FULLER H B CO 10-Q

ful20230630_10q.htm     Table of Contents   UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549   FORM 10-Q   (Mark One)   ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 2, 2023   OR   ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934   For the transition period from                              to                                  .   Commission file number: 001-09225   H.B. FULLER COMPANY (Exact name of registrant as specified in its charter)   Minnesota 41-0268370 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)                                                                                 1200 Willow Lake Boulevard , St. Paul , Minnesota 55110-5101 (Address of principal executive offices) (Zip Code)                                                                                                                               Registrant’s telephone number, including area code: ( 651 ) 236-5900   Not Applicable (Former name, former address and former fiscal year, if changed since last report)   Securities registered pursuant to section 12(b) of the Act:     Title of each class Trading Symbol Name of each exchange on which registered Common Stock, par value $1.00 per share       FUL New York Stock Exchange   Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐   Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐   Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):                      Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐   Emerging growth company ☐   If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐   1 Table of Contents   Indicate by check mark whether the registrant is a shell company (as defined in Rule 12(b) of the Exchange Act. Yes ☐ No ☒   APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PROCEEDING FIVE YEARS:   Indicate by check mark whether the registrant has filed all documents and reports required to be filed by section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐   APPLICABLE ONLY TO CORPORATE ISSUERS   The number of shares outstanding of the Registrant’s Common Stock, par value $1.00 per share, was 54,021,498   as of September 22, 2023.   2 Table of Contents       H.B. Fuller Company Quarterly Report on Form 10-Q Table of Contents       Page PART 1. FINANCIAL INFORMATION         ITEM 1. FINANCIAL STATEMENTS (Unaudited) 4         Consolidated Statements of Income for the three and nine months ended September 2, 2023 and August 27, 2022 4         Consolidated Statements of Comprehensive Income for the three and nine months ended September 2, 2023 and August 27, 2022 5         Consolidated Balance Sheets as of September 2, 2023 and December 3, 2022 6         Consolidated Statements of Total Equity for the three and nine months ended September 2, 2023 and August 27, 2022 7         Consolidated Statements of Cash Flows for the nine months ended September 2, 2023 and August 27, 2022 8         Notes to Consolidated Financial Statements 9       ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 21       ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 29       ITEM 4. CONTROLS AND PROCEDURES 29       PART II. OTHER INFORMATION 30       ITEM 1. LEGAL PROCEEDINGS 30       ITEM 1A. RISK FACTORS 30       ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 30       ITEM 6. EXHIBITS 31       SIGNATURES 32   3 Table of Contents       PART I. FINANCIAL INFORMATION   Item 1. Financial Statements   H.B. FULLER COMPANY AND SUBSIDIARIES Consolidated Statements of Income (In thousands, except per share amounts) (Unaudited)       Three Months Ended     Nine Months Ended       September 2,     August 27,     September 2,     August 27,       2023     2022     2023     2022   Net revenue   $ 900,634     $ 941,230     $ 2,608,055     $ 2,790,969   Cost of sales     ( 637,162 )     ( 692,066 )     ( 1,873,000 )     ( 2,075,392 ) Gross profit     263,472       249,164       735,055       715,577   Selling, general and administrative expenses     ( 172,153 )     ( 161,210 )     ( 493,320 )     ( 483,109 ) Other income, net     1,555       6,559       4,764       12,701   Interest expense     ( 35,105 )     ( 23,450 )     ( 101,305 )     ( 61,475 ) Interest income     1,128       2,139       2,726       6,170   Income before income taxes and income from equity method investments     58,897       73,202       147,920       189,864   Income taxes     ( 22,231 )     ( 28,259 )     ( 51,255 )     ( 62,023 ) Income from equity method investments     984       1,587       3,322       4,236   Net income including non-controlling interest     37,650       46,530       99,987       132,077   Net income attributable to non-controlling interest     ( 23 )     ( 33 )     ( 71 )     ( 70 ) Net income attributable to H.B. Fuller   $ 37,627     $ 46,497     $ 99,916     $ 132,007                                     Earnings per share attributable to H.B. Fuller common stockholders:                                 Basic   $ 0.69     $ 0.87     $ 1.84     $ 2.47   Diluted   $ 0.67     $ 0.84     $ 1.79     $ 2.39                                     Weighted-average common shares outstanding:                                 Basic     54,394       53,644       54,279       53,498   Diluted     56,033       55,130       55,890       55,201                                     Dividends declared per common share   $ 0.205     $ 0.190     $ 0.600     $ 0.548     See accompanying Notes to Unaudited Consolidated Financial Statements.   4 Table of Contents     H.B. FULLER COMPANY AND SUBSIDIARIES Consolidated Statements of Comprehensive Income (In thousands) (Unaudited)       Three Months Ended     Nine Months Ended       September 2,     August 27,     September 2,     August 27,       2023     2022     2023     2022   Net income including non-controlling interest   $ 37,650     $ 46,530     $ 99,987     $ 132,077   Other comprehensive income (loss)                                 Foreign currency translation     ( 8,717 )     ( 87,789 )     14,058       ( 165,369 ) Defined benefit pension plans adjustment, net of tax     863       684       2,572       3,976   Interest rate swaps, net of tax     15,898       1,346       14,745       10,924   Cross-currency swaps, net of tax     -       ( 371 )     -       ( 3,664 ) Net investment hedges, net of tax     ( 4,641 )     -       ( 10,324 )     -   Other comprehensive income (loss)     3,403       ( 86,130 )     21,051       ( 154,133 ) Comprehensive income (loss)     41,053       ( 39,600 )     121,038       ( 22,056 ) Less: Comprehensive income (loss) attributable to non-controlling interest     16       ( 13 )     59       3   Comprehensive income (loss) attributable to H.B. Fuller   $ 41,037     $ ( 39,587 )   $ 120,979     $ ( 22,059 )   See accompanying Notes to Unaudited Consolidated Financial Statements.   5 Table of Contents   H.B. FULLER COMPANY AND SUBSIDIARIES Consolidated Balance Sheets (In thousands, except share and per share amounts) (Unaudited)       September 2,     December 3,       2023     2022   Assets                 Current assets:                 Cash and cash equivalents   $ 94,934     $ 79,910   Trade receivables (net of allowances of $ 12,458 and $ 10,939 , as of September 2, 2023 and December 3, 2022, respectively)     576,060       607,365   Inventories     472,641       491,781   Other current assets     97,756       120,319   Total current assets     1,241,391       1,299,375                     Property, plant and equipment     1,709,191       1,579,738   Accumulated depreciation     ( 907,895 )     ( 846,071 ) Property, plant and equipment, net     801,296       733,667                     Goodwill     1,490,535       1,392,627   Other intangibles, net     746,521       702,092   Other assets     380,165       335,868   Total assets   $ 4,659,908     $ 4,463,629                     Liabilities, non-controlling interest and total equity                 Current liabilities                 Notes payable   $ 12,553     $ 28,860   Trade payables     394,914       460,669   Accrued compensation     75,035       108,328   Income taxes payable     33,007       18,530   Other accrued expenses     102,837       89,345   Total current liabilities     618,346       705,732                     Long-term debt     1,872,468       1,736,256   Accrued pension liabilities     54,661       52,561   Other liabilities     387,307       358,286   Total liabilities   $ 2,932,782     $ 2,852,835                     Commitments and contingencies (Note 13)                                       Equity                 H.B. Fuller stockholders' equity:                 Preferred stock ( no shares outstanding) shares authorized – 10,045,900     -       -   Common stock, par value $ 1.00 per share, shares authorized – 160,000,000 , shares outstanding – 54,016,374 and 53,676,576 as of September 2, 2023 and December 3, 2022, respectively   $ 54,016     $ 53,677   Additional paid-in capital     294,035       266,491   Retained earnings     1,808,687       1,741,359   Accumulated other comprehensive loss     ( 430,295 )     ( 451,357 ) Total H.B. Fuller stockholders' equity     1,726,443       1,610,170   Non-controlling interest     683       624   Total equity     1,727,126       1,610,794   Total liabilities, non-controlling interest and total equity   $ 4,659,908     $ 4,463,629      See accompanying Notes to Unaudited Consolidated Financial Statements.   6 Table of Contents   H.B. FULLER COMPANY AND SUBSIDIARIES Consolidated Statements of Total Equity (In thousands) (Unaudited)       H.B. Fuller Company Shareholders                                               Accumulated                               Additional             Other                       Common     Paid-in     Retained     Comprehensive     Non-Controlling               Stock     Capital     Earnings     Income (Loss)     Interest     Total                                                     Balance at December 3, 2022   $ 53,677     $ 266,491     $ 1,741,359     $ ( 451,357 )   $ 624     $ 1,610,794   Comprehensive income     -       -       21,889       5,241       37       27,167   Dividends     -       -       ( 10,305 )     -       -       ( 10,305 ) Stock option exercises     76       3,520       -       -       -       3,596   Share-based compensation plans and other, net     102       5,221       -       -       -       5,323   Repurchases of common stock     ( 36 )     ( 2,412 )     -       -       -       ( 2,448 ) Balance at March 4, 2023   $ 53,819     $ 272,820     $ 1,752,943     $ ( 446,116 )   $ 661     $ 1,634,127   Comprehensive income     -       -       40,401       12,411       6       52,818   Dividends     -       -       ( 11,129 )     -       -       ( 11,129 ) Stock option exercises     13       584       -       -       -       597   Share-based compensation plans and other, net     30       6,818       -       -       -       6,848   Repurchases of common stock     ( 2 )     ( 102 )     -       -       -       ( 104 ) Balance at June 3, 2023   $ 53,860     $ 280,120     $ 1,782,215     $ ( 433,705 )   $ 667     $ 1,683,157   Comprehensive income (loss)     -       -       37,627       3,410       16       41,053   Dividends     -       -       ( 11,155 )     -       -       ( 11,155 ) Stock option exercises     153       6,906       -       -       -       7,059   Share-based compensation plans and other, net     3       7,018       -       -       -       7,021   Repurchases of common stock     -       ( 9 )     -       -       -       ( 9 ) Balance at September 2, 2023   $ 54,016     $ 294,035     $ 1,808,687     $ ( 430,295 )   $ 683       1,727,126         H.B. Fuller Company Shareholders                                               Accumulated                               Additional             Other                       Common     Paid-in     Retained     Comprehensive     Non-Controlling               Stock     Capital     Earnings     Income (Loss)     Interest     Total                                                     Balance at November 27, 2021   $ 52,778     $ 213,637     $ 1,600,601     $ ( 270,247 )   $ 591     $ 1,597,360   Comprehensive income     -       -       38,306       11,177       4       49,487   Dividends     -       -       ( 8,964 )     -       -       ( 8,964 ) Stock option exercises     126       5,628       -       -       -       5,754   Share-based compensation plans and other, net     187       5,601       -       -       -       5,788   Repurchases of common stock     ( 49 )     ( 3,528 )     -       -       -       ( 3,577 ) Balance at February 26, 2022   $ 53,042     $ 221,338     $ 1,629,943     $ ( 259,070 )   $ 595     $ 1,645,848   Comprehensive income (loss)     -       -       47,203       ( 79,158 )     12       ( 31,943 ) Dividends     -       -       ( 10,177 )     -       -       ( 10,177 ) Stock option exercises     47       2,036       -       -       -       2,083   Share-based compensation plans other, net     65       8,910       -       -       -       8,975   Repurchases of common stock     ( 1 )     ( 31 )     -       -       -       ( 32 ) Balance at May 28, 2022   $ 53,153     $ 232,253     $ 1,666,969     $ ( 338,228 )   $ 607     $ 1,614,754   Comprehensive income     -       -       46,497       ( 86,084 )     ( 13 )     ( 39,600 ) Dividends     -       -       ( 10,188 )     -       -       ( 10,188 ) Stock option exercises     135       5,549       -       -       -       5,684   Share-based compensation plans other, net     15       8,295       -       -       -       8,310   Repurchases of common stock     ( 4 )     ( 271 )     -       -       -       ( 275 ) Balance at August 27, 2022   $ 53,299     $ 245,826     $ 1,703,278     $ ( 424,312 )   $ 594     $ 1,578,685     See accompanying Notes to Unaudited Consolidated Financial Statements.    7 Table of Contents     H.B. FULLER COMPANY AND SUBSIDIARIES Consolidated Statements of Cash Flows (In thousands) (Unaudited)       Nine Months Ended       September 2, 2023     August 27, 2022   Cash flows from operating activities:                 Net income including non-controlling interest   $ 99,987     $ 132,077   Adjustments to reconcile net income including non-controlling interest to net cash provided by operating activities:                 Depreciation     60,518       54,297   Amortization     58,633       55,088   Deferred income taxes     ( 30,064 )     ( 4,968 ) Income from equity method investments, net of dividends received     260       1,420   Debt issuance costs write-off     2,689       -   Loss on fair value adjustment on contingent consideration liability     2,893       -   Gain on sale or disposal of assets     ( 78 )     ( 1,130 ) Share-based compensation     16,279       20,358   Pension and other post-retirement benefit plan activity     ( 8,890 )     ( 15,324 ) Change in assets and liabilities, net of effects of acquisitions:                 Trade receivables, net     79,495       ( 51,629 ) Inventories     38,212       ( 112,390 ) Other assets     ( 30,901 )     ( 40,329 ) Trade payables     ( 74,443 )     17,381   Accrued compensation     ( 33,796 )     ( 17,275 ) Other accrued expenses     ( 6,992 )     1,614   Income taxes payable     24,461       10,201   Other liabilities     12,408       ( 35,940 ) Other     6,023       35,246   Net cash provided by operating activities     216,694       48,697                     Cash flows from investing activities:                 Purchased property, plant and equipment     ( 109,545 )     ( 98,352 ) Purchased businesses, net of cash acquired     ( 194,248 )     ( 242,870 ) Proceeds from sale of property, plant and equipment     4,257       1,281   Cash received from government grant     -       3,928   Net cash used in investing activities     ( 299,536 )     ( 336,013 )                   Cash flows from financing activities:                 Proceeds from issuance of long-term debt     1,333,000       335,000   Repayment of long-term debt     ( 1,184,900 )     ( 15,000 ) Payment of debt issuance costs     ( 10,214 )     ( 600 ) Net payment of notes payable     ( 18,000 )     6,707   Dividends paid     ( 32,319 )     ( 29,067 ) Contingent consideration payment     -       ( 5,000 ) Proceeds from stock options exercised     11,251       13,522   Repurchases of common stock     ( 2,560 )     ( 3,885 ) Net cash provided by financing activities     96,258       301,677                     Effect of exchange rate changes on cash and cash equivalents     1,608       ( 15,439 ) Net change in cash and cash equivalents     15,024       ( 1,078 ) Cash and cash equivalents at beginning of period     79,910       61,786   Cash and cash equivalents at end of period   $ 94,934     $ 60,708     See accompanying Notes to Unaudited Consolidated Financial Statements.   8 Table of Contents   H.B. FULLER COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Amounts in thousands, except per share amounts) (Unaudited)     Note 1: Basis of Presentation   Overview   The accompanying unaudited interim Consolidated Financial Statements of H.B. Fuller Company and Subsidiaries have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and the instructions to Form 10 -Q and Article 10 of Regulation S- X. Accordingly, they do not include all of the information necessary for a fair presentation of results of operations, comprehensive income, financial position and cash flows in conformity with U.S. generally accepted accounting principles. In our opinion, the unaudited interim Consolidated Financial Statements reflect all adjustments of a normal recurring nature considered necessary for the fair presentation of the results for the periods presented. Operating results for interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole.   The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures at the date of the financial statements and during the reporting period. Actual results could differ from these estimates. 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  December 3, 2022 as filed with the Securities and Exchange Commission.   New Accounting Pronouncements   In September 2022, the Financial Accounting Standards Board (“FASB”) issued ASU  No. 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.     Note 2: Acquisitions   Adhezion Biomedical LLC   On June 23,  2023, we acquired Adhezion Biomedical LLC (“Adhezion”) for a base purchase price of approximately $ 81,201 which was funded through borrowings on our credit facility. This includes a holdback amount of $ 780 that will be paid on the 12 -month anniversary of the closing date. The agreement includes a payment of contingent consideration up to $ 15,000 following the completion of certain performance goals and conditions. Adhezion, headquartered in Wyomissing, Pennsylvania, is a manufacturer of cyanoacrylate-based medical adhesives and infection prevention products. The acquisition of Adhezion positions us for expansion in the medical adhesives industry and creates a solid, unique platform from which to scale and innovate in the healthcare adhesives industry.  The acquisition fair value measurement was preliminary as of September 2, 2023 and includes intangible asse ts of $ 40,800 , goodwill of $ 37,063  and other net asse ts of $ 3,338 . Goodwill represents expected synergies from combining Adhezion with our existing business. We are evaluating how much goodwill is deductible for tax purposes . Adhezion will be included in our Hygiene, Health and Consumable Adhesives operating segment.   XChem International LLC   On June 12, 2023, we acquired XChem International LLC ("XChem") for a base purchase price of approximately $ 14,591  which was funded through borrowings on our credit facility. This includes a holdback amount of $ 1,650 that will be paid on the 18 -month anniversary of the closing date. XChem, headquartered in Ras Al-Khaimah, United Arab Emirates, is a manufacturer of adhesives and sealants for construction-related applications. The acquisition of XChem provides our construction adhesives global business with additional manufacturing presence for certain brands outside the U.S. and broadens our construction adhesives portfolio of highly specified applications and diversifies it toward both non-U.S. and infrastructure-oriented markets.  The acquisition fair value measurement was preliminary as of September 2, 2023 and includes intangible asse ts of $ 8,664   and other net asse ts of $ 5,927 . Goodwill represents expected synergies from combining XChem with our existing business. Goodwill is not deductible for tax purposes. XChem will be included in our Construction Adhesives operating segment.   Beardow Adams Holdings Ltd.   On May 1, 2023, we acquired Beardow Adams Holdings Ltd. (“Beardow Adams”) for a total purchase price of 80,738 British pound sterling, or approximately $ 100,885 , which was funded through borrowings on our credit facility. This includes a holdback amount of 8,000 British pound sterling that will be paid on the 18 -month anniversary of the closing date. Beardow Adams, based in the  United Kingdom, develops and manufactures adhesives, sealants and coatings, principally in the fields of packaging and related applications. The acquisition of Beardow Adams is expected to accelerate profitable growth in many of our core end markets and generate business synergies through better raw material pricing, production optimization, an expanded distribution platform and difference-making innovation. The acquisition fair value measurement was preliminary as of September 2, 2023 and includes intangible asse ts of $ 40,485 , goodwill of $ 45,961  and other net asse ts of $ 14,439 . Goodwill represents expected synergies from combining Beardow Adams with our existing business. We are evaluating how much goodwill is deductible for tax purposes. Beardow Adams  is included in our Hygiene, Health and Consumable Adhesives operating segment.    Aspen Research Corporation   On January 31, 2023, we acquired the assets of Aspen Research Corporation (“Aspen”) for a total purchase price of $ 9,761 , 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 September 2, 2023 and includes intangible asse ts of $ 4,900 , goodwill of $ 2,788   and other net assets of $ 2,073 . Goodwill represents expected synergies from combining Aspen with our existing business. Goodwill is deductible for tax purposes. A spen is included in our Engineering Adhesives operating segment.    Lemtapes Oy   On December 15, 2022, we acquired Lemtapes Oy (“Lemtapes”) for a total purchase price of 8,048 Euro, or approximately $ 8,554  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 September 2, 2023 and includes intangible ass ets of $ 5,526 , goodwill of $ 955 and other net assets of $ 2,073 . Goodwill represents expected synergies from combining Lemtapes with our existing business. Goodwill is not deductible for tax purposes.  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 $ 7,701 , 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 final as of September 2, 2023 and includes intangible a ssets of $ 3,400 , goodwill of $ 1,123  and other net assets of $ 3,178 . Goodwill represents expected synergies from combining GSSI with our existing business. Goodwill is not deductible for tax purposes. GSSI is included in our Construction Adhesives operating segment.    9 Table of Contents   ZKLT Polymer Co.   On August 16, 2022, we acquired ZKLT Polymer Co., Ltd. ("ZKLT") for a base purchase price of 143,965 Chinese renminbi, or approximately $ 21,260 , which was funded through existing cash. This includes a holdback of 27,000 Chinese renminbi, or approximately $ 3,987 , that will be paid half 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 $ 4,132 , 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 unique technology, strong customer relationships and a strategic manufacturing location to further strengthen our presence in central China. The acquisition fair value measurement was final as of September 2, 2023  and includes intangible assets of $ 5,183 , goodwill of $ 5,992   and other net as sets of $ 10,085 . Goodwill represents expected synergies from combining ZKLT with our existing business. Goodwill is not deductible for tax purposes. See Note 12  for further discussion of the fair value of the contingent consideration. ZKLT is included in our Engineering Adhesives operating segment.    Apollo   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 final as of December 3, 2022 and includes intangible assets of $ 76,198 , goodwill of $ 119,358  and other net assets of $ 10,036 . Goodwill represents expected synergies from combining Apollo with our existing business. Goodwill is not deductible for tax purposes.  The acquisition is included in our Construction Adhesives operating segment.    Fourny NV   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 required us to pay an additional holdback amount 18 months following the date of acquisition and during the three months ended September 2, 2023 we paid $ 3,060 . Fourny, headquartered in Willebroek, Belgium, is a manufacturer of construction adhesives. Fourny is expected to enhance our position in key high-value, high-margin markets in Europe. 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 represents expected synergies from combining Fourny with our existing business. 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.     Note 3: Restructuring Actions   During fiscal year 2023, the Company approved restructuring plans (the "Plans") related to organizational changes and other actions to optimize operations and integrate acquired businesses. The Plans began to be implemented in the second quarter of fiscal year 2023 and are currently expected to be completed during fiscal year 2026, with the majority of the charges recognized and cash payments occurring in fiscal 2023 and 2024. In implementing the Plans, the Company currently expects to incur pre-tax costs of approximately $ 39,100  to $ 44,100  for severance and related employee costs globally, other restructuring costs related to the streamlining of processes and the payment of anticipated income taxes in certain jurisdictions related to the Plans.    The following table summarizes the pre-tax restructuring charges by income statement classification:       Three Months Ended     Nine Months Ended       September 2, 2023     August 27, 2022     September 2, 2023     August 27, 2022   Cost of sales   $ 3,322     $ -     $ 8,407     $ ( 152 ) Selling, general and administrative     5,077       ( 222 )     8,320       ( 297 )     $ 8,399     $ ( 222 )   $ 16,727     $ ( 449 )   The restructuring charges are all recorded in Corporate Unallocated for segment reporting purposes.   A summary of the restructuring liability is presented below:       Employee-Related     Asset-Related     Total   Balance at November 27, 2021   $ 1,095     $ -     $ 1,095   Expenses incurred     ( 449 )     -       ( 449 ) Cash payments     ( 529 )     -       ( 529 ) Foreign currency translation     ( 60 )     -       ( 60 ) Balance at December 3, 2022   $ 57     $ -     $ 57   Expenses incurred     16,394       333       16,727   Non-cash charges     -       ( 333 )     ( 333 ) Cash payments     ( 6,910 )     -       ( 6,910 ) Foreign currency translation     ( 1,130 )     -       ( 1,130 ) Balance at September 2, 2023   $ 8,411     $ -     $ 8,411     10 Table of Contents   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 on the Consolidated Balance Sheets.     Note 4: Inventories   The composition of inventories is as follows:       September 2,     December 3,       2023     2022   Raw materials   $ 221,385     $ 237,071   Finished goods     251,256       254,710   Total inventories   $ 472,641     $ 491,781       Note 5: Goodwill and Other Intangible Assets   The goodwill activity by reportable segment for the  nine months ended September 2, 2023 is presented below:       Hygiene, Health                               and Consumable     Engineering     Construction               Adhesives     Adhesives     Adhesives     Total   Balance at December 3, 2022   $ 328,962     $ 637,910     $ 425,755     $ 1,392,627   Acquisitions   $ 84,158     $ 2,788     $ -       86,946   Foreign currency translation effect   $ 3,416     $ 3,516     $ 4,030       10,962   Balance at September 2, 2023   $ 416,536     $ 644,214     $ 429,785     $ 1,490,535     Balances of amortizable identifiable intangible assets, excluding goodwill and other non-amortizable intangible assets, are as follows:       September 2, 2023       Purchased                                       Technology     Customer                           Amortizable Intangible Assets   and Patents     Relationships     Trade Names     Other     Total   Original cost   $ 144,597     $ 1,052,458     $ 55,379     $ 10,919     $ 1,263,353   Accumulated amortization     ( 56,624 )     ( 432,044 )     ( 21,837 )     ( 6,797 )     ( 517,302 ) Net identifiable intangibles   $ 87,973     $ 620,414     $ 33,542     $ 4,122     $ 746,051         December 3, 2022       Purchased                                       Technology     Customer                           Amortizable Intangible Assets   and Patents     Relationships     Trade Names     Other     Total   Original cost   $ 118,727     $ 1,004,008     $ 50,324     $ 11,053     $ 1,184,112   Accumulated amortization     ( 66,433 )     ( 388,394 )     ( 21,401 )     ( 6,251 )     ( 482,479 ) Net identifiable intangibles   $ 52,294     $ 615,614     $ 28,923     $ 4,802     $ 701,633     Amortization expense with respect to amortizable intangible assets was $ 20,820 and $ 18,676  for the three months ended September 2, 2023 and August 27, 2022 , respectively, and $ 58,633  and $ 55,088 for the  nine months ended  September 2, 2023 and August 27, 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:       Remainder                                           Fiscal Year   2023     2024     2025     2026     2027     Thereafter   Amortization expense   $ 17,238     $ 79,499     $ 76,732     $ 70,072     $ 66,754     $ 435,756     Non-amortizable intangible assets as of  September 2, 2023 and December 3, 2022 were $ 470  and $ 459 , respectively, and relate to trademarks and trade names. The change in non-amortizable assets as of September 2, 2023 compared to December 3, 2022 was due to changes in foreign currency exchange rates.   11 Table of Contents   Note 6: 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.   Term Loans   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 ( 7.15  percent at September 2, 2023 ). The interest rate spread is based on a secured leverage grid. Term Loan A matures on February 15, 2028. On August 16, 2023, we amended the Term Loan B agreement to an interest rate of SOFR plus an interest rate spread of 2.25 percent with a SOFR floor of 0.50 percent ( 7.55  percent at September 2, 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 11 for further discussion of this interest rate swap.   On March 16, 2023, we entered into interest rate swap agreements to convert $ 300,000 of our 1 -month SOFR rate debt to a fixed rate of 3.7210 percent and to convert $ 100,000 of our 1 -month SOFR rate debt to a fixed rate of 3.8990 percent. See Note 11 for further discussion of these interest rate swaps.   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 ( 7.15  percent at September 2, 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 September 2, 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 June 3, 2023, letters of credit reduced the available amount under the Revolving Credit Facil ity by $ 9,968 .   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.   We are subject to mandatory prepayments in the first quarter of each fiscal year equal to 50 percent of Excess Cash Flow, as defined in 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.     The principal balance of the Term Loan B loans will be repayable in equal quarterly installments in an aggregate annual amount equal to 1 percent of the original principal amount thereof, with the balance due at maturity on February 15, 2030.  The principal balance of the Term Loan A loans will be repayable in quarterly installments as follows: (i) with respect to the first eight fiscal quarters ended after the effective date of the Second Amended and Restated Credit Agreement, 1.25 percent of the aggregate principal amount of the original principal of the Term Loan A loans, (ii) with respect to the eight fiscal quarters ended after the end of the period set forth in the preceding clause (i), 1.875 percent of the aggregate principal amount of the original principal amount of the Term Loan A loans, and (iii) thereafter, 2.5 percent of the original principal amount of the Term Loan A loans, with the balance due at maturity on February 15, 2028.   12 Table of Contents     Note 7: Components of Net Periodic Benefit related to Pension and Other Postretirement Benefit Plans       Three Months Ended September 2, 2023 and August 27, 2022                                       Other       Pension Benefits     Postretirement       U.S. Plans     Non-U.S. Plans     Benefits   Net periodic (benefit) cost:   2023     2022     2023     2022     2023     2022   Service cost   $ -     $ -     $ 422     $ 666     $ -     $ -   Interest cost     3,475       2,368       1,454       679       301       184   Expected return on assets     ( 7,205 )     ( 7,117 )     ( 1,785 )     ( 1,525 )     ( 2,465 )     ( 2,719 ) Amortization:                                                 Prior service (benefit) cost     -       ( 1 )     16       15       -       -   Actuarial loss (gain)     635       1,013       506       570       -       ( 845 ) Settlement charge     -       -       -       -       -       -   Net periodic (benefit) cost   $ ( 3,095 )   $ ( 3,737 )   $ 613     $ 405     $ ( 2,164 )   $ ( 3,380 )       Nine Months Ended September 2, 2023 and August 27, 2022                                       Other       Pension Benefits     Postretirement       U.S. Plans     Non-U.S. Plans     Benefits   Net periodic (benefit) cost:   2023     2022     2023     2022     2023     2022   Service cost   $ -     $ -     $ 1,255     $ 2,086     $ -     $ -   Interest cost     10,426       7,103       4,300       2,204       903       551   Expected return on assets     ( 21,617 )     ( 21,353 )     ( 5,277 )     ( 4,916 )     ( 7,394 )     ( 8,156 ) Amortization:                                                 Prior service (benefit) cost     -       ( 2 )     47       47       -       -   Actuarial loss (gain)     1,906       3,040       1,496       1,830       -       ( 2,535 ) Settlement charge     -       -       -       3,329       -       -   Net periodic (benefit) cost   $ ( 9,285 )   $ ( 11,212 )   $ 1,821     $ 4,580     $ ( 6,491 )   $ ( 10,140 )   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 nine months ended August 27, 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 Statement of Income.   13 Table of Contents     Note 8: Accumulated Other Comprehensive Income (Loss)   The following table provides details of total comprehensive income (loss):        Three Months Ended September 2, 2023     Three Months Ended August 27, 2022                               Non-                             Non-                               controlling                             controlling       H.B. Fuller Stockholders     Interest     H.B. Fuller Stockholders     Interest       Pre-tax     Tax     Net     Net     Pre-tax     Tax     Net     Net   Net income attributable to H.B. Fuller and non-controlling interest                   $ 37,627     $ 23                     $ 46,497     $ 33   Foreign currency translation¹   $ ( 8,710 )   $ -       ( 8,710 )     ( 7 )   $ ( 87,743 )   $ -       ( 87,743 )     ( 46 ) Defined benefit pension plans adjustment²     1,157       ( 294 )     863       -       778       ( 94 )     684       -   Interest rate swaps³     21,086       ( 5,188 )     15,898       -       1,783       ( 437 )     1,346       -   Cross-currency swaps³     -       -       -       -       ( 377 )     6       ( 371 )     -   Net investment hedges³     ( 6,156 )     1,515       ( 4,641 )     -       -       -       -       -   Other comprehensive income (loss)   $ 7,377     $ ( 3,967 )   $ 3,410     $ ( 7 )   $ ( 85,559 )   $ ( 525 )   $ ( 86,084 )   $ ( 46 ) Comprehensive income (loss)                   $ 41,037     $ 16                     $ ( 39,587 )   $ ( 13 )       Nine Months Ended September 2, 2023     Nine Months Ended August 27, 2022                               Non-                             Non-                               controlling                             controlling       H.B. Fuller Stockholders     Interest     H.B. Fuller Stockholders     Interest       Pretax     Tax     Net     Net     Pretax     Tax     Net     Net   Net income attributable to H.B. Fuller and non-controlling interest                   $ 99,916     $ 71                     $ 132,007     $ 70   Foreign currency translation adjustment¹   $ 14,070     $ -       14,070       ( 12 )   $ ( 165,302 )   $ -       ( 165,302 )     ( 67 ) Defined benefit pension plans adjustment²     3,449       ( 877 )     2,572       -       5,483       ( 1,507 )     3,976       -   Interest rate swap³     19,557       ( 4,812 )     14,745       -       14,473       ( 3,549 )     10,924       -   Cross-currency swaps³     -       -       -       -       ( 3,720 )     56       ( 3,664 )     -   Net investment hedges³     ( 13,694 )     3,370       ( 10,324 )     -       -       -       -       -   Other comprehensive income (loss)   $ 23,382     $ ( 2,319 )   $ 21,063       ( 12 )   $ ( 149,066 )   $ ( 5,000 )     ( 154,066 )     ( 67 ) Comprehensive income (loss)                   $ 120,979     $ 59                     $ ( 22,059 )   $ 3     ¹ Income taxes are not provided for foreign currency translation relating to permanent investments in international subsidiaries. ² Loss reclassified from accumulated other comprehensive income ("AOCI") into earnings as part of net periodic cost related to pension and other postretirement benefit plans is reported in cost of sales and SG&A expense. ³ Income (loss) reclassified from AOCI into earnings is reported in other income, net.   The components of accumulated other comprehensive loss are as follows:       September 2, 2023                       Non-               H.B. Fuller     controlling       Total     Stockholders     Interest   Foreign currency translation adjustment   $ ( 249,973 )   $ ( 249,943 )   $ ( 30 ) Interest rate swap, net of taxes of ($4,812)     14,745       14,745       -   Net investment hedges, net of taxes of $ 16,667     ( 51,067 )     ( 51,067 )     -   Defined benefit pension plans adjustment, net of taxes of $ 66,867     ( 125,689 )     ( 125,689 )     -   Reclassification of AOCI tax effects     ( 18,341 )     ( 18,341 )     -   Accumulated other comprehensive loss   $ ( 430,325 )   $ ( 430,295 )   $ ( 30 )       December 3, 2022                       Non-               H.B. Fuller     controlling       Total     Stockholders     Interest   Foreign currency translation adjustment   $ ( 264,054 )   $ ( 264,012 )   $ ( 42 ) Net investment hedges, net of taxes of $ 13,297     ( 40,743 )     ( 40,743 )     -   Defined benefit pension plans adjustment, net of taxes of $ 67,744     ( 128,261 )     ( 128,261 )     -   Reclassification of AOCI tax effects     ( 18,341 )     ( 18,341 )     -   Accumulated other comprehensive loss   $ ( 451,399 )   $ ( 451,357 )   $ ( 42 )   14 Table of Contents   Note 9: Income Taxes   Income tax expense for the  three and nine months ended September 2, 2023  includes $ 6,243  and $ 9,130 of discrete tax expense, respectively, relating to various U.S. and foreign tax matters. Excluding the discrete tax expense, the overall effective tax rate was  27.1 percent and  28.5 percent for the three and nine months ended September 2, 2023 , respectively.   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 U.S. and 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.   As of  September 2, 2023 , we had a liability of $ 16,010  recorded for gross unrecognized tax benefits (excluding interest) compared to $ 17,582  as of December 3, 2022 . As of September 2, 2023 and December 3, 2022 , we had accrued $ 7,137 and $ 5,680 of gross interest relating to unrecognized tax benefits, respectively.     Note 10: Earnings Per Share   A reconciliation of the common share components for the basic and diluted earnings per share calculations is as follows:       Three Months Ended     Nine Months Ended       September 2,     August 27,     September 2,     August 27,   (Shares in thousands)   2023     2022     2023     2022   Weighted-average common shares - basic     54,394       53,644       54,279       53,498   Equivalent shares from share-based compensations plans     1,639       1,486       1,611       1,703   Weighted-average common and common equivalent shares diluted     56,033       55,130       55,890       55,201     Basic earnings per share is calculated by dividing net income attributable to H.B. Fuller by the weighted-average number of common shares outstanding during the applicable period. Diluted earnings per share is based upon the weighted-average number of common and common equivalent shares outstanding during the applicable period. The difference between basic and diluted earnings per share is attributable to share-based compensation awards. We use the treasury stock method to calculate the effect of outstanding shares, which computes total employee proceeds as the sum of (a) the amount the employee must pay upon exercise of the award and (b) the amount of unearned share-based compensation costs attributed to future services. Share-based compensation awards for which total employee proceeds exceed the average market price over the applicable period have an antidilutive effect on earnings per share, and accordingly, are excluded from the calculation of diluted earnings per share.   Share-based compensation awards of  1,025,337 and 573,914  shares for the three months ended September 2, 2023 and August 27, 2022 , respectively, and  1,164,870  and  691,856  shares for the  nine months ended September 2, 2023 and August 27, 2022 , respectively, were excluded from diluted earnings per share calculations because they were antidilutive.   15 Table of Contents   Note 11: Financial Instruments   Overview   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. We record derivatives as assets and liabilities on the balance sheet at fair value. Changes in fair value are recognized immediately in earnings unless the derivative qualifies and is designated as a hedge. 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. If a derivative is no longer expected to be effective, hedge accounting is discontinued. Hedge ineffectiveness, if any, is recorded in earnings.   We are exposed to credit risk in the event of nonperformance of counterparties for foreign currency forward exchange contracts and interest rate swap agreements. We select investment-grade multinational banks and financial institutions as counterparties for derivative transactions and monitor the credit quality of each of these banks on a periodic basis as warranted. We do not anticipate nonperformance by any of these counterparties, and valuation allowances, if any, are de minimis.   Cash Flow Hedges   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 that matures on January 12, 2028.  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 swap was an asset of $ 6,652  at September 2, 2023 and was included in other assets i n the Consolidated Balance Sheets. The swap was designated for hedge accounting treatment as a cash flow hedge. We are applying the hypothetical derivative method to assess hedge effectiveness for this interest rate swap. 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 swap.   On March 16, 2023, we entered into an interest rate swap agreement to convert $ 300,000 of our 1 -month SOFR rate debt to a fixed rate of 3.7210 percent that matures on February 15, 2028. The combined fair value of the interest rate swap wa s an asset of $ 4,227  a t September 2, 2023 and was included in other liabilities  in the Consolidated Balance Sheets. The swap was designated for hedge accounting treatment as a cash flow hedge. We are applying the hypothetical derivative method to assess hedge effectiveness for this interest rate swap. 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.   On March 16, 2023, we entered into an interest rate swap agreement to convert $ 100,000 of our 1 -month SOFR rate debt to a fixed rate of 3.8990 percent that matures on February 15, 2028. The combined fair value of the interest rate swap was an  asset of $ 951   at September 2, 2023 and was included i n other liabilities in the Consolidated Balance Sheets. The swap was designated for hedge accounting treatment as a cash flow hedge. 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 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       September 2, 2023     August 27, 2022     September 2, 2023     August 27, 2022   Cross-currency swap contracts   $ -     $ ( 377 )   $ -     $ ( 3,720 ) Interest rate swap contracts     21,086       1,783       19,557       14,473      Fair Value Hedges   On February 12, 2021, we entered into interest rate swap agreements to convert our $ 300,000  Public Notes that were issued on October  20, 2020 to a variable interest rate of 1 -month LIBOR plus 3.28 percent. On June 30, 2023, 1 -month LIBOR rates ceased to exist and the IBOR Fallbacks Protocol published by the International Swaps and Derivatives Association ("ISDA") took effect as outlined in the interest rate swap agreement. As a result, the interest rate swap agreement was converted to Overnight SOFR plus 3.28  percent. We applied the practical expedients included in ASC 848, Reference Rate Reform .    These interest rate swap agreements mature on October 15, 2028. The combined fair value of the interest rate swaps was a liabili ty of $ 46,843 a t  September 2, 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.  On June 30, 2023, 1 -month LIBOR rates ceased to exist and the IBOR Fallbacks Protocol published by the International Swaps and Derivatives Association (ISDA) took effect as outlined in the interest rate swap agreemen t. As a result, the 1 -month LIBOR leg of the float-to-float agreement was converted to Overnight SOFR plus 3.28  percent. On July 17, 2023, we amended the 1 -month EURIBOR leg of the float-to-float agreement to Overnight ESTR plus 3.2195  percent. We applied the practical expedients included in ASC 848, Reference Rate Reform . As of September 2, 2023 , the combined fair value of the swaps w as a liability of $ 67,740  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 $ 51,067  of September 2, 2023 . The amounts of pretax loss recognized in comprehensive income related to the net investment he dge was $ 13,694   for the nine  months ended September 2, 2023 . As of September 2, 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.   16 Table of Contents   Derivatives Not Designated as Hedging Instruments   We use foreign currency forward contracts to offset our exposure to the change in value of certain foreign currency denominated assets and liabilities held at foreign subsidiaries that are remeasured at the end of each period. Although the contracts are effective economic hedges, they are not designated as accounting hedges. 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.    As of September 2, 2023 , we had forward foreign currency contracts maturing between September 6, 2023  and May 13, 2024 . 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 (losses) recognized in other income, net related to derivative instruments not designated as hedging instruments for the  nine months ended September 2, 2023 and August 27, 2022 were ($ 798 )  a nd $ 2,378 , 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 September 2, 2023 , there were no significant concentrations of credit risk.     Note 12: Fair Value Measurements   Overview   Estimates of fair value for financial assets and liabilities are based on the framework established in the accounting guidance for fair value measurements. The framework defines fair value, provides guidance for measuring fair value and requires certain disclosures. The framework discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow) and the cost approach (cost to replace the service capacity of an asset or replacement cost). The framework utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:     ● Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.   ● Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.   ● Level 3: Unobservable inputs that reflect management’s assumptions, and include situations where there is little, if any, market activity for the asset or liability.   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 September 2, 2023 and December 3, 2022 , and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value.       September 2,     Fair Value Measurements Using:   Description   2023     Level 1     Level 2     Level 3   Assets:                                 Marketable securities   $ 1,565     $ 1,565     $ -     $ -   Foreign exchange contract assets     6,410       -       6,410       -   Interest rate swaps, cash flow hedge assets     11,830       -       11,830       -                                     Liabilities:                                 Foreign exchange contract liabilities   $ 7,208     $ -       7,208     $ -   Interest rate swaps, fair value hedge liabilities     46,843       -       46,843       -   Net investment hedge liabilities     67,740       -       67,740       -   Contingent consideration liabilities     4,632       -       -       4,632         December 3,     Fair Value Measurements Using:   Description   2022     Level 1     Level 2     Level 3   Assets:                                 Marketable securities   $ 4,013     $ 4,013     $ -     $ -   Foreign exchange contract assets     10,282       -       10,282       -                                     Liabilities:                                 Foreign exchange contract liabilities   $ 4,570     $ -     $ 4,570     $ -   Interest rate swaps, fair value hedge liabilities     42,542       -       42,542           Net investment hedge liabilities     54,046       -       54,046       -   Contingent consideration liabilities     1,977       -       -       1,977     17 Table of Contents   The valuation of our contingent consideration liability related to the acquisitions of ZKLT and TissueSeal was $ 4,132 and $ 500 , respectively, as of  September 2, 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:        Amounts   Balance at December 3, 2022   $ 1,977   Fair value adjustment     2,893   Foreign currency translation adjustment     ( 238 ) Balance at September 2, 2023   $ 4,632     Balances Measured at Fair Value on a Nonrecurring Basis   We measure certain assets and liabilities at fair value on a nonrecurring basis. These assets include intangible assets acquired in an acquisition. The identified intangible assets of customer relationships, technology and tradenames acquired in connection with our acquisitions were measured using unobservable (Level  3 ) inputs. The fair value of the intangible assets was calculated using either the income or cost approach. Significant inputs include estimated revenue growth rates, gross margins, operating expenses, attrition rate, royalty rate and discount rate.     See Note  2  for further discussion regarding our acquisitions.   Balances Disclosed at Fair Value   Long-term debt had an estimated fair value of $ 1,744,678  and $ 1,713,257 as of September 2, 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. The estimated fair value of these long-term obligations is not necessarily indicative of the amount that would be realized in a current market exchange.     Note 13: Commitments and Contingencies   Environmental Matters     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. 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 $ 5,329 and $ 5,754  as of September 2, 2023 and December 3, 2022 , respectively, for probable and reasonably estimable environmental remediation costs. Of the amount reserved, $ 2,561 and $ 2,789  as of September 2, 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.   Other Legal Proceedings     From time to time and in the ordinary course of business, we are a party to, or a target of, lawsuits, claims, investigations and proceedings, including product liability, personal injury, contract, patent and intellectual property, environmental, health and safety, tax and employment matters. While we are unable to predict the outcome of these matters, we have concluded, based upon currently available information, that the ultimate resolution of any pending matter, individually or in the aggregate, including the asbestos litigation described in the following paragraphs, will not have a material adverse effect on our results of operations, financial condition or cash flow.   We have been named as a defendant in lawsuits in which plaintiffs have alleged injury due to products containing asbestos manufactured more than 35 years ago. The plaintiffs generally bring these lawsuits against multiple defendants and seek damages (both actual and punitive) in very large amounts. In many cases, plaintiffs are unable to demonstrate that they have suffered any compensable injuries or that the injuries suffered were the result of exposure to products manufactured by us. We are typically dismissed as a defendant in such cases without payment. If the plaintiff presents evidence indicating that compensable injury occurred as a result of exposure to our products, the case is generally settled for an amount that reflects the seriousness of the injury, the length, intensity and character of exposure to products containing asbestos, the number and solvency of other defendants in the case, and the jurisdiction in which the case has been brought.   18 Table of Contents   A significant portion of the defense costs and settlements in asbestos-related litigation is paid by third parties, including indemnification pursuant to the provisions of a 1976 agreement under which we acquired a business from a third party. Currently, this third party is defending and paying settlement amounts, under a reservation of rights, in most of the asbestos cases tendered to the third party.   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 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     3 Years Ended       September 2, 2023     August 27, 2022     December 3, 2022   Lawsuits and claims settled     6       3       13   Settlement amounts   $ 3,985     $ 206     $ 511   Insurance payments received or expected to be received   $ 2,307     $ 139     $ 338     We do not believe that it would be meaningful to disclose the aggregate number of asbestos-related lawsuits filed against us because relatively few of these lawsuits are known to involve exposure to asbestos-containing products that we manufactured. Rather, we believe it is more meaningful to disclose the number of lawsuits that are settled and result in a payment to the plaintiff. To the extent we can reasonably estimate the amount of our probable liabilities for pending asbestos-related claims, we establish a financial provision and a corresponding receivable for insurance recoveries.    Based on currently available information, we have concluded that the resolution of any pending matter, including asbestos-related litigation, individually or in the aggregate, will not have a material adverse effect on our results of operations, financial condition or cash flow.     Note 14: Segments   We are required to report segment information in the same way that we internally organize our business for assessing performance and making decisions regarding allocation of resources. Revenue and operating income of each of our 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. Segment operating income is identified as gross profit less SG&A expenses. Corporate expenses, other than those included in Corporate Unallocated, are allocated to each operating segment. Consistent with our internal management reporting, Corporate Unallocated amounts include business acquisition and integration costs, organizational restructuring charges and project costs associated with implementing a global Enterprise Resource Planning (“ERP”) system that we refer to as Project ONE.  Corporate assets are not allocated to the operating segments. Inter-segment revenues are recorded at cost plus a markup for administrative costs.   We have  three reportable segments: Hygiene, Health and Consumable Adhesives, Engineering Adhesives and Construction Adhesives. The business components within each operating segment are managed to maximize the results of the overall operating segment rather than the results of any individual business component of the operating segment. Results of individual components of each operating segment are subject to numerous allocations of segment-wide costs that may or may not have been focused on that particular component for a particular reporting period. The costs for these allocated resources are not tracked on a "where-used" basis as financial performance is assessed at the total operating segment level.   The table below provides certain information regarding net revenue and operating income (loss) for each of our operating segments.        Three Months Ended       September 2, 2023     August 27, 2022       Net     Operating     Net     Operating       Revenue     Income (Loss)     Revenue     Income (Loss)   Hygiene, Health and Consumable Adhesives   $ 402,388     $ 52,737     $ 424,978     $ 47,470   Engineering Adhesives     365,862       52,931       378,264       39,776   Construction Adhesives     132,384       5,853       137,988       6,391   Total segment   $ 900,634     $ 111,521     $ 941,230     $ 93,637   Corporate Unallocated 1     -       ( 20,202 )     -       ( 5,683 ) Total   $ 900,634     $ 91,319     $ 941,230     $ 87,954         Nine Months Ended       September 2, 2023     August 27, 2022       Net     Operating     Net     Operating       Revenue     Income (Loss)     Revenue     Income (Loss)   Hygiene, Health and Consumable Adhesives   $ 1,190,402     $ 149,474     $ 1,252,405     $ 122,950   Engineering Adhesives     1,063,009       129,806       1,137,587       115,266   Construction Adhesives     354,644       2,189       400,977       22,032   Total segment   $ 2,608,055     $ 281,469     $ 2,790,969     $ 260,248   Corporate Unallocated     -       ( 39,734 )     -       ( 27,780 ) Total   $ 2,608,055     $ 241,735     $ 2,790,969     $ 232,468     1 Consistent with our internal management reporting, Corporate Unallocated amounts in the tables above include charges that are not allocated to the Company’s reportable segments.    19 Table of Contents   The table below provides a reconciliation of operating income to income before income taxes and income from equity method investments:       Three Months Ended     Nine Months Ended       September 2,     August 27,     September 2,     August 27,       2023     2022     2023     2022   Operating income   $ 91,319     $ 87,954     $ 241,735     $ 232,468   Other income, net     1,555       6,559       4,764       12,701   Interest expense     ( 35,105 )     ( 23,450 )     ( 101,305 )     ( 61,475 ) Interest income     1,128       2,139       2,726       6,170   Income before income taxes and income from equity method investments   $ 58,897     $ 73,202     $ 147,920     $ 189,864     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 September 2, 2023                                         Hygiene, Health                               and Consumable     Engineering     Construction               Adhesives     Adhesives     Adhesives     Total                                     Americas   $ 227,947     $ 147,115     $ 100,510     $ 475,572   EIMEA     127,080       109,151       23,443       259,674   Asia Pacific     47,361       109,596       8,431       165,388   Total   $ 402,388     $ 365,862     $ 132,384     $ 900,634         Three Months Ended August 27, 2022                                         Hygiene, Health                               and Consumable     Engineering     Construction               Adhesives     Adhesives     Adhesives     Total                                     Americas   $ 261,751     $ 165,398     $ 106,169     $ 533,318   EIMEA     114,186       111,734       23,519       249,439   Asia Pacific     49,041       101,132       8,300       158,473   Total   $ 424,978     $ 378,264     $ 137,988     $ 941,230         Nine Months Ended September 2, 2023       Hygiene, Health                               and Consumable     Engineering     Construction               Adhesives     Adhesives     Adhesives     Total                                     Americas   $ 688,890     $ 429,824     $ 273,116     $ 1,391,830   EIMEA     348,876       341,710       57,938       748,524   Asia Pacific     152,636       291,475       23,590       467,701   Total   $ 1,190,402     $ 1,063,009     $ 354,644     $ 2,608,055         Nine Months Ended August 27, 2022       Hygiene, Health                               and Consumable     Engineering     Construction               Adhesives     Adhesives     Adhesives     Total                                     Americas   $ 737,689     $ 465,285     $ 321,167     $ 1,524,141   EIMEA     351,983       361,485       58,450       771,918   Asia Pacific     162,733       310,817       21,360       494,910   Total   $ 1,252,405     $ 1,137,587     $ 400,977     $ 2,790,969       Note 15: Subsequent Event   Acquisition   On September 8, 2023, we completed the acquisition of certain assets of the Sanglier Group ("Sanglier") for a purchase price of 14,000 British pound sterling, or approximately $ 17,500 . Sanglier, headquartered in the United Kingdom, is a manufacturer and filler of sprayable industrial adhesives. The acquisition will be included in our Construction Adhesives operating segment.   20 Table of Contents     Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations   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 December 3, 2022 for important background information related to our business.    Net revenue in the third quarter of 2023 decreased 4.3 percent from the third quarter of 2022. Net revenue decreased 8.0 percent due to sales volume and 1.7 percent due to negative currency effects, partially offset by a 0.6 percent increase in pricing and a 4.8 percent  increase due to acquisitions compared to the third quarter of 2022. The negative currency effects were primarily driven by a weaker Chinese renminbi, Egyptian pound and Turkish lira offset by a stronger Euro and Mexican peso compared to the U.S. dollar. Gross profit margin increased 280  basis points due to an increase in product pricing and lower raw material costs.   Net revenue in the first nine months of 2023 decreased 6.6 percent from the first nine months of 2022. Net revenue decreased 11.1 percent due to sales volume and 3.2 percent due to negative currency effects, partially offset by a 4.7 percent increase in pricing and a 3.0 percent  increase due to acquisitions compared to the first nine months of 2022. The negative currency effects were primarily driven by a weaker Chinese renminbi, Egyptian pound, Turkish lira and Argentinian peso offset by a stronger Mexican peso  compared to the U.S. dollar . Gross profit margin increased 260  basis points due to an increase in product pricing and lower raw material costs.   Net income attributable to H.B. Fuller in the third quarter of 2023 was $37.6 million compared to $46.5 million in the third quarter of 2022. On a diluted earnings per share basis, the third quarter of 2023 was $0.67 per share compared to $0.84 per share for the third quarter of 2022.   Net income attributable to H.B. Fuller in the first nine months of 2023 was $99.9 million compared to $132.0 million in the first nine months of 2022. On a diluted earnings per share basis, the first nine months of 2023 was $1.79 per share compared to $2.39 per share for the first nine months of 2022.   Restructuring Plans   During the second and third quarters of 2023, the Company approved restructuring plans (the “Plans”) related to organizational changes and other actions to optimize operations and integrate acquired businesses. In implementing the Plans, the Company currently expects to incur costs of approximately $39.1 million to $44.1 million ($30.4 million to $34.4 million after-tax), which include (i) cash expenditures of approximately $28.4 million to $29.6 million ($22.0 million to $23.0 million after tax) for severance and related employee costs globally and (ii) other restructuring costs related to the streamlining of processes and the payment of anticipated income taxes in certain jurisdictions related to the Plans. We have incurred costs of $17.1 million under the Plans as of September 2, 2023. The Plans began to be implemented in the second quarter of fiscal year 2023 and are currently expected to be completed during fiscal year 2026. The restructuring costs will be spread across the next several fiscal quarters as the measures are implemented with the majority of the charges recognized and cash payments occurring in fiscal 2023 and 2024.   Results of Operations   Net revenue:       Three Months Ended     Nine Months Ended       September 2,     August 27,     2023 vs     September 2,     August 27,     2023 vs   ($ in millions)   2023     2022     2022     2023     2022     2022   Net revenue   $ 900.6     $ 941.2       (4.3 )%   $ 2,608.1     $ 2,791.0       (6.6 )%   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 2023 compared to the third quarter and first nine months of 2022:       Three Months Ended     Nine Months Ended       September 2, 2023 vs. August 27, 2022     September 2, 2023 vs. August 27, 2022   Organic growth     (7.4 )%     (6.4 )% M&A     4.8 %     3.0 % Currency     (1.7 )%     (3.2 )% Total     (4.3 )%     (6.6 )%   Organic growth was a negative 7.4 percent in the third quarter of 2023 compared to the third quarter of 2022 and consisted of a 10.5 percent decrease in Hygiene, Health and Consumable Adhesives, a 9.4 percent decrease in Construction Adhesives and a 3.3 percent decrease in Engineering Adhesives. The decrease is driven by a decrease in volume partially offset by a slight increase in product pricing. The 4.8 percent increase from M&A is due to our acquisitions that occurred in the last twelve months. The negative 1.7 percent foreign currency impact was primarily driven by a weaker Chinese renminbi, Egyptian pound and Turkish lira offset by a stronger Euro and Mexican peso compared to the U.S. dollar .   Organic growth was a negative 6.4 percent in the first nine months of 2023 compared to the first nine months of 2022 and consisted of a 16.0 percent decrease in Construction Adhesives, a 5.3 percent decrease in Engineering Adhesives and a 4.2 percent decrease in Hygiene, Health and Consumable Adhesive. The decrease is driven by a decrease in volume partially offset by an increase in product pricing. The 3.0 percent increase from M&A is due to our acquisitions that occurred in the last twelve months. The negative 3.2 percent foreign currency impact was primarily driven by a weaker Chinese renminbi, Egyptian pound, Turkish lira and Argentinian peso offset by a stronger Mexican peso compared to the U.S. dollar .   21 Table of Contents   Cost of sales:       Three Months Ended     Nine Months Ended       September 2,     August 27,     2023 vs     September 2,     August 27,     2023 vs   ($ in millions)   2023     2022     2022     2023     2022     2022   Cost of sales   $ 637.2     $ 692.1       (7.9 )%   $ 1,873.0     $ 2,075.4       (9.8 )% Percent of net revenue     70.8 %     73.5 %             71.8 %     74.4 %           Cost of sales in the third quarter of  2023 compared to the third quarter of 2022  decreased 270  basis points as a percentage of net revenue.  Lower raw material costs partially offset by the impact of lower sales volume led to the decrease.   Cost of sales in the first nine months of  2023 compared to the first nine months of 2022  decreased  260  basis points as a percentage of net revenue.  Lower raw material costs and higher product pricing partially offset by the impact of lower sales volume led to the decrease.   Gross profit:         Three Months Ended     Nine Months Ended       September 2,     August 27,     2023 vs     September 2,     August 27,     2023 vs   ($ in millions)   2023     2022     2022     2023     2022     2022   Gross profit   $ 263.5     $ 249.2       5.7 %   $ 735.1     $ 715.6       2.7 % Percent of net revenue     29.3 %     26.5 %             28.2 %     25.6 %           Gross profit in the third quarter of 2023 increased 5.7 percent and gross profit margin increased 280 basis points compared to the third quarter of 2022. The increase in gross profit margin was primarily due to lower raw material costs   partially offset by the impact of lower sales volume .   Gross profit in the first nine months of 2023 increased 2.7 percent and gross profit margin increased 260 basis points compared to the first nine months of 2022. The increase in gross profit margin was primarily due to lower raw material costs and  higher product pricing  partially offset by the impact of lower sales volume .     Selling, general and administrative (SG&A) expenses:       Three Months Ended     Nine Months Ended       September 2,     August 27,     2023 vs     September 2,     August 27,     2023 vs   ($ in millions)   2023     2022     2022     2023     2022     2022   SG&A   $ 172.2     $ 161.2       6.8 %   $ 493.3     $ 483.1       2.1 % Percent of net revenue     19.1 %     17.1 %             18.9 %     17.3 %           SG&A expenses for the third quarter of 2023 compared to the third quarter of 2022 increased 200 basis points as a percentage of net revenue. The increase is du e to lower net revenue and higher restructuring and acquisition project costs .   SG&A expenses for the first nine months of 2023 compared to the first nine months of 2022 increased 160 basis points as a percentage of net revenue. The increa se is due to lower net revenue and higher restructuring and acquisition project costs .   Other income, net:       Three Months Ended     Nine Months Ended       September 2,     August 27,     2023 vs     September 2,     August 27,     2023 vs   ($ in millions)   2023     2022     2022     2023     2022     2022   Other income, net   $ 1.6     $ 6.6       (75.8 )%   $ 4.8     $ 12.7       (62.2 )%   Other income, net in the third quarter of 2023 included $5.1 million of net defined benefit pension benefits, partially offset by $3.2 million of currency transaction losses and $0.3 million of other income. 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, partially offset by $2.6 million of currency transaction losses.   Other income, net in the first nine months of 2023 included $15.2 million of net defined benefit pension benefits and $0.4 million of other income, partially offset by $10.8 million of currency transaction losses. 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 for the first nine months of 2022 included a $3.3 million settlement loss related to the termination of our Canadian defined benefit pension plan.   22 Table of Contents   Interest expense:       Three Months Ended     Nine Months Ended       September 2,     August 27,     2023 vs     September 2,     August 27,     2023 vs   ($ in millions)   2023     2022     2022     2023     2022     2022   Interest expense   $ 35.1     $ 23.5       49.4 %   $ 101.3     $ 61.5       64.7 %   Interest expense in the third quarter of  2023 was $35.1  million compared to $23.5  million in the third quarter of 2022  and was higher primarily due to higher debt balances and higher interest rates.   Interest expense in the  first nine months of  2023 was $101.3  million compared to $61.5  million in the  first nine months of 2022  and  was higher primarily due to higher debt balances and higher interest rates.   Interest income:       Three Months Ended     Nine Months Ended       September 2,     August 27,     2023 vs     September 2,     August 27,     2023 vs   ($ in millions)   2023     2022     2022     2023     2022     2022   Interest income   $ 1.1     $ 2.1       (47.6 )%   $ 2.7     $ 6.2       (56.5 )%   Interest income in the third quarter of 2023 and 2022 was $1.1 million and $2.1 million, respectively, consisting primarily of interest on cross-currency swap activity and other miscellaneous interest income.   Interest income in the first nine months of 2023 and 2022 was $2.7 million and $6.2 million, respectively, consisting primarily of interest on cross-currency swap activity and other miscellaneous interest income.   Income taxes:        Three Months Ended     Nine Months Ended       September 2,     August 27,     2023 vs     September 2,     August 27,     2023 vs   ($ in millions)   2023     2022     2022     2023     2022     2022   Income taxes   $ 22.2     $ 28.3       (21.6 )%   $ 51.3     $ 62.0       (17.3 )% Effective tax rate     37.7 %     38.7 %             34.6 %     32.7 %           Income tax expense of $22.2 million in the third quarter of 2023 includes $6.2 million of discrete tax expense. Excluding the discrete tax expense, the overall effective tax rate was 27.1 percent. The discrete tax expense relates to various U.S. and foreign tax matters. 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 $51.3 million in the first nine months of 2023 includes $9.1 million of discrete tax expense. Excluding the discrete tax expense, the overall effective tax rate was 28.5 percent. The discrete tax expense relates to various U.S. and foreign tax matters offset by an excess tax benefit related to U.S. stock compensation. Income tax expense of $62.0 million in the first nine months of 2022 includes $7.7 million of discrete tax expense. Excluding the discrete tax expense, the overall effective tax rate was 28.7 percent. The discrete tax expense relates to the revaluation of cross-currency swap agreements due to depreciation of the Euro versus the U.S. dollar, as well as various U.S. and foreign tax matters offset by the tax effect of legal entity mergers.   Income from equity method investments:       Three Months Ended     Nine Months Ended       September 2,     August 27,     2023 vs     September 2,     August 27,     2023 vs   ($ in millions)   2023     2022     2022     2023     2022     2022   Income from equity method investments   $ 1.0     $ 1.6       (37.5 )%   $ 3.3     $ 4.2       (21.4 )%   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 2023 compared to the same periods of 2022 is due to lower net income in our joint venture.   Net income attributable to H.B. Fuller:       Three Months Ended     Nine Months Ended       September 2,     August 27,     2023 vs     September 2,     August 27,     2023 vs   ($ in millions)   2023     2022     2022     2023     2022     2022   Net income attributable to H.B. Fuller   $ 37.6     $ 46.5       (19.1 )%   $ 99.9     $ 132.0       (24.3 )% Percent of net revenue     4.2 %     4.9 %             3.8 %     4.7 %           23 Table of Contents   The net income attributable to H.B. Fuller for the third quarter of 2023 was $37.6 million compared to $46.5 million for the third quarter of 2022. The diluted earnings per share for the third quarter of 2023 was $0.67 per share as compared to $0.84 per share for the third quarter of 2022.   The net income attributable to H.B. Fuller for the first nine months of 2023 was $99.9 million compared to $132.0 million for the first nine months of 2022. The diluted earnings per share for the first nine months of 2023 was $1.79 per share as compared to $2.39 per share for the first nine months of 2022.   Operating Segment Results   We have three reportable segments: Hygiene, Health and Consumable Adhesives, Engineering Adhesives and Construction Adhesives. Operating results of each of these segments are regularly reviewed by our chief operating decision maker to make decisions about resources to be allocated to the segments and assess their performance.    The tables below provide certain information regarding the net revenue and operating income of each of our operating segments.    Corporate Unallocated amounts include business acquisition and integration costs, organizational restructuring charges and project costs associated with implementing a global Enterprise Resource Planning (“ERP”) system that we refer to as Project ONE.   Net Revenue by Segment:       Three Months Ended     Nine Months Ended       September 2, 2023     August 27, 2022     September 2, 2023     August 27, 2022       Net     % of     Net     % of     Net     % of     Net     % of   ($ in millions)   Revenue     Total     Revenue     Total     Revenue     Total     Revenue     Total   Hygiene, Health and Consumable Adhesives   $ 402.4       45 %   $ 425.0       45 %   $ 1,190.4       46 %   $ 1,252.4       45 % Engineering Adhesives     365.8       40 %     378.2       40 %     1,063.0       40 %     1,137.6       41 % Construction Adhesives     132.4       15 %     138.0       15 %     354.7       14 %     401.0       14 % Segment total   $ 900.6       100 %   $ 941.2       100 %   $ 2,608.1       100 %   $ 2,791.0       100 % Corporate Unallocated     -       -       -       -       -       -       -       -   Total   $ 900.6       100 %   $ 941.2       100 %   $ 2,608.1       100 %   $ 2,791.0       100 %   Segment Operating Income (Loss):       Three Months Ended     Nine Months Ended       September 2, 2023     August 27, 2022     September 2, 2023     August 27, 2022       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   $ 52.7       58 %   $ 47.5       54 %   $ 149.5       62 %   $ 122.9       53 % Engineering Adhesives     52.9       58 %     39.8       45 %     129.8       54 %     115.3       50 % Construction Adhesives     5.9       6 %     6.4       7 %     2.2       (0 )%     22.0       9 % Segment total   $ 111.5       122 %   $ 93.7       106 %   $ 281.5       116 %   $ 260.2       112 % Corporate Unallocated     (20.2 )     (22 )%     (5.7 )     (6 )%     (39.8 )     (16 )%     (27.7 )     (12 )% Total   $ 91.3       100 %   $ 88.0       100 %   $ 241.7       100 %   $ 232.5       100 %   Hygiene, Health and Consumable Adhesives       Three Months Ended     Nine Months Ended       September 2,     August 27,     2023 vs     September 2,     August 27,     2023 vs   ($ in millions)   2023     2022     2022     2023     2022     2022   Net revenue   $ 402.4     $ 425.0       (5.3 )%   $ 1,190.4     $ 1,252.4       (5.0 )% Segment operating income   $ 52.7     $ 47.5       10.9 %   $ 149.5     $ 122.9       21.6 % Segment operating margin     13.1 %     11.2 %             12.6 %     9.8 %           24 Table of Contents   The following table provides details of the Hygiene, Health and Consumable Adhesives net revenue variances:       Three Months Ended     Nine Months Ended       September 2, 2023 vs. August 27, 2022     September 2, 2023 vs. August 27, 2022   Organic growth     (10.5 )%     (4.2 )% M&A     7.6 %     3.6 % Currency     (2.4 )%     (4.4 )% Total     (5.3 )%     (5.0 )%   Net revenue decreased 5.3 percent in the third quarter of 2023 compared to the third quarter of 2022. The decrease in organic growth was attri butable to a decrease in sales volume, partially offset by a slight increase in product pricing. The 7.6 percent increase in net revenue from M&A was due to the acquisitions o f Lemtapes in the first quarter of 2023, Beardow Adams in the second quart er of 2023 and Adhezion in the third quarter of 2023. The negative currency effect was due to a weaker Egyptian pound, Chinese renminbi and Turkish lira offset by a stronger Euro and Mexican peso compared to the U.S. dollar. As a percentage of net revenue, gross margin increased due to lower raw material costs partially offset by the impact of lower sales volume. SG&A expenses as a percentage of net revenue increased due to the impact of acquisitions and lower net revenue.  Segment operating income increased 10.9  percent and segment operating margin as a percentage of net revenue increased 190  basis points compared to the third quarter of 2022 .   Net revenue decreased 5.0  percent in the first nine months of  2023 compared to the first nine months of 2022 . The decrease in organic growth was attributable to a decrease in sales volume, partially offset by an increase in product pricing. The  3.6  percent increase in net revenue from M&A was due to the acquisitions of Lemtapes during the first quarter of 2023, Beardow Adams in the second quarter of 2023 and Adhezion in the third quarter of 2023. The negative currency effect was due to a weaker Egyptian pound, Argentinian peso, Turkish lira and Chinese renminbi offset by a stronger Mexican peso compared to the U.S. dollar. As a percentage of net revenue, gross margin increased due to lower raw material costs and higher product pricing partially offset by the impact of lower sales volume. SG&A expenses as a percentage of net revenue increased due to the impact of acquisitions and lower net revenue.  Segment operating income increased 21.6  percent and segme nt operating margin as a percentage of net revenue increased 280 basis points compared to the first nine months of 2022.   Engineering Adhesives       Three Months Ended     Nine Months Ended       September 2,     August 27,     2023 vs     September 2,     August 27,     2023 vs   ($ in millions)   2023     2022     2022     2023     2022     2022   Net revenue   $ 365.8     $ 378.2       (3.3 )%   $ 1,063.0     $ 1,137.6       (6.6 )% Segment operating income   $ 52.9     $ 39.8       32.9 %   $ 129.8     $ 115.3       12.6 % Segment operating margin     14.5 %     10.5 %             12.2 %     10.1 %           The following tables provide details of the Engineering Adhesives net revenue variances:       Three Months Ended     Nine Months Ended       September 2, 2023 vs. August 27, 2022     September 2, 2023 vs. August 27, 2022   Organic growth     (3.3 )%     (5.3 )% M&A     1.4 %     1.5 % Currency     (1.4 )%     (2.8 )% Total     (3.3 )%     (6.6 )%   Net revenue decreased 3.3 percent in the third quarter of  2023 compared to the third quarter of 2022 . The decrease in organic growth was attributable to a decrease in sales volume and product pricing. The  1.4  percent increase in net revenue from M&A was due to the acquisitions of ZKLT in the third quarter of 2022 and Aspen in the first quarter of 2023. The negative currency effect was due to a weaker Chinese renminbi and Turkish lira offset by a stronger Euro compared to the U.S. dollar.   Gross margin as a percentage of net revenue increased due to lower raw material costs partially offset by the impact of lower sales volume. SG&A expenses as a percentage of net revenue decreased due to lower compensation costs. Segment operating income increased 32.9  percent and segment operating margin increased 400  basis points compared to the third quarter of 2022 .   Net revenue decreased  6.6  percent in the first nine months of  2023 compared to the first nine months of 2022 . The decrease in organic growth was attributable to a decrease in sales volume, partially offset by an increase in product pricing. The  1.5  percent increase in net revenue from M&A was due to the acquisitions of ZKLT in the third quarter of 2022 and Aspen in the first quarter of 2023. The negative currency effect was due to a weaker Chinese renminbi and Turkish lira offset by a stronger Mexican peso compared to the U.S. dollar. Gross margin as a percentage of net revenue increased due to lower raw material costs and higher product pricing partially offset by the impact of lower sales volume. SG&A expenses as a percentage of net revenue increased due to lower net revenue. Segment operating income increased  12.6 percent and segment operating margin increased 210  basis points compared to the first nine months of 2022 .   25 Table of Contents   Construction Adhesives       Three Months Ended     Nine Months Ended       September 2,     August 27,     2023 vs     September 2,     August 27,     2023 vs   ($ in millions)   2023     2022     2022     2023     2022     2022   Net revenue   $ 132.4     $ 138.0       (4.1 )%   $ 354.7     $ 401.0       (11.6 )% Segment operating income (loss)   $ 5.9     $ 6.4       (7.8 )%   $ 2.2     $ 22.0       (90.0 )% Segment operating margin     4.5 %     4.6 %             0.6 %     5.5 %           The following tables provide details of the Construction Adhesives net revenue variances:       Three Months Ended     Nine Months Ended       September 2, 2023 vs. August 27, 2022     September 2, 2023 vs. August 27, 2022   Organic growth     (9.4 )%     (16.0 )% M&A     5.4 %     5.1 % Currency     (0.1 )%     (0.7 )% Total     (4.1 )%     (11.6 )%   Net revenue decreased 4.1 percent in the third quarter of 2023 compared to the third quarter of 2022. The decrease in organic growth was attributable t o a decrease in sales volume, partially offset by an increase in product pricing. The 5.4 percent increase in net revenue from M&A was due to the acquisition o f GSSI in the fourth quarter of 2022 and XChem in the third quarter of   2023 .  Gross margin as a percentage of net revenue increased primarily due to lower raw material costs partially offset by lower sales volume. SG&A expenses as a percentage of net revenue increased due to the impact of acquisitions and lower net revenue. Segment operating income decreased 7.8  percent and segment operating margin decreased 10  basis points compared to the third quarter of 2022 .   Net revenue decreased  11.6  percent in the first nine months of  2023 compared to the first nine months of 2022 . The decrease in organic growth was attributable to a decrease in sales volume, partially offset by an increase in product pricing. The  5.1 percent increase in net revenue from M&A was due to the acquisitions of GSSI in the fourth quarter of 2022 and XChem in the third quarter of 2023 . The negative currency effect was due to a weaker Australian dollar compared to the U.S. dollar. Gross margin as a percentage of net revenue decreased primarily due to the im pact of lower sales volume partially offset by higher product pricing and lower raw material costs. SG&A expenses as a percentage of net revenue increased due to the impact of acquisitions and lower net revenue. Segment operating income decreased 90.0  percent and segment operating margin decreased 490  basis points compared to the first nine months of 2022 .   Corporate Unallocated       Three Months Ended     Nine Months Ended       September 2,     August 27,     2023 vs     September 2,     August 27,     2023 vs   ($ in millions)   2023     2022     2022     2023     2022     2022   Net revenue   $ -     $ -       0.0 %   $ -     $ -       0.0 % Segment operating loss   $ (20.2 )   $ (5.7 )     254.4 %   $ (39.8 )   $ (27.7 )     43.7 % Segment operating margin   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 of 2023 increased 254.4 percent compared to the third quarter of 2022 and increased 43.7 percent compared to the first nine months of 2022 due to higher restructuring and acquisition project costs.   Financial Condition, Liquidity and Capital Resources   Total cash and cash equivalents as of September 2, 2023 were $94.9 million compared to $79.9 million as of December 3, 2022 and $60.7 million as of August 27, 2022. The majority of the $94.9 million in cash and cash equivalents as of September 2, 2023 was held outside the United States. Total long and short-term debt was $1,885.0 million as of September 2, 2023, $1,765.1 million as of December 3, 2022 and $1,918.2 million as of August 27, 2022. The total debt to total capital ratio as measured by total debt divided by total debt plus total stockholders’ equity was 52.2 percent as of September 2, 2023 as compared to 52.3 percent as of December 3, 2022 and 54.9 percent as of August 27, 2022.   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.   26 Table of Contents   Our credit agreements include restrictive covenants beginning for the quarter ending June 3, 2023 that, if not met, could lead to a renegotiation of our credit lines and a significant increase in our cost of financing. Those covenants are as follows:    Covenant   Debt Instrument   Measurement   Result as of September 2, 2023 Secured Total Indebtedness / TTM 1 EBITDA   Revolving Facility and Term Loan A Facility   Not greater than 4.75 2   2.3 TTM 1 EBITDA / Consolidated Interest Expense   Revolving Facility and Term Loan A Facility   Not less than 2.0   4.5     1 TTM = Trailing 12 months   2 The Maximum Secured Leverage Ratio prior to June 1, 2024, shall be 4.75 to 1.00 and will step down to 4.50 to 1.0 with respect to quarters ending after June 1, 2024     EBITDA for covenant purposes is defined as consolidated net income, plus (i) interest expense, (ii) expense for taxes paid or accrued, (iii) depreciation and amortization, (iv) certain non-cash impairment losses, (v) extraordinary non-cash losses incurred other than in the ordinary course of business, (vi) nonrecurring extraordinary non-cash restructuring charges and the non-cash impact of purchase accounting, (vii) any non-cash charge for the excess of rent expense over actual cash rent paid due to the use of straight-line rent, non-cash charge pursuant to any management equity plan, stock option plan or any other management or employee benefit, (viii) any non-cash finance charges in respect of any pension liabilities or other provisions and income (loss) attributable to deferred compensation plans, (ix) any non-recurring or unusual cash restructuring charges and operating improvements, (x) cost savings initiative and cost synergies related to acquisitions within 12 months, (xi) non-capitalized charges relating to the Company’s SAP implementation, (xii) fees, costs, expenses and charges incurred in connection with the financing, (xiii) fees, costs, expenses, make-whole or penalty payments and other similar items arising out of acquisitions, investments and dispositions, the incurrence, issuance, repayment or refinancing of indebtedness and any issuance of equity interests; minus, non-recurring or unusual non-cash gains incurred not in the ordinary course of business. Provided that the aggregate amounts that may be added back for any period pursuant to clauses (ix), (x) and (xi) shall not exceed 15% of EBITDA for such period (calculated prior to giving effect to all addbacks and adjustments). For Secured Total Indebtedness / TTM EBITDA ratio, TTM EBITDA is adjusted for the pro forma results from Material Acquisitions and Material Divestitures, both as defined in the Second Amended and Restated Credit Agreement, as if the acquisition or divestiture occurred at the beginning of the calculation period. The full definition is set forth in the Second Amended and Restated Credit Agreement, the Company filed as an exhibit to its 8-K filing dated February 21, 2023.     Consolidated Interest Expense for covenant purposes is defined as the interest expense (including without limitation to 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 allocable to such period in accordance with GAAP, including net costs (or benefits) under Interest Rate Swap Agreements and commissions, discounts and other fees and charges with respect to letters of credit and the interest component of all Attributable Receivables Indebtedness.   We believe we have the ability to meet all of our contractual obligations and commitments in fiscal 2023.   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.       September 2,     August 27,       2023     2022   Net working capital as a percentage of annualized net revenue 1     18.1 %     18.8 % Accounts receivable DSO (in days) 2     58       63   Inventory days on hand (in days) 3     70       75   Free (negative) cash flow after dividends 4   $ 74.7     $ (78.8 ) Total debt to total capital ratio 5     52.2 %     54.9 %   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.   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 with U.S. GAAP.   27 Table of Contents   Reconciliation of "Net cash provided by operating activities" to free (negative) cash flow after dividends       Nine Months Ended   ($ in millions)   September 2, 2023     August 27, 2022   Net cash provided by operating activities   $ 216.7     $ 48.7   Less: Purchased property, plant and equipment     109.5       98.4   Less: Dividends paid     32.3       29.1   Free (negative) cash flow after dividends   $ 74.7     $ (78.8 )   Summary of Cash Flows   Cash Flows from Operating Activities:         Nine Months Ended       September 2,     August 27,   ($ in millions)   2023     2022   Net cash provided by (used in) operating activities   $ 216.7     $ 48.7     Net income including non-controlling interest was $100.0 million in the first nine months of 2023 compared to $132.1 million in the first nine months of 2022. Depreciation and amortization expense totaled $119.2 million in the first nine months of 2023 compared to $109.4 million in the first nine months of 2022. Deferred income taxes was a use of cash of $30.1 million in 2023 compared to $5.0 million in the first nine months of 2022. Accrued compensation was a use of cash of $33.8 million in 2023 compared to $17.3 million last year. Other assets was a use of cash of $30.9 million in the first nine months of 2023 compared to $40.3 million in the first nine months of 2022. Other liabilities was a source of cash of $12.4 million in the first nine months of 2023 compared to a use of cash of $35.9 million in the first nine months of 2022.   Changes in net working capital (trade receivables, inventory and trade payables) accounted for a source of cash of $43.3 million compared to a use of cash of $146.6 million last year. The table below provides the cash flow impact due to changes in the components of net working capital:       Nine Months Ended       September 2,     August 27,   ($ in millions)   2023     2022   Trade receivables, net   $ 79.5     $ (51.6 ) Inventory     38.2       (112.4 ) Trade payables     (74.4 )     17.4   Total cash flow impact   $ 43.3     $ (146.6 )     ● Trade receivables, net – Trade receivables, net was a source of cash of $79.5 million and a use of cash of $51.6 million in the first nine months of 2023 and 2022, respectively. The source of cash in 2023 compared to the use of cash in 2022 was due to more cash collected on trade receivables in the current year compared to the prior year. The DSO were 58 days at September 2, 2023 and 63 days at August 27, 2022.      ● Inventory – Inventory was a source of cash of $38.2 million and use of cash of $112.4 million in the first nine months of 2023 and 2022, respectively. The source of cash in 2023 compared to the use of cash in 2022 is due to lower inventory purchases at lower prices in 2023 compared to 2022. Inventory days on hand were 70 days as of September 2, 2023 and 75 days as of August 27, 2022.     ● Trade payables – Trade payables was a use of cash of $74.4 million and a source of cash of $17.4 million in the first nine months of 2023 and 2022, respectively. The use of cash in 2023 compared to the source of cash in 2022 reflects higher payments on trade payables in the current year compared to the prior year.   Cash Flows from Investing Activities:       Nine Months Ended       September 2,     August 27,   ($ in millions)   2023     2022   Net cash used in investing activities   $ (299.5 )   $ (336.0 )   Purchases of property, plant and equipment were $109.5 million during the first  nine months of  2023  compared to $98.4 million for the same period of 2022 .  This difference reflects the timing of capital projects and expenditures related to growth initiatives.    During the first nine months of 2023 and 2022, we paid cash, net of cash acquired of $194.2 million and $242.9 million, respectively.        28 Table of Contents   Cash Flows from Financing Activities:       Nine Months Ended       September 2,     August 27,   ($ in millions)   2023     2022   Net cash provided by financing activities   $ 96.3     $ 301.7     In the first nine months of  2023 , we refinanced our debt and as a result of that and borrowings we have proceeds from the issuance of long-term debt of $1,333.0   million and repayment of long-term debt of $1,184.9 million. These borrowings are to finance acquisitions and for general working capital purposes. Borrowings on our long-term debt were $335.0 and payments on our revolving credit facility were $15.0 million in the first nine months of  2022 . Payment of debt issue costs were $10.2 million and $0.6 million in the first nine months of  2023  and 2022 , respectively. Net payments of notes payable were $18.0 million in the first nine months of  2023  and net proceeds of notes payable were $6.7 million in the same period of 2022 . Cash dividends paid were $32.3 million in the first nine months of 2023 compared to $29.1 million in the same period of 2022 . Repurchases of common stock were $2.6 million in the first nine months of  2023 compared to $3.9 million in the same period of 2022 .   Forward-Looking Statements and Risk Factors   The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may be identified by the use of words like "plan," "expect," "aim," "believe," "project," "anticipate," "intend," "estimate," "will," "should," "could" (including the negative or variations thereof) and other expressions that indicate future events and trends. These plans and expectations are based upon certain underlying assumptions, including those mentioned with the specific statements. Such assumptions are in turn based upon internal estimates and analyses of current market conditions and trends, our plans and strategies, economic conditions and other factors. These plans and expectations and the assumptions underlying them are necessarily subject to risks and uncertainties inherent in projecting future conditions and results. Actual results could differ materially from expectations expressed in the forward-looking statements if one or more of the underlying assumptions and expectations proves to be inaccurate or is unrealized. In addition to the factors described in this report, Item 1A. Risk Factors identifies some of the important factors that could cause our actual results to differ materially from those in any such forward-looking statements. In order to comply with the terms of the safe harbor, we have identified these important factors which could affect our financial performance and could cause our actual results for future periods to differ materially from the anticipated results or other expectations expressed in the forward-looking statements. These factors should be considered, together with any similar risk factors or other cautionary language that may be made elsewhere in this Quarterly Report on Form 10-Q.   The list of important factors in Item 1A. Risk Factors does not necessarily present the risk factors in order of importance. This disclosure, including that under Forward-Looking Statements and Risk Factors, and other forward-looking statements and related disclosures made by us in this report and elsewhere from time to time, represents our best judgment as of the date the information is given. We do not undertake responsibility for updating any of such information, whether as a result of new information, future events, or otherwise, except as required by law. Investors are advised, however, to consult any further public company disclosures (such as in filings with the SEC or in our press releases) on related subjects.   Item 3. Quantitative and Qualitative Disclosures about Market Risk   We are exposed to various market risks, including changes in interest rates, foreign currency rates and prices of raw materials. Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates and foreign currency exchange rates.  See Part II, Item 7A in our Annual Report on Form 10-K for the year ended December 3, 2022 for further discussion of these market risks. There have been no material changes in the reported market risk of the Company since December 3, 2022.    Item 4. Controls and Procedures   Controls and Procedures   We conducted an evaluation, under the supervision and with the participation of our president and chief executive officer and executive vice president, chief financial officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (Exchange Act)) as of September 2, 2023. Based on this evaluation, our president and chief executive officer and executive vice president, chief financial officer concluded that, as of September 2, 2023, our disclosure controls and procedures were effective.   For purposes of Rule 13a-15(e), the term disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its president and chief executive officer and executive vice president, chief financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.   Changes in Internal Control over Financial Reporting   There were no changes in our internal control over financial reporting during our most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect our internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act.   29 Table of Contents   PART II. OTHER INFORMATION   Item 1. Legal Proceedings   Environmental Matters     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. 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 a financial provision.    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.    Other Legal Proceedings     From time to time and in the ordinary course of business, we are a party to, or a target of, lawsuits, claims, investigations and proceedings, including product liability, personal injury, contract, patent and intellectual property, environmental, health and safety, tax and employment matters. While we are unable to predict the outcome of these matters, we have concluded, based upon currently available information, that the ultimate resolution of any pending matter, individually or in the aggregate, including asbestos-related litigation, will not have a material adverse effect on our results of operations, financial condition or cash flow. However, adverse developments and/or periodic settlements could negatively impact the results of operations or cash flows in one or more future periods.   For additional information regarding environmental matters and other legal proceedings, see Note 13 to our Consolidated Financial Statements.   Item 1A. Risk Factors   This Form 10-Q contains forward-looking statements concerning our future programs, products, expenses, revenue, liquidity and cash needs as well as our plans and strategies. These forward-looking statements are based on current expectations and we assume no obligation to update this information. Numerous factors could cause actual results to differ significantly from the results described in these forward-looking statements, including the risk factors identified under Part I, Item 1A. Risk Factors contained in our Annual Report on Form 10-K for the fiscal year ended December 3, 2022. There have been no material changes in the risk factors disclosed by us under Part I, Item 1A. Risk Factors contained in the Annual Report on Form 10-K for the fiscal year ended December 3, 2022.   Item 2. Unregistered Sales of Equity Securities and Use of Proceeds   Issuer Purchases of Equity Securities   Information on our purchases of equity securities during the third quarter ended September 2, 2023 is as follows:                       (d)                       Maximum                       Approximate Dollar       (a)             Value of Shares that       Total     (b)     may yet be       Number of     Average     Purchased Under the       Shares     Price Paid     Plan or Program   Period   Purchased 1     per Share     (millions)                             June 4, 2023 - July 8, 2023     77     $ 71.51     $ 300,000                             July 9, 2023 - August 5, 2023     48     $ 73.88     $ 300,000                             August 6, 2023 - September 2, 2023     -     $ -     $ 300,000     1 The total number of shares purchased are shares withheld to satisfy the employees’ withholding taxes upon vesting of restricted stock.   Repurchases of common stock are made to support our stock-based employee compensation plans and for other corporate purposes. Upon vesting of restricted stock awarded to employees, shares are withheld to cover the employees’ minimum withholding taxes.   On April 7, 2022, the Board of Directors authorized a new share repurchase program of up to $300.0 million of our outstanding common shares for a period of up to five years. Under the program, we are authorized to repurchase shares for cash on the open market, from time to time, in privately negotiated transactions or block transactions, or through an accelerated repurchase agreement. The timing of such repurchases is dependent on price, market conditions and applicable regulatory requirements. Upon repurchase of the shares, we reduce our common stock for the par value of the shares with the excess being applied against additional paid-in capital. This authorization replaces the April 6, 2017 authorization to repurchase shares.     Item 5. Other Information   Rule 10b5 - 1 Plan Adoptions and Modifications   None.     30 Table of Contents   Item 6. Exhibits     10.1 Amendment No. 1, dated as of August 16, 2023, to the Second Amended and Restated Credit Agreement, dated February 15, 2023, among H.B. Fuller Company and JPMorgan Chase Bank, N.A., as administrative agent and the various other parties named thereto.   31.1 Form of 302 Certification – Celeste B. Mastin   31.2 Form of 302 Certification – John J. Corkrean   32.1 Form of 906 Certification – Celeste B. Mastin   32.2 Form of 906 Certification – John J. Corkrean   101 The following materials from the H.B. Fuller Company Quarterly Report on Form 10-Q for the quarter ended September 2, 2023 formatted in Inline Extensible Business Reporting Language (Inline XBRL): (i) the Consolidated Statements of Income, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Total Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements.   104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).         31 Table of Contents   SIGNATURES     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.     H.B. Fuller Company                 Dated: September 28, 2023   /s/ John J. Corkrean       John J. Corkrean       Executive Vice President,       Chief Financial Officer     32 Table of Contents   Exhibit Index   Exhibits     10.1 Amendment No. 1, dated as of August 16, 2023, to the Second Amended and Restated Credit Agreement, dated February 15, 2023, among H.B. Fuller Company and JPMorgan Chase Bank, N.A., as administrative agent and the various other parties named thereto.   31.1 Form of 302 Certification – Celeste B. Mastin   31.2 Form of 302 Certification – John J. Corkrean   32.1 Form of 906 Certification – Celeste B. Mastin   32.2 Form of 906 Certification – John J. Corkrean   101 The following materials from the H.B. Fuller Company Quarterly Report on Form 10-Q for the quarter ended September 2, 2023 formatted in Inline Extensible Business Reporting Language (Inline XBRL): (i) the Consolidated Statements of Income, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Total Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements.   104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).         33