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 2021-02-27 Filed 2021-03-25
10-K 2020-11-28 Filed 2021-01-26
10-Q 2020-08-29 Filed 2020-09-24
10-Q 2020-05-30 Filed 2020-06-25
10-Q 2020-02-29 Filed 2020-03-26
10-K 2019-11-30 Filed 2020-01-24
10-Q 2019-08-31 Filed 2019-09-27
10-Q 2019-06-01 Filed 2019-06-28
10-Q 2019-03-02 Filed 2019-03-29
10-K 2018-12-01 Filed 2019-01-28
10-Q 2018-09-01 Filed 2018-09-28
10-Q 2018-06-02 Filed 2018-06-29
10-Q 2018-03-03 Filed 2018-04-04
10-K 2017-12-02 Filed 2018-01-31
10-Q 2017-09-02 Filed 2017-09-29
10-Q 2017-06-03 Filed 2017-06-30
10-Q 2017-03-04 Filed 2017-03-31
10-K 2016-12-03 Filed 2017-01-31
10-Q 2016-08-27 Filed 2016-09-23
10-Q 2016-05-28 Filed 2016-06-24
10-Q 2016-02-27 Filed 2016-04-05
10-K 2015-11-28 Filed 2016-01-27
10-Q 2015-08-29 Filed 2015-09-25
10-Q 2015-05-30 Filed 2015-06-30
10-Q 2015-02-28 Filed 2015-03-27
10-K 2014-11-29 Filed 2015-01-28
10-Q 2014-08-30 Filed 2014-09-26
10-Q 2014-05-31 Filed 2014-06-27
10-Q 2014-03-01 Filed 2014-03-28
10-K 2013-11-30 Filed 2014-01-24
10-Q 2013-08-31 Filed 2013-09-27
10-Q 2013-06-01 Filed 2013-06-28
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
10-Q 2012-06-02 Filed 2012-07-06
10-Q 2012-03-03 Filed 2012-03-30
10-K 2011-12-03 Filed 2012-01-27
10-Q 2011-08-27 Filed 2011-09-23
10-Q 2011-05-28 Filed 2011-06-24
10-Q 2011-02-26 Filed 2011-03-28
10-K 2010-11-27 Filed 2011-01-20
10-Q 2010-08-28 Filed 2010-09-30
10-Q 2010-05-29 Filed 2010-06-30
10-Q 2010-02-27 Filed 2010-03-31
10-K 2009-11-28 Filed 2010-01-22
8-K 2021-01-25 Earnings, Exhibits
8-K 2021-01-21 Exhibits
8-K 2020-11-30 Exhibits
8-K 2020-10-20
8-K 2020-10-07
8-K 2020-09-23
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

Item 1. Financial Statements
Note 1: Basis of Presentation
Note 2: Acquisitions
Note 3: Restructuring Actions
Note 4: Inventories
Note 5: Goodwill and Other Intangible Assets
Note 6: Components of Net Periodic Benefit Related To Pension and Other Postretirement Benefit Plans
Note 7: Accumulated Other Comprehensive Income (Loss)
Note 8: Income Taxes
Note 9: Earnings per Share
Note 10: Financial Instruments
Note 11: Fair Value Measurements
Note 12: Commitments and Contingencies
Note 13: Segments
EX-31.1 ex_212180.htm
EX-31.2 ex_212181.htm
EX-32.1 ex_212182.htm
EX-32.2 ex_212183.htm

HB Fuller Earnings 2021-02-27

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

ful20200829_10q.htm
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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 February 27, 2021

 

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 52,247,580 as of March 19, 2021.

 

 

 

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 months ended February 27, 2021 and February 29, 2020

3

     
 

Consolidated Statements of Comprehensive Income for the three months ended February 27, 2021 and February 29, 2020

4

     
 

Consolidated Balance Sheets as of February 27, 2021 and November 28, 2020

5

     
 

Consolidated Statements of Total Equity for the three months ended February 27, 2021 and February 29, 2020

6

     
 

Consolidated Statements of Cash Flows for the three months ended February 27, 2021 and February 29, 2020

7

     
 

Notes to Consolidated Financial Statements

8

     

ITEM 2.

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

20

     

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

31

     

ITEM 4.

CONTROLS AND PROCEDURES

31

     

PART II. OTHER INFORMATION

31

     

ITEM 1.

LEGAL PROCEEDINGS

31

     

ITEM 1A.

RISK FACTORS

32

     

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

33

     

ITEM 6.

EXHIBITS

34

     

SIGNATURES

35

 

 

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

 
   

February 27,

   

February 29,

 
   

2021

   

2020

 

Net revenue

  $ 725,904     $ 646,564  

Cost of sales

    (533,540 )     (476,302 )

Gross profit

    192,364       170,262  

Selling, general and administrative expenses

    (144,014 )     (141,509 )

Other income, net

    7,869       4,969  

Interest expense

    (20,361 )     (22,757 )

Interest income

    2,659       2,918  

Income before income taxes and income from equity method investments

    38,517       13,883  

Income taxes

    (10,607 )     (5,611 )

Income from equity method investments

    1,896       1,634  

Net income including non-controlling interest

    29,806       9,906  

Net income attributable to non-controlling interest

    (15 )     (11 )

Net income attributable to H.B. Fuller

  $ 29,791     $ 9,895  
                 

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

               

Basic

  $ 0.57     $ 0.19  

Diluted

  $ 0.56     $ 0.19  
                 

Weighted-average common shares outstanding:

               

Basic

    52,492       51,295  

Diluted

    53,339       52,580  
                 

Dividends declared per common share

  $ 0.163     $ 0.160  

 

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

 
   

February 27,

   

February 29,

 
   

2021

   

2020

 

Net income including non-controlling interest

  $ 29,806     $ 9,906  

Other comprehensive income (loss)

               

Foreign currency translation

    23,137       (2,781 )

Defined benefit pension plans adjustment, net of tax

    1,375       2,086  

Interest rate swaps, net of tax

    4,180       (8,999 )

Cross-currency swaps, net of tax

    (1,046 )     4,644  

Other comprehensive income (loss)

    27,646       (5,050 )

Comprehensive income

    57,452       4,856  

Less: Comprehensive income attributable to non-controlling interest

    5       10  

Comprehensive income attributable to H.B. Fuller

  $ 57,447     $ 4,846  

 

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)

 

  

February 27,

  

November 28,

 
  

2021

  

2020

 

Assets

        

Current assets:

        

Cash and cash equivalents

 $81,192  $100,534 

Trade receivables (net of allowances of $12,037 and $12,905, as of February 27, 2021 and November 28, 2020, respectively)

  504,994   514,916 

Inventories

  388,773   323,213 

Other current assets

  101,641   81,113 

Total current assets

  1,076,600   1,019,776 
         

Property, plant and equipment

  1,443,107   1,428,183 

Accumulated depreciation

  (773,663)  (757,439)

Property, plant and equipment, net

  669,444   670,744 
         

Goodwill

  1,322,160   1,312,003 

Other intangibles, net

  746,996   755,968 

Other assets

  298,550   278,213 

Total assets

 $4,113,750  $4,036,704 
         

Liabilities, non-controlling interest and total equity

        

Current liabilities:

        

Notes payable

 $16,323  $16,925 

Trade payables

  373,604   316,460 

Accrued compensation

  65,994   83,598 

Income taxes payable

  27,793   29,173 

Other accrued expenses

  84,531   83,976 

Total current liabilities

  568,245   530,132 
         

Long-term debt

  1,741,893   1,756,985 

Accrued pension liabilities

  89,273   88,806 

Other liabilities

  272,176   278,919 

Total liabilities

  2,671,587   2,654,842 
         

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 – 52,155,305 and 51,906,663, as of February 27, 2021 and November 28, 2020, respectively

  52,155   51,907 

Additional paid-in capital

  169,010   157,867 

Retained earnings

  1,495,655   1,474,406 

Accumulated other comprehensive loss

  (275,203)  (302,859)

Total H.B. Fuller stockholders' equity

  1,441,617   1,381,321 

Non-controlling interest

  546   541 

Total equity

  1,442,163   1,381,862 

Total liabilities, non-controlling interest and total equity

 $4,113,750  $4,036,704 

 

 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 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 

 

  

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 30, 2019

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

Comprehensive income (loss)

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

Dividends

  -   -   (8,313)  -   -   (8,313)

Stock option exercises

  26   881   -   -   -   907 

Share-based compensation plans and 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 

 

See accompanying Notes to Unaudited Consolidated Financial Statements. 

 

 

 

H.B. FULLER COMPANY AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

   

Three Months Ended

 
   

February 27, 2021

   

February 29, 2020

 

Cash flows from operating activities:

               

Net income including non-controlling interest

  $ 29,806     $ 9,906  

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

               

Depreciation

    17,833       16,595  

Amortization

    17,896       17,990  

Deferred income taxes

    (2,281 )     (4,035 )

Income from equity method investments, net of dividends received

    (1,896 )     (1,634 )

Gain on sale of assets

    (16 )     -  

Share-based compensation

    6,821       4,703  

Pension and other post-retirement benefit plan activity

    (7,999 )     (1,120 )

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

               

Trade receivables, net

    3,318       33,705  

Inventories

    (63,598 )     (46,947 )

Other assets

    (1,871 )     (32,769 )

Trade payables

    67,373       55,110  

Accrued compensation

    (18,146 )     (21,145 )

Other accrued expenses

    753       (3,055 )

Income taxes payable

    882       (3,040 )

Other liabilities

    (17,921 )     12,801  

Other

    4,895       (2,638 )

Net cash provided by operating activities

    35,849       34,427  
                 

Cash flows from investing activities:

               

Purchased property, plant and equipment

    (35,283 )     (32,124 )

Purchased businesses, net of cash acquired

    (5,445 )     (9,500 )

Purchase of assets

    -       (3,998 )

Proceeds from sale of property, plant and equipment

    263       1,516  

Cash payments related to government grant

    (1,526 )     (234 )

Net cash used in investing activities

    (41,991 )     (44,340 )
                 

Cash flows from financing activities:

               

Repayment of long-term debt

    (11,000 )     (13,000 )

Net (payments) proceeds of notes payable

    (22 )     1,497  

Dividends paid

    (8,460 )     (8,222 )

Proceeds from stock options exercised

    6,398       907  

Repurchases of common stock

    (2,580 )     (3,213 )

Net cash used in financing activities

    (15,664 )     (22,031 )
                 

Effect of exchange rate changes on cash and cash equivalents

    2,464       (1,509 )

Net change in cash and cash equivalents

    (19,342 )     (33,453 )

Cash and cash equivalents at beginning of period

    100,534       112,191  

Cash and cash equivalents at end of period

  $ 81,192     $ 78,738  

 

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 28, 2020 as filed with the Securities and Exchange Commission.

 

Change in Accounting Principle - Credit Losses

 

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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. We adopted these ASUs and related standards during the first quarter ended February 27, 2021. Based on the conducted analyses on the change in accounting principle, the ASU did not have a material impact on the Consolidated Statements of Income or the Consolidated Balance Sheets. Therefore, a modified retrospective adjustment was not required. The trade receivables and allowances significant accounting policy has been changed in accordance with these ASUs as follows.

 

Trade Receivables and Allowances

 

Trade receivables are recorded at the invoiced amount and do not bear interest. Allowances are maintained for doubtful accounts, credits related to pricing or quantities shipped and early payment discounts. The allowance for doubtful accounts includes an estimate of future uncollectible receivables based on the aging of the receivable balance and our collection experience. The allowance also includes specific customer accounts when it is probable that the full amount of the receivable will not be collected. Current expectations of future credit losses using market and industry data are considered in the specific customer accounts.

 

New Accounting Pronouncements

 

Recently issued accounting standards or pronouncements have been excluded as they are not relevant to us.

 

8

 
 

Note 2: Acquisitions

 

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 requires 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 goodwill of $849, intangible assets of $5,900 and other net assets of $1,196, was preliminary as of February 27, 2021. The fair value of the contingent consideration as of the date of acquisition was $1,700. See Note 11 for further discussion of the fair value of the contingent consideration. Goodwill is deductible for tax purposes. STR and the related goodwill are reported in our Engineering Adhesives ("EA") 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 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 11 for further discussion of the fair value of the contingent consideration liability. 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

 
  

February 27, 2021

  

February 29, 2020

 

Cost of sales

 $270  $60 

Selling, general and administrative

  1,547   (17)
  $1,817  $43 

 

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 November 30, 2019

 $9,830  $-  $924  $10,754 

Expenses incurred

  2,898   -   1,681   4,579 

Cash payments

  (7,051)  -   (2,357)  (9,408)

Foreign currency translation

  157   -   -   157 

Balance at November 28, 2020

  5,834   -   248   6,082 

Expenses incurred

  223   135   1,459   1,817 

Non-cash charges

  -   (135)  -   (135)

Cash payments

  (1,979)  -   (1,583)  (3,562)

Foreign currency translation

  11   -   -   11 

Balance at February 27, 2021

 $4,089  $-  $124  $4,213 

 

9

 

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:

 

  

February 27,

  

November 28,

 
  

2021

  

2020

 

Raw materials

 $187,214  $151,026 

Finished goods

  201,559   172,187 

Total inventories

 $388,773  $323,213 

 

 

Note 5: Goodwill and Other Intangible Assets

 

The goodwill activity for the three months ended February 27, 2021 is presented below:

 

  

Hygiene, Health

             
  

and Consumable

  

Engineering

  

Construction

     
  

Adhesives

  

Adhesives

  

Adhesives

  

Total

 

Balance at November 28, 2020

 $332,909  $667,863  $311,231  $1,312,003 

Acquisition

  -   849   -   849 

Currency impact

  2,076   7,021   211   9,308 

Balance at February 27, 2021

 $334,985  $675,733  $311,442  $1,322,160 

 

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

 

  

February 27, 2021

 
  

Purchased

                 
  

Technology

  

Customer

             

Amortizable Intangible Assets

 

and Patents

  

Relationships

  

Trade Names

  

Other

  

Total

 

Original cost

 $117,137  $942,271  $64,003  $11,456  $1,134,867 

Accumulated amortization

  (55,793)  (296,582)  (30,981)  (5,041)  (388,397)

Net identifiable intangibles

 $61,344  $645,689  $33,022  $6,415  $746,470 

 

  

November 28, 2020

 
  

Purchased

                 
  

Technology

  

Customer

             

Amortizable Intangible Assets

 

and Patents

  

Relationships

  

Trade Names

  

Other

  

Total

 

Original cost

 $113,775  $933,943  $63,266  $11,410  $1,122,394 

Accumulated amortization

  (53,216)  (279,586)  (29,368)  (4,775)  (366,945)

Net identifiable intangibles

 $60,559  $654,357  $33,898  $6,635  $755,449 

 

Amortization expense with respect to amortizable intangible assets was $17,896 and $17,990 for the three months ended February 27, 2021 and February 29, 2020, respectively.

 

10

 

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

 

2021

  

2022

  

2023

  

2024

  

2025

  

Thereafter

 

Amortization expense

 $53,296  $69,644  $66,743  $61,662  $59,013  $436,112 

 

Non-amortizable intangible assets as of  February 27, 2021 and November 28, 2020 are $526 and $519, respectively, and are related to trademarks and trade names. The change in non-amortizable assets as of February 27, 2021 compared to November 28, 2020 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 February 27, 2021 and February 29, 2020

 
                  

Other

 
  

Pension Benefits

  

Postretirement

 
  

U.S. Plans

  

Non-U.S. Plans

  

Benefits

 

Net periodic cost (benefit):

 

2021

  

2020

  

2021

  

2020

  

2021

  

2020

 

Service cost

 $-  $-  $833  $725  $5  $18 

Interest cost

  2,325   2,935   733   794   205   284 

Expected return on assets

  (7,781)  (6,440)  (3,077)  (2,842)  (2,235)  (1,994)

Amortization:

                        

Prior service cost (benefit)

  (1)  (1)  17   16   -   - 

Actuarial loss

  799   1,799   1,022   950   18   15 

Net periodic benefit

 $(4,658) $(1,707) $(472) $(357) $(2,007) $(1,677)

 

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.

 

 

Note 7: Accumulated Other Comprehensive Income (Loss)

 

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

 

  

Three Months Ended February 27, 2021

  

Three Months Ended February 29, 2020

 
              

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         $29,791  $15          $9,895  $11 

Foreign currency translation adjustment¹

 $23,147  $-   23,147   (10) $(2,780) $-   (2,780)  (1)

Defined benefit pension plans adjustment²

  1,855   (480)  1,375   -   2,779   (693)  2,086   - 

Interest rate swap³

  5,537   (1,357)  4,180   -   (11,900)  2,901   (8,999)  - 

Cross currency swaps³

  (1,062)  16   (1,046)  -   4,746   (102)  4,644   - 

Other comprehensive income (loss)

 $29,477  $(1,821) $27,656  $(10) $(7,155) $2,106  $(5,049) $(1)

Comprehensive income

         $57,447  $5          $4,846  $10 

 

¹ Income taxes are not provided for foreign currency translation relating to permanent investments in international subsidiaries.

 

² Loss reclassified from accumulated other comprehensive income ("AOCI") into earnings as part of net periodic cost related to pension and other postretirement benefit plans is reported in cost of sales and SG&A expense.

 

³ Income (loss) reclassified from AOCI into earnings is reported in other income (expense), net.

 

11

 

The components of accumulated other comprehensive loss is as follows:

 

  

February 27, 2021

 
          

Non-

 
      

H.B. Fuller

  

controlling

 
  

Total

  

Stockholders

  

Interest

 

Foreign currency translation adjustment

 $(82,983) $(82,858) $(125)

Interest rate swap, net of taxes of $6,796

  (20,923)  (20,923)  - 

Cash flow hedges, net of taxes of ($105)

  6,923   6,923   - 

Defined benefit pension plans adjustment, net of taxes of $80,176

  (160,004)  (160,004)  - 

Reclassification of AOCI tax effects

  (18,341)  (18,341)  - 

Accumulated other comprehensive loss

 $(275,328) $(275,203) $(125)

 

  

November 28, 2020

 
          

Non-

 
      

H.B. Fuller

  

controlling

 
  

Total

  

Stockholders

  

Interest

 

Foreign currency translation adjustment

 $(106,140) $(106,005) $(135)

Interest rate swap, net of taxes of $8,153

  (25,103)  (25,103)  - 

Cash flow hedges, net of taxes of ($121)

  7,969   7,969   - 

Defined benefit pension plans adjustment, net of taxes of $80,656

  (161,379)  (161,379)  - 

Reclassification of AOCI tax effects

  (18,341)  (18,341)  - 

Accumulated other comprehensive loss

 $(302,994) $(302,859) $(135)

 

 

Note 8: Income Taxes

 

As of  February 27, 2021, we had a liability of $14,556 recorded for gross unrecognized tax benefits (excluding interest) compared to $14,569 as of November 28, 2020. As of February 27, 2021 and November 28, 2020, we had accrued $3,239 and $2,881 of gross interest relating to unrecognized tax benefits, respectively.

 

Income tax expense for the three months ended February 27, 2021 includes $42 of discrete tax expense. Excluding the discrete tax benefit, the overall effective tax rate was 27.4 percent for the three months ended February 27, 2021

 

Income tax expense for the three months ended February 29, 2020 includes $2,004 of discrete tax expense. Excluding the discrete tax expense, the overall effective tax rate was 25.9 percent for the three months ended February 29, 2020.

 

 

Note 9: 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

 
  

February 27,

  

February 29,

 

(Shares in thousands)

 

2021

  

2020

 

Weighted-average common shares - basic

  52,492   51,295 

Equivalent shares from share-based compensations plans

  847   1,285 

Weighted-average common and common equivalent shares diluted

  53,339   52,580 

 

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.

 

12

 

Share-based compensation awards for 2,789,184 and 3,606,776 shares for the three months ended February 27, 2021 and February 29, 2020, respectively, were excluded from diluted earnings per share calculations because they were antidilutive.

 

 

Note 10: 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.

 

We use foreign currency forward contracts, cross-currency swaps and interest rate swaps 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

 

As of February 27, 2021, we had six cross-currency swap agreements effective October 20, 2017 to convert a notional amount of $401,200 of foreign currency denominated intercompany loans into U.S. dollars, which mature in 2021 and 2022.  As of February 27, 2021, the combined fair value of the swaps was a liability of $2,302 and was included in other liabilities in the Consolidated Balance Sheets. The swaps were designated as cash flow hedges for accounting treatment.  The lesser amount between the cumulative change in the fair value of the actual swaps and the cumulative change in the fair value of hypothetical swaps is recorded in accumulated other comprehensive income (loss) in the Consolidated Balance Sheets and in other net cash provided by operating activities in the Consolidated Statement of Cash Flows. The differences between the cumulative change in the fair value of the actual swaps and the cumulative change in the fair value of hypothetical swaps are recorded as other income (expense), net in the Consolidated Statements of Income. In a perfectly effective hedge relationship, the two fair value calculations would exactly offset each other. Any difference in the calculation represents hedge ineffectiveness. The amount in accumulated other comprehensive income (loss) related to cross-currency swaps was a gain of $6,923 as of February 27, 2021. The estimated net amount of the existing gain that is reported in accumulated other comprehensive income (loss) as of February 27, 2021 that is expected to be reclassified into earnings within the next twelve months is $4,436.  As of February 27, 2021, we do not believe any gains or losses will be reclassified into earnings as a result of the discontinuance of these cash flow hedges because the original forecasted transaction will not occur.

 

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The following table summarizes the cross-currency swaps outstanding as of February 27, 2021:

 

 

Fiscal Year of

    

Notional

     
 

Expiration

 

Interest Rate

  

Value

  

Fair Value

 

Pay EUR

2021

 2.75%  $133,340  $(1,945)

Receive USD

 4.9330%         
             

Pay EUR

2022

 3.00%  $267,860  $(357)

Receive USD

 5.1803%         
             

Total

    $401,200  $(2,302)

 

On February 27, 2018, we entered into an interest rate swap agreement to convert $200,000 of our $2,150,000 Term Loan B to a fixed interest rate of 4.589 percent. On October 20, 2017, we entered into interest rate swap agreements to convert $1,050,000, which was amortized down to $925,000 on October 20, 2020, of our $2,150,000 Term Loan B to a fixed interest rate of 4.0275 percent. The combined fair value of the interest rate swaps was a liability of $27,718 at February 27, 2021 and was included in other liabilities in the Consolidated Balance Sheets. The swaps were designated for hedge accounting treatment as cash flow hedges. 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 $1,125,000 variable rate Term Loan B are compared with the change in the fair value of the swaps.

 

On April 23, 2018, we amended our Term Loan B Credit Agreement to reduce the interest rate from LIBOR plus 2.25 percent to LIBOR plus 2.00 percent. Fixed interest rates related to swap agreements disclosed have been updated to reflect the amendment.

 

The amounts of pretax gains (losses) recognized in Comprehensive Income related to derivative instruments designated as cash flow hedges are as follows:

 

  

Three Months Ended

 
  

February 27, 2021

  

February 29, 2020

 

Cross-currency swap contracts

 $(1,062) $4,746 

Interest rate swap contracts

  5,537   (11,900)

 

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. The combined fair value of the interest rate swaps was a liability of $4,494 at  February 27, 2021, and was included in other liabilities in the Consolidated Balance Sheets. The swaps were designated for hedge accounting treatment as fair value hedges. We apply the short cut method and assume hedge effectiveness. Changes in the fair value of a hypothetically perfect swap with terms that match the critical terms of our $300,000 fixed rate Public Notes are compared with the change in the fair value of the swaps.

 

14

 

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 11 for fair value amounts of these derivative instruments.

 

As of February 27, 2021, we had forward foreign currency contracts maturing between March 1, 2021 and October 19, 2021. The mark-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 (losses) gains recognized in other income, net related to derivative instruments not designated as hedging instruments for the three months ended February 27, 2021 and February 29, 2020 were $(5,205) and $3,230, 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 February 27, 2021, there were no significant concentrations of credit risk.

 

 

Note 11: 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 February 27, 2021 and November 28, 2020, and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value.

 

  

February 27,

  

Fair Value Measurements Using:

 

Description

 

2021