What changed in this filing

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Item 1. Financial Statements

2023-09-28 compared with 2023-06-29 · 186 added, 251 removed, 873 unchanged (33% of the section changed)

4 unchanged sentences

Three Months Ended

Six Months Ended

$ 898,239  

$ 993,258  

$ 1,707,421  

$ 1,849,739  

Nine Months Ended

Cost of sales

( 641,464 )  

( 739,737 )  

( 1,235,838 )  

( 1,383,326 )

256,775  

253,521  

471,583  

466,413  

Selling, general and administrative expenses

( 166,625 )  

( 166,007 )  

( 321,167 )  

Other income, net

Interest expense

( 33,131 )  

( 19,828 )  

( 66,200 )  

Interest income

Income before income taxes and income from equity method investments

58,556  

69,777  

89,024  

116,662  

( 19,291 )  

( 23,616 )  

( 29,024 )  

Income from equity method investments

Net income including non-controlling interest

40,422  

47,227  

62,338  

85,546  

Net income attributable to non-controlling interest

( 21 )  

( 24 )  

( 48 )  

Net income attributable to H.B.

$ 40,401  

$ 47,203  

$ 62,290  

$ 85,509  

Earnings per share attributable to H.B.

Fuller common stockholders:

$ 0.74  

$ 0.88  

$ 1.15  

$ 1.60  

$ 0.73  

$ 0.86  

$ 1.12  

$ 1.55  

Weighted-average common shares outstanding:

54,269  

53,497  

54,222  

53,425  

55,717  

55,078  

55,818  

55,237  

Dividends declared per common share

$ 0.205  

$ 0.190  

$ 0.395  

$ 0.358  

See accompanying Notes to Unaudited Consolidated Financial Statements.

3 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Net income including non-controlling interest

$ 40,422  

$ 47,227  

$ 62,338  

$ 85,546  

Other comprehensive income (loss)

Foreign currency translation

26,410  

( 84,110 )  

22,774  

Defined benefit pension plans adjustment, net of tax

Interest rate swaps, net of tax

( 9,488 )  

( 1,153 )  

Cross-currency swaps, net of tax

( 1,210 )  

Net investment hedges, net of tax

( 5,384 )  

( 5,683 )  

Other comprehensive income (loss)

12,396  

( 79,170 )  

17,647  

Comprehensive income (loss)

52,818  

( 31,943 )  

79,985  

17,544  

Comprehensive income attributable to non-controlling interest

Comprehensive income (loss) attributable to non-controlling interest

Comprehensive income (loss) attributable to H.B.

$ 52,812  

$ ( 31,955 )  

$ 79,942  

$ 17,528  

See accompanying Notes to Unaudited Consolidated Financial Statements.

6 unchanged sentences

$ 79,910  

Trade receivables (net of allowances of $ 11,512 and $ 10,939 , as of June 3, 2023 and December 3, 2022, respectively)

Trade receivables (net of allowances of $ 12,458 and $ 10,939 , as of September 2, 2023 and December 3, 2022, respectively)

576,060  

62 unchanged sentences

160,000,000 , shares outstanding –

53,859,908 and 53,676,576 as of June 3, 2023 and December 3, 2022, respectively

54,016,374 and 53,676,576 as of September 2, 2023 and December 3, 2022, respectively

$ 54,016  

26 unchanged sentences

Balance at December 3, 2022

$ 53,677  

$ 266,491  

$ 1,741,359  

$ ( 451,357 )  

$ 1,610,794  

Comprehensive income

21,889  

27,167  

( 10,305 )  

Stock option exercises

1 unchanged sentence

Repurchases of common stock

( 36 )  

( 2,412 )  

Balance at March 4, 2023

$ 53,819  

$ 272,820  

$ 1,752,943  

$ ( 446,116 )  

$ 1,634,127  

Comprehensive income

40,401  

12,411  

52,818  

( 11,129 )  

Stock option exercises

Share-based compensation plans other, net

Share-based compensation plans and other, net

Repurchases of common stock

( 102 )  

Balance at June 3, 2023

$ 53,860  

$ 280,120  

$ 1,782,215  

$ ( 433,705 )  

1,683,157  

Comprehensive income (loss)

Stock option exercises

Share-based compensation plans and other, net

Repurchases of common stock

Balance at September 2, 2023

Fuller Company Shareholders

13 unchanged sentences

Balance at May 28, 2022

Comprehensive income

Stock option exercises

Share-based compensation plans other, net

Repurchases of common stock

Balance at August 27, 2022

See accompanying Notes to Unaudited Consolidated Financial Statements. 

2 unchanged sentences

(In thousands)

Six Months Ended

Nine Months Ended

September 2, 2023

August 27, 2022

Cash flows from operating activities:

Net income including non-controlling interest

$ 62,338  

$ 85,546  

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

39,163  

36,333  

37,813  

36,412  

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

Deferred income taxes

( 16,831 )  

Income from equity method investments, net of dividends received

( 2,338 )  

Debt issuance costs write-off

Gain on mark to market adjustment on contingent consideration liability

( 220 )  

Loss on fair value adjustment on contingent consideration liability

Gain on sale or disposal of assets

( 42 )  

Share-based compensation

10,953  

13,625  

Pension and other post-retirement benefit plan activity

( 6,226 )  

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

Trade receivables, net

66,896  

( 36,951 )  

Trade payables

( 20,301 )  

27,237  

Accrued compensation

( 42,190 )  

Other accrued expenses

( 9,988 )  

Income taxes payable

10,025  

Other liabilities

18,819  

( 13,497 )  

28,452  

Net cash provided by (used in) operating activities

108,397  

Net cash provided by operating activities

Cash flows from investing activities:

Purchased property, plant and equipment

( 82,578 )  

Purchased businesses, net of cash acquired

( 103,744 )  

Proceeds from sale of property, plant and equipment

1 unchanged sentence

Net cash used in investing activities

( 183,699 )  

Cash flows from financing activities:

Proceeds from issuance of long-term debt

1,300,000  

335,000  

Repayment of long-term debt

( 1,176,650 )  

Payment of debt issuance costs

( 10,214 )  

Net payment of notes payable

( 239 )  

Dividends paid

( 21,258 )  

Contingent consideration payment

1 unchanged sentence

Repurchases of common stock

( 2,552 )  

Net cash provided by financing activities

93,280  

318,228  

Effect of exchange rate changes on cash and cash equivalents

Net change in cash and cash equivalents

23,273  

Cash and cash equivalents at beginning of period

79,910  

61,786  

Cash and cash equivalents at end of period

$ 103,183  

$ 68,149  

See accompanying Notes to Unaudited Consolidated Financial Statements.

24 unchanged sentences

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

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, coatings and primers, principally in the fields of packaging, labeling, bookbinding, hygiene, wood and product assembly. The acquisition of Beardow Adams is expected to accelerate profitable growth in many of our core end markets and generate business synergies through production optimization, an expanded distribution platform, and difference-making innovation.

The acquisition fair value measurement was preliminary as of June 3, 2023 and includes intangible asse ts of $ 40,485 , goodwill of $ 42,585  and other net asse ts of $ 16,356 .

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. 

5 unchanged sentences

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 June 3, 2023 and includes intangible asse ts of $ 7,777  and other net assets of $ 2,073 .

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. 

4 unchanged sentences

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 June 3, 2023 and includes intangible ass ets of $ 6,535 and other net assets of $ 2,017 .

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.

3 unchanged sentences

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

The acquisition of GSSI is expected to support our strategy to expand our Construction Adhesives business selectively via high margin applications and expand our reach to new regions. The acquisition fair value measurement was preliminary as of June 3, 2023 and includes intangible a ssets of $ 4,523  and other net assets of $ 3,178 .

GSSI is included in our Construction Adhesives operating segment. 

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. 

ZKLT Polymer Co.

1 unchanged sentence

("ZKLT") for a base purchase price of 143,965 Chinese renminbi, or approximately $ 21,260 , which was funded through existing cash.

We are also required to pay 

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

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 preliminary as of June 3,2023  and includes intangible assets of $ 5,183 , goodwill of $ 3,902  

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 is not deductible for tax purposes.

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.

3 unchanged sentences

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 as sets of $ 10,036 .

Goodwill is not deductible for tax purposes.  

The acquisition is included in our Construction Adhesives operating segment. 

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

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

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 is not deductible for tax purposes.

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. 

3 unchanged sentences

Restructuring Actions

During fiscal year 2023, the Company approved restructuring plans related to organizational changes and other actions to optimize operations and are currently expected to be completed during fiscal year 2025.

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

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

Six Months Ended

Nine Months Ended

September 2, 2023

August 27, 2022

September 2, 2023

August 27, 2022

Cost of sales

4 unchanged sentences

$ 8,399  

$ ( 222 )  

$ 16,727  

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

1 unchanged sentence

Employee-Related

Asset-Related

Balance at November 27, 2021

$ 1,095  

Expenses incurred

( 449 )  

Cash payments

( 529 )  

Foreign currency translation

( 60 )  

Balance at December 3, 2022

Expenses incurred

16,394  

16,727  

Non-cash charges

( 333 )  

Cash payments

( 6,910 )  

Foreign currency translation

Balance at June 3, 2023

( 1,130 )  

Balance at September 2, 2023

$ 8,411  

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.

11 unchanged sentences

The goodwill activity by reportable segment for the 

six months ended June 3, 2023 is presented below:

nine months ended September 2, 2023 is presented below:

Hygiene, Health

7 unchanged sentences

$ 2,788  

86,946  

Foreign currency translation effect

2 unchanged sentences

$ 4,030  

Balance at June 3, 2023

10,962  

Balance at September 2, 2023

$ 416,536  

1 unchanged sentence

$ 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

Amortizable Intangible Assets

37 unchanged sentences

$ 701,633  

Amortization expense with respect to amortizable intangible assets was $ 19,130 and $ 18,620  for the three months ended June 3, 2023 and May 28, 2022 , respectively, and $ 37,813  and $ 36,412 for the six months ended 

June 3, 2023 and May 28, 2022 , respectively.  

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:

7 unchanged sentences

Non-amortizable intangible assets as of 

June 3, 2023 and December 3, 2022 were $ 467  and $ 459 , respectively, and relate to trademarks and trade names.

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

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.

Long-Term Debt

7 unchanged sentences

Interest on Term Loan A is payable at the Secured Overnight Financing Rate ("SOFR") plus an adjustment of 

0.10 percent and an interest rate spread of 1.75 percent ( 6.99  percent at June 3, 2023).

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.

Interest on Term Loan B is payable at SOFR plus an interest rate spread of 2.50 percent with a SOFR floor of 0.50 percent ( 7.64 percent at June 3, 2023).

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. 

4 unchanged sentences

Revolving Credit Facility

Interest on the Revolving Credit Facility is payable at SOFR plus an adjustment of 0.10 percent and an interest rate spread of 1.75 percent ( 6.99 percent at June 3, 2023).

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 June 3, 2023, there was no balance outstanding on the Revolving Credit Facility.

At September 2, 2023 , there was no balance outstanding on the Revolving Credit Facility.

The Revolving Credit Facility matures on February 15, 2028.

13 unchanged sentences

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

Three Months Ended June 3, 2023 and May 28, 2022

Three Months Ended September 2, 2023 and August 27, 2022

Pension Benefits

16 unchanged sentences

$ ( 2,164 )  

Six Months Ended June 3, 2023 and May 28, 2022

Nine Months Ended September 2, 2023 and August 27, 2022

Pension Benefits

2 unchanged sentences

$ 1,255  

$ 2,086  

Interest cost

10,426  

Expected return on assets

16 unchanged sentences

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

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

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.

1 unchanged sentence

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

Three Months Ended June 3, 2023

Three Months Ended May 28, 2022

Three Months Ended September 2, 2023

Three Months Ended August 27, 2022

Fuller Stockholders

9 unchanged sentences

( 87,743 )  

( 84,098 )  

Defined benefit pension plans adjustment²

5 unchanged sentences

15,898  

( 437 )  

Cross-currency swaps³

15 unchanged sentences

$ ( 39,587 )  

Six Months Ended June 3, 2023

Six Months Ended May 28, 2022

Nine Months Ended September 2, 2023

Nine Months Ended August 27, 2022

Fuller Stockholders

9 unchanged sentences

$ ( 165,302 )  

( 165,302 )  

Defined benefit pension plans adjustment²

6 unchanged sentences

14,473  

( 3,549 )  

10,924  

Cross-currency swaps³

11 unchanged sentences

$ ( 5,000 )  

Comprehensive income

( 154,066 )  

Comprehensive income (loss)

$ 120,979  

$ ( 22,059 )  

Income taxes are not provided for foreign currency translation relating to permanent investments in international subsidiaries.

2 unchanged sentences

The components of accumulated other comprehensive loss are as follows:

September 2, 2023

Foreign currency translation adjustment

33 unchanged sentences

Income tax expense for the 

three and six months ended June 3, 2023  includes $ 2,042  and $ 2,888 of discrete tax expense, respectively, relating to various foreign tax matters offset by an excess tax benefit related to U.S.

stock compensation.

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 

29.4 percent for the three and six months ended June 3, 2023 , respectively.

Income tax expense for the three and six months ended May 28, 2022 includes $ 4,149  and $ 1,248 of discrete tax expense, respectively, relating to the revaluation of cross-currency swap agreements due to depreciation of the Euro versus the U.S.

Dollar, as well as various foreign tax matters offset by the tax effect of legal entity mergers. Excluding the discrete tax expense, the overall effective tax rate was 

27.9  percent for both the three and six months ended May 28, 2022 .

June 3, 2023 , we had a liability of $ 16,434  recorded for gross unrecognized tax benefits (excluding interest) compared to $ 17,582  as of December 3, 2022 .

As of June 3, 2023 and December 3, 2022 , we had accrued $ 5,933 and $ 5,680 of gross interest relating to unrecognized tax benefits, respectively.

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.

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.

Earnings Per Share

1 unchanged sentence

Three Months Ended

Six Months Ended

Nine Months Ended

(Shares in thousands)

17 unchanged sentences

Share-based compensation awards of 

1,026,155 and 658,511  shares for the three months ended June 3, 2023 and May 28, 2022 , respectively, and 

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 

744,479  shares for the six  months ended June 3, 2023 and May 28, 2022 , respectively, were excluded from diluted earnings per share calculations because they were antidilutive.

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.

Financial Instruments

12 unchanged sentences

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. 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 $ 322 at June 3, 2023 and was included in other assets i n the Consolidated Balance Sheets.

On January 12, 2023, we entered into an interest rate swap agreement to convert $ 400,000 of our variable rate 1 -month LIBOR rate debt to a fixed rate of 3.6895 percent 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.

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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.

The combined fair value of the interest rate swap wa s a liability of $ 1,354  a t June 3, 2023 and was included in other liabilities  in the Consolidated Balance Sheets.

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.

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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.

The combined fair value of the interest rate swap was a 

liability of $ 709  

at June 3, 2023 and was included i n other liabilities in the Consolidated Balance Sheets.

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.

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Three Months Ended

Six Months Ended

Nine Months Ended

September 2, 2023

August 27, 2022

September 2, 2023

August 27, 2022

Cross-currency swap contracts

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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.

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 

June 3, 2023 , and was included in other liabilities in the Consolidated Balance Sheets. The swaps were designated for hedge accounting treatment as fair value hedges.

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.

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

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

As of June 3, 2023 , the combined fair value of the swaps w as a liability of $ 61,584 a nd was included in other liabilities in the Consolidated Balance Sheets.

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.

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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 $ 46,426  

as of June 3, 2023 .

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 six months ended June 3, 2023 .

As of June 3, 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.

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.

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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 June 3, 2023 , we had forward foreign currency contracts maturing between June 5, 2023 

As of September 2, 2023 , we had forward foreign currency contracts maturing between September 6, 2023 

and May 13, 2024 .

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

six months ended June 3, 2023 and May 28, 2022 were  $ 1,276 a nd $ 5,089 , respectively.

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 June 3, 2023 , there were no significant concentrations of credit risk.

As of September 2, 2023 , there were no significant concentrations of credit risk.

Fair Value Measurements

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Balances Measured at Fair Value on a Recurring Basis

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

The following table presents information about our financial assets and liabilities that are measured at fair value on a recurring basis as of September 2, 2023 and December 3, 2022 , and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value.

Fair Value Measurements Using:

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Interest rate swaps, cash flow hedge assets

11,830  

Foreign exchange contract liabilities

$ 7,208  

Interest rate swaps, cash flow hedge liabilities

Interest rate swaps, fair value hedge liabilities

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The valuation of our contingent consideration liability related to the acquisitions of ZKLT and TissueSeal was $ 4,132 and $ 500 , respectively, as of 

June 3, 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.

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: 

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$ 1,977  

Mark to market adjustment

Fair value adjustment

Foreign currency translation adjustment

Balance at June 3, 2023

Balance at September 2, 2023

$ 4,632  

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Balances Disclosed at Fair Value

Long-term debt had an estimated fair value of $ 1,662,706  and $ 1,713,257 as of June 3, 2023 and December 3, 2022 , respectively.

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.

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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 $ 5,530 and $ 5,754  as of June 3, 2023 and December 3, 2022 , respectively, for probable and reasonably estimable environmental remediation costs. Of the amount reserved, $ 2,640 and $ 2,789  as of June 3, 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.

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.

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

Six Months Ended

Nine Months Ended

3 Years Ended

September 2, 2023

August 27, 2022

December 3, 2022

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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 our implementation of Project ONE.

Corporate assets are not allocated to the operating segments.

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Three Months Ended

September 2, 2023

August 27, 2022

Income (Loss)

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137,988  

11,285  

Total segment

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$ 87,954  

Six Months Ended

Nine Months Ended

September 2, 2023

August 27, 2022

Income (Loss)

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22,032  

15,641  

Total segment

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Three Months Ended

Six Months Ended

Nine Months Ended

Operating income

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Other income, net

12,701  

Interest expense

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

Three Months Ended June 3, 2023

Three Months Ended September 2, 2023

Hygiene, Health

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$ 900,634  

Three Months Ended May 28, 2022

Three Months Ended August 27, 2022

Hygiene, Health

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$ 941,230  

Six Months Ended June 3, 2023

Nine Months Ended September 2, 2023

Hygiene, Health

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$ 2,608,055  

Six Months Ended May 28, 2022

Nine Months Ended August 27, 2022

Hygiene, Health

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$ 2,790,969  

Subsequent Events

On June 12, 2023, we completed the acquisition of XChem International LLC ("XChem") for a base purchase price of approx imately $ 12,347 .

X Chem, headquartered in Ras Al-Khaimah United Arab Emirates, is a manufacturer of adhesives, coatings and sealants for flooring, waterproofing, HVAC, and other construction-related applications.

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

On June 23, 

2023, we completed the acquisition of Adhezion Biomedical LLC (“Adhezion”) for a base purchase price of approximately $ 80,038 as well as 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 will be included in our Hygiene, Health and Consumable Adhesives operating segment.

Subsequent Event

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.

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

What changed 10-Q

Item 1. Financial Statements