Company Quick10K Filing
HB Fuller
Price43.63 EPS2
Shares52 P/E18
MCap2,273 P/FCF14
Net Debt2,031 EBIT162
TEV4,304 TEV/EBIT26
TTM 2019-06-01, in MM, except price, ratios
10-Q 2020-05-30 Filed 2020-06-25
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10-K 2019-11-30 Filed 2020-01-24
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10-K 2014-11-29 Filed 2015-01-28
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10-K 2013-11-30 Filed 2014-01-24
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10-Q 2013-03-02 Filed 2013-03-29
10-K 2012-12-01 Filed 2013-01-29
10-Q 2012-09-01 Filed 2012-10-05
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10-K 2011-12-03 Filed 2012-01-27
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10-K 2010-11-27 Filed 2011-01-20
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10-K 2009-11-28 Filed 2010-01-22
8-K 2020-06-24
8-K 2020-04-02
8-K 2020-03-25
8-K 2020-03-04
8-K 2020-01-22
8-K 2020-01-15
8-K 2019-11-13
8-K 2019-09-25
8-K 2019-07-16
8-K 2019-07-02
8-K 2019-06-26
8-K 2019-06-11
8-K 2019-04-23
8-K 2019-04-04
8-K 2019-03-27
8-K 2019-03-25
8-K 2019-01-24
8-K 2019-01-16
8-K 2018-09-26
8-K 2018-07-18
8-K 2018-07-11
8-K 2018-06-27
8-K 2018-04-12
8-K 2018-03-28
8-K 2018-03-27
8-K 2018-02-26
8-K 2018-01-23

FUL 10Q Quarterly Report

Note 1: Basis of Presentation
Note 2: Acquisitions and Divestiture
Note 3: Restructuring Actions
Note 4: Inventories   The Composition of Inventories Is As Follows:
Note 5: Goodwill and Other Intangible Assets
Note 6: Leases
Note 7: Accounting for Share - Based Compensation
Note 8: Components of Net Periodic Benefit Related To Pension and Other Postretirement Benefit Plans
Note 9: Accumulated Other Comprehensive Income (Loss)
Note 10: Income Taxes
Note 11: Earnings per Share   A Reconciliation of The Common Share Components for The Basic and Diluted Earnings per Share Calculations Is As Follows:
Note 12: Financial Instruments
Note 13: Fair Value Measurements
Note 14: Share Repurchase Program
Note 15: Commitments and Contingencies
Note 16: Operating Segments
EX-31.1 ex_191016.htm
EX-31.2 ex_191017.htm
EX-32.1 ex_191018.htm
EX-32.2 ex_191019.htm

HB Fuller Earnings 2020-05-30

Balance SheetIncome StatementCash Flow
4.43.52.61.80.90.02012201420172020
Assets, Equity
0.80.60.40.30.1-0.12012201420172020
Rev, G Profit, Net Income
1.71.00.3-0.3-1.0-1.72012201420172020
Ops, Inv, Fin

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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 May 30, 2020

 

OR

 

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

 

For the transition period from                              to                                 .

 

Commission file number: 001-09225

 

H.B. FULLER COMPANY

(Exact name of registrant as specified in its charter)

 

Minnesota 41-0268370
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization)  Identification No.)
   
1200 Willow Lake Boulevard, St. Paul, Minnesota     55110-5101
(Address of principal executive offices)     (Zip Code)

 

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

 

Not Applicable

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

 

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

 

 Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $1.00 per share

     FUL

New York Stock Exchange

 

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

 

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

 

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

 

Large accelerated filer ☒    Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company

Emerging growth company

 

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

 

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 51,566,917 as of June 19, 2020.

 

 

 

 

H.B. Fuller Company

Quarterly Report on Form 10-Q

Table of Contents

 

   

Page

PART 1. FINANCIAL INFORMATION

 
     

ITEM 1.

FINANCIAL STATEMENTS (Unaudited)

3

     
 

Consolidated Statements of Income for the three and six months ended May 30, 2020 and June 1, 2019

3

     
 

Consolidated Statements of Comprehensive Income for the three and six months ended May 30, 2020 and June 1, 2019

4

     
 

Consolidated Balance Sheets as of May 30, 2020 and November 30, 2019

5

     
 

Consolidated Statements of Total Equity for the three and six months ended May 30, 2020 and June 1, 2019

6

     
 

Consolidated Statements of Cash Flows for the six months ended May 30, 2020 and June 1, 2019

7

     
 

Notes to Consolidated Financial Statements

8

     

ITEM 2.

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

27

     

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

38

     

ITEM 4.

CONTROLS AND PROCEDURES

38

     

PART II. OTHER INFORMATION

38

     

ITEM 1.

LEGAL PROCEEDINGS

38

     

ITEM 1A.

RISK FACTORS

40

     

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

40

     

ITEM 6.

EXHIBITS

42

     

SIGNATURES

43

 

 

 

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

   

Six Months Ended

 
   

May 30,

   

June 1,

   

May 30,

   

June 1,

 
   

2020

   

2019

   

2020

   

2019

 

Net revenue

  $ 674,602     $ 759,583     $ 1,321,166     $ 1,432,518  

Cost of sales

    (489,701 )     (541,124 )     (966,003 )     (1,034,134 )

Gross profit

    184,901       218,459       355,163       398,384  

Selling, general and administrative expenses

    (127,998 )     (146,079 )     (269,507 )     (291,792 )

Other income, net

    3,049       2,986       8,018       6,351  

Interest expense

    (21,644 )     (26,940 )     (44,401 )     (53,747 )

Interest income

    2,898       3,023       5,816       6,076  

Income before income taxes and income from equity method investments

    41,206       51,449       55,089       65,272  

Income taxes

    (11,471 )     (16,441 )     (17,082 )     (19,581 )

Income from equity method investments

    1,893       1,633       3,527       3,198  

Net income including non-controlling interest

    31,628       36,641       41,534       48,889  

Net income attributable to non-controlling interest

    (15 )     -       (26 )     (4 )

Net income attributable to H.B. Fuller

  $ 31,613     $ 36,641     $ 41,508     $ 48,885  
                                 

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

                               

Basic

    0.61       0.72       0.80       0.96  

Diluted

    0.61       0.70       0.79       0.94  
                                 

Weighted-average common shares outstanding:

                               

Basic

    51,420       50,902       51,874       50,827  

Diluted

    52,029       52,105       52,305       52,003  
                                 

Dividends declared per common share

  $ 0.1625     $ 0.160     $ 0.3225     $ 0.315  

 

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

   

Six Months Ended

 
   

May 30,

   

June 1,

   

May 30,

   

June 1,

 
   

2020

   

2019

   

2020

   

2019

 

Net income including non-controlling interest

  $ 31,628     $ 36,641     $ 41,534     $ 48,889  

Other comprehensive loss

                               

Foreign currency translation

    (29,922 )     (39,317 )     (32,703 )     (21,618 )

Defined benefit pension plans adjustment, net of tax

    2,070       1,480       4,156       2,962  

Interest rate swaps, net of tax

    (9,883 )     (17,078 )     (18,882 )     (28,522 )

Cross-currency swaps, net of tax

    5,878       6,102       10,522       10,188  

Other comprehensive loss

    (31,857 )     (48,813 )     (36,907 )     (36,990 )

Comprehensive (loss) income

    (229 )     (12,172 )     4,627       11,899  

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

    19       (4 )     29       6  

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

  $ (248 )   $ (12,168 )   $ 4,598     $ 11,893  

 

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)

 

   

May 30,

   

November 30,

 
   

2020

   

2019

 

Assets

               

Current assets:

               

Cash and cash equivalents

  $ 70,346     $ 112,191  

Trade receivables (net of allowances of $13,443 and $10,682, as of May 30, 2020 and November 30, 2019, respectively)

    448,126       493,181  

Inventories

    388,698       337,267  

Other current assets

    100,702       90,723  

Total current assets

    1,007,872       1,033,362  
                 

Property, plant and equipment

    1,340,692       1,304,231  

Accumulated depreciation

    (704,997 )     (674,418 )

Property, plant and equipment, net

    635,695       629,813  
                 

Goodwill

    1,273,374       1,281,808  

Other intangibles, net

    775,332       799,399  

Other assets

    286,787       241,352  

Total assets

  $ 3,979,060     $ 3,985,734  
                 

Liabilities, non-controlling interest and total equity

               

Current liabilities:

               

Notes payable

  $ 19,715     $ 15,732  

Current maturities of long-term debt

    -       65,000  

Trade payables

    319,616       298,869  

Accrued compensation

    56,599       78,582  

Income taxes payable

    20,382       23,229  

Other accrued expenses

    75,450       60,745  

Total current liabilities

    491,762       542,157  
                 

Long-term debt, excluding current maturities

    1,908,340       1,898,384  

Accrued pension liabilities

    81,019       80,214  

Other liabilities

    279,094       242,190  

Total liabilities

    2,760,215       2,762,945  
                 

Commitments and contingencies (Note 15)

               
                 

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 – 51,550,524 and 51,241,190, as of May 30, 2020 and November 30, 2019, respectively

    51,551       51,241  

Additional paid-in capital

    138,175       130,295  

Retained earnings

    1,409,158       1,384,411  

Accumulated other comprehensive loss

    (380,510 )     (343,600 )

Total H.B. Fuller stockholders' equity

    1,218,374       1,222,347  

Non-controlling interest

    471       442  

Total equity

    1,218,845       1,222,789  

Total liabilities, non-controlling interest and total equity

  $ 3,979,060     $ 3,985,734  

 

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

                 
   

Common Stock

   

Additional Paid-in Capital

   

Retained Earnings

   

Accumulated Other Comprehensive Income (Loss)

   

Non-Controlling Interest

   

Total

 
                                                 

Balance at November 30, 2019

  $ 51,241     $ 130,295     $ 1,384,411     $ (343,600 )   $ 442     $ 1,222,789  

Comprehensive income

    -       -       9,895       (5,049 )     10       4,856  

Dividends

    -       -       (8,313 )     -       -       (8,313 )

Stock option exercises

    26       881       -       -       -       907  

Share-based compensation plans other, net

    206       4,821       -       -       -       5,027  

Repurchases of common stock

    (66 )     (3,146 )     -       -       -       (3,212 )

Balance at February 29, 2020

  $ 51,407     $ 132,851     $ 1,385,993     $ (348,649 )   $ 452     $ 1,222,054  

Comprehensive income

    -       -       31,613       (31,861 )     19       (229 )

Dividends

    -       -       (8,448 )     -       -       (8,448 )

Stock option exercises

    24       626       -       -       -       650  

Share-based compensation plans other, net

    121       4,730       -       -       -       4,851  

Repurchases of common stock

    (1 )     (32 )     -       -       -       (33 )

Balance at May 30, 2020

  $ 51,551     $ 138,175     $ 1,409,158     $ (380,510 )   $ 471     $ 1,218,845  

 

   

H.B. Fuller Company Shareholders

                 
   

Common Stock

   

Additional Paid-in Capital

   

Retained Earnings

   

Accumulated Other Comprehensive Income (Loss)

   

Non-Controlling Interest

   

Total

 
                                                 

Balance at December 1, 2018, as previously reported

  $ 50,733     $ 95,940     $ 1,285,246     $ (280,152 )   $ 401     $ 1,152,168  

Change in accounting principles

    -       -       1,043       -       -       1,043  

Balance at December 1, 2018, as adjusted

    50,733       95,940       1,286,289       (280,152 )     401       1,153,211  

Comprehensive income

    -       -       12,244       11,817       10       24,071  

Dividends

    -       -       (7,962 )     -       -       (7,962 )

Stock option exercises

    41       1,025       -       -       -       1,066  

Share-based compensation plans other, net

    168       6,233       -       -       -       6,401  

Repurchases of common stock

    (58 )     (2,625 )     -       -       -       (2,683 )

Balance at March 2, 2019

  $ 50,884     $ 100,573     $ 1,290,571     $ (268,335 )   $ 411     $ 1,174,104  

Comprehensive income

    -       -       36,641       (48,809 )     (4 )     (12,172 )

Dividends

    -       -       (8,228 )     -       -       (8,228 )

Stock option exercises

    25       746       -       -       -       771  

Share-based compensation plans other, net

    11       8,627       -       -       -       8,638  

Repurchases of common stock

    (3 )     (121 )     -       -       -       (124 )

Balance at June 1, 2019

  $ 50,917     $ 109,825     $ 1,318,984     $ (317,144 )   $ 407     $ 1,162,989  

 

See accompanying Notes to Unaudited Consolidated Financial Statements.

 

 

 

H.B. FULLER COMPANY AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

   

Six Months Ended

 
   

May 30, 2020

   

June 1, 2019

 

Cash flows from operating activities:

               

Net income including non-controlling interest

  $ 41,534     $ 48,889  

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

               

Depreciation

    33,198       33,568  

Amortization

    35,458       38,190  

Deferred income taxes

    (10,412 )     (21,871 )

Income from equity method investments, net of dividends received

    (3,527 )     (3,198 )

Gain on sale of assets

    (24 )     377  

Share-based compensation

    9,236       14,172  

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

         

Trade receivables, net

    33,867       (23,692 )

Inventories

    (59,232 )     (22,798 )

Other assets

    (13,070 )     (21,396 )

Trade payables

    42,182       25,943  

Accrued compensation

    (21,587 )     (17,778 )

Other accrued expenses

    8,981       12,734  

Income taxes payable

    (2,728 )     13,794  

Accrued / prepaid pensions

    (2,993 )     (5,933 )

Other liabilities

    24,705       (1,465 )

Other

    (7,175 )     7,790  

Net cash provided by operating activities

    108,413       77,326  
                 

Cash flows from investing activities:

               

Purchased property, plant and equipment

    (54,533 )     (32,192 )

Purchased businesses, net of cash acquired

    (9,500 )     (7,914 )

Purchase of assets

    (3,998 )     -  

Purchased business remaining equity

    -       (9,870 )

Proceeds from sale of property, plant and equipment

    1,416       45  

Cash received from government grant

    -       9,045  

Cash payments related to government grant

    (2,331 )     (1,120 )

Net cash used in investing activities

    (68,946 )     (42,006 )
                 

Cash flows from financing activities:

               

Repayment of long-term debt

    (67,000 )     (70,000 )

Net proceeds of notes payable

    6,994       4,053  

Dividends paid

    (16,577 )     (16,028 )

Contingent consideration payment

    -       (3,610 )

Proceeds from stock options exercised

    1,557       1,837  

Repurchases of common stock

    (3,246 )     (2,807 )

Net cash used in financing activities

    (78,272 )     (86,555 )
                 

Effect of exchange rate changes on cash and cash equivalents

    (3,040 )     688  
                 

Net change in cash and cash equivalents

    (41,845 )     (50,547 )

Cash and cash equivalents at beginning of period

    112,191       150,793  

Cash and cash equivalents at end of period

  $ 70,346     $ 100,246  

 

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 30, 2019 as filed with the Securities and Exchange Commission.

 

Change in Operating Segments

 

As of November 30, 2019, we had five reportable segments: Americas Adhesives, EIMEA, Asia Pacific, Construction Adhesives and Engineering Adhesives. As of the beginning of fiscal 2020, we realigned our operating segment structure and now have three reportable segments: Hygiene, Health and Consumable Adhesives, Engineering Adhesives and Construction Adhesives. The change in operating segments is based on how we have organized the company to make operating decisions and assess business performance. Prior period segment information has been recast retrospectively to reflect the realignment.

 

Change in Accounting Principle – Leases

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Subtopic 842). This ASU changes accounting for leases and requires lessees to recognize the assets and liabilities arising from all leases, including those classified as operating leases under previous accounting guidance, on the balance sheet and requires disclosure of key information about leasing arrangements to increase transparency and comparability among organizations. In December 2018, the FASB also issued ASU No. 2018-20, Leases (Topic 842): Narrow-Scope Improvements for Lessors, which clarifies the accounting for lessors for variable payments that relate to both a lease component and a nonlease component and is effective in the same timeframe as ASU 2016-02, and ASU No. 2019-01, Leases (Topic 842): Codification Improvements, which clarifies the transition disclosure requirements. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements. This ASU allows entities to not recast comparative periods in transition to ASC 842 and instead report the comparative periods presented in the period of adoption under ASC 840. The ASU also includes a practical expedient for lessors to not separate the lease and nonlease components of a contract. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases. This ASU includes certain clarifications to address potential narrow-scope implementation issues which we have incorporated into our assessment and adoption of ASU No. 2016-02.

 

We adopted these ASUs and related standards during the first quarter ended February 29, 2020 using the modified retrospective method of adoption. As a result of the adoption of these ASUs, as of December 1, 2019 we recorded $28,254 of right-of-use assets and liabilities on the balance sheet. Adoption of these ASUs did not have a significant impact on the Consolidated Statements of Income. We have included the disclosures required by these ASUs in Note 6.

 

8

 

Change in Accounting Principle – Revenue Recognition

 

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. We adopted this ASU during the quarter ended March 2, 2019 using the modified retrospective method of adoption. As a result of the adoption of this ASU, we recorded an increase to opening retained earnings of $1,776 as of December 1, 2018 related to accelerated recognition for arrangements where we provide shipping and handling services after control of the goods has transferred to the customer. Prior periods were not restated. We have included the disclosures required by this ASU in Note 16.

 

In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606), Principal versus Agent Considerations (Reporting Revenue Gross versus Net). This ASU provides guidance on recording revenue on a gross basis versus a net basis based on the determination of whether an entity is a principal or an agent when another party is involved in providing goods or services to a customer. The amendments in this ASU affect the guidance in ASU No. 2014-09 and were adopted during the quarter ended March 2, 2019 with ASU No. 2014-09 as discussed above.

 

Change in Accounting Principle – Income Tax Impact of Intra-Entity Transfers of Assets Other Than Inventory

 

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. This ASU changes the timing of income tax recognition for an intercompany sale of assets. The ASU requires the seller’s tax effects and the buyer’s deferred taxes to be recognized immediately upon the sale instead of deferring accounting for the income tax implications until the assets are sold to a third party or recovered through use. We adopted this ASU during the quarter ended March 2, 2019. We recorded a decrease to opening retained earnings of $733 as of December 1, 2018 as a result of the adoption of this ASU.

 

New Accounting Pronouncements

 

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides practical expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. This ASU is applicable to our contracts and hedging relationships that reference LIBOR. The guidance is effective immediately and may be applied through December 31, 2022. We are evaluating whether to apply any of these expedients and/or exceptions.

 

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU simplifies the accounting for income taxes by clarifying and amending existing guidance related to the recognition of franchise tax, the evaluation of a step up in the tax basis of goodwill, and the effects of enacted changes in tax laws or rates in the effective tax rate computation, among other clarifications. Our effective date for adoption of this ASU is our fiscal year beginning November 28, 2021 with early adoption permitted. We have evaluated the effect that this guidance will have on our Consolidated Financial Statements and determined it will not have a material impact.

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Statements. This ASU requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The FASB also issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, in November 2018, ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments, in April 2019 and ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments, in November 2019. ASU No. 2018-19 clarifies that receivables arising from operating leases are within the scope of Topic 842, Leases. ASU No. 2019-04 and ASU No. 2019-11 clarify various scoping and other issues arising from ASU No. 2016-13. The amendments in these ASUs affect the guidance in ASU No. 2016-13 and are effective in the same timeframe as ASU No. 2016-13. Our effective date for adoption of these ASUs is our fiscal year beginning November 29, 2020. We are currently evaluating the effect that these ASUs will have on our Consolidated Financial Statements.

 

 

 

Note 2: Acquisitions and Divestiture

 

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 requires 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. See Note 13 for further discussion of the fair value of the contingent consideration. Goodwill is deductible for tax purposes. D.H.M. and the related goodwill are reported in our Hygiene, Health and Consumable Adhesives (“HHC”) operating segment. The D.H.M acquisition does not represent a material business combination, and therefore pro forma financial information is not provided.

 

Ramapo Sales and Marketing, Inc.

 

On May 17, 2019, we acquired certain assets from a window and insulating glass sealants sales and distribution company, Ramapo Sales and Marketing, Inc. (“Ramapo”), headquartered in Charleston, South Carolina. This acquisition supports the integration of the insulating glass business that we acquired as part of the Royal Adhesives acquisition. The purchase price of $8,292 was funded through existing cash. In addition, we were required to pay up to $3,400 in contingent consideration based upon financial results for the twelve months ended December 31, 2019. Existing receivables of $2,166 from Ramapo were effectively settled as a result of the acquisition. The acquisition fair value measurement was final as of May 30, 2020 and includes goodwill of $165, customer relationship intangible of $8,800, and additional acquired assets of $4,148. The fair value of the contingent consideration as of the date of acquisition was $2,654, resulting in a final purchase price of $10,947. During the second quarter of 2020, the contingent consideration liability was finalized and adjusted to a final balance of $767. The contingent consideration payment will be made in the third quarter of 2020. Ramapo and the related goodwill are reported in our Engineering Adhesives (“EA”) operating segment.

 

 

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 distribution of charges under these restructuring plans by income statement classification:

 

   

Three Months Ended

   

Six Months Ended

 
   

May 30, 2020

   

June 1, 2019

   

May 30, 2020

   

June 1, 2019

 

Cost of sales

  $ 7     $ 618     $ 67     $ 994  

Selling, general and administrative

    383       666       367       1,743  
    $ 390     $ 1,284     $ 434     $ 2,737  

 

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

 

A summary of the restructuring liability is presented below:

 

   

Employee-Related

   

Asset-Related

   

Other

   

Total

 

Balance at December 1, 2018

  $ 4,256     $ -     $ -     $ 4,256  

Expenses incurred

    9,140       1,929       3,466       14,535  

Non-cash charges

    -       (968 )     -       (968 )

Cash payments

    (3,494 )     (961 )     (2,542 )     (6,997 )

Foreign currency translation

    (72 )     -       -       (72 )

Balance at November 30, 2019

  $ 9,830     $ -     $ 924     $ 10,754  

Expenses incurred

    (142 )     -       576       434  

Cash payments

    (4,507 )     -       (1,014 )     (5,521 )

Foreign currency translation

    19       -       -       19  

Balance at May 30, 2020

  $ 5,200     $ -     $ 486     $ 5,686  

 

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:

 

   

May 30,

   

November 30,

 
   

2020

   

2019

 

Raw materials

  $ 180,054     $ 150,338  

Finished goods

    208,644       186,929  

Total inventories

  $ 388,698     $ 337,267  

 

 

Note 5: Goodwill and Other Intangible Assets

 

The goodwill activity for the six months ended May 30, 2020 is presented below:

 

   

Hygiene, Health

                         
   

and Consumable

   

Engineering

   

Construction

         
   

Adhesives

   

Adhesives

   

Adhesives

   

Total

 

Balance at November 30, 2019

  $ 321,274     $ 649,555     $ 310,979     $ 1,281,808  

Acquisition

    1,063       (746 )     -       325  

Currency impact

    (721 )     (7,680 )     (350 )     (8,759 )

Balance at May 30, 2020

  $ 321,616     $ 641,129     $ 310,629     $ 1,273,374  

 

As discussed in Note 16, as of the beginning of fiscal 2020, we realigned our operating segment structure and now have three reportable segments: Hygiene, Health and Consumable Adhesives, Engineering Adhesives and Construction Adhesives. We allocated goodwill within our reporting units to reflect this realignment using the relative fair value approach.

 

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

 

   

May 30, 2020

 

Amortizable Intangible Assets

 

Purchased Technology and Patents

   

Customer Relationships

   

Trade Names

   

Other

   

Total

 

Original cost

  $ 109,201     $ 920,030     $ 62,219     $ 11,312     $ 1,102,762  

Accumulated amortization

    (47,354 )     (249,338 )     (26,965 )     (4,257 )     (327,914 )

Net identifiable intangibles

  $ 61,847     $ 670,692     $ 35,254     $ 7,055     $ 774,848  

 

   

November 30, 2019

 

Amortizable Intangible Assets

 

Purchased Technology and Patents

   

Customer Relationships

   

Trade Names

   

Other

   

Total

 

Original cost

  $ 109,967     $ 913,968