H.B. FULLER COMPANY Overview
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
Net income attributable toH.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 OnMarch 11, 2020 , theWorld 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 endedNovember 27, 2021 as filed with theSecurities 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$20.1 million under this plan as ofAugust 27, 2022 , which is substantially complete. 23
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Results of Operations
Net revenue:
Three Months Ended Nine Months Ended
August 27, August 28, 2022 vs August 27, August 28, 2022 vs
($ 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 profit in the third quarter of 2022 increased 28.5 percent and gross profit margin increased 300 basis points compared to the third quarter of 2021. The increase in gross profit margin was primarily due to higher product pricing.
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 $26.7 million , or
19.9 percent, compared to the third quarter of 2021. The increase is primarily
due to higher compensation and acquisition project costs, partially offset by
the favorable impact of foreign currency exchange rates on spending outside the
U.S. SG&A expenses for the first nine months of 2022 increased
Other income, net:
Three Months Ended Nine Months Ended
August 27, August 28, 2022 vs August 27, August 28, 2022 vs ($ 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 % 25
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Interest expense in the third quarter of 2022 was
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
Interest income in the first nine months of 2022 and 2021 was
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 $5.1 million
of discrete tax expense. Excluding the discrete tax expense, the overall
effective tax rate was 27.4 percent. The discrete tax expense relates to the
revaluation of cross-currency swap agreements due to depreciation of the Euro
versus the U.S. dollar and various U.S. and foreign tax matters.
Income from equity method investments:
Three Months Ended Nine Months Ended
August 27, August 28, 2022 vs August 27, August 28, 2022 vs
($ 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
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 toH.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 toH.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$2.04 per share for the first nine months of 2021. Operating Segment Results We have three reportable segments: Hygiene, Health and Consumable Adhesives, Engineering Adhesives and Construction Adhesives. Operating results of each of these segments are regularly reviewed by our chief operating decision maker to make decisions about resources to be allocated to the segments and assess their performance.
The tables below provide certain information regarding the net revenue and operating income of each of our operating segments.
Corporate Unallocated amounts include business acquisition and integration costs, organizational restructuring charges and project costs associated with our implementation of SAP ONE.
Net Revenue by Segment:
Three Months Ended Nine Months Ended
August 27, 2022 August 28, 2021 August 27, 2022 August 28, 2021
Net % of Net % of Net % of Net % of ($ in millions)
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 Income (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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Hygiene, Health and Consumable 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 $ 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 of the Hygiene, Health 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
NMP NMP NMP NMP
NMP = Non-meaningful percentage
Corporate Unallocated includes acquisition and integration-related charges, restructuring-related charges, and costs related to the implementation of Project ONE.
Segment operating loss in the third quarter and first nine months of 2022 increased 25.0 percent and 19.9 percent compared to the third quarter and first nine months of 2021, respectively, reflecting increased acquisition project costs.
Financial Condition, Liquidity and Capital Resources
Total cash and cash equivalents as ofAugust 27, 2022 were$60.7 million compared to$61.8 million as ofNovember 27, 2021 and$68.1 million as ofAugust 28, 2021 . The majority of the$60.7 million in cash and cash equivalents as ofAugust 27, 2022 was held outsidethe United States . Total long and short-term debt was$1,918.2 million as ofAugust 27, 2022 ,$1,616.5 million as ofNovember 27, 2021 and$1,664.0 million as ofAugust 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 ofAugust 27, 2022 as compared to 50.2 percent as ofNovember 27, 2021 and 51.4 percent as ofAugust 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 inthe United States has historically been sufficient and we expect it will continue to be sufficient to fundU.S. operations,U.S. capital spending andU.S. pension and other postretirement benefit contributions in addition to fundingU.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 forU.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. AtAugust 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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? EBITDA for Term Loan B covenant purposes is defined as consolidated net
income, plus interest expense, expense for taxes paid or accrued,
depreciation and amortization, certain non-cash impairment losses,extraordinary non-cash losses incurred other than in the ordinary course of
business, nonrecurring extraordinary non-cash restructuring charges and the
non-cash impact of purchase accounting, expenses related to the Royal
Adhesives acquisition not to exceed
integration of Royal Adhesives during the fiscal years ending in 2017, 2018
and 2019 not exceeding
began prior to the Royal Adhesives acquisition incurred in fiscal years ending
in 2017 and 2018 not exceeding
charges relating to the SAP implementation during fiscal years ending in 2017
through 2021 not exceeding
extraordinary non-cash gains. For the Total Indebtedness / TTM EBITDA ratio,
TTM EBITDA is adjusted for the pro forma results from Material Acquisitions
and Material Divestitures as if the acquisition or divestiture occurred at the
beginning of the calculation period. The full definition is set forth in the
Term Loan B Credit Agreement and can be found in the Company's Form 8-K filing
dated October 20, 2017 .
? EBITDA for Revolving Credit Facility covenant purposes is defined asconsolidated net income, plus interest expense, expense for taxes paid or
accrued, depreciation and amortization, non-cash impairment losses related to
long-lived assets, intangible assets or goodwill, nonrecurring or unusual
non-cash losses incurred other than in the ordinary course of business,
nonrecurring or unusual non-cash restructuring charges and the non-cash impact
of purchase accounting, fees, premiums, expenses and other transaction costs
incurred or paid by the borrower or any of its Subsidiaries on the effective
date in connection with the transactions, this agreement and the other loan
documents, the 2020 supplemental indenture and the transactions contemplated
hereby and thereby, one-time, non-capitalized charges and expenses relating to
the Company's SAP implementation during fiscal years ending in 2017
through 2024, in an amount not exceeding
year of the Company, charges and expenses relating to the ASP Royal
Acquisition, including but not limited to advisory and financing costs, during
the Company's fiscal years ending in 2020 and 2021, in an aggregate amount (as
to such years combined) not exceeding
related to the reorganization of the Company and its subsidiaries from five
business units to three business units to reduce costs during the Company's
fiscal years ending in 2020 and 2021 in an aggregate amount (as to such
years combined) not exceeding
to the Company's manufacturing and operations project to improve
delivery, implement cost savings and reduce inventory during the Company's
fiscal years ending in 2020, 2021 and 2022 in an aggregate amount (as to such
years combined) not exceeding $15.5 million .
? Consolidated Interest Expense for the Revolving Credit Facility is defined as
the interest expense (including without limitation the portion of capital
lease obligations that constitutes imputed interest in accordance with GAAP)
of the Company and its subsidiaries calculated on a consolidated basis for
such period with respect to all outstanding indebtedness of the Company and
its subsidiaries allocable to such period in accordance with GAAP.
We believe we have the ability to meet all of our contractual obligations and commitments in fiscal 2022.
Selected Metrics of Liquidity
Key metrics we monitor are net working capital as a percent of annualized net revenue, trade receivable days sales outstanding ("DSO"), inventory days on hand, free cash flow after dividends and debt capitalization ratio.
August 27 ,August 28, 2022 2021
Net working capital as a percentage of annualized net revenue1
18.9 % 16.6 %
Accounts receivable DSO (in days)2 63 63
Inventory days on hand (in days)3 75
70
Free cash flow after dividends4$ (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. 31
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3 Total inventory multiplied by 91 and divided by cost of sales (excluding delivery costs) for the quarter.
4 Year-to-date net cash provided by operating activities, less purchased property, plant and equipment and dividends paid. See reconciliation of net cash provided by operating activities to free cash flow after dividends below.
5 Total debt divided by (total debt plus total stockholders' equity).
Free cash flow after dividends, a non-GAAP financial measure, is defined as net cash provided by 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 withU.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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