FULLER HB CO Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

Insight


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 November 27, 2021 for important
background information related to our business.



Net revenue in the third quarter of 2022 increased 13.8 percent from the third
quarter of 2021. Net revenue increased 18.7 percent due to price and 2.0 percent
due to the acquisition of Fourny and Apollo, partially offset by a 0.3 percent
decrease in sales volume. Negative currency effects of 6.6 percent compared to
the third quarter of 2021 were primarily driven by a weaker Euro, Turkish lira,
Chinese renminbi, British pound and Argentinian peso compared to the U.S.
dollar. Gross profit margin increased 300 basis points primarily due to higher
product pricing partially offset by higher raw material costs.



Net revenue in the first nine months of 2022 increased 17.2 percent from
the first nine months of 2021. Net revenue increased 17.6 percent due to
price, 2.8 percent due to sales volume and 1.6 percent due to the acquisitions
of Fourny and Apollo. Negative currency effects of 4.8 percent compared to
the first nine months of 2021 were primarily driven by a weaker Euro, Turkish
lira, British pound and Argentinian peso, partially offset by a stronger
Brazilian real compared to the U.S. dollar. Gross profit margin increased
20 basis points.



Net income attributable to HB Fuller in the third quarter of 2022 was
$46.5 million compared to $31.6 million in the third quarter of 2021. On a diluted per share basis, the third quarter of 2022 was $0.84 per share compared to $0.58 per share for the third quarter of 2021.



Net income attributable to H.B. Fuller in the first nine months of 2022 was
$132.0 million compared to $110.5 million in the first nine months of 2021. On a
diluted earnings per share basis, the first nine months of 2022 was $2.39 per
share compared to $2.04 per share for the first nine months of 2021.



Market Conditions



On March 11, 2020, the World Health Organization declared the outbreak of the
novel coronavirus ("COVID-19") a pandemic. The COVID-19 pandemic continues to
have an impact on global economies, supply chains and industrial production.
Although government restrictions have been relaxed, it is currently not possible
to estimate additional impacts this outbreak may have on our business. We
continue to effectively manage our global operations focusing on the health and
safety of our employees and ensuring business continuity across our supplier,
manufacturing and distribution networks.



See "Risk Factors" in Item 1A in our Annual Report on Form 10-K for the year
ended November 27, 2021 as filed with the Securities and Exchange Commission for
further information of the effects of the COVID-19 pandemic on our business
including raw material cost and availability.



Restructuring Plan



During the fourth quarter of 2019, we approved a restructuring plan related to
organizational changes and other actions to optimize operations in connection
with the realignment of the Company into three global business units ("2020
Restructuring Plan"). We have incurred costs of $20.1 million under this plan as
of August 27, 2022, which is substantially complete.

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Results of Operations



Net revenue:



                                     Three Months Ended                               Nine Months Ended
                         August 27,       August 28,       2022 vs        August 27,       August 28,       2022 vs
($ in millions)             2022             2021            2021            2022             2021            2021
Net revenue             $      941.2     $      826.8           13.8 %   $    2,791.0     $    2,380.6           17.2 %




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 third quarter and first nine months of 2022 compared
to the same periods in 2021:



                                                           Three Months      Nine Months
                                                              Ended             Ended
                                                            August 27,        August 27,
                                                             2022 vs.          2022 vs.
                                                            August 28,        August 28,
                                                               2021              2021
Organic growth                                                     18.4 %            20.4 %
M&A                                                                 2.0 %             1.6 %
Currency                                                           (6.6 )%           (4.8 )%
Total                                                              13.8 %            17.2 %




Organic growth was 18.4 percent in the third quarter of 2022 compared to the
third quarter of 2021 driven by a 22.9 percent increase in Hygiene, Health and
Consumable Adhesives, a 17.5 percent increase in Engineering Adhesives and a
6.9 percent increase in Construction Adhesives. The increase is predominately
driven by an increase in product pricing, partially offset by a slight decrease
in volume. The 2.0 percent increase from M&A is due to the acquisitions of
Fourny and Apollo. The negative 6.6 percent currency impact was primarily driven
by a weaker Euro, Turkish lira, Chinese Renminbi, British pound and Argentinian
peso compared to the U.S. dollar.



Organic growth was 20.4 percent in the first nine months of 2022 compared to
the first nine months of 2021 driven by a 22.7 percent increase in Hygiene,
Health and Consumable Adhesives, a 18.7 percent increase in Engineering
Adhesives and a 17.6 percent increase in Construction Adhesives. The increase is
driven by an increase in product pricing and sales volume. The 1.6 percent
increase from M&A is due to the acquisitions of Fourny and Apollo. The
negative 4.8 percent currency impact was primarily driven by a weaker Euro,
Turkish lira, British pound and Argentinian peso, partially offset by a stronger
Brazilian real compared to the U.S. dollar.



Cost of sales:



                                         Three Months Ended                                Nine Months Ended
                             August 27,       August 28,       2022 vs         August 27,       August 28,       2022 vs
($ in millions)                 2022             2021            2021             2022             2021            2021
Raw materials               $      540.3     $      477.9           13.1 %    $    1,606.7     $    1,317.7           21.9 %
Other manufacturing costs          151.8            155.0           (2.1 )%          468.7            459.0            2.1 %
Cost of sales               $      692.1     $      632.9            9.4 %    $    2,075.4     $    1,776.7           16.8 %
Percent of net revenue              73.5 %           76.5 %                           74.4 %           74.6 %




Cost of sales in the third quarter of 2022 compared to the third quarter of
2021 decreased 300 basis points as a percentage of net revenue. Raw material
cost as a percentage of net revenue decreased 40 basis points in the third
quarter of 2022 compared to the third quarter of 2021. Other manufacturing costs
as a percentage of revenue decreased 260 basis points in the third quarter
of 2022 compared to the third quarter of 2021 due to higher product pricing.



Cost of sales in the first nine months of 2022 compared to the first nine months
of 2021 decreased 20 basis points as a percentage of net revenue. Raw material
cost as a percentage of net revenue increased 220 basis points in the first nine
months of 2022 compared to the first nine months of 2021 due to higher raw
material costs. Other manufacturing costs as a percentage of revenue decreased
240 basis points in the first nine months of 2022 compared to the first nine
months of 2021 due to higher net revenue.



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Gross profit:



                                      Three Months Ended                               Nine Months Ended
                          August 27,       August 28,       2022 vs        August 27,       August 28,       2022 vs
($ in millions)              2022             2021            2021            2022             2021            2021
Gross profit             $      249.2     $      194.0           28.5 %   $      715.6     $      603.9           18.5 %
Percent of net revenue           26.5 %           23.5 %                          25.6 %           25.4 %



Gross margin in the third quarter of 2022 increased by 28.5% and gross profit margin increased by 300 basis points compared to the third quarter of 2021. The increase in gross profit margin was mainly due to higher prices of products.



Gross profit in the first nine months of 2022 increased 18.5 percent and gross
profit margin increased 20 basis points compared to the first nine months of
2021.


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


                                      Three Months Ended                               Nine Months Ended
                          August 27,       August 28,       2022 vs        August 27,       August 28,       2022 vs
($ in millions)              2022             2021            2021            2022             2021            2021
SG&A                     $      161.2     $      134.5           19.9 %   $      483.1     $      426.9           13.2 %
Percent of net revenue           17.1 %           16.3 %                          17.3 %           17.9 %




SG&A expenses for the third quarter of 2022 increased $26.7 million, or
19.9 percent, compared to the third quarter of 2021. The increase is primarily
due to higher compensation and acquisition project costs, partially offset by
the favorable impact of foreign currency exchange rates on spending outside the
U.S.


SG&A spending for the first nine months of 2022 increased $56.2 millionor 13.2%, compared to the first nine months of 2021. The increase is mainly due to higher compensation costs and acquisition plans and the impact of acquisitions.



Other income, net:



                                     Three Months Ended                              Nine Months Ended
                         August 27,       August 28,       2022 vs      
August 27,      August 28,       2022 vs
($ in millions)             2022             2021            2021           2022            2021            2021
Other income, net       $        6.6     $        6.2            6.5 %   $      12.7     $      25.9          (51.0 )%




Other income, net in the third quarter of 2022 included $7.4 million of net
defined benefit pension benefits and $1.8 million of other income, offset by
$2.6 million of currency transaction losses. Other income, net in the third
quarter of 2021 included $8.0 million of net defined benefit pension benefits,
partially offset by $1.4 million of currency transaction losses and $0.4 million
of other income.



Other income, net in the first nine months of 2022 included $18.9 million of net
defined benefit pension benefits and $3.4 million of other income, partially
offset by $9.6 million of currency transaction losses. The $18.9 million of net
defined benefit pension benefits included a $3.3 million settlement loss related
to the termination of our Canadian defined benefit pension plan. Other income,
net in the first nine months of 2021 included $23.9 million of net defined
benefit pension benefits and $6.5 million of other income, partially offset
by $4.5 million of currency transaction losses.



Interest expense:



                                    Three Months Ended                             Nine Months Ended
                        August 27,      August 28,       2022 vs       August 27,      August 28,       2022 vs
($ in millions)            2022            2021            2021           2022            2021            2021
Interest expense        $      23.5     $      19.4           21.1 %   $      61.5     $      59.7            3.0 %




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Interest expense in the third quarter of 2022 was $23.5 million compared to
$19.4 million in the third quarter of 2021. Interest expense in the third quarter of 2022 compared to the third quarter of 2021 was higher due to higher interest rates and higher debt balances.



Interest expense in the first nine months of 2022 was $61.5 million compared to
$59.7 million in the first nine months of 2021. Interest expense in the first
nine months of 2022 compared to the first nine months of 2021 was higher due to
higher interest rates and higher debt balances.



Interest income:



                                     Three Months Ended                                Nine Months Ended
                         August 27,       August 28,       2022 vs         August 27,       August 28,       2022 vs
($ in millions)             2022             2021            2021             2022             2021            2021
Interest income         $        2.1     $        2.5          (16.0 )%   $        6.2     $        7.7          (19.5 )%



Interest income in the third quarter of 2022 and 2021 was $2.1 million
and $2.5 millionrespectively, consisting primarily of interest on foreign exchange trading activity and other miscellaneous interest income.

Interest income for the first nine months of 2022 and 2021 was $6.2 million
and $7.7 millionrespectively, consisting primarily of interest on foreign exchange trading activity and other miscellaneous interest income.



Income taxes:



                                    Three Months Ended                             Nine Months Ended
                        August 27,      August 28,       2022 vs       August 27,      August 28,       2022 vs
($ in millions)            2022            2021            2021           2022            2021            2021
Income taxes            $      28.3     $      19.1           48.2 %   $      62.0     $      46.4           33.6 %
Effective tax rate             38.7 %          39.2 %                         32.7 %          30.7 %




Income tax expense of $28.3 million in the third quarter of 2022 includes $6.4
million of discrete tax expense. Excluding the discrete tax expense, the overall
effective tax rate was 29.9 percent. The discrete tax expense relates to impacts
of the revaluation of cross-currency swap agreements due to depreciation of the
Euro versus the U.S. dollar and other various U.S. and foreign tax
matters. Income tax expense of $19.1 million in the third quarter
of 2021 includes $5.6 million of discrete tax expense. Excluding the discrete
tax expense, the overall effective tax rate was 27.6 percent. The discrete tax
expense relates to the revaluation of cross-currency swap agreements due to
depreciation of the Euro versus the U.S. dollar and other various U.S. and
foreign tax matters.



Income tax expense of $62.0 million in the first nine months
of 2022 includes $7.7 million of discrete tax expense. Excluding the discrete
tax expense, the overall effective tax rate was 28.7 percent. The discrete tax
expense relates to the revaluation of cross-currency swap agreements due to
depreciation of the Euro versus the U.S. dollar, as well as various U.S. and
foreign tax matters offset by the tax effect of legal entity mergers. Income tax
expense of $46.4 million in the first nine months of 2021 includes $5.1 million
of discrete tax expense. Excluding the discrete tax expense, the overall
effective tax rate was 27.4 percent. The discrete tax expense relates to the
revaluation of cross-currency swap agreements due to depreciation of the Euro
versus the U.S. dollar and various U.S. and foreign tax matters.



Income from equity affiliates:


                                     Three Months Ended                                Nine Months Ended
                         August 27,       August 28,       2022 vs         August 27,       August 28,       2022 vs
($ in millions)             2022             2021            2021             2022             2021            2021
Income from equity
method investments      $        1.6     $        2.0          (20.0 )%   $        4.2     $        6.1          (31.1 )%




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 third
quarter and first nine months of 2022 compared to the same period of 2021 is
due to the unfavorable impact of the weakening of the Japanese yen against the
U.S. dollar offset by higher net income in the joint venture.



Net income attributable to HB Fuller:


                                    Three Months Ended                              Nine Months Ended
                        August 27,      August 28,       2022 vs        August 27,       August 28,       2022 vs
($ in millions)            2022            2021            2021            2022             2021            2021
Net income
attributable to H.B.
Fuller                  $      46.5     $      31.6           47.2 %   $      132.0     $      110.5           19.5 %
Percent of net
revenue                         4.9 %           3.8 %                           4.7 %            4.6 %




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The net income attributable to H.B. Fuller for the third quarter of 2022 was
$46.5 million compared to $31.6 million for the third quarter of 2021. The
diluted earnings per share for the third quarter of 2022 was $0.84 per share as
compared to $0.58 per share for the third quarter of 2021.



The net income attributable to H.B. Fuller for the first nine months of 2022 was
$132.0 million compared to $110.5 million for the first nine months of 2021. The
diluted earnings per share for the first nine months of 2022 was $2.39 per share
as compared to $2.04 per share for the first nine months of 2021.





Operating Segment Results



We have three reportable segments: Hygiene, Health and Consumable Adhesives,
Engineering Adhesives and Construction Adhesives. Operating results of each of
these segments are regularly reviewed by our chief operating decision maker to
make decisions about resources to be allocated to the segments and assess their
performance.


The tables below provide certain information regarding net sales and operating income for each of our operating segments.

Unallocated amounts include business acquisition and integration costs, organizational restructuring charges and project costs associated with our implementation of SAP ONE.



Net Revenue by Segment:



                                        Three Months Ended                                     Nine Months Ended
                            August 27, 2022            August 28, 2021            August 27, 2022            August 28, 2021
                            Net          % of          Net          % of   

% net of % net of (in millions of dollars)

           Revenue        Total       Revenue        Total       Revenue        Total       Revenue        Total
Hygiene, Health and
Consumable Adhesives     $    425.0          45 %   $    369.4          45 %   $  1,252.4          45 %   $  1,069.9          45 %
Engineering Adhesives         378.2          40 %        342.3          41 %      1,137.6          41 %      1,000.3          42 %
Construction Adhesives        138.0          15 %        115.1          14 %        401.0          14 %        310.4          13 %
Segment total            $    941.2         100 %   $    826.8         100 %   $  2,791.0         100 %   $  2,380.6         100 %
Corporate Unallocated             -           -              -           -              -           -              -           -
Total                    $    941.2         100 %   $    826.8         100 %   $  2,791.0         100 %   $  2,380.6         100 %



Segment operating profit (loss):



                                              Three Months Ended                                          Nine Months Ended
                                August 27, 2022               August 28, 2021               August 27, 2022               August 28, 2021
                             Segment                       Segment                        Segment                       Segment
                            Operating                     Operating                      Operating                     Operating
                              Income          % of          Income          % of          Income          % of          Income          % of
($ in millions)               (Loss)         Total          (Loss)         Total          (Loss)         Total          (Loss)         Total
Hygiene, Health and
Consumable Adhesives        $     47.5            54 %    $     29.7            50 %    $     122.9           53 %    $      98.5           56 %
Engineering Adhesives             39.8            45 %          34.1            57 %          115.3           50 %           96.6           54 %
Construction Adhesives             6.4             7 %           3.3             6 %           22.0            9 %            4.9            3 %
Segment total               $     93.7           106 %    $     67.1           113 %    $     260.2          112 %    $     200.0          113 %
Corporate Unallocated             (5.7 )          (6 )%         (7.6 )         (13 )%         (27.7 )        (12 )%         (23.1 )        (13 )%
Total                       $     88.0           100 %    $     59.5           100 %    $     232.5          100 %    $     176.9          100 %




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Adhesives Hygiene, Health and Consumables



                                        Three Months Ended                               Nine Months Ended
                            August 27,       August 28,       2022 vs        August 27,       August 28,       2022 vs
($ in millions)                2022             2021            2021            2022             2021            2021
Net revenue                $      425.0     $      369.4           15.1 %   $    1,252.4     $    1,069.9           17.0 %
Segment operating income   $       47.5     $       29.7           59.9 %   $      122.9     $       98.5           24.8 %
Segment operating margin           11.2 %            8.0 %                           9.8 %            9.2 %



The following table provides details on the Hygiene, Healthcare and Consumable Adhesives net revenue variances:


                                                           Three Months      Nine Months
                                                              Ended             Ended
                                                            August 27,        August 27,
                                                             2022 vs.          2022 vs.
                                                            August 28,        August 28,
                                                               2021              2021
Organic growth                                                     22.9 %            22.7 %
Currency                                                           (7.8 )%           (5.7 )%
Total                                                              15.1 %            17.0 %




Net revenue increased 15.1 percent in the third quarter of 2022 compared to the
third quarter of 2021. The increase in organic growth was attributable to an
increase in product pricing, partially offset by sales volume. The negative
currency effect was due to a weaker Euro, Turkish lira, Argentinian peso,
Egyptian pound and Chinese renminbi compared to the U.S. dollar. As a percentage
of net revenue, raw material costs increased 30 basis points. Other
manufacturing costs as a percentage of net revenue decreased 360 basis points
due to higher net revenue. SG&A expenses as a percentage of net revenue
increased 10 basis points. Segment operating income increased 59.9 percent and
segment operating margin as a percentage of net revenue increased 320 basis
points compared to the third quarter of 2021.



Net revenue increased 17.0 percent in the first nine months of 2022 compared to
the first nine months of 2021. The increase in organic growth was attributable
to an increase in product pricing and sales volume. The negative currency effect
was due to a weaker Euro, Turkish lira and Argentinian peso, partially offset by
a stronger Brazilian real compared to the U.S. dollar. As a percentage of net
revenue, raw material costs increased 310 basis points due to higher raw
material costs. Other manufacturing costs as a percentage of net revenue
decreased 280 basis points due to higher net revenue. SG&A expenses as a
percentage of net revenue decreased 90 basis points due to higher net
revenue. Segment operating income increased 24.8 percent and segment operating
margin as a percentage of net revenue increased 60 basis points compared to
the first nine months of 2021.



Engineering Adhesives



                                        Three Months Ended                               Nine Months Ended
                            August 27,       August 28,       2022 vs        August 27,       August 28,       2022 vs
($ in millions)                2022             2021            2021            2022             2021            2021
Net revenue                $      378.2     $      342.3           10.5 %   $    1,137.6     $    1,000.3           13.7 %
Segment operating income   $       39.8     $       34.1           16.7 %   $      115.3     $       96.6           19.4 %
Segment operating margin           10.5 %           10.0 %                          10.1 %            9.7 %




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The following tables provide details of the Engineering Adhesives net revenue
variances:



                                                           Three Months      Nine Months
                                                              Ended             Ended
                                                            August 27,        August 27,
                                                             2022 vs.          2022 vs.
                                                            August 28,        August 28,
                                                               2021              2021
Organic growth                                                     17.5 %            18.7 %
Currency                                                           (7.0 )%           (5.0 )%
Total                                                              10.5 %            13.7 %




Net revenue increased 10.5 percent in the third quarter of 2022 compared to the
third quarter of 2021. The increase in organic growth was attributable primarily
due to an increase in product pricing and sales volume. The negative currency
effect was due to a weaker Euro, Chinese renminbi and Turkish lira compared to
the U.S. dollar. Raw material costs as a percentage of net revenue decreased
120 basis points due to higher net revenue. Other manufacturing costs as a
percentage of net revenue decreased 150 basis points due to higher net
revenue. SG&A expenses as a percentage of net revenue increased 220 basis
points due to higher compensation costs. Segment operating income increased
16.7 percent and segment operating margin increased 50 basis points compared to
the third quarter of 2021.



Net revenue increased 13.7 percent in the first nine months of 2022 compared to
the first nine months of 2021. The increase in organic growth was attributable
primarily due to an increase in product pricing and sales volume. The negative
currency effect was due to a weaker Euro and Turkish lira compared to the U.S.
dollar. Raw material costs as a percentage of net revenue increased 180 basis
points due to higher raw material costs. Other manufacturing costs as a
percentage of net revenue decreased 200 basis points due to higher net
revenue. SG&A expenses as a percentage of net revenue decreased 20 basis points.
Segment operating income increased 19.4 percent and segment operating margin
increased 40 basis points compared to the first nine months of 2021.



Construction Adhesives



                                     Three Months Ended                               Nine Months Ended
                         August 27,       August 28,       2022 vs        August 27,       August 28,       2022 vs
($ in millions)             2022             2021            2021            2022             2021            2021
Net revenue             $      138.0     $      115.1           19.8 %   $      401.0     $      310.4           29.2 %
Segment operating
income (loss)           $        6.4     $        3.3           93.9 %   $       22.0     $        4.9          349.0 %
Segment operating
margin                           4.6 %            2.9 %                           5.5 %            1.6 %




The following tables provide details of the Construction Adhesives net revenue
variances:



                                                           Three Months      Nine Months
                                                              Ended             Ended
                                                            August 27,        August 27,
                                                             2022 vs.          2022 vs.
                                                            August 28,        August 28,
                                                               2021              2021
Organic growth                                                      6.9 %            17.6 %
M&A                                                                14.2 %            12.6 %
Currency                                                           (1.3 )%           (1.0 )%
Total                                                              19.8 %            29.2 %




Net revenue increased 19.8 percent in the third quarter of 2022 compared to the
third quarter of 2021. The increase in organic growth was attributable primarily
to an increase in product pricing partially offset by a decrease in sales
volume. The increase in net revenue from M&A was due to the acquisitions of
Fourny and Apollo during the first quarter of 2022. The negative currency effect
was due to a weaker Euro and Australian dollar compared to the U.S. dollar. Raw
material costs as a percentage of net revenue decreased 50 basis points. Other
manufacturing costs as a percentage of net revenue decreased 130 basis points
due to higher net revenue and the impact of acquisitions. SG&A expenses as a
percentage of net revenue increased 10 basis points. Segment operating income
increased 93.9 percent and segment operating margin increased 170 basis points
compared to the third quarter of 2021.



Net revenue increased 29.2 percent in the first nine months of 2022 compared to
the first nine months of 2021. The increase in organic growth was attributable
primarily to an increase in product pricing and sales volume. The increase in
net revenue from M&A was due to the acquisitions of Fourny and Apollo during the
first quarter of 2022. The negative currency effect was due to a weaker British
pound, Euro and Australian dollar compared to the U.S. dollar. Raw material
costs as a percentage of net revenue increased 70 basis points due to higher raw
material costs partially offset by higher net revenue. Other manufacturing costs
as a percentage of net revenue decreased 240 basis points due to higher net
revenue and the impact of acquisitions. SG&A expenses as a percentage of net
revenue decreased 220 basis points due to higher net revenue. Segment operating
income increased 349.0 percent and segment operating margin increased 390 basis
points compared to the first nine months of 2021.



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Corporate Unallocated



                                       Three Months Ended                               Nine Months Ended
                           August 27,      August 28,       2022 vs         August 27,       August 28,       2022 vs
($ in millions)               2022            2021            2021             2022             2021            2021
Net revenue                $         -     $         -            0.0 %    $          -     $          -            0.0 %

Segment operating loss $(5.7) $(7.6) (25.0)% $(27.7) $(23.1) 19.9% ​​Segment operating margin

           NMP             NMP                              NMP              NMP



NMP = non-significant percentage

The unallocated Corporate item includes acquisition and integration charges, restructuring charges and costs related to the implementation of the ONE project.

Segment operating loss in the third quarter and first nine months of 2022 increased by 25.0% and 19.9% ​​compared to the third quarter and first nine months of 2021, respectively, reflecting the increase in acquisition project costs.

Financial position, liquidity and capital resources

Total cash and cash equivalents as of August 27, 2022 were $60.7 million
compared to $61.8 million as of November 27, 2021 and $68.1 million as of August
28, 2021. The majority of the $60.7 million in cash and cash equivalents as of
August 27, 2022 was held outside the United States. Total long and short-term
debt was $1,918.2 million as of August 27, 2022, $1,616.5 million as of November
27, 2021 and $1,664.0 million as of August 28, 2021. The total debt to total
capital ratio as measured by Total Debt divided by (Total Debt plus Total
Stockholders' Equity) was 54.9 percent as of August 27, 2022 as compared to 50.2
percent as of November 27, 2021 and 51.4 percent as of August 28, 2021.


We believe that cash flows from operating activities will be adequate to meet
our ongoing liquidity and capital expenditure needs. In addition, we believe we
have the ability to obtain both short-term and long-term debt to meet our
financing needs for the foreseeable future. Cash available in the United States
has historically been sufficient and we expect it will continue to be sufficient
to fund U.S. operations, U.S. capital spending and U.S. pension and other
postretirement benefit contributions in addition to funding U.S. acquisitions,
dividend payments, debt service and share repurchases as needed. For those
international earnings considered to be reinvested indefinitely, we currently
have no intention to, and plans do not indicate a need to, repatriate these
funds for U.S. operations.



Our credit agreements include restrictive covenants that, if not met, could lead
to a renegotiation of our credit lines and a significant increase in our cost of
financing. At August 27, 2022, we were in compliance with all covenants of our
contractual obligations as shown in the following table:


                                                                     Result as of August
Covenant                 Debt Instrument              Measurement          27, 2022
Secured Indebtedness /                                Not greater
TTM EBITDA               Term Loan B Credit Agreement   than 5.9            

2.7

Secured Indebtedness /                                Not greater
TTM EBITDA               Revolving Credit Agreement     than 5.9            

2.7

TTM EBITDA /
Consolidated Interest                                   Not less
Expense                  Revolving Credit Agreement     than 2.0                      6.1




  ? TTM = Trailing 12 months




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  Table of Contents



  ? EBITDA for Term Loan B covenant purposes is defined as consolidated net
    income, plus interest expense, expense for taxes paid or accrued,
    depreciation and amortization, certain non-cash impairment losses,

extraordinary non-cash losses incurred other than in the ordinary course of

activity, non-recurring exceptional non-cash restructuring charges and

non-cash impact of accounting for purchases, expenses related to the Royal

Acquisition of adhesives not to be exceeded $40.0 millionexpenses related to

integration of Royal Adhesives during the years ending in 2017, 2018

and 2019 not exceeding $30 million in total, the restructuring expenses which

started before the acquisition of Royal Adhesives incurred in the years ending

in 2017 and 2018 not exceeding $28 million in aggregate and not capitalized

expenses related to the implementation of SAP during the financial years ended in 2017

until 2021 not exceeding $13 million during the same fiscal year, less

extraordinary non-cash gains. For the Total Debt / EBITDA TTM ratio,

TTM EBITDA adjusted for pro forma results of material acquisitions

and material disposals as if the acquisition or disposal had taken place at

beginning of the calculation period. The full definition is given in

Term Loan B Credit Agreement and can be found in the company’s Form 8-K filing

    dated October 20, 2017.



  ? EBITDA for Revolving Credit Facility covenant purposes is defined as

consolidated net income, plus interest expense, tax expense paid or

accrued liabilities, depreciation and amortization, non-cash impairment losses related to

long-lived assets, intangible assets or goodwill, non-recurring or unusual

non-monetary losses incurred outside the normal course of business,

non-recurring or unusual non-cash restructuring charges and non-cash impact

accounting for purchases, fees, premiums, expenses and other transaction costs

incurred or paid by the borrower or one of its Subsidiaries on the

date in connection with the transactions, this agreement and the other loan

documents, the 2020 supplementary act and the transactions envisaged

hereby and therefore, the one-time unfunded fees and expenses related to

the Company’s implementation of SAP during the fiscal years ending in 2017

until 2024, for an amount not exceeding $15.0 million in one exercise

year of the Company, the charges and expenses relating to the ASP Royal

Acquisition, including but not limited to advisory and financing fees, during

the financial years of the Company ending in 2020 and 2021, for an aggregate amount (as

to those years combined) not exceeding $40.0 millioncharges and expenses

related to the reorganization of the Company and its subsidiaries of five

business units to three business units to reduce costs during the

financial years ending in 2020 and 2021 in an aggregate amount (for this

years combined) not exceeding $24.0 millionand related charges and expenses

to the Company’s manufacturing and operating plan to improve

delivery, implement cost savings and reduce inventory during

financial years ending in 2020, 2021 and 2022 in an aggregate amount (for this

    years combined) not exceeding $15.5 million.


? Consolidated interest expense for the revolving credit facility is defined as

interest expense (including, but not limited to, the portion of principal

lease liabilities that constitute notional interest under GAAP)

of the Company and its subsidiaries calculated on a consolidated basis for

this period in respect of all unpaid debts of the Company and

its subsidiaries attributable to this period in accordance with GAAP.

We expect to be able to meet all of our contractual obligations and commitments in fiscal year 2022.

Selected liquidity indicators

The key metrics we monitor are net working capital as a percentage of annualized net sales, days of sales receivable (“DSO”), days of inventory on hand, free cash flow after dividends and debt capitalization ratio.


                                                          August 27,        August 28,
                                                             2022              2021

Net working capital as a percentage of annualized net income1

                                                          18.9 %            16.6 %
Accounts receivable DSO (in days)2                                  63      

63

Inventory days on hand (in days)3                                   75      

70

Free cash flow after dividends4                          $       (78.8 )   $        57.9
Total debt to total capital ratio5                                54.9 %            51.4 %




1 Current quarter net working capital (trade receivables, net of allowance for
doubtful accounts plus inventory minus trade payables) divided by annualized net
revenue (current quarter multiplied by four).

2 Trade receivables net of the allowance for doubtful accounts at the balance
sheet date multiplied by 91 (13 weeks) and divided by the net revenue for the
quarter.

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Contents

3 Total inventory multiplied by 91 and divided by cost of sales (excluding shipping) for the quarter.

4 Year-to-date net cash provided by operating activities, less property, plant and equipment purchased and dividends paid. See below the reconciliation of net cash flow from operating activities with free cash flow after dividends.

5 Total debt divided by (total debt plus total equity).



Free cash flow after dividends, a non-GAAP financial measure, is defined as net
cash provided by operations less purchased property, plant and equipment and
dividends paid. Free cash flow after dividends is an integral financial measure
used by the Company to assess its ability to generate cash in excess of its
operating needs, therefore, the Company believes this financial measure provides
useful information to investors. The following table reflects the manner in
which free cash flow after dividends is determined and provides a reconciliation
of free cash flow after dividends to net cash provided by operating activities,
the most directly comparable financial measure calculated and reported in
accordance with U.S. GAAP.



Reconciliation of "Net cash provided by operating activities" to Free cash flow
after dividends



                                                                      Nine Months Ended
($ in millions)                                             August 27, 2022       August 28, 2021
Net cash provided by operating activities                  $            48.7     $           161.1
Less: Purchased property, plant and equipment                           98.4                  77.2
Less: Dividends paid                                                    29.1                  26.0
(Negative) free cash flow after dividends                  $           (78.8 )   $            57.9

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