What changed in this filing

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Item 1. Financial Statements

2023-03-30 compared with 2022-09-22 · 240 added, 306 removed, 404 unchanged (57% of the section changed)

4 unchanged sentences

Three Months Ended

Nine Months Ended

Cost of sales

17 unchanged sentences

Three Months Ended

Nine Months Ended

Net income including non-controlling interest

Other comprehensive (loss) income

Other comprehensive income

Foreign currency translation

2 unchanged sentences

Cross-currency swaps, net of tax

Other comprehensive (loss) income

Comprehensive (loss) income

Comprehensive income (loss) attributable to non-controlling interest

Comprehensive (loss) income attributable to H.B.

Net investment hedges, net of tax

Other comprehensive income

Comprehensive income

Comprehensive income attributable to non-controlling interest

Comprehensive income attributable to H.B.

See accompanying Notes to Unaudited Consolidated Financial Statements.

6 unchanged sentences

$ 79,910  

Trade receivables (net of allowances of $ 12,662 and $ 9,935 , as of August 27, 2022 and November 27, 2021, respectively)

Trade receivables (net of allowances of $ 11,121 and $ 10,939 , as of March 4, 2023 and December 3, 2022, respectively)

566,358  

62 unchanged sentences

160,000,000 , shares outstanding –

53,298,831 and 52,777,753 as of August 27, 2022 and November 27, 2021, respectively

53,818,698 and 53,676,576 as of March 4, 2023 and December 3, 2022, respectively

$ 53,819  

25 unchanged sentences

Income (Loss)

Balance at November 27, 2021

Balance at December 3, 2022

Comprehensive income

2 unchanged sentences

Repurchases of common stock

Balance at February 26, 2022

Comprehensive income (loss)

Stock option exercises

Share-based compensation plans other, net

Repurchases of common stock

Balance at May 28, 2022

Comprehensive income (loss)

Stock option exercises

Share-based compensation plans other, net

Repurchases of common stock

Balance at August 27, 2022

Balance at March 4, 2023

Fuller Company Shareholders

8 unchanged sentences

Balance at February 26, 2022

Comprehensive income

Stock option exercises

Share-based compensation plans other, net

Repurchases of common stock

Balance at May 29, 2021

Comprehensive income

Stock option exercises

Share-based compensation plans other, net

Repurchases of common stock

Balance at August 28, 2021

See accompanying Notes to Unaudited Consolidated Financial Statements. 

2 unchanged sentences

(In thousands)

Nine Months Ended

August 27, 2022

August 28, 2021

Three Months Ended

March 4, 2023

February 26, 2022

Cash flows from operating activities:

Net income including non-controlling interest

$ 21,916  

$ 38,320  

Adjustments to reconcile net income including non-controlling interest to net cash (used in) provided by operating activities:

19,248  

18,163  

18,683  

17,792  

Deferred income taxes

( 5,746 )  

Income from equity method investments, net of dividends received

Loss (gain) on sale or disposal of assets

( 1,180 )  

 Debt issuance costs write-off

Loss on mark to market adjustment on contingent consideration liability

Gain on sale or disposal of assets

Share-based compensation

Pension and other post-retirement benefit plan activity

( 3,476 )  

Change in assets and liabilities, net of effects of acquisitions:

Trade receivables, net

55,407  

13,283  

( 33,800 )  

( 28,947 )  

Trade payables

46,464  

Accrued compensation

( 57,000 )  

Other accrued expenses

( 6,414 )  

Income taxes payable

( 2,235 )  

Other liabilities

Net cash provided by operating activities

( 3,085 )  

15,827  

Net cash provided by (used in) operating activities

Cash flows from investing activities:

Purchased property, plant and equipment

( 47,604 )  

Purchased businesses, net of cash acquired

( 16,723 )  

Proceeds from sale of property, plant and equipment

Cash received from government grant

Cash payments related to government grant

Net cash used in investing activities

( 63,716 )  

Cash flows from financing activities:

Proceeds from debt

Proceeds from issuance of long-term debt

1,300,000  

307,500  

Repayment of long-term debt

( 1,176,650 )  

Payment of debt issuance costs

Net proceeds of notes payable

( 10,214 )  

Net payment of notes payable

( 881 )  

Dividends paid

( 10,222 )  

Contingent consideration payment

1 unchanged sentence

Repurchases of common stock

Net cash provided by (used in) financing activities

( 2,448 )  

Net cash provided by financing activities

103,180  

287,792  

Effect of exchange rate changes on cash and cash equivalents

Net change in cash and cash equivalents

45,572  

Cash and cash equivalents at beginning of period

79,910  

61,786  

Cash and cash equivalents at end of period

$ 125,482  

$ 63,511  

See accompanying Notes to Unaudited Consolidated Financial Statements.

14 unchanged sentences

These unaudited interim Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in our Annual Report on Form 10 -K for the year ended 

November 27, 2021 as filed with the Securities and Exchange Commission.

December 3, 2022 as filed with the Securities and Exchange Commission.

New Accounting Pronouncements

In November 2021, the FASB issued ASU No.

2021 - 10, Government Assistance (Topic 832 ):

Disclosures by Business Entities about Government Assistance .

This ASU requires business entities to make annual disclosures about transactions with a government they account for by analogizing to a grant or contribution accounting model under ASC 958 - 605.

Our effective date for adoption of this ASU is our fiscal year beginning December 4, 2022 with early adoption permitted.

We have evaluated the effect that this guidance will have on our Consolidated Financial Statements and determined it will not have a material impact.

In September 2022, the Financial Accounting Standards Board (“FASB”) issued ASU 

2022 - 04, Liabilities - Supplier Finance Programs (Subtopic 405 - 50 ):

Disclosure of Supplier Finance Program Obligations.

This ASU requires that a buyer in a supplier finance program disclose sufficient information about the program to allow a user of the financial statements to understand the program's nature, activity during the period, changes from period to period, and potential magnitude.

To achieve that objective, the buyer should disclose qualitative and quantitative information about its supplier finance programs. 

Our effective date of this ASU is our fiscal year ending December 1, 2024.

We are evaluating the effect that this guidance will have on our Consolidated Financial Statements. 

Recently issued accounting standards or pronouncements not disclosed above have been excluded as they are not relevant to the company.

Aspen Research Corporation

On January 31, 2023, we acquired the assets of Aspen Research Corporation (“Aspen”) for a total purchase price of $ 9,850 , which was funded through existing cash.

This includes a holdback amount of $ 500 that will be paid on the 18 -month anniversary of the closing date.

Aspen, located in Maple Grove, Minnesota, is a contract research organization that develops and manufactures innovative solutions for some of the adhesives used in our insulating glass market.

Aspen is known for their superior understanding of materials science, engineering and analytical testing and specializes in custom materials manufacturing for chemicals and adhesives products.

The acquisition of Aspen is expected to expand our Engineering Adhesives footprint in North America and strengthen our capabilities in the insulating glass market, in addition to bringing additive continuous flow, process manufacturing capabilities that we plan to leverage.

The acquisition fair value measurement was preliminary as of March 4, 2023 and includes intangible asse ts of $ 7,902  and other net assets of $ 1,948 .

A spen is included in our Engineering Adhesives operating segment. 

On December 15, 2022, we acquired Lemtapes Oy (“Lemtapes”) for a total purchase price of 7,997 Euro, or approximately $ 8,498 , which was funded through existing cash.

This includes a holdback amount of 850 Euro that will be paid on the 18 -month anniversary of the closing date.

Lemtapes, located in Valkeakoski, Finland, is a solutions provider of ecological, innovative tapes and adhesives for the packaging and plywood industries.

The acquisition of Lemtapes is expected to reinforce our strategic position in Europe, especially for our Adhesives Coated Solutions products.

This acquisition will also accelerate our growth strategy of fast-growing, high margin businesses while adding technology capabilities and strong customer relationships.

The acquisition fair value measurement was preliminary as of March 4, 2023 and includes intangible ass ets of $ 6,834 and other net assets of $ 1,664 .

Lemta pes is included in our Hygiene, Health and Consumable Adhesives operating segment.

GSSI Sealants                                                                                                    

On October 24, 2022, we acquired GSSI Sealants, Inc. ("GSSI") for a total purchase price of $ 7,483 , which was funded through existing cash.

This includes a holdback amount of $ 1,050 that will be paid on the 12 -month anniversary of the closing date.

GSSI, headquartered in Houston, Texas, is a manufacturer of premier elastomeric butyl rubber sealant tapes.

The acquisition of GSSI is expected to support our strategy to expand our Construction Adhesives business selectively via high margin applications and expand our reach to new regions. The acquisition fair value measurement was preliminary as of March 4, 2023 and includes intangible a ssets of $ 4,305 and other net assets of $ 3,178 .

GSSI is included in our Construction Adhesives operating segment. 

ZKLT Polymer Co.

On August 16, 2022, we acquired ZKLT Polymer Co., Ltd.

2 unchanged sentences

27,000 Chinese renminbi, or approximately $ 3,987 , with half to be paid on each of the 12 -month and 18 -month anniversaries of the closing date, as well as contingent consideration up to 30,000 Chinese renminbi, or approximately $ 4,430 , following the completion of certain performance goals and conditions. ZKLT, headquartered in Chongquin City, China, is a manufacturer of liquid adhesives primarily for the automotive market.

The acquisition of ZKLT is expected to add market knowledge, strong customer relationships and a strategic manufacturing location to further strengthen our presence in Southwest China.

The acquisition fair value measurement was preliminary as of August 27, 2022 and includes intangible assets of $ 3,042 , goodwill of $ 8,175 and other net assets of $ 7,953 .

The acquisition of ZKLT is expected to add unique technology, strong customer relationships and a strategic manufacturing location to further strengthen our presence in Southwest China.

The acquisition fair value measurement was preliminary as of March 

4, 2022 and includes intangible assets of $ 5,316 , goodwill of $ 3,786  

and other net as sets of $ 10,068 .

Goodwill is not deductible for tax purposes.

See Note 11 for further discussion of the fair value of the contingent consideration.

ZKLT will be included in our E ngineering Adhesives operating segment. The ZKLT acquisition does not represent a material business combination, and therefore pro forma financial information is not provided. 

On January 26, 2022, we acquired Apollo Chemicals Limited, Apollo Roofing Solutions Limited and Apollo Construction Solutions Limited (collectively, "Apollo") for a base purchase price of 151,214 British pound sterling, or approximately $ 203,573 , which was funded through borrowings on our credit facility.

The agreement requires us to pay an additional 1,500 British pound sterling, or approximately $ 2,019 , following the completion of certain environmental studies.

As of August 27, 2022, the environmental studies were complete and the $ 2,019 was paid. Apollo, headquartered in Tamworth, UK, is a manufacturer of liquid adhesives, coatings and primers for the roofing, industrial and construction markets.

See Note 12  for further discussion of the fair value of the contingent consideration.

ZKLT is included in our Engineering Adhesives operating segment. 

On January 26, 2022, we acquired Apollo Chemicals Limited, Apollo Roofing Solutions Limited and Apollo Construction Solutions Limited (collectively, "Apollo") for a total purchase price of 152,714 British pound sterling, or approximately $ 205,592 , which was funded through borrowings on our credit facility. 

Apollo, headquartered in Tamworth, UK, is a manufacturer of liquid adhesives, coatings and primers for the roofing, industrial and construction markets.

Apollo is expected to enhance our position in key high-value, high-margin markets in the UK and throughout Europe.

The acquisition fair value measurement was preliminary as of August 27, 2022.

The acquisition will be included in our Construction Adhesives operating segment. 

The following table summarizes the preliminary fair value measurement of the assets acquired and liabilities assumed as of the date of acquisition:

February 26, 2022

August 27, 2022

Current assets

Property, plant and equipment

Other intangibles

Customer relationships

Trademarks/trade names

Current liabilities

Other liabilities

The expected useful lives of the acquired intangible assets are 15 years for technology, 10  years for customer relationships and five  years for trademarks/trade names.

Based on the fair value measurement of the assets acquired and liabilities assumed, we allocated $ 118,295 to goodwill for the expected synergies from combining Apollo with our existing business.

Such goodwill is not deductible for tax purposes.

The goodwill was assigned to our Construction Adhesives operating segment.

The Apollo acquisition does not represent a material business combination, and therefore pro forma financial information is not provided.

On January 11, 2022, we acquired Fourny NV ("Fourny") for a base purchase price of 12,867 Euro, or approximately $ 14,627 , which was funded through existing cash. The agreement requires us to pay an additional 3,100 Euro, or approximately $ 3,524 , 18 months following the date of acquisition. Fourny, headquartered in Willebroek, Belgium, is a manufacturer of construction and automotive adhesives .

The acquisition fair value measurement was final as of December 3, 2022 and includes intangible assets of $ 76,198 , goodwill of $ 119,358  

and other net as sets of $ 10,036 .

Goodwill is not deductible for tax purposes.  

The acquisition is included in our Construction Adhesives operating segment. 

Fourny is expected to enhance our position in key high-value, high-margin markets in Europe.

The acquisition fair value measurement was preliminary as of August 27, 2022 and includes intangible assets of $ 10,117 , goodwill of $ 6,617 , cash of $ 75 and other net assets of $ 1,342 .

Goodwill is not ded uctible for tax purposes.

Fourny is recorded in our Construction Adhesives operating segment. The Fourny acquisition does not represent a material business combination, and therefore pro forma financial information is not provided.

Tissue Seal, LLC

November 30, 2021, we acquired certain assets of Tissue Seal, LLC ("TissueSeal") for a base purchase price of $ 22,167 , which was funded through existing cash.

The agreement requires us to pay an additional $ 2,475  on the first anniversary of the acquisition and contingent consideration of up to $ 500 on November 30, 2024 based on certain agreement provisions. TissueSeal, headquartered in Ann Arbor, Michigan, is a distributor of topical tissue adhesives and sutures.

With this acquisition, we add TissueSeal's regulatory clearances, customer and distribution relationships, regulatory approvals and trademarks into our portfolio of products. T he acquisition fair value measurement was preliminary as of August 27, 2022 and includes intangible assets of $ 11,160 , goodwill of $ 13,765  and other net assets of $ 217 .

Goodwill is de ductible for tax purposes.

See Note 11 for further discussion of the fair value of the contingent consideration liability.

TissueSeal is recorded in our Hygiene, Health and Consumable Adhesives operating segment. The TissueSeal acquisition does not represent a material business combination, and therefore pro forma financial information is not provided.

STR Holdings, Inc.

On January 13, 2021, we acquired certain assets of STR Holding, Inc.

("STR") for a base purchase price of $ 5,445  which was funded through existing cash.

The agreement required us to pay an additional $ 800 on the first anniversary of the acquisition and contingent consideration of up to $ 1,700 based on certain agreement provisions.

STR, headquartered in Enfield, Connecticut, is a manufacturer of encapsulant products used in the solar industry.

The acquisition fair value measurement, which includes intangible assets of $ 6,700  and other net assets of $ 1,245 , was final as of November 27, 2021.

The agreement provisions for the contingent consideration were met, and as a result, $ 1,700 was paid as of November 27, 2021.

No goodwill was recorded for this acquisition. STR is reported in our Engineering Adhesives operating segment.

The STR acquisition does not represent a material business combination, and therefore pro forma financial information is not provided. 

Adhesives, Inc . 

On February 3, 2020, we acquired certain assets of D.H.M.

Adhesives, Inc.

(“D.H.M.”) for approximately $ 9,500 which was funded through existing cash.

In addition, the agreement required us to pay contingent consideration of up to approximately $ 8,100 based upon a formula related to revenue during the fiscal years ended November 27, 2021 and December 3, 2022.

D.H.M., headquartered in Calhoun, Georgia, is a provider of hotmelt adhesives.

The acquisition fair value measurement was final as of May 30, 2020 and includes goodwill of $ 1,063 and customer relationship intangible of $ 11,900 .

The fair value of the contingent consideration as of the date of acquisition was $ 5,000 resulting in a final purchase price of $ 14,500 .

As of November 27, 2021, the agreement provisions for the contingent consideration were met, and as a result, $ 8,100 was paid during the period ended February 26, 2022.

Goodwill is deductible for tax purposes.

and the related goodwill are reported in our Hygiene, Health and Consumable Adhesives operating segment.

The D.H.M acquisition does not represent a material business combination, and therefore pro forma financial information is not provided.

The acquisition fair value measurement was final as of December 3, 2022 and includes intangible assets of $ 10,117 , goodwill of $ 6,455 and other net assets of $ 1,391 .

Goodwill is not deductible for tax purposes.

Fourny is included in our Construction Adhesives operating segment. 

All acquisitions, individually and in the aggregate, are

not material and therefore pro forma financial information is

not provided.

Restructuring Actions

The Company has approved restructuring plans consisting of consolidation plans, organizational changes and other actions related to the reorganization of our business into three segments, the integration of the operations of Royal Adhesives with the operations of the Company and other actions to optimize operations.

The following table summarizes the pre-tax charges under these restructuring plans by income statement classification:

The Company has approved restructuring plans consisting of consolidation plans, organizational changes and other actions to optimize operations.

The following table summarizes the pre-tax distribution of charges under these restructuring plans by income statement classification:

Three Months Ended

Nine Months Ended

August 27, 2022

August 28, 2021

August 27, 2022

August 28, 2021

March 4, 2023

February 26, 2022

Cost of sales

Selling, general and administrative

The restructuring charges are all recorded in Corporate Unallocated for segment reporting.

The restructuring charges are all recorded in Corporate Unallocated for segment reporting purposes.

A summary of the restructuring liability is presented below:

2 unchanged sentences

Expenses incurred

Non-cash charges

Cash payments

Foreign currency translation

Balance at November 27, 2021

Balance at December 3, 2022

Expenses incurred

1 unchanged sentence

Foreign currency translation

Balance at August 27, 2022

Non-cash charges include accelerated depreciation resulting from the cessation of use of certain long-lived assets.

Restructuring liabilities have been classified as a component of other accrued expenses in the Consolidated Balance Sheets.

Balance at March 4, 2023

Restructuring liabilities have been classified as a component of other accrued expenses on the Consolidated Balance Sheets.

The composition of inventories is as follows:

4 unchanged sentences

The goodwill activity by reportable segment for the 

nine months ended August 27, 2022 is presented below:

three months ended March 4, 2023 is presented below:

Hygiene, Health

and Consumable

Balance at November 27, 2021

$ 325,470  

$ 662,021  

$ 311,354  

$ 1,298,845  

TissueSeal acquisition

13,765  

Fourny acquisition

Apollo acquisition

118,295  

ZKLT acquisition

Balance at December 3, 2022

Foreign currency translation effect

( 17,100 )  

( 36,536 )  

( 16,097 )  

Balance at August 27, 2022

$ 322,135  

$ 633,660  

$ 420,169  

$ 1,375,964  

Balance at March 4, 2023

Balances of amortizable identifiable intangible assets, excluding goodwill and other non-amortizable intangible assets, are as follows:

August 27, 2022

March 4, 2023

Amortizable Intangible Assets

3 unchanged sentences

Net identifiable intangibles

November 27, 2021

December 3, 2022

Amortizable Intangible Assets

3 unchanged sentences

Net identifiable intangibles

Amortization expense with respect to amortizable intangible assets was $ 18,676  and $ 17,815  for the three months ended August 27, 2022 and August 28, 2021 , respectively, and $ 55,088  and $ 53,464  for the 

nine months ended August 27, 2022 and August 28, 2021 , respectively.

Amortization expense with respect to amortizable intangible assets was $ 18,683  and $ 17,792  for the three months ended March 4, 2023 and February 26, 2022 , respectively.

Estimated aggregate amortization expense based on the current carrying value of amortizable intangible assets for the next five fiscal years is as follows:

1 unchanged sentence

Non-amortizable intangible assets as of 

August 27, 2022 and November 27, 2021 are $ 434  and $ 493 , respectively, and are related to trademarks and trade names.

The change in non-amortizable assets as of August 27, 2022 compared to November 27, 2021 was due to changes in foreign currency exchange rates.

March 4, 2023 and December 3, 2022 were $ 462  and $ 459 , respectively, and relate to trademarks and trade names.

The change in non-amortizable assets as of March 4, 2023 compared to December 3, 2022 was due to changes in foreign currency exchange rates.

Long-Term Debt

On February 15, 2023, we entered into a credit agreement with a consortium of financial institutions (“Second Amended and Restated Credit Agreement”) which replaces our existing revolving credit agreement under the amended and restated revolving credit agreement dated October 20, 2020 and also replaces our secured term loan credit agreement dated October 20, 2017.

The Second Amended and Restated Credit Agreement provides for a new senior secured term loan A facility in an aggregate principal amount of $ 500,000 (“Term Loan A”), a new senior secured term loan B facility in an aggregate principal amount of $ 800,000 (“Term Loan B”) and amendments to and extension of our existing senior secured revolving credit facility with an aggregate commitment in the amount of $ 700,000 (“Revolving Credit Facility”).

A portion of the proceeds of the combined facilities, (the “Credit Facilities”) was used to pay off the existing term loan and revolver.

The Credit Facilities will generally be used to finance working capital needs and acquisitions, and for general corporate purposes.

All of our obligations under the Credit Facilities will be secured by a first -lien security interest in substantially all personal property and material real property of the Company and its material U.S.

subsidiaries, and will be guaranteed by all of the Company’s material U.S.

subsidiaries.

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 1.75 percent ( 6.47  percent at March 4, 2023).

The interest rate spread is based on a secured leverage grid.

Term Loan A matures on February 15, 2028.

Interest on Term Loan B is payable at SOFR plus an interest rate spread of 2.50 percent with a SOFR floor of 0.50 percent ( 7.12  percent at March 4, 2023).

Term Loan B matures on February 15, 2030. 

On January 12, 2023, we entered into an interest rate swap agreement to convert $ 400,000 of our variable rate 1 -month LIBOR rate debt to a fixed rate of 3.6895 percent. On February 28, 2023, after entering into the Second Amended and Restated Credit Agreement, we amended the interest rate swap agreement to 1 -month SOFR and a fixed rate of 3.7260 in accordance with the practical expedients included in ASC 848, Reference Rate Reform .

See Note 12 for further discussion of this interest rate swap.

Revolving Credit Facility

Interest on the Revolving Credit Facility is payable at SOFR plus an adjustment of 0.10 percent and an interest rate spread of 1.75 percent ( 6.47  percent at March 4, 2023).

A facility fee of 25 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 leverage grid.

At March 4, 2023, there was no balance outstanding on the Revolving Credit Facility.

The Revolving Credit Facility matures on February 15, 2028.

The Revolving Credit Facility can be drawn upon for general corporate purposes up to a maximum of $ 700,000 , less issued letters of credit.

At March 4, 2023, letters of credit reduced the available amount under the Revolving Credit Facil ity by $ 9,864 .

Covenants and Other

Under the Second Amended and Restated Credit Agreement, the Revolving Credit Facility and Term Loan A are subject to certain covenants and restrictions.

For these facilities, we are required to maintain a secured leverage ratio, as defined in the agreement, no greater than 4.75 to 1.00 for our fiscal quarters ending on or prior to June 1, 2024 and then 4.50 to 1.00 thereafter.

We are also required to maintain an interest coverage ratio of not less than 2.00 to 1.00.

Restrictive covenants include, but are not limited to, limitations on secured and unsecured borrowings, interest coverage, intercompany transfers and investments, third party investments, dispositions of assets, leases, liens, dividends and distributions, and contains a maximum total debt to trailing twelve months EBITDA requirement. Certain covenants become less restrictive after meeting leverage or other financial ratios.

In addition, we cannot be a member of any consolidated group as defined for income tax purposes other than with our subsidiaries. 

The terms of the Second Amended and Restated Credit Agreement do not require the financial covenants to be measured until the fiscal quarter ending June 3, 2023.

We are subject to mandatory prepayments in the first quarter of each fiscal year equal to 50 % of Excess Cash Flow, as defined in the Second Amended and Restated Credit Agreement, of the prior fiscal year less any voluntary prepayments made during that fiscal year.

The Excess Cash Flow Percentage shall be reduced to 25 percent when our Secured Leverage Ratio is below 4.25:1.00 and to 0 percent when our Secured Leverage Ratio is below 3.75:1.00.

Components of Net Periodic Benefit related to Pension and Other Postretirement Benefit Plans

Three Months Ended August 27, 2022 and August 28, 2021

Pension Benefits

Postretirement

Net periodic cost (benefit):

Interest cost

Expected return on assets

Amortization:

Prior service cost (benefit)

Actuarial loss (gain)

Settlement charge

Net periodic benefit

Nine Months Ended August 27, 2022 and August 28, 2021

Three Months Ended March 4, 2023 and February 26, 2022

Pension Benefits

Postretirement

Net periodic cost (benefit):

Net periodic (benefit) cost:

Interest cost

1 unchanged sentence

Amortization:

Prior service cost (benefit)

Prior service (benefit) cost

Actuarial loss (gain)

Settlement charge

Net periodic benefit

Net periodic (benefit) cost

Service cost is included with employee compensation cost in cost of sales and selling, general and administrative expenses in the Consolidated Statements of Income.

The components of our net periodic defined benefit pension and postretirement benefit costs other than service cost are presented in other income, net in the Consolidated Statements of Income.

In the second quarter of 2022, we recognized a non-cash settlement charge of $ 3,329 related to the termination of our Canadian defined benefit pension plan.

The settlement charge is included in other income, net in the Consolidated Statements of Income.

Accumulated Other Comprehensive Income (Loss)

The following table provides details of total comprehensive income (loss): 

Three Months Ended August 27, 2022

Three Months Ended August 28, 2021

Fuller Stockholders

Net income attributable to H.B.

Fuller and non-controlling interest

Foreign currency translation adjustment¹

Defined benefit pension plans adjustment²

Interest rate swap³

Cross currency swaps³

Other comprehensive loss

Comprehensive income (loss)

Nine Months Ended August 27, 2022

Nine Months Ended August 28, 2021

Three Months Ended March 4, 2023

Three Months Ended February 26, 2022

Fuller Stockholders

2 unchanged sentences

Fuller and non-controlling interest

Foreign currency translation adjustment¹

Foreign currency translation¹

Defined benefit pension plans adjustment²

Interest rate swap³

Interest rate swaps³

Cross-currency swaps³

Other comprehensive income (loss)

Net investment hedges³

Other comprehensive income

Comprehensive income

3 unchanged sentences

The components of accumulated other comprehensive loss are as follows:

August 27, 2022

March 4, 2023

Foreign currency translation adjustment

$ ( 297,604 )  

$ ( 297,568 )  

Interest rate swap, net of taxes of ($2,720)

Cash flow hedges, net of taxes of $ 3

( 181 )  

Net investment hedges, net of taxes of $13,395

Defined benefit pension plans adjustment, net of taxes of $67,454

( 109,222 )  

Reclassification of AOCI tax effects

( 18,341 )  

Accumulated other comprehensive loss

$ ( 424,348 )  

$ ( 424,312 )  

November 27, 2021

December 3, 2022

Foreign currency translation adjustment

$ ( 132,370 )  

$ ( 132,267 )  

Interest rate swap, net of taxes of $ 3,224

( 9,924 )  

Cash flow hedges, net of taxes of ($ 53 )

Net investment hedges, net of taxes of $13,297

Defined benefit pension plans adjustment, net of taxes of $67,744

( 113,198 )  

Reclassification of AOCI tax effects

( 18,341 )  

Accumulated other comprehensive loss

$ ( 270,350 )  

$ ( 270,247 )  

Income tax expense for the 

three and nine months ended August 27, 2022  includes $ 6,449  and $ 7,696  of discrete tax expense, respectively, primarily relating to the revaluation of cross-currency swap agreements due to depreciation of the Euro versus the U.S.

Dollar, as well as various foreign tax matters offset by the tax effect of legal entity mergers.

Excluding the discrete tax expense, the overall effective tax rate was 

29.9 percent and 

28.7 percent for the three and nine months ended August 27, 2022  respectively.

Income tax expense for the three and nine months ended August 28, 2021 includes $ 5,626  and $ 5,068 of discrete tax expense, respectively, relating to the revaluation of cross-currency swap agreements due to depreciation of the Euro versus the U.S.

Dollar, as well as various foreign tax matters.

three months ended March 4, 2023  includes $ 846  of discrete tax expense, relating to various foreign tax matters offset by an excess tax benefit related to U.S.

stock compensation.

Excluding the discrete tax expense, the overall effective tax rate was 

27.6  percent and 27.4  percent for the three and nine months ended August 28, 2021  respectively.

August 27, 2022 , we had a liability of $ 14,541  recorded for gross unrecognized tax benefits (excluding interest) compared to $ 13,281  as of November 27, 2021 .

As of August 27, 2022 and November 27, 2021 , we had accrued $ 4,555 and $ 2,448 of gross interest relating to unrecognized tax benefits, respectively.

29.2 percent for the three months ended March 4, 2023 .

Income tax expense for the three months ended February 26, 2022 includes $ 2,901  of discrete tax benefit, relating to legal entity mergers offset by various foreign tax matters.

Excluding the discrete tax benefit, the overall effective tax rate was 

27.8  percent for the three months ended February 26, 2022 .

March 4, 2023 , we had a liability of $ 17,973  recorded for gross unrecognized tax benefits (excluding interest) compared to $ 17,582  as of December 3, 2022 .

As of March 4, 2023 and December 3, 2022 , we had accrued $ 6,086 and $ 5,680 of gross interest relating to unrecognized tax benefits, respectively.

Earnings Per Share

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Three Months Ended

Nine Months Ended

(Shares in thousands)

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Share-based compensation awards of 

573,914 and 93,876  shares for the three months ended August 27, 2022 and August 28, 2021 , respectively, and 

691,856  and 1,655,852  shares for the 

nine months ended August 27, 2022 and August 28, 2021 , respectively, were excluded from diluted earnings per share calculations because they were antidilutive.

1,172,987 and 700,250  shares for the three months ended March 4, 2023 and February 26, 2022 , respectively, were excluded from diluted earnings per share calculations because they were antidilutive.

Financial Instruments

As a result of being a global enterprise, our earnings, cash flows and financial position are exposed to foreign currency risk from foreign currency denominated receivables and payables.

We use foreign currency forward contracts, cross-currency swaps and interest rate swaps to manage risks associated with foreign currency exchange rates and interest rates.

As a result of being a global enterprise, foreign currency exchange rates and fluctuations in those rates may affect the Company's net investment in foreign subsidiaries, and our earnings, cash flows and financial position are exposed to foreign currency risk from foreign currency denominated receivables and payables.

We use foreign currency forward contracts, cross-currency swaps, interest rate swaps and net investment hedges to manage risks associated with foreign currency exchange rates and interest rates.

We do not hold derivative financial instruments of a speculative nature or for trading purposes.

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Cash flows from derivatives are classified in the Consolidated Statement of Cash Flows in the same category as the cash flows from the items subject to designated hedge or undesignated (economic) hedge relationships.

We evaluate hedge effectiveness at inception and on an ongoing basis.

We evaluate hedge effectiveness at inception and on an ongoing basis.

If a derivative is no longer expected to be effective, hedge accounting is discontinued.

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Cash Flow Hedges

As of August 27, 2022 , we had cash flow hedges of four  cross-currency swap agreements effective October 20, 2017 to convert a notional amount of $ 267,860 of foreign currency denominated intercompany loans into U.S.

dollars, which mature in 2022.

 As of August 27, 2022 , the combined fair value of the swaps was an asse t of $ 42,329  

and was included in other current assets in the Consolidated Balance Sheets. The swaps were designated as cash flow hedges for accounting treatment. The lesser amount between the cumulative change in the fair value of the actual swaps and the cumulative change in the fair value of hypothetical swaps is recorded in accumulated other comprehensive income (loss) in the Consolidated Balance Sheets and in other net cash provided by operating activities in the Consolidated Statement of Cash Flows.

The differ ences between the cumulative change in the fair value of the actual swaps and the cumulative change in the fair value of hypothetical swaps are recorded as other income, net in the Consolidated Statements of Income.

In a perfectly effective hedge relationship, the two fair value calculations would exactly offset each other. Any difference in the calculation represents hedge ineffectiveness.

The amount in accumulated other comprehensive income (loss) related to cross-currency swaps was a loss of $ 181  as of August 27, 2022 . The estimated net amount of the existing loss that is reported in accumulated other comprehensive income (loss) as of August 27, 2022 that is expected to be reclassified into earnings within the next twelve mont hs is $ 181 .

 As of August 27, 2022 , we do not believe any gains or losses will be reclassified into earnings as a result of the discontinuance of these cash flow hedges because the original forecasted transaction will not occur.

The following table summarizes the cross-currency swaps outstanding as of August 27, 2022 :

Fiscal Year of

Interest Rate

On February 27, 2018, we entered into an interest rate swap agreement to convert $ 200,000 of our $ 2,150,000 Term Loan B to a fixed interest rate of 4.589 percent.

During the second  quarter of 2021, we settled a portion of this interest rate swap as the debt underlying this swap was less than the swap value due to debt paydown.

We settled the ineffective portion of the interest rate swap by making a cash payment of $ 378 and recorded that payment to interest expense in our Consolidated Statements of Income during the second quarter of 

On October 20, 2017, we entered into interest rate swap agreements to convert $ 1,050,000 , which was amortized down to $ 800,000 on October 20, 2021, 

of our $ 2,150,000 Term Loan B to a fixed interest rate of 4.0275 percent.

These interest rate swap agreements mature on October 20, 2022.

The combined fair value of the interest rate swaps was an asset  of $ 802  

at August 27, 2022 and was included in other liabilities in the Consolidated Balance Sheets.

On January 12, 2023, we entered into an interest rate swap agreement to convert $ 400,000 of our variable rate 1 -month LIBOR rate debt to a fixed rate of 3.6895 percent. On February 28, 2023, after refinancing our debt, we amended the interest rate swap agreement to our 1 -month SOFR rate debt to a fixed rate of 3.7260 in accordance with the practical expedients included in ASC 848, Reference Rate Reform .

The combined fair value of the interest rate swaps was an asset of $ 6,688  at March 4, 2023 and was included in other assets i n the Consolidated Balance Sheets.

The swaps were designated for hedge accounting treatment as cash flow hedges.

We are applying the hypothetical derivative method to assess hedge effectiveness for these interest rate swaps.

Changes in the fair value of a hypothetically perfect swap with terms that match the critical terms of our $ 1,125,000 variable rate Term Loan B are compared with the change in the fair value of the swaps.

On April 23, 2018, we amended our Term Loan B Credit Agreement to reduce the interest rate from LIBOR plus 2.25 percent to LIBOR plus 2.00 percent.

Fixed interest rates related to swap agreements disclosed have been updated to reflect the amendment.

Changes in the fair value of a hypothetically perfect swap with terms that match the critical terms of our variable rate debt are compared with the change in the fair value of the swaps.

The amounts of pretax gains (losses) recognized in Comprehensive Income related to derivative instruments designated as cash flow hedges are as follows:

Three Months Ended

Nine Months Ended

August 27, 2022

August 28, 2021

August 27, 2022

August 28, 2021

March 4, 2023

February 26, 2022

Cross-currency swap contracts

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20, 2020 to a variable interest rate of 1 -month LIBOR plus 3.28 percent.

These interest rate swap agreements mature on October 15, 2028.The combined fair value of the interest rate swaps was a liability of $ 38,069  

August 27, 2022 , and was included in other liabilities in the Consolidated Balance Sheets. The swaps were designated for hedge accounting treatment as fair value hedges.

These interest rate swap agreements mature on October 15, 2028.

The combined fair value of the interest rate swaps was a liabili ty of $ 49,529  a t 

March 4, 2023 , and was included in other liabilities in the Consolidated Balance Sheets. The swaps were designated for hedge accounting treatment as fair value hedges.

We apply the short cut method and assume hedge effectiveness.

Changes in the fair value of a hypothetically perfect swap with terms that match the critical terms of our $ 300,000 fixed rate Public Notes are compared with the change in the fair value of the swaps.

Net Investment Hedges

On October 17, 2022, we entered into a float-to-float cross-currency interest rate swap agreement with a notional amount of €307,173 maturing in October 2028.

On October 20, 2022, we entered into fixed-to-fixed cross-currency interest rate swap agreements for a total notional amount of €300,000 with tranches maturing in August 2025, August 2026 and February 2027.

As of March 4, 2023, the combined fair value of the swaps was a liability of $ 54,442 a nd was included in other liabilities in the Consolidated Balance Sheets.

The cross-currency interest rate swaps hedge a portion of the Company’s investment in Euro denominated foreign subsidiaries.

The swaps are designated as net investment hedges for accounting treatment.

The net gains or losses attributable to changes in spot exchange rates are recorded in the cumulative translation adjustment within other comprehensive income (loss).

The gains or losses are reclassified into earnings upon a liquidation event or deconsolidation of the foreign subsidiary.

Any ineffective portions of net investment hedges are reclassified from accumulated other comprehensive income (loss) into earnings during the period of change.

The amount in accumulated other comprehensive income (loss) related to net investment hedge cross-currency swaps was a loss of $ 41,042  

as of March 4, 2023.

The amounts of pretax loss recognized in comprehensive income related to the net investment he dge was $ 397  

for the three months ended March 4, 2023.

As of March 4, 2023, we did not reclassify any gains or losses into earnings from net investment hedges and we do not expect to reclassify any such gain or loss into earnings within the next twelve months.

No amounts related to net investment hedges have been excluded from the assessment of hedge effectiveness.

Derivatives Not Designated As Hedging Instruments

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Foreign currency forward contracts are recorded as assets and liabilities on the balance sheet at fair value.

Changes in the value of these derivatives are recognized immediately in earnings, thereby offsetting the current earnings effect of the related foreign currency denominated assets and liabilities.

See Note 11  for fair value amounts of these derivative instruments.

As of August 27, 2022 , we had forward foreign currency contracts maturing between August 29, 2022 and December 13, 2022.

Changes in the value of these derivatives are recognized immediately in earnings, thereby offsetting the current earnings effect of the related foreign currency denominated assets and liabilities. 

As of March 4, 2023 , we had forward foreign currency contracts maturing between March 6, 2023  and November 21, 2023.

The ma rk-to-market effect associated with these contracts was largely offset by the underlying transaction gains and losses resulting from the foreign currency exposures for which these contracts relate. 

The amounts of pretax gains recognized in other income, net related to derivative instruments not designated as hedging instruments for the 

nine months ended August 27, 2022 and August 28, 2021 were  $ 2,378 a nd $ 1,428 , respectively.

The amounts of pretax gains (losses) recognized in other income, net related to derivative instruments not designated as hedging instruments for the 

three months ended March 4, 2023 and February 26, 2022 were  $ 7,154 a nd $ 4,237 , respectively.

Concentrations of credit risk with respect to trade accounts receivable are limited due to the large number of entities in the customer base and their dispersion across many different industries and countries.

As of August 27, 2022 , there were no significant concentrations of credit risk.

As of March 4, 2023 , there were no significant concentrations of credit risk.

Fair Value Measurements

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Balances Measured at Fair Value on a Recurring Basis

The following table presents information about our financial assets and liabilities that are measured at fair value on a recurring basis as of August 27, 2022 and November 27, 2021 , and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value.

The following table presents information about our financial assets and liabilities that are measured at fair value on a recurring basis as of March 4, 2023 and December 3, 2022 , and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value.

Fair Value Measurements Using:

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Foreign exchange contract assets

Cross-currency cash flow hedge assets

Interest rate swaps, cash flow hedge liabilities

Interest rate swaps, cash flow hedge assets

Foreign exchange contract liabilities

Interest rate swaps, fair value hedge liabilities

Net investment hedge liabilities

Contingent consideration liabilities

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Foreign exchange contract assets

Cross-currency cash flow hedge assets

Foreign exchange contract liabilities

Interest rate swaps, cash flow hedge liabilities

Interest rate swaps, fair value hedge liabilities

Contingent consideration liability

Adjustments to the fair value of contingent consideration are recorded to selling, general and administrative expenses in the Statement of Income. 

The valuation of our contingent consideration liability related to the acquisition of ZKLT with a fair value of $ 4,430 and TissueSeal with a fair value of $ 500  as of 

August 27, 2022 . As of November 27, 2021, the agreement provisions for the D.H.M contingent consideration were met, and as a result, $ 8,122  was paid during the period ended February 26, 2022.

See Note 2 for further discussion regarding our acquisitions.

Net investment hedge liabilities

Contingent consideration liabilities

The valuation of our contingent consideration liability related to the acquisitions of ZKLT and TissueSeal with a fair value of $ 1,483 and $ 500 , respectively as of 

March 4, 2023 . Adjustments to the fair value of contingent consideration are recorded to selling, general and administrative expenses in the Statement of Income. See Note 2 for further discussion regarding our acquisitions.

The following table provides details of the contingent consideration liabilities: 

Balance at November 27, 2021

Payment of contingent consideration

Balance at December 3, 2022

Mark to market adjustment

Balance at August 27, 2022

Foreign currency translation adjustment

Balance at March 4, 2023

Balances Measured at Fair Value on a Nonrecurring Basis

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Balances Disclosed at Fair Value

Long-term debt had an estimated fair value of $ 1,508,239  and $ 1,618,291 as of August 27, 2022 and November 27, 2021 , respectively.

Long-term debt had an estimated fair value of $ 1,714,383  and $ 1,713,257 as of March 4, 2023 and December 3, 2022 , respectively.

The fair value of long-term debt is based on quoted market prices for the same or similar issues or on the current rates offered for debt of similar maturities.

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Environmental Matters  

From time to time, we become aware of compliance matters relating to, or receive notices from, federal, state or local entities regarding possible or alleged violations of environmental, health or safety laws and regulations.

We review the circumstances of each individual site, considering the number of parties involved, the level of potential liability or our contribution relative to the other parties, the nature and magnitude of the hazardous substances involved, the method and extent of remediation, the estimated legal and consulting expense with respect to each site and the time period over which any costs would likely be incurred.

Also, from time to time, we are identified as a potentially responsible party (“PRP”) under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) and/or similar state laws that impose liability for costs relating to the clean up of contamination resulting from past spills, disposal or other release of hazardous substances.

We are also subject to similar laws in some of the countries where current and former facilities are located.

Our environmental, health and safety department monitors compliance with applicable laws on a global basis.

To the extent we can reasonably estimate the amount of our probable liabilities for environmental matters, we establish an undiscounted financial provision. We recorded liabilities of $ 6,127 and $ 6,603  as of August 27, 2022 and November 27, 2021 , respectively, for probable and reasonably estimable environmental remediation costs. Of the amount reserved, $ 2,962 and $ 3,333  as of August 27, 2022 and November 27, 2021 , respectively, is attributable to a facility we own in Simpsonville, South Carolina as a result of our Royal Adhesives acquisition that is a designated site under CERCLA.

Currently, we are involved in various environmental investigations, clean up activities and administrative proceedings and lawsuits.

In particular, we are currently deemed a PRP in conjunction with numerous other parties, in a number of government enforcement actions associated with landfills and/or hazardous waste sites.

We are involved in environmental investigations, clean-up activities and administrative proceedings related to environmental compliance matters at former and current operating facilities.  

We have also been identified as a potentially responsible party (“PRP”) under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) and/or similar state laws that impose liability for costs relating to the clean-up of contamination resulting from past spills, disposal or other release of hazardous substances associated with landfills and/or hazardous waste sites.

As a PRP, we may be required to pay a share of the costs of investigation and clean-up of these sites.

In addition, we are engaged in environmental remediation and monitoring efforts at a number of current and former operating facilities.

We are subject to similar laws in some of the countries where current and former facilities are located.

Our environmental, health and safety department monitors compliance with applicable laws on a global basis.

To the extent we can reasonably estimate the amount of our probable liabilities for environmental matters, we establish an undiscounted financial provision. We recorded liabilities of $ 5,541 and $ 5,754  as of March 4, 2023 and December 3, 2022 , respectively, for probable and reasonably estimable environmental remediation costs. Of the amount reserved, $ 2,640 and $ 2,789  as of March 4, 2023 and December 3, 2022 , respectively, is attributable to a facility we own in Simpsonville, South Carolina as a result of our Royal Adhesives acquisition that is a designated site under CERCLA.

While uncertainties exist with respect to the amounts and timing of the ultimate environmental liabilities, based on currently available information, we have concluded that these matters, individually or in the aggregate, will not have a material adverse effect on our results of operations, financial condition or cash flow.

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In addition to the indemnification arrangements with third parties, we have insurance policies that generally provide coverage for asbestos liabilities, including defense costs. Historically, insurers have paid a significant portion of our defense costs and settlements in asbestos-related litigation.

However, certain of our insurers are insolvent. We have entered into cost-sharing agreements with our insurers that provide for the allocation of defense costs and settlements and judgments in asbestos-related lawsuits. These agreements require, among other things, that we fund a share of defense costs, settlements and judgments allocable to years in which the responsible insurer is insolvent.

However, certain of our insurers are insolvent. We have entered into cost-sharing agreements with our insurers that provide for the allocation of defense costs and settlements and judgments in asbestos-related lawsuits. These agreements require, among other things, that we fund a share of settlements and judgments allocable to years in which the responsible insurer is insolvent.

A summary of the number of and settlement amounts for asbestos-related lawsuits and claims is as follows:

Nine Months Ended

Three Months Ended

3 Years Ended

August 27, 2022

August 28, 2021

November 27, 2021

March 4, 2023

February 26, 2022

December 3, 2022

Lawsuits and claims settled

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Three Months Ended

August 27, 2022

August 28, 2021

Income (Loss)

Hygiene, Health and Consumable Adhesives

Engineering Adhesives

Construction Adhesives

Total segment

Corporate Unallocated 1

Nine Months Ended

August 27, 2022

August 28, 2021

March 4, 2023

February 26, 2022

Income (Loss)

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Three Months Ended

Nine Months Ended

Operating income

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We view the following disaggregation of net revenue by geographic region as useful to understanding the composition of revenue recognized during the respective reporting periods:

Three Months Ended August 27, 2022

Hygiene, Health

and Consumable

Three Months Ended August 28, 2021

Hygiene, Health

and Consumable

Nine Months Ended August 27, 2022

Three Months Ended March 4, 2023

Hygiene, Health

and Consumable

Nine Months Ended August 28, 2021

Three Months Ended February 26, 2022

Hygiene, Health

and Consumable

Subsequent Event

On March 27, 2023, the Company approved a restructuring plan (the “Plan”) related to organizational changes and other actions to optimize operations.

In implementing the Plan, we currently expect to incur costs of approximately $ 15,000 to $ 20,000  ($ 12,400 to $ 16,400 after-tax), which includes (i) cash expenditures of approximately $ 13,800 to $ 15,000 ($ 11,100  to $ 12,100  after tax) for severance and related employee costs globally and (ii) other restructuring costs related to streamlining of processes and the payment of anticipated income taxes in certain jurisdictions related to the Plan.

The Plan will be implemented beginning in the second quarter of fiscal year 2023 and is currently expected to be completed during fiscal year 2025.

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.

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-Q

Item 1. Financial Statements