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, 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,   19 Table of Contents     ● Global supply of and demand for raw materials,   ● Economic growth rates, and   ● Currency exchange rates compared to the U.S. dollar.   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.   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, 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 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 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 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  2022 . The lower earnings per share in  2023 compared to  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.   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 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 2024 and beyond, we will continue implementation in North America, EIMEA, Brazil and Asia Pacific.   20 Table of Contents   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   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 2023 impairment test, included a 26 percent control premium.   21 Table of Contents   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.   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.   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 5.66 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 $0.1 million (pre-tax) in fiscal 2024. 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 7.75  percent in  2023 , 7.00 percent in  2022 and 7.25 percent in  2021 . 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 2023 , 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 $2.3 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     5.4 %     6.9 %     3.4 % 20-year period     6.5 %     7.1 %     5.5 %*   * 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).   22 Table of Contents   The expected long-term rate of return on plan assets assumption for non-U.S. pension plans was a weighted-average of 5.02 percent in 2023 compared to 3.49 percent in 2022 and 6.15 percent in 2021. 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 4.50 percent and the expected long-term rate of return on plan assets for Germany was 5.50 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. Projected salary increase assumptions for non-U.S. plans are determined in a manner consistent with the U.S. plans.   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. 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.   23 Table of Contents   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 $14.3 million as of December 2, 2023 and $17.6 million as of December 3, 2022.   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.   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)   2023     2022     2023 vs 2022   Net revenue   $ 3,510.9     $ 3,749.2       (6.4 )%   24 Table of Contents   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 2023 compared to fiscal 2022:       2023 vs 2022   Organic revenue growth     (5.5 )% Extra week in 2022 (53-week year)     (1.8 )% M&A     3.3 % Currency     (2.4 )% Net revenue growth     (6.4 )%   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. d ollar. 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)   2023     2022     2023 vs 2022   Cost of sales   $ 2,502.0     $ 2,785.5       (10.2 )% Percent of net revenue     71.3 %     74.3 %           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.   Gross profit   ($ in millions)   2023     2022     2023 vs 2022   Gross profit   $ 1,008.9     $ 963.7       4.7 % Percent of net revenue     28.7 %     25.7 %           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   ($ in millions)   2023     2022     2023 vs 2022   SG&A   $ 653.8     $ 641.0       2.0 % Percent of net revenue     18.6 %     17.1 %           SG&A expenses for 2023 increased $12.8 million, or 2.0 percent compared to 2022. The increase is due to higher restructuring and acquisition project costs and the impact of acquisitions. SG&A expenses as a percent of revenue increased by 150 basis points compared to the prior year due to lower net revenue and higher restructuring and acquisition project costs.   25 Table of Contents   Other income, net   ($ in millions)   2023     2022   Other income, net   $ 9.8     $ 12.9     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 $3.3 million settlement loss related to the termination of our Canadian defined benefit pension plan.   Interest expense   ($ in millions)   2023     2022   Interest expense   $ 134.6     $ 91.5     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 $1.5 million of interest expense in 2023 and 2022, respectively.   Interest income   ($ in millions)   2023     2022   Interest income   $ 3.9     $ 7.8     Interest income in 2023 and 2022 was $3.9 million and $7.8 million, respectively, consisting primarily of interest on cross-currency swap activity and other miscellaneous interest income.   Income tax expense:   ($ in millions)   2023     2022   Income tax expense   $ 93.5     $ 77.2   Effective tax rate     39.9 %     30.6 %   Income tax expense of $93.5  million in  2023 includes  $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  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 $9.3  million, the overall effective tax rate was 26.9  percent.    Table of Contents The increase in the overall effective tax rate for  2023 compared to 2022 , excluding the impact of discrete items, is primarily due to the change in the mix of earnings across jurisdictions, as well as the impact of withholding tax recorded on current earnings that will not be permanently invested.   26 Table of Contents   Income from equity method investments   ($ in millions)   2023     2022   Income from equity method investments   $ 4.4     $ 5.7     The income from equity method investments relates to our 50 percent ownership of the Sekisui-Fuller joint venture in Japan. The lower income for 2023 compared to 2022 is due to the unfavorable impact of the weakening of the Japanese yen against the U.S. dollar and lower net income in our joint venture.   Net income attributable to H.B. Fuller   ($ in millions)   2023     2022     2023 vs 2022   Net income attributable to H.B. Fuller   $ 144.9     $ 180.3       (19.6 )% Percent of net revenue     4.1 %     4.8 %           Net income attributable to H.B. Fuller was $144.9 million in 2023 compared to $180.3 million in 2022. Diluted earnings per share were $2.59 per share in 2023 and $3.26 per share in 2022.   Operating Segment Results   We are required to report segment information in the same way that we internally organize our business for assessing performance and making decisions regarding allocation of resources. For segment evaluation by the chief operating decision maker, segment operating income is defined as gross profit less SG&A expenses. Inter-segment revenues are recorded at cost plus a markup for administrative costs. Corporate expenses, other than those included in Corporate Unallocated, are allocated to each operating segment.   We have three reportable segments: Hygiene, Health and Consumable Adhesives, Engineering Adhesives and Construction Adhesives.  The tables below provide certain information regarding the net revenue and segment operating income of each of our operating segments. Corporate Unallocated includes business acquisition and integration costs, organizational restructuring charges and project costs related to the implementation of Project ONE.   Net Revenue by Segment       2023     2022       Net     % of     Net     % of   ($ in millions)   Revenue     Total     Revenue     Total   Hygiene, Health and Consumable Adhesives   $ 1,601.5       46 %   $ 1,695.9       45 % Engineering Adhesives     1,428.7       41 %     1,532.7       41 % Construction Adhesives     480.7       13 %     520.6       14 % Total   $ 3,510.9       100 %   $ 3,749.2       100 %   Segment Operating Income (Loss)       2023     2022       Operating     % of     Operating     % of   ($ in millions)   Income (Loss)     Total     Income (Loss)     Total   Hygiene, Health and Consumable Adhesives   $ 215.1       61 %   $ 165.8       51 % Engineering Adhesives     187.3       53 %     168.8       52 % Construction Adhesives     6.0       1 %     23.0       8 % Segment total     408.4       115 %     357.6       111 % Corporate Unallocated     (53.3 )     (15 )%     (34.9 )     (11 )% Total   $ 355.1       100 %   $ 322.7       100 %   27 Table of Contents   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)   2023     2022   Segment operating income   $ 355.1     $ 322.7   Other income, net     9.8       12.9   Interest expense     (134.6 )     (91.5 ) Interest income     3.9       7.8   Income before income taxes and income from equity method investments   $ 234.2     $ 251.9     Hygiene, Health and Consumable Adhesives   ($ in millions)   2023     2022     2023 vs 2022   Net revenue   $ 1,601.5     $ 1,695.9       (5.6 )% Segment operating income   $ 215.1     $ 165.8       29.7 % Segment profit margin %     13.4 %     9.8 %           The following tables provide details of Hygiene, Health and Consumable Adhesives net revenue variances:       2023 vs 2022   Organic revenue growth     (5.1 )% Extra week in 2022 (53-week year)     (1.8 )% M&A     4.6 % Currency     (3.3 )% Net revenue growth     (5.6 )%   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   ($ in millions)   2023     2022     2023 vs 2022   Net revenue   $ 1,428.7     $ 1,532.7       (6.8 )% Segment operating income   $ 187.3     $ 168.8       11.0 % Segment profit margin %     13.1 %     11.0 %           The following tables provide details of Engineering Adhesives net revenue variances:       2023 vs 2022   Organic revenue growth     (4.2 )% Extra week in 2022 (53-week year)     (1.8 )% M&A     1.2 % Currency     (2.0 )% Net revenue growth     (6.8 )%   28 Table of Contents   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)   2023     2022     2023 vs 2022   Net revenue   $ 480.7     $ 520.6       (7.7 )% Segment operating income   $ 6.0     $ 23.0       (73.9 )% Segment profit margin %     1.2 %     4.4 %           The following tables provide details of Construction Adhesives net revenue variances:       2023 vs 2022   Organic revenue growth     (11.0 )% Extra week in 2022 (53-week year)     (1.6 )% M&A     5.4 % Currency     (0.5 )% Net revenue growth     (7.7 )%   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   ($ in millions)   2023     2022     2023 vs 2022   Segment operating loss   $ (53.3 )   $ (34.9 )     52.7 % Segment profit margin %   NMP     NMP             NMP = Non-meaningful percentage   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.      29 Table of Contents   Financial Condition, Liquidity and Capital Resources   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. 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 2, 2023, 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 2, 2023 Secured Total Indebtedness / TTM 1 EBITDA Revolving Facility and Term Loan A Facility Not greater than 4.75 2 2.1 TTM 1 EBITDA / Consolidated Interest Expense Revolving Facility and Term Loan A Facility Not less than 2.0 4.6   1 TTM = trailing 12 months 2 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.   30 Table of Contents   Net Financial Assets (Liabilities)   ($ in millions)   2023     2022   Financial assets:                 Cash and cash equivalents   $ 179.5     $ 79.9   Foreign exchange contracts     13.5       10.3   Interest rate swaps     3.6       -   Financial liabilities:                 Notes payable     (1.8 )     (28.9 ) Long-term debt     (1,836.6 )     (1,736.3 ) Foreign exchange contracts     (5.0 )     (4.6 ) Interest rate swaps     (41.6 )     (42.5 ) Net investment hedges     (72.6 )     (54.0 ) Net financial liabilities   $ (1,761.1 )   $ (1,776.1 )   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 $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.   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.   Debt Outstanding and Debt Capacity   Notes Payable   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 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.   31 Table of Contents   Long-Term Debt   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. At  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 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.     Goodwill and Other Intangible Assets   As of December 2, 2023, goodwill totaled $1,486.5 million (31.5 percent of total assets) and other intangible assets, net of accumulated amortization, totaled $729.1 million (15.4 percent of total assets).   32 Table of Contents   The components of goodwill and other identifiable intangible assets, net of amortization, by segment are as follows:       2023                                         Hygiene, Health                               and Consumable     Engineering     Construction           ($ in millions)   Adhesives     Adhesives     Adhesives     Total   Goodwill   $ 402.6     $ 651.1     $ 432.8     $ 1,486.5   Purchased technology and patents     41.7       28.9       14.5       85.1   Customer relationships     126.8       226.9       250.6       604.3   Tradenames     11.6       13.6       10.2       35.4   Other finite-lived intangible assets     1.5       -       2.4       3.9   Indefinite-lived intangible assets     -       0.5       -       0.5         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     33 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 2,     December 3,       2023     2022   Net working capital as a percentage of annualized net revenue 1     16.1 %     16.6 % Trade receivables DSO (in days) 2     58       62   Inventory days on hand (in days) 3     67       71   Trade accounts payable DPO (in days) 4     64       64   Free cash flow after dividends 5   $ 215.9     $ 87.3   Debt capitalization ratio 6     51.1 %     52.3 %   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. See reconciliation to net cash provided by operating activities to free cash flow after dividends below.   6 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.   34 Table of Contents   Reconciliation of “Net cash provided by operating activities” to "Free cash flow after dividends"   ($ in millions)   2023     2022   Net cash provided by operating activities   $ 378.4     $ 256.5   Less: Purchased property, plant and equipment     119.1       130.0   Less: Dividends paid     43.4       39.2   Free cash flow after dividends   $ 215.9     $ 87.3     Summary of Cash Flows   Cash Flows from Operating Activities   ($ in millions)   2023     2022   Net cash provided by operating activities   $ 378.4     $ 256.5     Net income including non-controlling interest was $145.0 million in 2023 and $180.4 million in 2022. 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 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 $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 $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 $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 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  2022. 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  2023 . 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 $6.2 million source of cash in 2023 and 2022, respectively. Other operating activity includ es equity adjustments related to year-end pension valuations and valuation adjustments for our derivatives .   Cash Flows Used In Investing Activities   ($ in millions)   2023     2022   Net cash used in investing activities   $ (319.2 )   $ (375.3 )   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 $250.8 million for purchased businesses in 2023 and 2022, respectively.   35 Table of Contents   Cash Flows From Financing Activities   ($ in millions)   2023     2022   Net cash provided by financing activities   $ 35.1     $ 160.3     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. 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.   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.