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Item 2. Management’s Discussion and Analysis

2024-06-27 compared with 2024-03-28 · 173 added, 98 removed, 194 unchanged (58% of the section changed)

1 unchanged sentence

The Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the MD&A included in our Annual Report on Form 10-K for the year ended December 2, 2023 for important background information related to our business.

Net revenue in the first quarter of 2024 increased 0.2 percent from the first quarter of 2023.

Net revenue increased 5.0 percent due to acquisitions , partially offset by a 3.3 percent decrease in pricing, 0.9 percent decrease due to sales volume and 0.6 percent decrease due to negative currency effect compared to the first quarter of 2023.

The negative currency effects were primarily driven by a weaker Turkish lira, Chinese renminbi and Egyptian pound offset by a stronger Euro, Brazilian real and Mexican peso compared to the U.S.

Gross profit margin increased 300 basis points primarily due to lower raw material costs, partially offset by the impact of lower product pricing and sales volume.

Net revenue in the second quarter of 2024 increased 2.1 percent from the second quarter of 2023.

Net revenue increased 3.9 percent due to acquisitions and 3.3 percent due to sales volume, partially offset by a 3.4 percent decrease in pricing and a 1.7 percent decrease due to negative currency effect compared to the second quarter of 2023.

The negative currency effects were primarily driven by a weaker Turkish lira, Chinese renminbi and Egyptian pound offset by a stronger Brazilian real and Mexican peso compared to the U.S.

Gross profit margin increased 220 basis points primarily due to lower raw material costs and higher sales volume partially offset by lower product pricing.

Net revenue in the first six months of 2024 increased 1.2 percent from the first six months of 2023.

Net revenue increased 4.4 percent due to acquisitions and 1.4 percent due to sales volume, partially offset by a 3.4 percent decrease in pricing and a 1.2 percent decrease due to negative currency effect compared to the first six months of 2023.

The negative currency effects were primarily driven by a weaker Turkish lira, Chinese renminbi and Egyptian pound offset by a stronger Euro, Brazilian real, Mexican peso and Colombian peso compared to the U.S.

Gross profit margin increased 260 basis points primarily due to lower raw material costs partially offset by lower product pricing.

Net income attributable to H.B.

Fuller in the first quarter of 2024 was $31.0 million compared to $21.9 million in the first quarter of 2023.

Diluted earnings per share for the first quarter of 2024 was $0.55 per share compared to $0.39 per share for the first quarter of 2023.

Fuller in the second quarter of 2024 was $51.3 million compared to $40.4 million in the second quarter of 2023.

Diluted earnings per share for the second quarter of 2024 was $0.91 per share compared to $0.73 per share for the second quarter of 2023.

Net income attributable to H.B.

Fuller in the first six months of 2024 was $82.3 million compared to $62.3 million in the first six months of 2023.

Diluted earnings per share for the first six months of 2024 was $1.45 per share compared to $1.12 per share for the first six months of 2023.

Restructuring Plans

1 unchanged sentence

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 $32.2 million under the Plans as of March 2, 2024.

We have incurred costs of $37.1 million under the Plans as of June 1, 2024.

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

2 unchanged sentences

Three Months Ended

Six Months Ended

($ in millions)

We review variances in net revenue in terms of changes related to sales volume, product pricing, business acquisitions and divestitures (“M&A”) and changes in foreign currency exchange rates.

The following table shows the net revenue variance analysis for the first quarter of 2024 compared to the third quarter and first nine months of 2023:

The following table shows the net revenue variance analysis for the second quarter and first six months of 2024 compared to the second quarter and first six months of 2023:

Three Months Ended

March 2, 2024 vs.

March 4, 2023

Six Months Ended

June 1, 2024 vs.

Organic growth

Organic growth was a negative 4.2 percent in the first quarter of 2024 compared to the first quarter of 2023 and consisted of a 9.4 percent decrease in Hygiene, Health and Consumable Adhesives and a 2.3 percent decrease in Engineering Adhesives, partially offset by a 10.3 percent increase in Construction Adhesives.

The decrease is driven by a decrease in product pricing and volume.

The 5.0 percent increase from M&A is due to our acquisitions that occurred in the last twelve months.

The negative 0.6 percent foreign currency impact was primarily driven by a weaker Turkish lira, Chinese renminbi and Egyptian pound offset by a stronger Euro, Brazilian real and Mexican peso compared to the U.S.

Organic revenue decreased 0.1 percent in the second quarter of 2024 compared to the second quarter of 2023 and consisted of a 7.2 percent increase in Construction Adhesives and a 2.5 percent increase in Engineering Adhesives, offset by a 4.7 percent decrease in Hygiene, Health and Consumable Adhesives.

The decrease was driven by a 3.4 percent decrease in product pricing, partially offset by a 3.3 percent increase in sales volume.

The 3.9 percent increase from M&A was due to our acquisitions that occurred in the last twelve months.

The negative 1.7 percent foreign currency impact was primarily driven by a weaker Turkish lira, Chinese renminbi and Egyptian pound offset by a stronger Brazilian real and Mexican peso compared to the U.S.

Organic revenue decreased 2.0 percent in the first six months of 2024 compared to the first six months of 2023 and consisted of an 8.5 percent increase in Construction Adhesives and a 0.2 percent increase in Engineering Adhesives, offset by a 7.1 percent decrease in Hygiene, Health and Consumable Adhesives.

The decrease was driven by a 3.4 percent decrease in product pricing, partially offset by a 1.4 percent increase in sales volume.

The 4.4 percent increase from M&A was due to our acquisitions that occurred in the last twelve months.

The negative 1.2 percent foreign currency impact was primarily driven by a weaker Turkish lira, Chinese renminbi and Egyptian pound offset by a stronger Euro, Brazilian real, Mexican peso and Colombian peso compared to the U.S.

Cost of sales:

Three Months Ended

Six Months Ended

($ in millions)

1 unchanged sentence

Percent of net revenue

Cost of sales in the first quarter of 2024 compared to the first quarter of 2023 decreased 300 basis points as a percentage of net revenue.

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

Cost of sales in the second quarter of 2024 compared to the second quarter of 2023 decreased 210 basis points as a percentage of net revenue.

Raw material cost as a percentage of net revenue decreased 280 basis points in 2024 compared to 2023 due to lower raw material costs.

Other manufacturing costs as a percentage of net revenue increased 70 basis points in 2024 compared to 2023 due to a decrease in product pricing partially offset by higher sales volum e.

Cost of sales in the first six months of2024 compared to the first six months of2023 decreased 260 basis points as a percentage of net revenue.

Raw material cost as a percentage of net revenue decreased 370 basis points in 2024 compared to 2023 due to lower raw material costs.

Other manufacturing costs as a percentage of net revenue increased 110 basis points in 2024 compared to 2023 primarily due to a decrease in product pricing .

Gross profit:

Three Months Ended

Six Months Ended

($ in millions)

Percent of net revenue

Gross profit in the first quarter of 2024 increased 11.4 percent and gross profit margin increased 300 basis points compared to the first quarter of 2023.

The increase in gross profit margin was primarily due to lower raw material costs, partially offset by the impact of lower sales volume and decreased product pricing .

Gross profit in the second quarter of 2024 increased 9.9 percent and gross profit margin increased 220 basis points compared to the second quarter of 2023.

The increase in gross profit margin was due to a 280 basis point decrease in raw materials offset by a 70 basis point increase in other manufacturing costs .

Gross profit in the first six months of 2024 increased 10.5 percent and gross profit margin increased 260 basis points compared to the first six months of 2023.

The increase in gross profit margin was due to a 370 basis point decrease in raw materials offset by a 110 basis point increase in other manufacturing costs .

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

Three Months Ended

Six Months Ended

($ in millions)

Percent of net revenue

SG&A expenses for the first quarter of 2024 compared to the first quarter of 2023 increased 220 basis points as a percentage of net revenue.

The increase is du e to the impact of acquisitions and higher restructuring and variable compensation costs .

SG&A expenses for the second quarter of 2024 compared to the second quarter of 2023 increased 130 basis points as a percentage of net revenue.

The increase was du e to the impact of acquisitions and higher compensation costs .

SG&A expenses for the first six months of 2024 compared to the first six months of 2023 increased 170 basis points as a percentage of net revenue.

The increase was du e to the impact of acquisitions and higher compensation costs .

Other income, net:

Three Months Ended

Six Months Ended

($ in millions)

Other income, net

Other income, net in the first quarter of 2024 included $4.0 million of net defined benefit pension benefits, partially offset by $2.1 million of currency transaction losses and a $0.4 million loss from the write-off of a cost method investment.

Other income, net in the first quarter of 2023 included $6.5 million of net defined benefit pension benefits and $0.2 million of other income, partially offset by $4.1 million of currency transaction losses.

Other income, net in the second quarter of 2024 included $4.0 million of net defined benefit pension benefits, partially offset by $0.3 million of currency transaction losses and a $0.1 million of other expense.

Other income, net in the second quarter of 2023 included $3.6 million of net defined benefit pension benefits and $0.4 million of other income, partially offset by $3.4 million of currency transaction losses.

Other income, net in the first six months of 2024 included $7.9 million of net defined benefit pension benefits, partially offset by $2.3 million of currency transaction losses, a $0.4 million loss from the write-off of a cost method investment and $0.1 million of other expense.

Other income, net in the first six months of 2023 included $10.1 million of net defined benefit pension benefits and $0.7 million of other income, partially offset by $7.6 million of currency transaction losses.

Interest expense:

Three Months Ended

Six Months Ended

($ in millions)

Interest expense

Interest expense in the first quarter of 2024 was $31.9 million compared to $33.1 million in the first quarter of 2023 and was lower primarily due to lower interest rates and lower debt balances.

Interest expense in the second quarter of 2024 was $32.3 million compared to $33.1 million in the second quarter of 2023 and was lower primarily due to lower interest rates and lower debt balances.

Interest expense in the first six months of2024 was $64.2 million compared to $66.2 million in the first six months of2023 and was lower primarily due to lower interest rates and lower debt balances.

Interest income:

Three Months Ended

Six Months Ended

($ in millions)

Interest income

Interest income in the first quarter of 2024 and 2023 was $1.3 million and $0.7 million, respectively, consisting primarily of interest on cross-currency swap activity and other miscellaneous interest income.

Interest income in the second quarter of 2024 and 2023 was $1.2 million and $0.9 million, respectively, consisting primarily of interest on cross-currency swap activity and other miscellaneous interest income.

Interest income in the first six months of 2024 and 2023 was $2.5 million and $1.6 million, respectively, consisting primarily of interest on cross-currency swap activity and other miscellaneous interest income.

Income taxes:

Three Months Ended

Six Months Ended

($ in millions)

Effective tax rate

Income tax expense of $7.8 million in the first quarter of 2024 includes $2.5 million of discrete tax benefit.

Excluding the discrete tax benefit, the overall effective tax rate was 27.4 percent.

The discrete tax benefit relates to various foreign tax matters, as well an excess tax benefit related to U.S.

stock compensation.

Income tax expense of $9.7 million in the first quarter of 2023 includes $0.8 million of discrete tax expense.

Income tax expense of $22.4 million in the second quarter of 2024 includes $1.3 million of discrete tax expense.

Excluding the discrete tax expense, the overall effective tax rate was 28.9 percent.

1 unchanged sentence

stock compensation.

Income tax expense of $19.3 million in the second quarter of 2023 includes $2.0 million of discrete tax expense.

Excluding the discrete tax expense, the overall effective tax rate was 29.5 percent.

The discrete tax expense related to various foreign tax matters.

Income tax expense of $30.2 million in the first six months of 2024 includes $1.2 million of discrete tax benefit.

Excluding the discrete tax benefit, the overall effective tax rate was 28.4 percent.

The discrete tax benefit relates to an excess tax benefit related to U.S.

stock compensation offset by various foreign tax matters.

Income tax expense of $29.0 million in the first six months of 2023 includes $2.9 million of discrete tax expense.

Excluding the discrete tax expense, the overall effective tax rate was 29.4 percent.

The discrete tax expense related to various foreign tax matters offset by an excess tax benefit related to U.S.

stock compensation.

Income from equity method investments:

Three Months Ended

Six Months Ended

($ in millions)

1 unchanged sentence

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

The lower income for the first quarter of 2024 compared to the first quarter of 2023 is due to lower net income in our joint venture and the unfavorable impact of the weakening of the Japanese yen against the U.S.

The lower income for the second quarter and first six months of 2024 compared to the second quarter and first six months of 2023 is due to lower net income in our joint venture and the unfavorable impact of the weakening of the Japanese yen against the U.S.

Net income attributable to H.B.

Three Months Ended

Six Months Ended

($ in millions)

2 unchanged sentences

The net income attributable to H.B.

Fuller for the first quarter of 2024 was $31.0 million compared to $21.9 million for the first quarter of 2023.

The diluted earnings per share for the first quarter of 2024 was $0.55 per share as compared to $0.39 per share for the first quarter of 2023.

Fuller for the second quarter of 2024 was $51.3 million compared to $40.4 million for the second quarter of 2023.

The diluted earnings per share for the second quarter of 2024 was $0.91 per share as compared to $0.73 per share for the second quarter of 2023.

The net income attributable to H.B.

Fuller for the first six months of 2024 was $82.3 million compared to $62.3 million for the first six months of 2023.

The diluted earnings per share for the first six months of 2024 was $1.45 per share as compared to $1.12 per share for the first six months of 2023.

Operating Segment Results

6 unchanged sentences

Three Months Ended

March 2, 2024

March 4, 2023

Six Months Ended

($ in millions)

6 unchanged sentences

Three Months Ended

March 2, 2024

March 4, 2023

Six Months Ended

($ in millions)

6 unchanged sentences

Three Months Ended

Six Months Ended

($ in millions)

3 unchanged sentences

Three Months Ended

March 2, 2024 vs.

March 4, 2023

Six Months Ended

June 1, 2024 vs.

Organic growth

Net revenue decreased 4.1 percent in the first quarter of 2024 compared to the first quarter of 2023.

The decrease in organic growth was attri butable to a decrease in sales volume and product pricing.

Net revenue decreased 2.8 percent in the second quarter of 2024 compared to the second quarter of 2023.

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

The 4.0 percent increase in net revenue from M&A was due to the acquisitions o f Beardow Adams in the second quart er of 2023 and Adhezion in the third quarter of 2023.

The negative currency effect was due to a weaker Turkish lira, Chinese renminbi and Egyptian pound offset by a stronger Brazilian real and Mexican peso compared to the U.S.

As a percentage of net revenue, gross margin increased due to lower raw material costs, partially offset by the impact of lower product pricing and lower sales volume.

SG&A expenses as a percentage of net revenue increased due to the impact of acquisitions, lower net revenue and higher variable compensation costs.

Segment operating income increased 4.0 percent and segment operating margin as a percentage of net revenue increased 100 basis points compared to the first quarter of 2023 .

The negative currency effect was due to a weaker Turkish lira, Egyptian pound and Chinese renminbi offset by a stronger Brazilian real and Mexican peso compared to the U.S.

As a percentage of net revenue, raw material costs decreased 260 basis points due to lower raw material costs.

Other manufacturing costs as a percentage of net revenue increased 60 basis points due to lower product pricing, partially offset by a slight increase in sales volume.

SG&A expenses as a percentage of net revenue increased 200 basis points due to the impact of acquisitions and lower net revenue.

Segment operating income decreased 2.1 percent and segment operating margin as a percentage of net revenue was flat compared to the second quarter of 2023 .

Net revenue decreased 3.5 percent in the first six months of 2024 compared to the first six months of 2023.

The decrease in organic growth was attri butable to a decrease in product pricing and sales volume.

The 4.9 percent increase in net revenue from M&A was due to the acquisitions o f Beardow Adams in the second quart er of 2023 and Adhezion in the third quarter of 2023.

The negative currency effect was due to a weaker Turkish lira, Egyptian pound, and Chinese renminbi offset by a stronger Brazilian real, Mexican peso and Colombian peso compared to the U.S.

As a percentage of net revenue, raw material costs decreased 390 basis points due to lower raw material costs.

Other manufacturing costs as a percentage of net revenue increased 100 basis points due to lower product pricing and lower sales volume.

SG&A expenses as a percentage of net revenue increased 240 basis points due to the impact of acquisitions, lower net revenue and higher compensation costs.

Segment operating income increased 0.6 percent and segment operating margin as a percentage of net revenue increased 50 basis points compared to the first six months of2023 .

Engineering Adhesives

Three Months Ended

Six Months Ended

($ in millions)

3 unchanged sentences

Three Months Ended

March 2, 2024 vs.

March 4, 2023

Six Months Ended

June 1, 2024 vs.

Organic growth

Net revenue decreased 1.3 percent in the first quarter of 2024 compared to the first quarter of 2023 .

The decrease in organic growth was attributable to a decrease in product pricing and sales volume.

The 1.9 percent increase in net revenue from M&A was due to the acquisition of Aspen in the first quarter of 2023.

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

Gross margin as a percentage of net revenue increased due to lower raw material costs, partially offset by the impact of lower product pricing and sales volume.

SG&A expenses as a percentage of net revenue increased due to lower net revenue and higher variable compensation costs.

Segment operating income increased 7.1 percent and segment operating margin increased 80 basis points compared to the first quarter of 2023 .

Net revenue increased 2.6 percent in the second quarter of 2024 compared to the second quarter of 2023 .

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

The 1.9 percent increase in net revenue from M&A was due to the acquisition of ND Industries in the second quarter of 2024.

The negative currency effect was due to a weaker Chinese renminbi and Turkish lira offset by a stronger British pound sterlin g co mpared to the U.S.

A s a percentage of net revenue, raw material costs decreased 290 basis points due to lower raw material costs.

Other manufacturing costs as a percentage of net revenue increased 50 basis points.

SG&A expenses as a percentage of net revenue increased 70 basis points primarily due to higher compensation costs.

Segment operating income increased 16.7 percent and segment operating margin increased 170 basis points compared to the second quarter of 2023 .

Net revenue increased 0.7 percent in the first six months of2024 compared to the first six months of2023 .

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

The 1.9 percent increase in net revenue from M&A was due to the acquisition of Aspen in the first quarter of 2023 and ND Industries in the second quarter of 2024.

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

As a percentage of net revenue, raw material costs decreased 350 basis points due to lower raw material costs.

Other manufacturing costs as a percentage of net revenue increased 90 basis points due to the impact of lower product pricing, partially offset by increased sales volume.

SG&A expenses as a percentage of net revenue increased by 130 basis points due to higher compensation costs.

Segment operating income increased 12.7 percent and segment operating margin increased 130 basis points compared to the first six months of2023 .

Construction Adhesives

Three Months Ended

Six Months Ended

($ in millions)

Segment operating loss

Segment operating income

Segment operating margin

1 unchanged sentence

Three Months Ended

March 2, 2024 vs.

March 4, 2023

Six Months Ended

June 1, 2024 vs.

Organic growth

Net revenue increased 23.1 percent in the first quarter of 2024 compared to the first quarter of 2023.

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

The 12.7 percent increase in net revenue from M&A was due to the acquisition o f XChem in the third quarter of 2023 and Sanglier in the fourth quarter of 2023.

Gross margin as a percentage of net revenue increased primarily due to higher sales volume and lower raw material costs partially offset by a slight decrease in product pricing.

SG&A expenses as a percentage of net revenue decreased due to higher net revenue partially offset by the impact of acquisitions and higher variable compensation costs.

Segment operating loss decreased 72.9 percent and segment operating margin increased 810 basis points compared to the first quarter of 2023 .

Net revenue increased 16.0 percent in the second quarter of 2024 compared to the second quarter of 2023.

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

The 8.9 percent increase in net revenue from M&A was due to the acquisitions o f XChem in the third quarter of 2023 and Sanglier in the fourth quarter of 2023.

As a percentage of net revenue, raw material costs decreased 130 basis points due to lower raw material costs.

O ther manufacturing costs as a percentage of net revenue decreased 60 basis points due to higher sales volume, partially offset by lower product pricing.

SG&A expenses as a percentage of net revenue decreased 40 basis points.

Segment operating income increased 74.5 percent and segment operating margin increased 230 basis points compared to the second quarter of 2023 .

Net revenue increased 19.0 percent in the first six months of 2024 compared to the first six months of 2023.

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

The 10.5 percent increase in net revenue from M&A was due to the acquisitions o f XChem in the third quarter of 2023 and Sanglier in the fourth quarter of 2023.

As a percentage of net revenue, raw material costs decreased 190 basis points due to lower raw material costs.

Other manufacturing costs as a percentage of net revenue decreased 90 basis points due to higher sales volume, partially offset by lower product pricing.

SG&A expenses as a percentage of net revenue decreased by 190 basis points due increased net revenue, partially offset by the impact of acquisitions and higher compensation costs.

Segment operating loss decreased 312.9 percent to operating income and segment operating margin increased 470 basis points compared to the first six months of2023 .

Corporate Unallocated

Three Months Ended

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($ in millions)

3 unchanged sentences

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

Segment operating loss in the first quarter of 2024 increased 58.4 percent compared to the first quarter of 2023 due to higher restructuring and acquisition project costs.

Segment operating loss in the second quarter of 2024 increased 2.7 percent compared to the second quarter of 2023 due to higher restructuring and acquisition project costs.

Segment operating loss in the first six months of 2024 increased 24.7 percent compared to the first six months of 2023 due to higher restructuring and acquisition project costs.

Financial Condition, Liquidity and Capital Resources

Total cash and cash equivalents as of March 2, 2024 were $165.2 million compared to $179.5 million as of December 2, 2023 and $125.5 million as of March 4, 2023.

The majority of the $165.2 million in cash and cash equivalents as of March 2, 2024 was held outside the United States.

Total long and short-term debt was $1,830.8 million as of March 2, 2024, $1,838.4 million as of December 2, 2023 and $1,873.5 million as of March 4, 2023.

The total debt to total capital ratio as measured by total debt divided by total debt plus total stockholders’ equity was 50.9 percent as of March 2, 2024 as compared to 51.1 percent as of December 2, 2023 and 53.4 percent as of March 4, 2023.

Total cash and cash equivalents as of June 1, 2024 were $114.8 million compared to $179.5 million as of December 2, 2023 and $103.2 million as of June 3, 2023.

The majority of the $114.8 million in cash and cash equivalents as of June 1, 2024 was held outside the United States.

Total long and short-term debt was $2,024.9 million as of June 1, 2024, $1,838.4 million as of December 2, 2023 and $1,882.3 million as of June 3, 2023.

The total debt to total capital ratio as measured by total debt divided by total debt plus total stockholders’ equity was 53.0 percent as of June 1, 2024 as compared to 51.1 percent as of December 2, 2023 and 52.8 percent as of June 3, 2023.

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

7 unchanged sentences

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.

As of March 4, 2023, we were in compliance with all covenants of our contractual obligations as shown in the following table:

As of June 3, 2023, we were in compliance with all covenants of our contractual obligations as shown in the following table:

Debt Instrument

Result as of March 2, 2024

Result as of June 1, 2024

Secured Total Indebtedness / TTM 1 EBITDA

19 unchanged sentences

Trade accounts payable DPO (in days) 4

Free (negative) cash flow 5

Free cash flow 5

Total debt to total capital ratio 6

9 unchanged sentences

The following table reflects the manner in which free cash flow is determined and provides a reconciliation of free cash flow to net cash provided by operating activities, the most directly comparable financial measure calculated and reported in accordance with U.S.

Reconciliation of "Net cash provided by operating activities" to free (negative) cash flow

Three Months Ended

Reconciliation of "Net cash provided by operating activities" to free cash flow

Six Months Ended

($ in millions)

March 2, 2024

March 4, 2023

Net cash provided by operating activities

Purchased property, plant and equipment

Free (negative) cash flow

Free cash flow

Summary of Cash Flows

Cash Flows from Operating Activities:

Three Months Ended

Six Months Ended

($ in millions)

Net cash provided by operating activities

Net income including non-controlling interest was $31.0 million in the first three months of 2024 compared to $21.9 million in the first three months of 2023.

Depreciation and amortization expense totaled $43.5 million in the first three months of 2024 compared to $37.9 million in the first three months of 2023.

Deferred income taxes was a use of cash of $5.7 million in the first three months of 2024 and 2023.

Net income including non-controlling interest was $82.3 million in the first six months of 2024 compared to $62.3 million in the first six months of 2023.

Depreciation and amortization expense totaled $84.7 million in the first six months of 2024 compared to $77.0 million in the first six months of 2023.

Deferred income taxes was a use of cash of $24.1 million in the first six months of 2024 compared to $16.8 million in the first six months of 2023.

Accrued compensation was a use of cash of $16.4 million in 2024 compared to $42.2 million in 2023.

Other assets was a use of cash of $9.1 million in the first three months of 2024 compared to $28.9 million in the first three months of 2023.

Other liabilities was a use of cash of $0.4 million in the first three months of 2024 compared to a use of cash of $3.1 million in the first three months of 2023.

Other assets was a use of cash of $22.3 million in the first six months of 2024 compared to $37.0 million in the first six months of 2023.

Other liabilities was a use of cash of $1.8 million in the first six months of 2024 compared to a source of cash of $18.8 million in the first six months of 2023.

Changes in net working capital (trade receivables, inventory and trade payables) accounted for a source of cash of $4.9 million compared to a source of cash of $54.9 million last year.

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

Three Months Ended

Six Months Ended

($ in millions)

2 unchanged sentences

Total cash flow impact

Trade receivables, net – Trade receivables, net was a source of cash of $56.9 million and $55.4 million in the first three months of 2024 and 2023, respectively.

Trade receivables, net – Trade receivables, net was a source of cash of $22.6 million and $66.9 million in the first six months of 2024 and 2023, respectively.

The slightly higher source of cash in 2024 compared to 2023 was due to more cash collected on trade receivables in the current year compared to the prior year.

The DSO were 59 days at March 2, 2024 and 64 days at March 4, 2023.

Inventory – Inventory was a use of cash of $50.2 million and $33.8 million in the first three months of 2024 and 2023, respectively.

The DSO were 57 days at June 1, 2024 and 59 days at June 3, 2023.

Inventory – Inventory was a use of cash of $56.5 million and a source of cash of $8.3 million in the first six months of 2024 and 2023, respectively.

The higher use of cash in 2024 compared to 2023 is due to higher inventory purchases in 2024 compared to 2023.

Inventory days on hand were 82 days as of March 2, 2024 and 84 days as of March 4, 2023.

Trade payables – Trade payables was a source of cash of $27.6 million and $9.0 million in the first three months of 2024 and 2023, respectively.

Inventory days on hand were 74 days as of June 1, 2024 and 74 days as of June 3, 2023.

Trade payables – Trade payables was a source of cash of $38.8 million and a use of cash of $20.3 million in the first six months of 2024 and 2023, respectively.

The higher source of cash in 2024 compared to 2023 reflects lower payments on trade payables in the current year compared to the prior year.

Cash Flows from Investing Activities:

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Six Months Ended

($ in millions)

Net cash used in investing activities

Purchases of property, plant and equipment were $43.3 million during the first three months of 2024 compared to $47.6 million for the same period of 2023 .

Purchases of property, plant and equipment were $90.2 million during the first six months of 2024 compared to $82.6 million for the same period of 2023 .

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

During the first three months of 2023, we paid $16.7 million of cash, net of cash acquired for purchased businesses.

During the first six months of 2024, we paid $254.3 million of cash, net of cash acquired for purchased businesses.

During the first six months of 2023, we paid $103.7 million, net of cash acquired for purchased businesses.

Cash Flows from Financing Activities:

Three Months Ended

Six Months Ended

($ in millions)

Net cash (used in) provided by financing activities

In the first three months of 2024 , borrowings on our revolving credit facility were $195.0 million and repayments on our revolving credit facility and our long-term debt totaled $203.3 million.

These borrowings are for general working capital purposes.

Borrowings on our long-term debt were $1,300.0 and payments on our revolving credit facility were $1,176.7 million in the first three months of 2023 .

Payment of debt issue costs were $10.2 million in the first three months of 2023 .

Net payments of notes payable were $0.3 million in the first three months of 2024 and $0.9 million in the same period of 2023 .

Cash dividends paid were $11.2 million in the first three months of 2024 compared to $10.2 million in the same period of 2023 .

Repurchases of common stock were $6.2 million in the first three months of 2024 compared to $2.4 million in the same period of 2023 .

In the first six months of 2024 , borrowings on our revolving credit facility were $1,497.0 million and repayments on our revolving credit facility and our long-term debt totaled $1,305.5 million.

These borrowings are for general working capital purposes and permitted acquisitions.

Borrowings on our long-term debt were $1,300.0 and payments on our revolving credit facility were $1,176.7 million in the first six months of 2023 .

Payment of debt issue costs were $3.5 million in the first six months of 2024 and $10.2 million in the first six months of 2023 .

Net payments of notes payable were a use of cash of $0.4 million in the first six months of 2024 compared to $0.2 million in the same period of 2023 .

Cash dividends paid were $23.3 million in the first six months of 2024 compared to $21.3 million in the same period of 2023 .

Repurchases of common stock were $21.8 million in the first six months of 2024 compared to $2.6 million in the same period of 2023 .

Forward-Looking Statements and Risk Factors

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What changed 10-Q

Item 2. Management’s Discussion and Analysis