensation was a $13.8 million use of cash and a $1.1 million source of cash in 2023 and 2022, respectivel y, relating to lower accruals for our employee incentive plans in 

Other liabilities resulted in a $22.9 million and $4.1 million source of cash in 

2023 and 2022 , respectively.

The higher source of cash in 

2023 compared to 2022 was due to an increase in hedging liabilities from interest rate swap activity in 2023 compared to the prior year. 

Ot her operating activity was a $28.0 million use of cash and a $6.2 million source of cash in 2023 and 2022, respectively.

Other operating activity includ es equity adjustments related to year-end pension valuations and valuation adjustments for our derivatives .

Cash Flows Used In Investing Activities

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Net cash used in investing activities

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

Purchases of property, plant and equipment were $119.1 million in 2023 compared to $130.0 million in 2022. The lower purchases in 2023 reflect the timing of capital projects and expenditures related to growth initiatives.

Proceeds from the sale of property, plant and equipment were $5.0 million in 2023 compared to $1.6 million in 2022.

We paid cash, net of cash acquired, of $205.1 million and $250.8 million for purchased businesses in 2023 and 2022, respectively.

Cash Flows From Financing Activities

($ in millions)

Net cash used in financing activities

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

Net cash provided by financing activities

In 2023, we received $2,233.3 million in proceeds and repaid $2,126.5 million of long-term debt including borrowings and repayments on our revolving credit facility and in 2022, we received $335.0 million in proceeds and repaid $159.5 million of long-term debt.

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.

Debt issuance costs of $10.2 million were paid in 2023 compared to $0.6 million paid in 2022.

Cash paid for dividends were $43.4 million and $39.2 million in 2023 and 2022, respectively.

Cash generated from the exercise of stock options was $14.6 million and $30.1 million in 2023 and 2022, respectively.

Indirect repurchases of common stock through a net-settlement feature related to statutory minimum tax withholding upon vesting of restricted stock were $2.6 million in 2023 compared to $4.0 million in 2022.

There were no repurchases from our share repurchase program in 2023 and 2022.

We expect 2024 capital expenditures to be approximately $140.0 million.

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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