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Item 7. Management’s Discussion and Analysis

2025-01-23 compared with 2024-01-24 · 199 added, 201 removed, 321 unchanged (55% of the section changed)

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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. 

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.

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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.

In our Construction Adhesives operating segment and business components such as 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.

dollar impacts the translation of the foreign entities’ financial statements into U.S.

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.

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.

The fluctuations of the Euro, Chinese renminbi, British pound sterling, Egyptian pound, Turkish lira, Brazilian real, Chilean peso and Colombian 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 

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.

In 2024 , currency fluctuations had a negative i mpact on net revenue of approximately $34.9 million as compared to 2023.

K ey financial results and transactions for 2024 included the following:

Net revenue increased 1.6 percent from 2023 primarily driven by a 3.6 percent increase due to acquisitions and a 1.7 percent increase in sales volume, partially offset by a 2.7 percent decrease in product pricing and a 1.0 percent decrease due to currency fluctuations.

Gross profit margin increased to 29.8 percent in 2024 from 28.7 percent in 2023, due to a decrease in raw material costs, partially offset by an increase in other manufacturing costs.

Cash flow generated by operating activities was $302.4 million in 2024 as compared to $378.4 million in 2023.

Our total year organic revenue growth, which we define as the combined variances from sales volume and product pricing, decreased 1.0 percent for 2024 compared to 2023 due to a decrease in product pricing, partially offset by an increase in sales volume.

In 2024 , our diluted earnings per share was $2.30 compared to $2.59 in 2023 .

The lower earnings per share in 2024 compared to 2023 was primarily due to other expense, net that includes a $47.3 million loss on the impairment of assets associated with our North American flooring business that is held for sale and higher operating costs, partially offset by higher net revenue, lower interest expense and lower income tax expense .

Information pertaining to fiscal year 2022 was included in the Company’s Annual Report on Form 10-K for the year ended December 2, 2023, 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, 2024.

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.

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.

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 each 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 servic es.

Implementation of Project ONE began in our North America adhesives business in 2014 and, through 2024 , 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 2025 and beyond, we will continue implementation in North America, EIMEA, Brazil and Asia Pacific.

Total expenditures for Project ONE are estimated to be $270 to $290 million, of which 60 - 65% is expected to be capital expenditures.

Our total project-to-date expenditures are approximately $230 million, of which approximately $140 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.

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 a pproximately $60.0 million to $65.0 million ($46.6 million to $50.7 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 $55.5 mill ion under the Plans as of November 30, 2024.

The Plans were 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.

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long-lived assets recoverability;

valuation of product, environmental and other litigation liabilities; valuation of deferred tax assets and accuracy of tax contingencies;

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.

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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.

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.

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.

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 2024 impairment test, included a 16 percent control premium.

For the 2024 impairment test, the fair value of the reporting units exceeded the respective carrying values by 20 percent to 147 percent.

Significant assumptions used in the DCF analysis included discount rates that ranged from 9.1 percent to 10.1 percent and long-term revenue growth rates.

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

See Note 2 to the Consolidated Financial Statements for further information regarding the impairment of goodwill associated with the North America Flooring business that is held for sale.

Pension and Other Postretirement Plan Assumptions

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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.

pension plan was 5.23 percent at November 30, 2024, 5.66 percent at December 2, 2023 and 5.36 percent at December 3, 2022.

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.

A discount rate change of 0.5 percentage points at November 30, 2024 would impact U.S.

pension and other postretirement plan (income) expense by $0.1 million (pre-tax) in fiscal 2025.

Discount rates for non-U.S.

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

pension plan was 7.75 

percent in 

2023 , 7.00 percent in 

2022 and 7.25 percent in 

pension plan was 7.75 percent in 2024 , 7.75 percent in 2023 and 7.00 percent in 2022 .

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.

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.

For 2024 , 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 5.62 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).

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 $2.6 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.

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.

Pension Plan Historical Actual Rates of Return

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20-year period

* Beginning in 2022, our target allocation migrated from 60 percent equities and 40 percent fixed-income to 55 percent equities and 45 percent fixed income. The historical actual rate of return for the fixed income of 5.5 percent is since inception (17 years, 11 months).

Beginning in 2022, our target allocation migrated from 60 percent equities and 40 percent fixed-income to 55 percent equities and 45 percent fixed income.

The historical actual rate of return for the fixed income of 4.6 percent is since inception (18 years, 11 months).

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

pension plans was a weighted-average of 5.02 percent in 2023 compared to 3.49 percent in 2022 and 6.15 percent in 2021.

pension plans was a weighted-average of 5.01 percent in 2024 compared to 5.02 percent in 2023 and 3.49 percent in 2022.

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.

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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.

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.

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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.

See Note 2 to the Consolidated Financial Statements for further information regarding the impairment of long-lived assets associated with the North America Flooring business that is held for sale.

Product, Environmental and Other Litigation Liabilities

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

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.

The valuation allowance to reduce deferred tax assets totaled $11.7 million as of November 30, 2024, and $15.6 million as of December 2, 2023.

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

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

Based upon our analysis of tax positions taken on prior year returns and expected tax positions to be taken for the current year tax returns, we have identified gross uncertain tax positions of $14.3 million as of December 2, 2023 and $17.6 million as of December 3, 2022.

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 $15.6 million as of November 30, 2024 and $14.3 million as of December 2, 2023.

We have not recorded U.S.

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($ in millions)

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.

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 2024 compared to fiscal 2023.

Organic revenue growth

Extra week in 2022 (53-week year)

Net revenue growth

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

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

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

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

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

Additionally, net revenue in 2023 was lower than 2022 by 1.8 percent from an additional week of revenue in 2022 as it was a 53-week fiscal year compared to a 52-week fiscal year in 2023.

Organic revenue in 2024 compared to 2023 decreased 1.0 percent and consisted of a 9.5 percent increase in Construction Adhesives, a 4.0 percent decrease in Hygiene, Health and Consumable Adhesives and a 1.0 percent decrease in Engineering Adhesives.

The decrease was driven by a 2.6 percent decrease in product pricing, partially offset by a 1.6 percent increase in sales volume.

The 3.6 percent increase from M&A was due to our acquisitions that occurred during the last year.

The negative 1.0 percent currency impact was primarily driven by a weaker Egyptian pound, Turkish lira, Brazilian real, Chinese renminbi and Chilean peso offset by a stronger Euro, British pound sterling and Colombian peso compared to the U.S.

Cost of sales

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Percent of net revenue

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

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

Cost of sales in 2024 compared to 2023 decreased 110 basis points as a percentage of net revenue.

Raw material cost as a percentage of net revenue decreased 210 basis points in 2024 compared to 2023 due to lower raw material costs.

Other manufacturing costs as a percentage of net revenue increased 100 basis points in 2024 compared to 2023 primarily due to a decrease in product pricing partially offset by higher sales volume.

($ in millions)

Percent of net revenue

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.

Gross profit in 2024 increased 5.3 percent and gross profit margin increased 110 basis points compared to 2023.

The increase in gross profit margin was primarily due to a 210 basis points decrease in raw materials offset by a 100 basis point increase in other manufacturing costs.

Selling, general and administrative (SG&A) expenses

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Percent of net revenue

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

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

Other income, net

SG&A expenses for 2024 compared to 2023 increased 140 basis points as a percentage of net revenue.

The increase is due to the impact of acquisitions and higher compensation costs, partially offset by a gain on insurance claims.

Other (expense) income, net

($ in millions)

Other income, net

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.

Other (expense) income, net

Other (expense) income, net in 2024 included a $47.3 million loss on the impairment of assets associated with our North American flooring business that is held for sale, $2.5 million of currency transaction losses, a $2.0 million loss on an equity investment and $1.6 million of other expense, partially offset by $15.9 million of net defined benefit pension benefits and a $0.4 million gain on disposal of assets.

Other (expense) 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.

Interest expense

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Interest expense

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 expense was $133.1 million and $134.6 million in 2024 and 2023, respectively, and was lower primarily due to lower interest rates, partially offset by higher debt balances.

We capitalized $1.9 million and $1.8 million of interest expense in 2024 and 2023, respectively.

Interest income

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Interest income

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.

Interest income in 2024 and 2023 was $4.7 million and $3.9 million, respectively, consisting primarily of interest on cross-currency swap activity and other miscellaneous interest income.

Income tax expense:

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Effective tax rate

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.

Income tax expense of $56.4 million in 2024 includes $5.5 million of discrete tax benefit, primarily related to various foreign tax matters as well as an excess tax benefit related to U.S.

stock compensation.

Excluding the discrete tax benefit of $5.5 million, the overall effective tax rate was 33.9 percent.

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. 

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.

Excluding the discrete tax expense of $26.1 million, the overall effective tax rate was 28.8 percent.

The increase in the overall effective tax rate for 2024 compared to 2023 , excluding the impact of discrete items, is primarily due to the change in the mix of earnings across jurisdictions.

Income from equity method investments

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

The 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.

The lower income for 2024 compared to 2023 is due to the lower net income in our joint venture for the year.

Net income attributable to H.B.

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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.

Fuller was $130.3 million in 2024 compared to $144.9 million in 2023.

Diluted earnings per share were $2.30 per share in 2024 and $2.59 per share in 2023.

Operating Segment Results

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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.

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 operating income of each of our operating segments.

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

Net Revenue by Segment

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Segment operating income

Other income, net

Other (expense) income, net

Interest expense

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Organic revenue growth

Extra week in 2022 (53-week year)

Net revenue growth

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.

Net revenue decreased 3.4 percent in 2024 compared to 2023.

The 4.0 decrease in organic revenue growth was attributable to a decrease in product pricing and sales volume.

The 2.3 percent increase in net revenue from M&A was due to acquisitions of Beardow Adams in the second quarter of 2023 and Adhezion in the third quarter of 2023.

The 1.7 percent negative currency effect was due to a weaker Egyptian pound, Turkish lira, Brazilian real and Chilean peso offset by a stronger Euro, Colombian peso and British pound sterling compared to the U .S.

As a percentage of net r evenue, raw material costs decreased 120 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 the impact of acquisitions.

SG&A expenses as a percentage of net revenue increased 150 basis points due to the impact of acquisitions, lower net revenue and higher compensation costs.

Segment operating income decreased 12.9 percent and segment operating margin as a percentage of net revenue decreased 130 basis points in 2024 as compared to 2023.

Engineering Adhesives

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Organic revenue growth

Extra week in 2022 (53-week year)

Net revenue growth

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.

Net revenue increased 2.1 percent in 2024 compared to 2023.

The 1.0 percent decrease in organic revenue growth was attributable to a decrease in product pricing, partially offset by an increase in sales volume.

The 3.7 percent increase in net revenue from M&A was due to the acquisition of ND Industries in the second quarter of 2024.

The 0.6 percent negative currency effect was due to a weaker Turkish lira, Chinese renminbi and Brazilian real offset by a stronger Euro and British pound sterling compared to the U.S.

As a percentage of net r evenue, raw material costs decreased 310 basis points due to lower raw material costs.

Other manufacturing costs as a percentage of net revenue increased 140 basis points due to the impact of lower product pricing and the impact of acquisitions, partially offset by increased sales volume.

SG&A expenses as a percentage of net revenue increased 160 basis points primarily due to the acquisition of ND Industries and higher compensation costs.

Segment operating income increased 3.0 percent and segment operating margin increased 10 basis points in 2024 as compared to 2023.

Construction Adhesives

($ in millions)

Segment operating income

Segment operating income (loss)

Segment profit margin %

1 unchanged sentence

Organic revenue growth

Extra week in 2022 (53-week year)

Net revenue growth

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.

Net revenue increased 17.2 percent in 2024 compared to 2023.

The 9.5 percent increase in organic revenue growth was attributable to an increase in sales volume, partially offset by a decrease in product pricing.

The 7.5 percent increase in net revenue from M&A was due to the acquisitions of XChem in the third quarter of 2023, Sanglier in the fourth quarter of 2023 and HS Butyl in the third quarter of 2024.

The 0.2 percent positive currency effect was due to a stronger British pound sterling compared to the U.S.

As a percentage of net r evenue, raw material costs decreased 80 basis points due to lower raw material costs.

Other 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 190 basis points due to increased net revenue, partially offset by the impact of acquisitions and higher compensation costs.

Segment operating income increased 321.7 percent and segment operating margin as a percentage of net revenue increased 330 basis points in 2024 as compared to 2023.

Corporate Unallocated

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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. 

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

Segment operating loss increased 7.9 percent in 2024 compared to 2023 due to higher restructuring costs , partia lly offset by lower acquisition project costs and a gain on insurance claims.

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.

Total cash and cash equivalents as of November 30, 2024 were $169.4 million compared to $179.5 million as of December 2, 2023.

Total long and short-term debt was $2,010.6 million as of November 30, 2024 and $1,838.4 million as of December 2, 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.

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Our credit agreements include restrictive covenants that, if not met, could lead to a renegotiation of our credit lines and a significant increase in our cost of financing.

At December 2, 2023, we were in compliance with all covenants of our contractual obligations as shown in the following table:

At November 30, 2024, we were in compliance with all covenants of our contractual obligations for outstanding indebtedness as shown in the following table:

Debt Instrument

Result as of December 2, 2023

Result as of November 30, 2024

Secured Total Indebtedness / TTM 1 EBITDA

Revolving Facility and Term Loan A Facility

Revolving Facility and Term Loan A Facility

Not greater than 4.50 2

TTM 1 EBITDA / Consolidated Interest Expense

Revolving Facility and Term Loan A Facility

Revolving Facility and Term Loan A Facility

Not less than 2.0

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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.

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Net financial liabilities

Of the $179.5 million in cash and cash equivalents as of December 2, 2023, $152.9 million was held outside the U.S.

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

Of the $169.4 million in cash and cash equivalents as of November 30, 2024, $166.4 million was held outside the U.S.

Of the $166.4 million of cash held outside the U.S., earnings of $152.5 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.

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:

Additionally, we have taken the income tax position that the majority of our cash in non-U.S.

locations is indefinitely reinvested.

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Notes Payable

Notes payable were $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.

Notes payable were $0.6 million at November 30, 2024 and $1.8 million at December 2, 2023.

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 6.17 p ercent in 2024 and 10.75 percent in 2023.

Long-Term Debt

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.

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 $994.0 million, issued pursuant to a Second Amended and Restated Credit Agreement, dated as of February 15, 2023, as amended.

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 (6.17 percent at November 30, 2024).

The interest rate spread is bas ed on a secured leverage grid.

Term Loan A matures on February 15, 2028.

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

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

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

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

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

At November 30, 2024 , a balance of $462.5 million was outstanding on Term Loan A.

Interest on Term Loan B is payable at SOFR plus an interest rate spread of 2.00 percent with a SOFR floor of 0.50 percent (6.57 percent at November 30, 2024 ).

Term Loan B matures on February 15, 2030.

At November 30, 2024 , a balance of $989.0 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).

Interest payable on our long-term debt to taled $1.7 mil lion as of November 30, 2024.

Revolving Credit Facility

We have a revolving credit agreement with a consortium of financial institutions at November 30, 2024.

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 (6.17 percent at November 30, 2024).

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. 

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

At November 30, 2024 , 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.

2 unchanged sentences

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).

As of November 30, 2024, goodwill totaled $1,532.2 million (31.1 percent of total assets) and other intangible assets, net of accumulated amortization, totaled $770.2 million (15.6 percent of total assets).

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

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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.

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 and debt capitalization ratio.

Net working capital as a percentage of annualized net revenue 1

2 unchanged sentences

Trade accounts payable DPO (in days) 4

Free cash flow after dividends 5

Free cash flow 5

Debt capitalization ratio 6

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’

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.

Reconciliation of “Net cash provided by operating activities”

to "Free cash flow after dividends"

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 (13 weeks) 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.

See reconciliation to net cash provided by operating activities to free cash flow.

6 Total debt divided by total debt plus total stockholders’ equity.

Free cash flow, a non-GAAP financial measure, is defined as net cash provided by operating activities less purchased property, plant and equipment.

Free cash flow 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 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 cash flow"

($ in millions)

1 unchanged sentence

Purchased property, plant and equipment

Dividends paid

Free cash flow after dividends

Free cash flow

Summary of Cash Flows

2 unchanged sentences

Net cash provided by operating activities

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.

Net income including non-controlling interest was $130.4 million in 2024 and $145.0 million in 2023.

Depreciation and amortization expense totaled $174.7 million in 2024 compared to $159.8 million in 2023.

The higher depreciation and amortization expense in 2024 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 $29.6 million compared to a use of cash of $103.2 million in 2024 and 2023, 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 

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

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

2023 and 2022 , respectively.

The higher source of cash in 

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

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

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

Trade Receivables, net – Changes in trade receivables resulted in a $10.7 million and $68.7 million source of cash in 2024 and 2023, respectively.

The lower source of cash in 2024 compared to 2023 was related to lower collections in the current year compared to the prior year.

The DSO was 55 days at November 30, 2024 and 58 days at December 2, 2023.

Inventory – Changes in inventory resulted in a $30.1 million use of cash in 2024 compared to a $72.6 million source of cash in 2023.

The use of cash in 2024, compared to the source of cash in 2023 is due to higher inventory purchases at higher prices in 2024 compared to the prior year.

Inventory days on hand were 67 days at November 30, 2024 and December 2, 2023.

Trade Payables – Changes in trade payables resulted in a $47.9 million source of cash in 2024 compared to a $57.8 million use of cash in 2023.

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

The DPO was 68 days at November 30, 2024 and 64 days at December 2, 2023.

Contributions to our pension and other postretirement benefit plans were $2.9 million and $4.3 million in 2024 and 2023, respectively.

Income taxes payable resulted in a $23.1 million use of cash and a $41.2 million source of cash in 2024 and 2023, respectively.

Other asse ts resulted in a $17.5 million and a $7.9 million use of cash in 2024 and 2023 , respectively.

The higher use of cash in 2024 compared to 2023 is primarily driven by a higher increase in pension and post-retirement assets related to the year-end pension valuation compared to the prior year .

Accrued compensation was a $12.7 million source of cash and a $13.8 million use of cash in 2024 and 2023, respectivel y, relating to higher accruals for our employee incentive plans in 2024 .

Other liabilities resulted in a $31.3 million use of cash and a $22.9 million source of cash in 2024 and 2023 , respectively.

The use of cash in 2024 compared to source of cash in 2023 was due to a decrease in hedging liabilities from interest rate swap activity in 2024 compared to an increase the prior year.

In 2024, we also recorded a $47.3 million loss on the impairment of assets held for sale.

Non-cash foreign currency remeasurement was a positive $9.7 million in 2024 compared to a negative $28.0 million in 2023.

Cash Flows used in Investing Activities

1 unchanged sentence

Net cash used in investing activities

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

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

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

Purchases of property, plant and equipment were $139.2 million in 2024 compared to $119.1 million in 2023.

The higher purchases in 2024 reflect the timing of capital projects and expenditures related to growth initiatives.

Proceeds from the sale of property, plant and equipment were $1.2 million in 2024 compared to $5.0 million in 2023.

We paid cash, net of cash acquired, of $273.9 million and $205.1 million for purchased businesses in 2024 and 2023, respectively.

We received cash of $4.9 million in proceeds from insurance recoveries related to property, plant and equipment.

Cash Flows from Financing Activities

1 unchanged sentence

Net cash provided by financing activities

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

In 2024, we received $1,932.9 million in proceeds and repaid $1,764.9 million of long-term debt including borrowings and repayments on our revolving credit facility and in 2023, we received $2,233.3 million in proceeds and repaid $2,126.5 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.

Debt issuance costs of $3.5 million were paid in 2024 compared to $10.2 million paid in 2023.

Cash paid for dividends were $47.6 million and $43.4 million in 2024 and 2023, respectively.

Cash generated from the exercise of stock options was $35.9 million and $14.6 million in 2024 and 2023, respectively.

Indirect repurchases of common stock through a net-settlement feature related to statutory minimum tax withholding upon vesting of restricted stock were $7.8 million in 2024 compared to $2.6 million in 2023.

We had $31.8 of repurchases of stock from our share repurchase program in 2024 and there were no repurchases from our share repurchase program in 2023.

We expect 2025 capital expenditures to be approximately $160.0 million.

Forward-Looking Statements and Risk Factors

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

What changed 10-K

Item 7. Management’s Discussion and Analysis