10-Q 1 ful20220930_10q.htm FORM 10-Q ful20220930_10q.htm
0000039368 FULLER H B CO false --11-26 Q3 2022 12,662 9,935 0 0 10,045,900 10,045,900 1.00 1.00 160,000,000 160,000,000 53,298,831 52,777,753 5 0 0 325 3 62,418 3,224 53 63,925 4 Consistent with our internal management reporting, Corporate Unallocated amounts in the tables above include charges that are not allocated to the Company’s reportable segments. Income taxes are not provided for foreign currency translation relating to permanent investments in international subsidiaries. Income (loss) reclassified from AOCI into earnings is reported in other income, net. 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Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 27, 2022

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                              to                                 .

 

Commission file number: 001-09225

 

H.B. FULLER COMPANY

(Exact name of registrant as specified in its charter)

 

Minnesota41-0268370
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification No.)

                                                                             

1200 Willow Lake Boulevard, St. Paul, Minnesota55110-5101
(Address of principal executive offices)(Zip Code)

                                                                                                                           

Registrant’s telephone number, including area code: (651) 236-5900

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to section 12(b) of the Act:

 

 Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $1.00 per share

     FUL

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

                    

Large accelerated filerAccelerated filer ☐
Non-accelerated filer ☐Smaller reporting company

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12(b) of the Exchange Act. Yes No ☒

 

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PROCEEDING FIVE YEARS:

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

The number of shares outstanding of the Registrant’s Common Stock, par value $1.00 per share, was 53,312,943 as of September 16, 2022.

 

 

 

 

H.B. Fuller Company

Quarterly Report on Form 10-Q

Table of Contents

 

   

Page

PART 1. FINANCIAL INFORMATION

 
     

ITEM 1.

FINANCIAL STATEMENTS (Unaudited)

4

     
 

Consolidated Statements of Income for the three and nine months ended August 27, 2022 and August 28, 2021

4

     
 

Consolidated Statements of Comprehensive Income for the three and nine months ended August 27, 2022 and August 28, 2021

5

     
 

Consolidated Balance Sheets as of August 27, 2022 and November 27, 2021

6

     
 

Consolidated Statements of Total Equity for the three and nine months ended August 27, 2022 and August 28, 2021

7

     
 

Consolidated Statements of Cash Flows for the nine months ended August 27, 2022 and August 28, 2021

8

     
 

Notes to Consolidated Financial Statements

9

     

ITEM 2.

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

23

     

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

34

     

ITEM 4.

CONTROLS AND PROCEDURES

34

     

PART II. OTHER INFORMATION

34

     

ITEM 1.

LEGAL PROCEEDINGS

34

     

ITEM 1A.

RISK FACTORS

35

     

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

36

     

ITEM 6.

EXHIBITS

37

     

SIGNATURES

38

 

 

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

H.B. FULLER COMPANY AND SUBSIDIARIES

Consolidated Statements of Income

(In thousands, except per share amounts)

(Unaudited)

 

   

Three Months Ended

   

Nine Months Ended

 
   

August 27,

   

August 28,

   

August 27,

   

August 28,

 
   

2022

   

2021

   

2022

   

2021

 

Net revenue

  $ 941,230     $ 826,830     $ 2,790,969     $ 2,380,607  

Cost of sales

    (692,066 )     (632,880 )     (2,075,392 )     (1,776,744 )

Gross profit

    249,164       193,950       715,577       603,863  

Selling, general and administrative expenses

    (161,210 )     (134,497 )     (483,109 )     (426,921 )

Other income, net

    6,559       6,150       12,701       25,899  

Interest expense

    (23,450 )     (19,396 )     (61,475 )     (59,699 )

Interest income

    2,139       2,520       6,170       7,709  

Income before income taxes and income from equity method investments

    73,202       48,727       189,864       150,851  

Income taxes

    (28,259 )     (19,095 )     (62,023 )     (46,362 )

Income from equity method investments

    1,587       1,998       4,236       6,071  

Net income including non-controlling interest

    46,530       31,630       132,077       110,560  

Net income attributable to non-controlling interest

    (33 )     (14 )     (70 )     (51 )

Net income attributable to H.B. Fuller

  $ 46,497     $ 31,616     $ 132,007     $ 110,509  
                                 

Earnings per share attributable to H.B. Fuller common stockholders:

                               

Basic

  $ 0.87     $ 0.60     $ 2.47     $ 2.09  

Diluted

  $ 0.84     $ 0.58     $ 2.39     $ 2.04  
                                 

Weighted-average common shares outstanding:

                               

Basic

    53,644       53,049       53,498       52,794  

Diluted

    55,130       54,646       55,201       54,093  
                                 

Dividends declared per common share

  $ 0.190     $ 0.168     $ 0.548     $ 0.498  

 

See accompanying Notes to Unaudited Consolidated Financial Statements.

 

 

 

H.B. FULLER COMPANY AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)

 

   

Three Months Ended

   

Nine Months Ended

 
   

August 27,

   

August 28,

   

August 27,

   

August 28,

 
   

2022

   

2021

   

2022

   

2021

 

Net income including non-controlling interest

  $ 46,530     $ 31,630     $ 132,077     $ 110,560  

Other comprehensive (loss) income

                               

Foreign currency translation

    (87,789 )     (32,006 )     (165,369 )     46,655  

Defined benefit pension plans adjustment, net of tax

    684       1,375       3,976       4,121  

Interest rate swaps, net of tax

    1,346       3,830       10,924       11,574  

Cross-currency swaps, net of tax

    (371 )     (1,289 )     (3,664 )     (3,576 )

Other comprehensive (loss) income

    (86,130 )     (28,090 )     (154,133 )     58,774  

Comprehensive (loss) income

    (39,600 )     3,540       (22,056 )     169,334  

Less: Comprehensive income (loss) attributable to non-controlling interest

    (13 )     (13 )     3       26  

Comprehensive (loss) income attributable to H.B. Fuller

  $ (39,587 )   $ 3,553     $ (22,059 )   $ 169,308  

 

See accompanying Notes to Unaudited Consolidated Financial Statements.

 

 

H.B. FULLER COMPANY AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(Unaudited)

 

  

August 27,

  

November 27,

 
  

2022

  

2021

 

Assets

        

Current assets:

        

Cash and cash equivalents

 $60,708  $61,786 

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

  649,727   614,645 

Inventories

  547,278   448,404 

Other current assets

  163,213   96,335 

Total current assets

  1,420,926   1,221,170 
         

Property, plant and equipment

  1,526,602   1,500,989 

Accumulated depreciation

  (820,132)  (805,622)

Property, plant and equipment, net

  706,470   695,367 
         

Goodwill

  1,375,964   1,298,845 

Other intangibles, net

  707,690   687,075 

Other assets

  360,588   372,073 

Total assets

 $4,571,638  $4,274,530 
         

Liabilities, non-controlling interest and total equity

        

Current liabilities:

        

Notes payable

 $33,116  $24,983 

Trade payables

  485,479   500,321 

Accrued compensation

  88,744   109,542 

Income taxes payable

  42,792   15,943 

Other accrued expenses

  87,260   86,061 

Total current liabilities

  737,391   736,850 
         

Long-term debt

  1,885,041   1,591,479 

Accrued pension liabilities

  66,704   71,651 

Other liabilities

  303,817   277,190 

Total liabilities

  2,992,953   2,677,170 
         

Commitments and contingencies (Note 12)

          
         

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

  53,299   52,778 

Additional paid-in capital

  245,826   213,637 

Retained earnings

  1,703,278   1,600,601 

Accumulated other comprehensive loss

  (424,312)  (270,247)

Total H.B. Fuller stockholders' equity

  1,578,091   1,596,769 

Non-controlling interest

  594   591 

Total equity

  1,578,685   1,597,360 

Total liabilities, non-controlling interest and total equity

 $4,571,638  $4,274,530 

 

 See accompanying Notes to Unaudited Consolidated Financial Statements.

 

 

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 November 27, 2021

  $ 52,778     $ 213,637     $ 1,600,601     $ (270,247 )   $ 591     $ 1,597,360  

Comprehensive income

    -       -       38,306       11,177       4       49,487  

Dividends

    -       -       (8,964 )     -       -       (8,964 )

Stock option exercises

    126       5,628       -       -       -       5,754  

Share-based compensation plans and other, net

    187       5,601       -       -       -       5,788  

Repurchases of common stock

    (49 )     (3,528 )     -       -       -       (3,577 )

Balance at February 26, 2022

  $ 53,042     $ 221,338     $ 1,629,943     $ (259,070 )   $ 595     $ 1,645,848  

Comprehensive income (loss)

    -       -       47,203       (79,158 )     12       (31,943 )

Dividends

    -       -       (10,177 )     -       -       (10,177 )

Stock option exercises

    47       2,036       -       -       -       2,083  

Share-based compensation plans other, net

    65       8,910       -       -       -       8,975  

Repurchases of common stock

    (1 )     (31 )     -       -       -       (32 )

Balance at May 28, 2022

  $ 53,153     $ 232,253     $ 1,666,969     $ (338,228 )   $ 607       1,614,754  

Comprehensive income (loss)

    -       -       46,497       (86,084 )     (13 )     (39,600 )

Dividends

    -       -       (10,188 )     -       -       (10,188 )

Stock option exercises

    135       5,549       -       -       -       5,684  

Share-based compensation plans other, net

    15       8,295       -       -       -       8,310  

Repurchases of common stock

    (4 )     (271 )     -       -       -       (275 )

Balance at August 27, 2022

  $ 53,299     $ 245,826     $ 1,703,278     $ (424,312 )   $ 594       1,578,685  

 

   

H.B. Fuller Company Shareholders

                 
                           

Accumulated

                 
           

Additional

           

Other

                 
   

Common

   

Paid-in

   

Retained

   

Comprehensive

   

Non-Controlling

         
   

Stock

   

Capital

   

Earnings

   

Income (Loss)

   

Interest

   

Total

 
                                                 

Balance at November 28, 2020

  $ 51,907     $ 157,867     $ 1,474,406     $ (302,859 )   $ 541     $ 1,381,862  

Comprehensive income

    -       -       29,791       27,656       5       57,452  

Dividends

    -       -       (8,542 )     -       -       (8,542 )

Stock option exercises

    147       6,251       -       -       -       6,398  

Share-based compensation plans and other, net

    150       7,423       -       -       -       7,573  

Repurchases of common stock

    (49 )     (2,531 )     -       -       -       (2,580 )

Balance at February 27, 2021

  $ 52,155     $ 169,010     $ 1,495,655     $ (275,203 )   $ 546     $ 1,442,163  

Comprehensive income

    -       -       49,102       59,206       34       108,342  

Dividends

    -       -       (8,870 )     -       -       (8,870 )

Stock option exercises

    318       13,887       -       -       -       14,205  

Share-based compensation plans other, net

    27       7,393       -       -       -       7,420  

Repurchases of common stock

    (1 )     (47 )     -       -       -       (48 )

Balance at May 29, 2021

  $ 52,499     $ 190,243     $ 1,535,887     $ (215,997 )   $ 580     $ 1,563,212  

Comprehensive income

    -       -       31,616       (28,063 )     (13 )     3,540  

Dividends

    -       -       (8,884 )     -       -       (8,884 )

Stock option exercises

    49       1,401       -       -       -       1,450  

Share-based compensation plans other, net

    3       8,575       -       -       -       8,578  

Repurchases of common stock

    (1 )     (39 )     -       -       -       (40 )

Balance at August 28, 2021

  $ 52,550     $ 200,180     $ 1,558,619     $ (244,060 )   $ 567     $ 1,567,856  

 

See accompanying Notes to Unaudited Consolidated Financial Statements. 

 

 

 

H.B. FULLER COMPANY AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

   

Nine Months Ended

 
   

August 27, 2022

   

August 28, 2021

 

Cash flows from operating activities:

               

Net income including non-controlling interest

  $ 132,077     $ 110,560  

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

               

Depreciation

    54,297       54,158  

Amortization

    55,088       53,464  

Deferred income taxes

    (4,968 )     (1,547 )

Income from equity method investments, net of dividends received

    1,420       4,363  

Loss (gain) on sale or disposal of assets

    (1,130 )     641  

Share-based compensation

    20,358       19,400  

Pension and other post-retirement benefit plan activity

    (15,324 )     (23,192 )

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

               

Trade receivables, net

    (51,629 )     (61,900 )

Inventories

    (112,390 )     (141,112 )

Other assets

    (40,329 )     (26,060 )

Trade payables

    17,381       176,210  

Accrued compensation

    (17,275 )     (1,283 )

Other accrued expenses

    1,614       (2,292 )

Income taxes payable

    10,201       1,001  

Other liabilities

    (35,940 )     (53,498 )

Other

    35,246       52,221  

Net cash provided by operating activities

    48,697       161,134  
                 

Cash flows from investing activities:

               

Purchased property, plant and equipment

    (98,352 )     (77,237 )

Purchased businesses, net of cash acquired

    (242,870 )     (5,445 )

Proceeds from sale of property, plant and equipment

    1,281       2,751  

Cash received from government grant

    3,928       5,800  

Cash payments related to government grant

    -       (1,526 )

Net cash used in investing activities

    (336,013 )     (75,657 )
                 

Cash flows from financing activities:

               

Proceeds from debt

    335,000       -  

Repayment of long-term debt

    (15,000 )     (118,000 )

Payment of debt issuance costs

    (600 )     -  

Net proceeds of notes payable

    6,707       9,846  

Dividends paid

    (29,067 )     (26,045 )

Contingent consideration payment

    (5,000 )     -  

Proceeds from stock options exercised

    13,522       22,053  

Repurchases of common stock

    (3,885 )     (2,668 )

Net cash provided by (used in) financing activities

    301,677       (114,814 )
                 

Effect of exchange rate changes on cash and cash equivalents

    (15,439 )     (3,063 )

Net change in cash and cash equivalents

    (1,078 )     (32,400 )

Cash and cash equivalents at beginning of period

    61,786       100,534  

Cash and cash equivalents at end of period

  $ 60,708     $ 68,134  

 

See accompanying Notes to Unaudited Consolidated Financial Statements.

 

 

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

 

New Accounting Pronouncements

 

In November 2021, the FASB issued ASU No. 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. This ASU requires business entities to make annual disclosures about transactions with a government they account for by analogizing to a grant or contribution accounting model under ASC 958-605. Our effective date for adoption of this ASU is our fiscal year beginning December 4, 2022 with early adoption permitted. We have evaluated the effect that this guidance will have on our Consolidated Financial Statements and determined it will not have a material impact.

 

9

 
 

Note 2: Acquisitions

 

ZKLT

 

On August 16, 2022, we acquired ZKLT Polymer Co., Ltd. ("ZKLT") for a base purchase price of 102,812 Chinese renminbi, or approximately $15,183, 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. The acquisition of ZKLT is expected to add market knowledge, strong customer relationships and a strategic manufacturing location to further strengthen our presence in Southwest China. The acquisition fair value measurement was preliminary as of August 27, 2022 and includes intangible assets of $3,042, goodwill of $8,175 and other net assets of $7,953. Goodwill is not deductible for tax purposes. See Note 11 for further discussion of the fair value of the contingent consideration. ZKLT will be included in our Engineering Adhesives operating segment. The ZKLT acquisition does not represent a material business combination, and therefore pro forma financial information is not provided. 

 

Apollo

 

On January 26, 2022, we acquired Apollo Chemicals Limited, Apollo Roofing Solutions Limited and Apollo Construction Solutions Limited (collectively, "Apollo") for a base purchase price of 151,214 British pound sterling, or approximately $203,573, which was funded through borrowings on our credit facility. The agreement requires us to pay an additional 1,500 British pound sterling, or approximately $2,019, following the completion of certain environmental studies. As of August 27, 2022, the environmental studies were complete and the $2,019 was paid. Apollo, headquartered in Tamworth, UK, is a manufacturer of liquid adhesives, coatings and primers for the roofing, industrial and construction markets. Apollo is expected to enhance our position in key high-value, high-margin markets in the UK and throughout Europe. The acquisition fair value measurement was preliminary as of August 27, 2022. The acquisition will be included in our Construction Adhesives operating segment. 

 

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

 

   

February 26, 2022

   

Adjustments

   

August 27, 2022

 

Cash

  $ 12,165       -     $ 12,165  

Current assets

    17,283       (51 )     17,232  

Property, plant and equipment

    7,877       -       7,877  

Goodwill

    104,885       13,410       118,295  

Other intangibles

                       

Customer relationships

    82,256       (14,809 )     67,447  

Trademarks/trade names

    2,154       135       2,289  

Technology

    9,558       (3,096 )     6,462  

Other assets

    1,590       -       1,590  

Current liabilities

    (8,293 )     (41 )     (8,334 )

Other liabilities

    (23,883 )     4,452       (19,431 )

Total

  $ 205,592     $ -     $ 205,592  

 

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

 

Based on the fair value measurement of the assets acquired and liabilities assumed, we allocated $118,295 to goodwill for the expected synergies from combining Apollo with our existing business. Such goodwill is not deductible for tax purposes. The goodwill was assigned to our Construction Adhesives operating segment. The Apollo acquisition does not represent a material business combination, and therefore pro forma financial information is not provided.

 

Fourny NV

 

On January 11, 2022, we acquired Fourny NV ("Fourny") for a base purchase price of 12,867 Euro, or approximately $14,627, which was funded through existing cash. The agreement requires us to pay an additional 3,100 Euro, or approximately $3,524, 18 months following the date of acquisition. Fourny, headquartered in Willebroek, Belgium, is a manufacturer of construction and automotive adhesives. Fourny is expected to enhance our position in key high-value, high-margin markets in Europe. The acquisition fair value measurement was preliminary as of August 27, 2022 and includes intangible assets of $10,117, goodwill of $6,617, cash of $75 and other net assets of $1,342. Goodwill is not deductible for tax purposes. Fourny is recorded in our Construction Adhesives operating segment. The Fourny acquisition does not represent a material business combination, and therefore pro forma financial information is not provided.

 

Tissue Seal, LLC

 

On  November 30, 2021, we acquired certain assets of Tissue Seal, LLC ("TissueSeal") for a base purchase price of $22,167, which was funded through existing cash. The agreement requires us to pay an additional $2,475 on the first anniversary of the acquisition and contingent consideration of up to $500 on November 30, 2024 based on certain agreement provisions. TissueSeal, headquartered in Ann Arbor, Michigan, is a distributor of topical tissue adhesives and sutures. With this acquisition, we add TissueSeal's regulatory clearances, customer and distribution relationships, regulatory approvals and trademarks into our portfolio of products. The acquisition fair value measurement was preliminary as of August 27, 2022 and includes intangible assets of $11,160, goodwill of $13,765 and other net assets of $217. Goodwill is deductible for tax purposes. See Note 11 for further discussion of the fair value of the contingent consideration liability. TissueSeal is recorded in our Hygiene, Health and Consumable Adhesives operating segment. The TissueSeal acquisition does not represent a material business combination, and therefore pro forma financial information is not provided.

 

STR Holdings, Inc.

 

On January 13, 2021, we acquired certain assets of STR Holding, Inc. ("STR") for a base purchase price of $5,445 which was funded through existing cash. The agreement required us to pay an additional $800 on the first anniversary of the acquisition and contingent consideration of up to $1,700 based on certain agreement provisions. STR, headquartered in Enfield, Connecticut, is a manufacturer of encapsulant products used in the solar industry. The acquisition fair value measurement, which includes intangible assets of $6,700 and other net assets of $1,245, was final as of November 27, 2021. The agreement provisions for the contingent consideration were met, and as a result, $1,700 was paid as of November 27, 2021. No goodwill was recorded for this acquisition. STR is reported in our Engineering Adhesives operating segment. The STR acquisition does not represent a material business combination, and therefore pro forma financial information is not provided. 

 

D.H.M. Adhesives, Inc

 

On February 3, 2020, we acquired certain assets of D.H.M. Adhesives, Inc. (“D.H.M.”) for approximately $9,500 which was funded through existing cash. In addition, the agreement required us to pay contingent consideration of up to approximately $8,100 based upon a formula related to revenue during the fiscal years ended November 27, 2021 and December 3, 2022. D.H.M., headquartered in Calhoun, Georgia, is a provider of hotmelt adhesives. The acquisition fair value measurement was final as of May 30, 2020 and includes goodwill of $1,063 and customer relationship intangible of $11,900. The fair value of the contingent consideration as of the date of acquisition was $5,000 resulting in a final purchase price of $14,500. As of November 27, 2021, the agreement provisions for the contingent consideration were met, and as a result, $8,100 was paid during the period ended February 26, 2022. Goodwill is deductible for tax purposes. D.H.M. and the related goodwill are reported in our Hygiene, Health and Consumable Adhesives operating segment. The D.H.M acquisition does not represent a material business combination, and therefore pro forma financial information is not provided.

 

 

Note 3: Restructuring Actions

 

The Company has approved restructuring plans consisting of consolidation plans, organizational changes and other actions related to the reorganization of our business into three segments, the integration of the operations of Royal Adhesives with the operations of the Company and other actions to optimize operations. The following table summarizes the pre-tax charges under these restructuring plans by income statement classification:

 

   

Three Months Ended

   

Nine Months Ended

 
   

August 27, 2022

   

August 28, 2021

   

August 27, 2022

   

August 28, 2021

 

Cost of sales

  $ -     $ (5 )   $ (152 )   $ 288  

Selling, general and administrative

    (222 )     (187 )     (297 )     1,159  
    $ (222 )   $ (192 )   $ (449 )   $ 1,447  

 

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

 

A summary of the restructuring liability is presented below:

 

   

Employee-Related

   

Other

   

Total

 

Balance at November 28, 2020

  $ 5,834     $ 248     $ 6,082  

Expenses incurred

    (807 )     1,594       787  

Non-cash charges

    -       (135 )     (135 )

Cash payments

    (3,917 )     (1,707 )     (5,624 )

Foreign currency translation

    (15 )     -       (15 )

Balance at November 27, 2021

    1,095       -       1,095  

Expenses incurred

    (449 )     -       (449 )

Cash payments

    (529 )     -       (529 )

Foreign currency translation

    (47 )     -       (47 )

Balance at August 27, 2022

  $ 70     $ -     $ 70  

 

10

 

Non-cash charges include accelerated depreciation resulting from the cessation of use of certain long-lived assets. Restructuring liabilities have been classified as a component of other accrued expenses in the Consolidated Balance Sheets.

 

 

Note 4: Inventories

 

The composition of inventories is as follows:

 

   

August 27,

   

November 27,

 
   

2022

   

2021

 

Raw materials

  $ 264,779     $ 226,723  

Finished goods

    282,499       221,681  

Total inventories

  $ 547,278     $ 448,404  

 

 

Note 5: Goodwill and Other Intangible Assets

 

The goodwill activity by reportable segment for the nine months ended August 27, 2022 is presented below:

 

  

Hygiene, Health

             
  

and Consumable

  

Engineering

  

Construction

     
  

Adhesives

  

Adhesives

  

Adhesives

  

Total

 

Balance at November 27, 2021

 $325,470  $662,021  $311,354  $1,298,845 

TissueSeal acquisition

  13,765   -   -   13,765 

Fourny acquisition

  -   -   6,617   6,617 

Apollo acquisition

  -   -   118,295   118,295 

ZKLT acquisition

  -   8,175   -   8,175 

Foreign currency translation effect

  (17,100)  (36,536)  (16,097)  (69,733)

Balance at August 27, 2022

 $322,135  $633,660  $420,169  $1,375,964 

 

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

 

   

August 27, 2022

 
   

Purchased

                                 
   

Technology

   

Customer

                         

Amortizable Intangible Assets

 

and Patents

   

Relationships

   

Trade Names

   

Other

   

Total

 

Original cost

  $ 117,440     $ 991,789     $ 49,379     $ 11,004     $ 1,169,612  

Accumulated amortization

    (63,926 )     (372,198 )     (20,252 )     (5,980 )     (462,356 )

Net identifiable intangibles

  $ 53,514     $ 619,591     $ 29,127     $ 5,024     $ 707,256  

 

   

November 27, 2021

 
   

Purchased

                                 
   

Technology

   

Customer

                         

Amortizable Intangible Assets

 

and Patents

   

Relationships

   

Trade Names

   

Other

   

Total

 

Original cost

  $ 115,980     $ 932,644     $ 63,543     $ 11,343     $ 1,123,510  

Accumulated amortization

    (62,364 )     (335,143 )     (33,786 )     (5,635 )     (436,928 )

Net identifiable intangibles

  $ 53,616     $ 597,501     $ 29,757     $ 5,708     $ 686,582  

 

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

 

11

 

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

 

2022

   

2023

   

2024

   

2025

   

2026

   

Thereafter

 

Amortization expense

  $ 31,804     $ 67,995     $ 64,095     $ 61,948     $ 55,709     $ 425,705  

 

Non-amortizable intangible assets as of  August 27, 2022 and November 27, 2021 are $434 and $493, respectively, and are related to trademarks and trade names. The change in non-amortizable assets as of August 27, 2022 compared to November 27, 2021 was due to changes in foreign currency exchange rates.

 

 

Note 6: Components of Net Periodic Benefit related to Pension and Other Postretirement Benefit Plans

 

   

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

 
                                   

Other

 
   

Pension Benefits

   

Postretirement

 
   

U.S. Plans

   

Non-U.S. Plans

   

Benefits

 

Net periodic cost (benefit):

 

2022

   

2021

   

2022

   

2021

   

2022

   

2021

 

Service cost

  $ -     $ -     $ 666     $ 824     $ -     $ 5  

Interest cost

    2,368       2,325       679       743       184       206  

Expected return on assets

    (7,117 )     (7,781 )     (1,525 )     (3,120 )     (2,719 )     (2,236 )

Amortization:

                                               

Prior service cost (benefit)

    (1 )     (1 )     15       17       -       -  

Actuarial loss (gain)

    1,013       799       570       1,020       (845 )     18  

Settlement charge

    -       -       -       -       -       -  

Net periodic benefit

  $ (3,737 )   $ (4,658 )   $ 405     $ (516 )   $ (3,380 )   $ (2,007 )

 

   

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

 
                                   

Other

 
   

Pension Benefits

   

Postretirement

 
   

U.S. Plans

   

Non-U.S. Plans

   

Benefits

 

Net periodic cost (benefit):

 

2022

   

2021

   

2022

   

2021

   

2022

   

2021

 

Service cost

  $ -     $ -     $ 2,086     $ 2,478     $ -     $ 16  

Interest cost

    7,103       6,974