Item 1. Financial Statements
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
August 31,
September 2,
August 31,
September 2,
2024
2023
2024
2023
Net revenue
$
917,927
$
900,634
$
2,645,452
$
2,608,055
Cost of sales
( 642,198
)
( 637,162
)
( 1,848,435
)
( 1,873,000
)
Gross profit
275,729
263,472
797,017
735,055
Selling, general and administrative expenses
( 171,388
)
( 172,153
)
( 525,204
)
( 493,320
)
Other income, net
2,148
1,555
7,282
4,764
Interest expense
( 35,288
)
( 35,105
)
( 99,504
)
( 101,305
)
Interest income
1,092
1,128
3,597
2,726
Income before income taxes and income from equity method investments
72,293
58,897
183,188
147,920
Income taxes
( 18,264
)
( 22,231
)
( 48,496
)
( 51,255
)
Income from equity method investments
1,310
984
2,955
3,322
Net income including non-controlling interest
55,339
37,650
137,647
99,987
Net loss (income) attributable to non-controlling interest
22
( 23
)
( 32
)
( 71
)
Net income attributable to H.B. Fuller
$
55,361
$
37,627
$
137,615
$
99,916
Earnings per share attributable to H.B. Fuller common stockholders:
Basic
$
1.01
$
0.69
$
2.51
$
1.84
Diluted
$
0.98
$
0.67
$
2.43
$
1.79
Weighted-average common shares outstanding:
Basic
54,975
54,394
54,874
54,279
Diluted
56,650
56,033
56,620
55,890
Dividends declared per common share
$
0.223
$
0.205
$
0.651
$
0.600
See accompanying Notes to Unaudited Consolidated Financial Statements.
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H.B. FULLER COMPANY AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(In thousands)
(Unaudited)
Three Months Ended
Nine Months Ended
August 31,
September 2,
August 31,
September 2,
2024
2023
2024
2023
Net income including non-controlling interest
$
55,339
$
37,650
$
137,647
$
99,987
Other comprehensive income (loss)
Foreign currency translation
33,355
( 8,717
)
( 12,932
)
14,058
Defined benefit pension plans adjustment, net of tax
1,270
863
3,808
2,572
Interest rate swaps, net of tax
( 25,744
)
15,898
( 18,013
)
14,745
Net investment hedges, net of tax
( 8,231
)
( 4,641
)
( 4,318
)
( 10,324
)
Other comprehensive income (loss)
650
3,403
( 31,455
)
21,051
Comprehensive income
55,989
41,053
106,192
121,038
Less: Comprehensive income attributable to non-controlling interest
9
16
22
59
Comprehensive income attributable to H.B. Fuller
$
55,980
$
41,037
$
106,170
$
120,979
See accompanying Notes to Unaudited Consolidated Financial Statements.
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H.B. FULLER COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
(Unaudited)
August 31,
December 2,
2024
2023
Assets
Current assets:
Cash and cash equivalents
$ 131,412 $ 179,453
Trade receivables (net of allowances of $ 13,389 and $ 11,080 , as of August 31, 2024 and December 2, 2023, respectively)
574,781 577,932
Inventories
509,029 442,040
Other current assets
115,070 112,678
Total current assets
1,330,292 1,312,103
Property, plant and equipment
1,855,203 1,755,035
Accumulated depreciation
( 993,884 ) ( 930,380 )
Property, plant and equipment, net
861,319 824,655
Goodwill
1,591,709 1,486,512
Other intangibles, net
806,148 729,140
Other assets
388,777 371,165
Total assets
$ 4,978,245 $ 4,723,575
Liabilities, non-controlling interest and total equity
Current liabilities
Notes payable
$ 797 $ 1,841
Trade payables
493,550 439,700
Accrued compensation
83,861 95,680
Income taxes payable
39,244 47,688
Other accrued expenses
87,495 107,902
Total current liabilities
704,947 692,811
Long-term debt
2,020,273 1,836,590
Accrued pension liabilities
51,739 50,189
Other liabilities
359,565 388,072
Total liabilities
$ 3,136,524 $ 2,967,662
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 – 54,612,541 and 54,092,987 as of August 31, 2024 and December 2, 2023, respectively
$ 54,613 $ 54,093
Additional paid-in capital
316,324 301,485
Retained earnings
1,944,380 1,842,507
Accumulated other comprehensive loss
( 474,326 ) ( 442,880 )
Total H.B. Fuller stockholders' equity
1,840,991 1,755,205
Non-controlling interest
730 708
Total equity
1,841,721 1,755,913
Total liabilities, non-controlling interest and total equity
$ 4,978,245 $ 4,723,575
See accompanying Notes to Unaudited Consolidated Financial Statements.
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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 2, 2023
$
54,093
$
301,485
$
1,842,507
$
( 442,880
)
$
708
$
1,755,913
Comprehensive income (loss)
-
-
30,991
( 15,909
)
12
15,094
Dividends
-
-
( 11,246
)
-
-
( 11,246
)
Stock option exercises
200
8,777
-
-
-
8,977
Share-based compensation plans and other, net
225
5,490
-
-
-
5,715
Repurchases of common stock
( 80
)
( 6,128
)
-
-
-
( 6,208
)
Balance at March 2, 2024
$
54,438
$
309,624
$
1,862,252
$
( 458,789
)
$
720
$
1,768,245
Comprehensive income (loss)
-
-
51,264
( 16,156
)
1
35,109
Dividends
-
-
( 12,144
)
-
-
( 12,144
)
Stock option exercises
189
9,123
-
-
-
9,312
Share-based compensation plans and other, net
81
7,111
-
-
-
7,192
Repurchases of common stock
( 200
)
( 15,400
)
-
-
-
( 15,600
)
Balance at June 1, 2024
$
54,508
$
310,458
$
1,901,372
$
( 474,945
)
$
721
$
1,792,114
Comprehensive income
-
-
55,361
619
9
55,989
Dividends
-
-
( 12,353
)
-
-
( 12,353
)
Stock option exercises
328
15,553
-
-
-
15,881
Share-based compensation plans and other, net
2
7,650
-
-
-
7,652
Repurchases of common stock
( 225
)
( 17,337
)
-
-
-
( 17,562
)
Balance at August 31, 2024
$
54,613
$
316,324
$
1,944,380
$
( 474,326
)
$
730
1,841,721
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 (loss)
-
-
40,401
12,411
6
52,818
Dividends
-
-
( 11,129
)
-
-
( 11,129
)
Stock option exercises
13
584
-
-
-
597
Share-based compensation plans 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
-
-
37,627
3,410
16
41,053
Dividends
-
-
( 11,155
)
-
-
( 11,155
)
Stock option exercises
153
6,906
-
-
-
7,059
Share-based compensation plans 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
See accompanying Notes to Unaudited Consolidated Financial Statements.
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H.B. FULLER COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended
August 31, 2024
September 2, 2023
Cash flows from operating activities:
Net income including non-controlling interest
$
137,647
$
99,987
Adjustments to reconcile net income including non-controlling interest to net cash provided by operating activities:
Depreciation
66,990
60,518
Amortization
61,723
58,633
Deferred income taxes
( 45,998
)
( 30,064
)
Loss from equity method investments, net of dividends received
622
260
Gain on insurance claims
( 7,264
)
-
Loss on equity investment
1,966
-
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
( 501
)
( 78
)
Share-based compensation
17,662
16,279
Pension and other post-retirement benefit plan activity
( 6,671
)
( 8,890
)
Change in assets and liabilities, net of effects of acquisitions:
Trade receivables, net
26,373
79,495
Inventories
( 62,206
)
38,212
Other assets
( 39,025
)
( 30,901
)
Trade payables
49,705
( 74,443
)
Accrued compensation
( 11,566
)
( 33,796
)
Other accrued expenses
( 5,244
)
( 6,992
)
Income taxes payable
( 17,873
)
24,461
Other liabilities
856
12,408
Other
49,591
6,023
Net cash provided by operating activities
216,787
216,694
Cash flows from investing activities:
Purchased property, plant and equipment
( 112,799
)
( 109,545
)
Purchased businesses, net of cash acquired
( 274,067
)
( 194,248
)
Proceeds from sale of property, plant and equipment
1,048
4,257
Net cash used in investing activities
( 385,818
)
( 299,536
)
Cash flows from financing activities:
Proceeds from issuance of long-term debt
1,732,900
1,333,000
Repayment of long-term debt
( 1,556,135
)
( 1,184,900
)
Payment of debt issuance costs
( 3,493
)
( 10,214
)
Net payment of notes payable
( 1,014
)
( 18,000
)
Dividends paid
( 35,440
)
( 32,319
)
Proceeds from stock options exercised
34,161
11,251
Repurchases of common stock
( 39,371
)
( 2,560
)
Net cash provided by financing activities
131,608
96,258
Effect of exchange rate changes on cash and cash equivalents
( 10,618
)
1,608
Net change in cash and cash equivalents
( 48,041
)
15,024
Cash and cash equivalents at beginning of period
179,453
79,910
Cash and cash equivalents at end of period
$
131,412
$
94,934
See accompanying Notes to Unaudited Consolidated Financial Statements.
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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 2, 2023 as filed with the Securities and Exchange Commission.
New Accounting Pronouncements
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") No. 2023 - 09, Income Taxes (Topic 740 ) - Improvements to Income Tax Disclosures . This ASU provides new disclosure requirements including presentation of prescribed line items in the effective tax rate reconciliation and disclosures regarding state and local tax payments. Our effective date for adoption of this ASU is our fiscal year ending November 28, 2026. We are evaluating the impact the new disclosure guidance will have on our Consolidated Finance Statements.
In November 2023, the FASB issued ASU No. 2023 - 07, Segment Reporting (Topic 280 ) - Improvements to Reportable Segment Disclosures . This ASU extends the existing requirements for annual disclosures to quarterly periods and requires that both annual and quarterly disclosures present segment expenses using line items consistent with information regularly provided to the chief operating decision maker. Our effective date for adoption of this ASU is our fiscal year ending November 29, 2025. We are evaluating the impact the new disclosure guidance will have on our Consolidated Finance Statements.
Supplier Finance Program
In September 2022, the 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. ASU 2022 - 04 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the requirement on rollforward information which is an annual requirement. During the first quarter of our fiscal year ending November 30, 2024, we adopted ASU 2022 - 04. We will present the annual roll-forward disclosure requirement within our annual report on Form 10 -K.
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We have agreements with third parties to provide supplier finance programs which facilitate participating suppliers' ability to finance payment obligations of the Company with designated third -party financial institutions. Participating suppliers may, at their sole discretion, elect to finance one or more payment obligations of the Company prior to their scheduled due dates at a discounted price to participating financial institutions. The Company has no economic interest in the sale of these suppliers’ receivables and no direct financial relationship with the financial institutions concerning these services. The Company’s obligations to its suppliers, including amounts due and scheduled payment dates, are not impacted by suppliers’ decisions to finance amounts under these arrangements. The outstanding payment obligations that were confirmed as valid and remained outstanding as of August 31, 2024 , were approximately $ 4,457 . These obligations under the Company’s supplier finance programs are included in Accounts payable in the Consolidated Balance Sheets, and the associated payments are reflected in the cash flows from operating activities section of the Consolidated Statements of Cash Flows.
Recently issued accounting standards or pronouncements not disclosed above have been excluded as they are not relevant to the company.
Note 2: Acquisitions
HS Butyl Limited
On
August 5, 2024, we acquired HS Butyl Limited (“HS Butyl”) for a purchase price of
18,148 British pound sterling, or approximat
ely $ 23,180 which was funded through existing cash. This includes a holdback amount of
2,700 British pound sterling that will be paid on the
18 -month anniversary of the closing date. HS Butyl, headquartered in Lymington, England, is the United Kingdom's largest manufacturer and distributor of high-quality butyl tapes, which provide strong, permanent, watertight seals for a wide variety of applications within the construction, infrastructure, automotive and renewable energy industries. The acquisition of HS Butyl establishes our presence in the European waterproofing tape market, expanding our position as a solution provider to existing customers. It also expands our relevance to more markets and creates opportunities to deliver new, in-demand solutions for our customers, given the technology's relevance to multiple high-value applications.
The acquisition fair value measurement was preliminary as of
August 31, 2024
and includes other intangible assets of $ 5,620 , goodwill of $ 4,927 and other net assets of $ 12,633 . G oodwill represents expected synergies from combining HS Butyl with our existing business. Goodwill is
not deductible for tax purposes.
HS Butyl is included in our Construction Adhesives operating segment.
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ND Industries, Inc.
On May 20, 2024, we acquired the assets of ND Industries, Inc. (“ND Industries”) for a base purchase price of $ 255,734 which was funded through borrowings on our credit facility and existing cash. This includes a holdback amount of $ 1,446 that will be paid on the 4 -month anniversary of the closing date. ND Industries, headquartered in Clawson, Michigan, is a leading provider of specialty adhesives and fastener locking and sealing solutions serving customers in the automotive, electronics, aerospace and other industries. The acquisition of ND Industries is expected to accelerate the realization of our top growth priorities, consistent with our strategy to proactively drive capital allocation to the highest margin, highest growth market segments within the functional coatings, adhesives, sealants and elastomer industry. The acquisition fair value measurement was preliminary as of August 31, 2024 . ND Industries is included in our Engineering Adhesives operating segment.
During the three months ended August 31, 2024, intangible assets increased $ 4,800 , goodwill decreased $ 5,966 , and other net assets increased $ 1,166 in the fair value measurement of ND Industries. The following table summarizes the fair value measurement of the assets acquired and liabilities assumed as of the date of acquisition:
Amounts
Current assets
$ 17,461
Property, plant and equipment
22,152
Goodwill
83,859
Other intangibles
Customer relationships
111,400
Trademarks/trade names
9,300
Technology
13,900
Other assets
86
Current liabilities
( 2,424 )
Total
$ 255,734
The expected useful lives of the acquired intangible assets are 15 years for technology, 13 years for customer relationships and ten years for trademarks and tradenames. Based on the fair value measurement of the assets acquired and liabilities assumed, we a llocated $ 89,825 to goo dwill for the expected synergies from combining ND Industries with our existing business. Such goodwill is deductible for tax purposes. The goodwill was assigned to our Engineering Adhesives operating segment.
Sanglier Ltd.
On September 8, 2023, we acquired the assets of Sanglier Ltd. (“Sanglier”) for a base purchase price of 13,361 British pound sterling, or approximately $ 16,660 which was funded through existing cash. This includes a holdback amount of 2,100 British pound sterling that will be paid on the 18 -month anniversary of the closing date. Sanglier, headquartered in Mansfield, United Kingdom, is a manufacturer and filler of sprayable (aerosol and cannister) industrial adhesives. The acquisition of Sanglier expands our innovation capabilities and product portfolio across the Un ited Kingdom and Europe. Sanglier transforms adhesives applications to enable sprayable delivery providing end users with an opportunity to greatly improve labor efficiency. The acquisition fair value measurement was final as of August 31, 2024 and includes other intangible assets of $ 7,354 , goodwill of $ 3,038 and other net assets of $ 6,261 . G oodwill represents expected synergies from combining Sanglier with our existing business. Goodwill is deductible for tax purposes. Sanglier is included in our Construction Adhesives operating segment.
Adhezion Biomedical LLC
On June 23, 2023, we acquired Adhezion Biomedical LLC (“Adhezion”) for a base purchase price of $ 80,802 which was funded through borrowings on our credit facility. This includes a holdback amount of $ 780 that was 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 Hudson, North Carolina, is a manufacturer of cyanoacrylate-based healthcare adhesives and infection prevention products. The acquisition of Adhezion positions us for expansion in the healthcare 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 final as of June 1, 2024 and includes other intangible assets of $ 38,500 , goodwill of $ 37,589 and other net assets of $ 4,713 . Goodwill represents expected synergies from combining Adhezion with our existing business. The amount of goodwill that is deductible for tax purposes is $ 25,717 . Adhezion is included in our Hygiene, Health and Consumable Adhesives operating segment.
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XChem International LLC
On June 12, 2023, we acquired XChem International LLC ("XChem") for a base purchase price of approximately $ 14,496 which was funded through borrowings on our credit facility. This includes a holdback amount of $ 1,650 , half of which was paid on the 12 -month anniversary of the closing date and half to 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 final as of June 1, 2024 and includes other intangible assets of $ 4,600 , goodwill of $ 4,318 and other net assets of $ 5,578 . Goodwill represents expected synergies from combining XChem with our existing business. Goodwill is not deductible for tax purposes. XChem is 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 and an expanded distribution platform. The acquisition fair value measurement was final as of June 1, 2024 and includes other intangible assets of $ 35,425 , goodwill of $ 28,148 and other net assets of $ 37,312 . Goodwill represents expected synergies from combining Beardow Adams with our existing business. The amount of goodwill that is deductible for tax purposes is $ 3,561 . The remaining goodwill is not 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 was 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 and process manufacturing capabilities that we plan to leverage. The acquisition fair value measurement was final as of December 2, 2023 and includes other intangible assets of $ 4,900 , goodwill of $ 3,832 and other net assets of $ 1,029 . Goodwill represents expected synergies from combining Aspen with our existing business. Goodwill is deductible for tax purposes. Aspen 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 $ 8,922 Euro, or approximately $ 9,482 which was funded through existing cash. This includes a holdback amount of 850 Euro that was 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 final as of December 2, 2023 and includes other intangible assets of $ 5,526 , goodwill of $ 3,028 and other net assets of $ 928 . Goodwill represents expected synergies from combining Lemtapes with our existing business. Goodwill is not deductible for tax purposes. Lemtapes is included in our Hygiene, Health and Consumable Adhesives operating segment.
All acquisitions, individually and in the aggregate, are not material and therefore pro forma financial information is not provided.
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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 were 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 approx imately $ 39,100 to $ 50,100 for severa nce 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 distribution of charges under these restructuring plans by income statement classification:
Three Months Ended
Nine Months Ended
August 31, 2024
September 2, 2023
August 31, 2024
September 2, 2023
Cost of sales
$ 2,119 $ 3,322 $ 6,313 $ 8,407
Selling, general and administrative
2,632 5,077 5,076 8,320
$ 4,751 $ 8,399 $ 11,389 $ 16,727
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
Other
Total
Balance at December 3, 2022
$ 57 $ - $ - $ 57
Expenses incurred
22,731 1,369 487 24,587
Non-cash charges
- ( 1,369 ) ( 453 ) ( 1,822 )
Cash payments
( 9,802 ) - ( 34 ) ( 9,836 )
Foreign currency translation
( 1,263 ) - - ( 1,263 )
Balance at December 2, 2023
$ 11,723 $ - $ - $ 11,723
Expenses incurred
7,825 3,451 113 11,389
Non-cash charges
- ( 3,451 ) ( 102 ) ( 3,553 )
Cash payments
( 12,459 ) - ( 11 ) ( 12,470 )
Foreign currency translation
( 44 ) - - ( 44 )
Balance at August 31, 2024
$ 7,045 $ - $ - $ 7,045
Non-cash charges primarily include accelerated depreciation resulting from the cessation of use of certain long-lived assets and inventory disposals. Restructuring liabilities have been classified as a component of other accrued expenses on the Consolidated Balance Sheets.
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Note 4: Inventories
The composition of inventories is as follows:
August 31,
December 2,
2024
2023
Raw materials
$ 231,152 $ 206,140
Finished goods
277,877 235,900
Total inventories
$ 509,029 $ 442,040
Note 5: Goodwill and Other Intangible Assets
The goodwill activity by reportable segment for the nine months ended August 31, 2024 is presented below:
Hygiene, Health
and Consumable
Engineering
Construction
Adhesives
Adhesives
Adhesives
Total
Balance at December 2, 2023
$ 402,598 $ 651,145 $ 432,769 $ 1,486,512
Acquisitions
1,674 83,859 7,654 93,187
Foreign currency translation effect
4,131 6,938 941 12,010
Balance at August 31, 2024
$ 408,403 $ 741,942 $ 441,364 $ 1,591,709
Balances of amortizable identifiable intangible assets, excluding goodwill and other non-amortizable intangible assets, are as follows:
August 31, 2024
Purchased
Technology
Customer
Amortizable Intangible Assets
and Patents
Relationships
Trade Names
Other
Total
Original cost
$ 146,315 $ 1,073,123 $ 68,851 $ 10,094 $ 1,298,383
Accumulated amortization
( 53,478 ) ( 404,711 ) ( 27,731 ) ( 6,797 ) ( 492,717 )
Net identifiable intangibles
$ 92,837 $ 668,412 $ 41,120 $ 3,297 $ 805,666
December 2, 2023
Purchased
Technology
Customer
Amortizable Intangible Assets
and Patents
Relationships
Trade Names
Other
Total
Original cost
$ 144,763 $ 986,470 $ 58,484 $ 10,911 $ 1,200,628
Accumulated amortization
( 59,631 ) ( 382,220 ) ( 23,099 ) ( 7,012 ) ( 471,962 )
Net identifiable intangibles
$ 85,132 $ 604,250 $ 35,385 $ 3,899 $ 728,666
Amortization expense with respect to amortizable intangible assets was $ 22,149 and $ 20,820 for the three months ended August 31, 2024 and September 2, 2023 , respectively, and was $ 61,723 and $ 58,633 for the nine months ended August 31, 2024 and September 2, 2023 .
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
2024
2025
2026
2027
2028
Thereafter
Amortization expense
$ 18,564 $ 88,100 $ 81,291 $ 77,938 $ 77,666 $ 462,103
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The above amortization expense forecast is an estimate. Actual amounts may change from such estimated amounts due to fluctuations in foreign currency exchange rates, additional intangible asset acquisitions, potential impairment, accelerated amortization or other events.
Non-amortizable intangible assets as of August 31, 2024 and December 2, 2023 were $ 482 and $ 474 , respectively, and relate to trademarks and trade names. The change in non-amortizable assets as of August 31, 2024 compared to December 2, 2023 was due to changes in foreign currency exchange rates.
Note 6: Long-Term Debt
On March 4, 2024, we entered into a Refinancing and Incremental Amendment (the “Refinancing and Incremental Amendment”), which amended the Second Amended and Restated Credit Agreement dated as of February 15, 2023, as previously amended. Pursuant to the Refinancing and Incremental Amendment under the Credit Agreement, the existing $ 794,000 principal amount of Term B loans (the “Amended TLB”) were refinanced and certain lenders to the Refinancing and Incremental Amendment made additional Term B loans to the Company in the principal amount of $ 200,000 , thereby increasing the aggregate principal amount of the Amended TLB to $ 994,000 . Furthermore, the interest rate margins applicable to the Amended TLB were decreased by 25 basis points ( 0.25 % per annum) to 200 basis points for SOFR loans and 100 basis points for prime rate loans. The additional $ 200,000 of proceeds will be used to finance our working capital needs and for general corporate purposes, including permitted acquisitions. Interest on Term Loan B borrowings is payable at SOFR plus an interest rate spread of 200 basis points with a SOFR floor of 50 basis points ( 7.32 percent at August 31, 2024 ). The maturity date of February 15, 2030 remains unchanged. The commitment fee rates and interest rates applicable to the revolving credit facility and the Term Loan A facility remain unchanged.
Note 7: Components of Net Periodic Benefit related to Pension and Other Postretirement Benefit Plans
Three Months Ended August 31, 2024 and September 2, 2023
Other
Pension Benefits
Postretirement
U.S. Plans
Non-U.S. Plans
Benefits
Net periodic (benefit) cost:
2024
2023
2024
2023
2024
2023
Service cost
$ - $ - $ 350 $ 422 $ - $ -
Interest cost
3,464 3,475 1,575 1,454 291 301
Expected return on assets
( 6,555 ) ( 7,205 ) ( 1,643 ) ( 1,785 ) ( 2,727 ) ( 2,465 )
Amortization:
Prior service cost
- - 16 16 - -
Actuarial loss
1,159 635 516 506 - -
Net periodic (benefit) cost
$ ( 1,932 ) $ ( 3,095 ) $ 814 $ 613 $ ( 2,436 ) $ ( 2,164 )
Nine Months Ended August 31, 2024 and September 2, 2023
Other
Pension Benefits
Postretirement
U.S. Plans
Non-U.S. Plans
Benefits
Net periodic (benefit) cost:
2024
2023
2024
2023
2024
2023
Service cost
$ - $ - $ 1,046 $ 1,255 $ - $ -
Interest cost
10,391 10,426 4,705 4,300 875 903
Expected return on assets
( 19,666 ) ( 21,617 ) ( 4,908 ) ( 5,277 ) ( 8,182 ) ( 7,394 )
Amortization:
Prior service cost
- - 48 47 - -
Actuarial loss
3,478 1,906 1,540 1,496 - -
Net periodic (benefit) cost
$ ( 5,797 ) $ ( 9,285 ) $ 2,431 $ 1,821 $ ( 7,307 ) $ ( 6,491 )
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.
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Note 8: Accumulated Other Comprehensive Income (Loss)
The following table provides details of total comprehensive income (loss):
Three Months Ended August 31, 2024
Three Months Ended September 2, 2023
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
$ 55,361 $ ( 22 ) $ 37,627 $ 23
Foreign currency translation¹
$ 33,324 $ - 33,324 31 $ ( 8,710 ) $ - ( 8,710 ) ( 7 )
Defined benefit pension plans adjustment²
1,689 ( 419 ) 1,270 - 1,157 ( 294 ) 863 -
Interest rate swaps³
( 34,068 ) 8,324 ( 25,744 ) - 21,086 ( 5,188 ) 15,898 -
Net investment hedges³
( 10,892 ) 2,661 ( 8,231 ) - ( 6,156 ) 1,515 ( 4,641 ) -
Other comprehensive (loss) income
$ ( 9,947 ) $ 10,566 $ 619 $ 31 $ 7,377 $ ( 3,967 ) $ 3,410 $ ( 7 )
Comprehensive income
$ 55,980 $ 9 $ 41,037 $ 16
Nine Months Ended August 31, 2024
Nine Months Ended September 2, 2023
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
$ 137,615 $ 32 $ 99,916 $ 71
Foreign currency translation adjustment¹
$ ( 12,922 ) $ - ( 12,922 ) ( 10 ) $ 14,070 $ - 14,070 ( 12 )
Defined benefit pension plans adjustment²
5,065 ( 1,257 ) 3,808 - 3,449 ( 877 ) 2,572 -
Interest rate swap³
( 23,851 ) 5,838 ( 18,013 ) - 19,557 ( 4,812 ) 14,745 -
Net investment hedges³
( 5,704 ) 1,386 ( 4,318 ) - ( 13,694 ) 3,370 ( 10,324 ) -
Other comprehensive (loss) income
$ ( 37,412 ) $ 5,967 $ ( 31,445 ) $ ( 10 ) $ 23,382 $ ( 2,319 ) $ 21,063 $ ( 12 )
Comprehensive income
$ 106,170 $ 22 $ 120,979 $ 59
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The components of accumulated other comprehensive loss are as follows:
August 31, 2024
Non-
H.B. Fuller
controlling
Total
Stockholders
Interest
Foreign currency translation adjustment
$ ( 259,649 ) $ ( 259,615 ) $ ( 34 )
Defined benefit pension plans adjustment, net of taxes of $ 65,725
( 123,661 ) ( 123,661 ) -
Interest rate swap, net of taxes of $ 4,378
( 13,541 ) ( 13,541 ) -
Net investment hedges, net of taxes of $ 19,130
( 59,168 ) ( 59,168 ) -
Reclassification of AOCI tax effects
( 18,341 ) ( 18,341 ) -
Accumulated other comprehensive loss
$ ( 474,360 ) $ ( 474,326 ) $ ( 34 )
December 2, 2023
Non-
H.B. Fuller
controlling
Total
Stockholders
Interest
Foreign currency translation adjustment
$ ( 246,736 ) $ ( 246,692 ) $ ( 44 )
Defined benefit pension plans adjustment, net of taxes of $ 66,982
( 127,469 ) ( 127,469 ) -
Interest rate swap, net of taxes of ($ 1,460 )
4,472 4,472 -
Net investment hedges, net of taxes of $ 17,744
( 54,850 ) ( 54,850 ) -
Reclassification of AOCI tax effects
( 18,341 ) ( 18,341 ) -
Accumulated other comprehensive loss
$ ( 442,924 ) $ ( 442,880 ) $ ( 44 )
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Note 9: Income Taxes
Income tax expense for the three and nine months ended August 31, 2024 includes $ 2,937 and $ 4,147 of discrete tax benefit, respectively, relating to an excess tax benefit on U.S. stock compensation, as well as other various U.S. and foreign tax matters. Excluding the discrete tax benefit, the overall effective tax rate was 29.3 percent and 28.7 percent for the three and nine months ended August 31, 2024 , respectively.
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.
As of August 31, 2024 , we had a liability of $ 13,368 recorded for gross unrecognized tax benefits (excluding interest) compared to $ 14,254 as of December 2, 2023 . As of August 31, 2024 and December 2, 2023 , we had accrued $ 6,622 and $ 6,310 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
August 31,
September 2,
August 31,
September 2,
(Shares in thousands)
2024
2023
2024
2023
Weighted-average common shares - basic
54,975 54,394 54,874 54,279
Equivalent shares from share-based compensations plans
1,675 1,639 1,746 1,611
Weighted-average common and common equivalent shares diluted
56,650 56,033 56,620 55,890
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 517,442 and 1,025,337 shares for the three months ended August 31, 2024 and September 2, 2023 , respectively, and 957,127 and 1,164,870 shares for the nine months ended August 31, 2024 and September 2, 2023 , respectively, were excluded from diluted earnings per share calculations because they were antidilutive.
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Note 11: Financial Instruments
Overview
As a result of being a global enterprise, our earnings, cash flows and financial position are exposed to foreign currency risk from foreign currency denominated receivables and payables. Foreign currency exchange rates and fluctuations in those rates may affect the Company's net investment in foreign subsidiaries.
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 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 t he 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 a liability of $ 3,168 at August 31, 2024 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 swap.
On March 16, 2023, we entered into an interest rate swap agreement to convert $ 300,000 of our 1 -month SOFR debt to a fixed rate of 3.7210 percent that matures on February 15, 2028. The combined fair value of the interest rate swap was a liability of $ 2,905 at August 31, 2024 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 deriv ative 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 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 a liability of $ 1,404 a t August 31, 2024 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 (losses) gains recognized in Comprehensive Income related to derivative instruments designated as cash flow hedges are as follows:
Three Months Ended
Nine Months Ended
August 31, 2024
September 2, 2023
August 31, 2024
September 2, 2023
Interest rate swap contracts
( 34,068 ) 21,086 ( 23,851 ) 19,557
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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 wa s a liability of $ 31,059 a t August 31, 2024 , and was included in ot her liabilities i n 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 August 31, 2024 , the combined fair value of the swaps w as a liability of $ 78,304 and was included in other liabilities in the Consol idated 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. 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 sw aps was a loss of $ 59,168 of August 31, 2024 . The amounts of pretax loss recognized in comprehensive income related to the net investment he dge was $ 10,892 f or the three months ended August 31, 2024 . As of August 31, 2024 , we did not reclassify any gains or losses into earnings from net investment hedges and we do not expect to reclassify any such gain or loss into earnings within the next twelve months. No amounts related to net investment hedges have been excluded from the assessment of hedge effectiveness.
Derivatives Not Designated as Hedging Instruments
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. See Note 12 for the fair value amounts of these derivative instruments.
As of August 31, 2024 , we had forward foreign currency contracts maturing betw een September 3, 2024 and February 5, 2025. 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 August 31, 2024 and September 2, 2023 were $ 1,524 a nd $ 798 , respectively.
Concentrations of credit risk with respect to trade accounts receivable are limited due to the large number of entities in the customer base and their dispersion across many different industries and countries. As of August 31, 2024 , there were no significant concentrations of credit risk.
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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 August 31, 2024 and December 2, 2023 , and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value.
August 31,
Fair Value Measurements Using:
Description
2024
Level 1
Level 2
Level 3
Assets:
Marketable securities
$ 3,222 $ 3,222 $ - $ -
Foreign exchange contract assets
5,610 - 5,610 -
Liabilities:
Foreign exchange contract liabilities
$ 7,134 $ - 7,134 $ -
Interest rate swaps, cash flow hedge liabilities
7,477 7,477
Interest rate swaps, fair value hedge liabilities
31,059 - 31,059 -
Net investment hedge liabilities
78,304 - 78,304 -
Contingent consideration liability
500 - - 500
December 2,
Fair Value Measurements Using:
Description
2023
Level 1
Level 2
Level 3
Assets:
Marketable securities
$ 19,314 $ 19,314 $ - $ -
Foreign exchange contract assets
13,501 - 13,501 -
Interest rate swaps, cash flow hedge assets
3,632 - 3,632 -
Liabilities:
Foreign exchange contract liabilities
$ 5,004 $ - $ 5,004 $ -
Interest rate swaps, cash flow hedge liabilities
63 - 63
Interest rate swaps, fair value hedge liabilities
41,532 - 41,532
Net investment hedge liabilities
72,589 - 72,589 -
Contingent consideration liabilities
1,370 - - 1,370
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The valuation of our contingent consideration liability related to the acquisition of TissueSeal and was $ 500 as of August 31, 2024 . The contingent consideration of $ 870 related to the acquisition of GSSI was paid in the first quarter of 2024. 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 2, 2023
$ 1,370
Contingent consideration payment
( 870 )
Balance at August 31, 2024
$ 500
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 $ 2,019,615 and $ 1,785,199 as of August 31, 2024 and December 2, 2023 , 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 $ 3,974 and $ 5,034 as of August 31, 2024 and December 2, 2023 , respectively, for probable and reasonably estimable environmental remediation costs. Of the amount reserved, $ 1,483 and $ 2,301 as of August 31, 2024 and December 2, 2023 , 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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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.
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
August 31, 2024
September 2, 2023
December 2, 2023
Lawsuits and claims settled
9 6 18
Settlement amounts
$ 1,208 $ 3,985 $ 4,581
Insurance payments received or expected to be received
$ 844 $ 2,307 $ 2,629
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.
In February 2024, the named plaintiffs in Rouse et al. v. H.B. Fuller Company et al. filed a third amended complaint in their lawsuit against the Company and one of its subsidiaries, which was initiated in September 2022. The suit is pending in the federal District of Minnesota and seeks damages arising from property damage attributed to alleged defects in grout sold by the Company or its affiliates. The named plaintiffs seek to represent a class but have not yet moved for class certification. The Company intends to vigorously defend itself against the claims outlined in this lawsuit. As of August 31, 2024 , we are unable to estimate any possible loss or range of possible losses and have not recorded a loss contingency for this matter.
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.
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Note 14: Share Repurchase Program
On April 22, 2022, the Board of Directors authorized a share repurchase program of up to $ 300,000 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 repurchasing shares, we reduce our common stock for the par value of the shares with the excess being applied against additional paid-in capital.
During the third quarter of 2024, we repurchased shares under this program with an aggregate value of $ 17,549 . Of this amount, $ 225 reduced common stock and $ 17,324 reduced additional paid-in capital. During the nine months ended August 31, 2024, we repurchased shares under this program with an aggregate value of $ 31,811 . Of this amount $ 407 reduced common stock and $ 31,404 reduced additional paid-in capital. There were no shares repurchased under this program during the third quarter and first nine months of 2023.
Note 15: 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
August 31, 2024
September 2, 2023
Net
Operating
Net
Operating
Revenue
Income (Loss)
Revenue
Income (Loss)
Hygiene, Health and Consumable Adhesives
$ 389,854 $ 49,782 $ 402,388 $ 52,737
Engineering Adhesives
374,923 52,865 365,862 52,931
Construction Adhesives
153,150 12,543 132,384 5,853
Total segment
$ 917,927 $ 115,190 $ 900,634 $ 111,521
Corporate Unallocated
- ( 10,849 ) - ( 20,202 )
Total
$ 917,927 $ 104,341 $ 900,634 $ 91,319
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Nine Months Ended
August 31, 2024
September 2, 2023
Net
Operating
Net
Operating
Revenue
Income (Loss)
Revenue
Income (Loss)
Hygiene, Health and Consumable Adhesives
$ 1,150,658 $ 147,147 $ 1,190,402 $ 149,474
Engineering Adhesives
1,077,206 139,522 1,063,009 129,806
Construction Adhesives
417,588 20,342 354,644 2,189
Total segment
$ 2,645,452 $ 307,011 $ 2,608,055 $ 281,469
Corporate Unallocated
- ( 35,198 ) - ( 39,734 )
Total
$ 2,645,452 $ 271,813 $ 2,608,055 $ 241,735
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
August 31,
September 2,
August 31,
September 2,
2024
2023
2024
2023
Operating income
$ 104,341 $ 91,319 $ 271,813 $ 241,735
Other income, net
2,148 1,555 7,282 4,764
Interest expense
( 35,288 ) ( 35,105 ) ( 99,504 ) ( 101,305 )
Interest income
1,092 1,128 3,597 2,726
Income before income taxes and income from equity method investments
$ 72,293 $ 58,897 $ 183,188 $ 147,920
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We view the following disaggregation of net revenue by geographic region as useful to understanding the composition of revenue recognized during the respective reporting periods:
Three Months Ended August 31, 2024
Hygiene, Health
and Consumable
Engineering
Construction
Adhesives
Adhesives
Adhesives
Total
Americas
$ 222,605 $ 164,343 $ 115,464 $ 502,412
EIMEA
115,960 109,742 29,387 255,089
Asia Pacific
51,289 100,838 8,299 160,426
Total
$ 389,854 $ 374,923 $ 153,150 $ 917,927
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
Nine Months Ended August 31, 2024
Hygiene, Health
and Consumable
Engineering
Construction
Adhesives
Adhesives
Adhesives
Total
Americas
$ 665,979 $ 456,610 $ 310,280 $ 1,432,869
EIMEA
332,480 331,341 83,895 747,716
Asia Pacific
152,199 289,255 23,413 464,867
Total
$ 1,150,658 $ 1,077,206 $ 417,588 $ 2,645,452
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
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.