10-Q 1 ful20220528_10q.htm FORM 10-Q ful20220528_10q.htm
0000039368 FULLER H B CO false --11-26 Q2 2022 12,701 9,935 0 0 10,045,900 10,045,900 1.00 1.00 160,000,000 160,000,000 53,153,056 52,777,753 0 0 27.9 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 May 28, 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 53,162,785 as of June 17, 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 six months ended May 28, 2022 and May 29, 2021

4

     
 

Consolidated Statements of Comprehensive Income for the three and six months ended May 28, 2022 and May 29, 2021

5

     
 

Consolidated Balance Sheets as of May 28, 2022 and November 27, 2021

6

     
 

Consolidated Statements of Total Equity for the three and six months ended May 28, 2022 and May 29, 2021

7

     
 

Consolidated Statements of Cash Flows for the six months ended May 28, 2022 and May 29, 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

  

Six Months Ended

 
  

May 28,

  

May 29,

  

May 28,

  

May 29,

 
  

2022

  

2021

  

2022

  

2021

 

Net revenue

 $993,258  $827,873  $1,849,739  $1,553,777 

Cost of sales

  (739,737)  (610,323)  (1,383,326)  (1,143,863)

Gross profit

  253,521   217,550   466,413   409,914 

Selling, general and administrative expenses

  (166,007)  (148,409)  (321,898)  (292,423)

Other income, net

  -   11,879   6,142   19,748 

Interest expense

  (19,828)  (19,942)  (38,025)  (40,303)

Interest income

  2,091   2,530   4,030   5,189 

Income before income taxes and income from equity method investments

  69,777   63,608   116,662   102,125 

Income taxes

  (23,616)  (16,660)  (33,765)  (27,267)

Income from equity method investments

  1,066   2,176   2,649   4,072 

Net income including non-controlling interest

  47,227   49,124   85,546   78,930 

Net income attributable to non-controlling interest

  (24)  (22)  (37)  (37)

Net income attributable to H.B. Fuller

 $47,203  $49,102  $85,509  $78,893 
                 

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

                

Basic

 $0.88  $0.93  $1.60  $1.50 

Diluted

 $0.86  $0.90  $1.55  $1.47 
                 

Weighted-average common shares outstanding:

                

Basic

  53,497   52,839   53,425   52,666 

Diluted

  55,078   54,294   55,237   53,817 
                 

Dividends declared per common share

 $0.190  $0.168  $0.358  $0.330 

 

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 28,

  

May 29,

  

May 28,

  

May 29,

 
  

2022

  

2021

  

2022

  

2021

 

Net income including non-controlling interest

 $47,227  $49,124  $85,546  $78,930 

Other comprehensive (loss) income

                

Foreign currency translation

  (84,110)  55,524   (77,579)  78,661 

Defined benefit pension plans adjustment, net of tax

  2,803   1,371   3,292   2,746 

Interest rate swaps, net of tax

  3,347   3,564   9,578   7,744 

Cross-currency swaps, net of tax

  (1,210)  (1,241)  (3,293)  (2,287)

Other comprehensive (loss) income

  (79,170)  59,218   (68,002)  86,864 

Comprehensive (loss) income

  (31,943)  108,342   17,544   165,794 

Less: Comprehensive income attributable to non-controlling interest

  12   34   16   39 

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

 $(31,955) $108,308  $17,528  $165,755 

 

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 28,

  

November 27,

 
  

2022

  

2021

 

Assets

        

Current assets:

        

Cash and cash equivalents

 $68,149  $61,786 

Trade receivables (net of allowances of $12,701 and $9,935, as of May 28, 2022 and November 27, 2021, respectively)

  644,544   614,645 

Inventories

  543,126   448,404 

Other current assets

  153,187   96,335 

Total current assets

  1,409,006   1,221,170 
         

Property, plant and equipment

  1,527,711   1,500,989 

Accumulated depreciation

  (825,256)  (805,622)

Property, plant and equipment, net

  702,455   695,367 
         

Goodwill

  1,406,369   1,298,845 

Other intangibles, net

  737,551   687,075 

Other assets

  365,098   372,073 

Total assets

 $4,620,479  $4,274,530 
         

Liabilities, non-controlling interest and total equity

        

Current liabilities:

        

Notes payable

 $31,867  $24,983 

Trade payables

  507,103   500,321 

Accrued compensation

  67,991   109,542 

Income taxes payable

  28,180   15,943 

Other accrued expenses

  86,842   86,061 

Total current liabilities

  721,983   736,850 
         

Long-term debt

  1,903,977   1,591,479 

Accrued pension liabilities

  69,820   71,651 

Other liabilities

  309,945   277,190 

Total liabilities

  3,005,725   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 – 53,153,056 and 52,777,753 as of May 28, 2022 and November 27, 2021, respectively

  53,153   52,778 

Additional paid-in capital

  232,253   213,637 

Retained earnings

  1,666,969   1,600,601 

Accumulated other comprehensive loss

  (338,228)  (270,247)

Total H.B. Fuller stockholders' equity

  1,614,147   1,596,769 

Non-controlling interest

  607   591 

Total equity

  1,614,754   1,597,360 

Total liabilities, non-controlling interest and total equity

 $4,620,479  $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 

 

  

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 

 

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 28, 2022

  

May 29, 2021

 

Cash flows from operating activities:

        

Net income including non-controlling interest

 $85,546  $78,930 

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

        

Depreciation

  36,333   35,976 

Amortization

  36,412   35,649 

Deferred income taxes

  (4,961)  (1,167)

Income from equity method investments, net of dividends received

  (2,649)  (4,072)

       Loss on sale or disposal of assets

  (1,087)  - 

Share-based compensation

  13,625   12,486 

Pension and other post-retirement benefit plan activity

  (9,720)  (15,927)

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

        

Trade receivables, net

  (35,491)  (43,191)

Inventories

  (95,413)  (100,358)

Other assets

  (21,908)  (21,709)

Trade payables

  27,237   115,488 

Accrued compensation

  (40,448)  (8,760)

Other accrued expenses

  4,402   1,925 

Income taxes payable

  (5,864)  (1,513)

Other liabilities

  (23,597)  (28,980)

Other

  28,452   25,055 

Net cash (used in) provided by operating activities

  (9,131)  79,832 
         

Cash flows from investing activities:

        

Purchased property, plant and equipment

  (69,055)  (50,726)

Purchased businesses, net of cash acquired

  (229,314)  (5,445)

Proceeds from sale of property, plant and equipment

  1,269   1,237 

       Cash received from government grant

  3,928   - 

Cash payments related to government grant

  -   (1,526)

Net cash used in investing activities

  (293,172)  (56,460)
         

Cash flows from financing activities:

        

Proceeds from debt

  335,000   - 

Repayment of long-term debt

  -   (68,000)

       Payment of debt issuance costs

  (600)  - 

Net proceeds of notes payable

  3,565   9,335 

Dividends paid

  (18,965)  (17,244)

       Contingent consideration payment

  (5,000)  - 

Proceeds from stock options exercised

  7,837   20,621 

Repurchases of common stock

  (3,609)  (2,628)

Net cash provided by (used in) financing activities

  318,228   (57,916)
         

Effect of exchange rate changes on cash and cash equivalents

  (9,562)  3,607 

Net change in cash and cash equivalents

  6,363   (30,937)

Cash and cash equivalents at beginning of period

  61,786   100,534 

Cash and cash equivalents at end of period

 $68,149  $69,597 

 

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

 

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 GBP 151,214, or approximately $203,573, which was funded through borrowings on our credit facility. The agreement requires us to pay an additional GBP 1,500, or approximately $2,019, following the completion of certain environmental studies. 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 May 28, 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

  

May 28, 2022

 

Cash

 $12,165   -  $12,165 

Current assets

  18,873   -   18,873 

Property, plant and equipment

  7,877   -   7,877 

Goodwill

  104,885   13,359   118,244 

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 

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 12 years for customer relationships and technology and 10 years for trademarks/trade names.

 

Based on the fair value measurement of the assets acquired and liabilities assumed, we allocated $118,244 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 EUR 12,867, or approximately $14,627, which was funded through existing cash. The agreement requires us to pay an additional EUR 3,100, 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 May 28, 2022 and includes intangible assets of $10,117, goodwill of $6,593, cash of $75 and other net assets of $1,366. 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 May 28, 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

  

Six Months Ended

 
  

May 28, 2022

  

May 29, 2021

  

May 28, 2022

  

May 29, 2021

 

Cost of sales

 $-  $23  $(152) $293 

Selling, general and administrative

  14   (201)  (75)  1,346 
  $14  $(178) $(227) $1,639 

 

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

  (227)  -   (227)

Cash payments

  (530)  -   (530)

Foreign currency translation

  (40)  -   (40)

Balance at May 28, 2022

 $298  $-  $298 

 

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 28,

  

November 27,

 
  

2022

  

2021

 

Raw materials

 $274,704  $226,723 

Finished goods

  268,422   221,681 

Total inventories

 $543,126  $448,404 

 

 

Note 5: Goodwill and Other Intangible Assets

 

The goodwill activity by reportable segment for the six months ended May 28, 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

  -   -   6,222   6,222 

Apollo acquisition

  -   -   110,815   110,815 

Foreign currency translation effect

  (6,250)  (17,067)  39   (23,278)

Balance at May 28, 2022

 $332,985  $644,954  $428,430  $1,406,369 

 

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

 

  

May 28, 2022

 
  

Purchased

                 
  

Technology

  

Customer

             

Amortizable Intangible Assets

 

and Patents

  

Relationships

  

Trade Names

  

Other

  

Total

 

Original cost

 $120,094  $1,008,089  $49,929  $11,048  $1,189,160 

Accumulated amortization

  (64,174)  (362,491)  (19,614)  (5,798)  (452,077)

Net identifiable intangibles

 $55,920  $645,598  $30,315  $5,250  $737,083 

 

  

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 $18,620 and $17,753 for the three months ended May 28, 2022 and May 29, 2021, respectively, and $36,412 and $35,649 for the six months ended May 28, 2022 and May 29, 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

 $50,012  $69,293  $65,104  $62,851  $56,546  $433,277 

 

Non-amortizable intangible assets as of  May 28, 2022 and November 27, 2021 are $468 and $493, respectively, and are related to trademarks and trade names. The change in non-amortizable assets as of May 28, 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 May 28, 2022 and May 29, 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

 $-  $-  $700  $821  $-  $5 

Interest cost

  2,368   2,325   736   739   184   206 

Expected return on assets

  (7,117)  (7,781)  (1,644)  (3,104)  (2,719)  (2,236)

Amortization:

                        

Prior service cost (benefit)

  (1)  (1)  16   17   -   - 

Actuarial loss

  1,013   799   611   1,016   (845)  18 

Settlement charge

  -   -   3,329   -   -   - 

Net periodic benefit

 $(3,737) $(4,658) $3,748  $(511) $(3,380) $(2,007)

 

  

Six Months Ended May 28, 2022 and May 29, 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

 $-  $-  $1,420  $1,654  $-  $11 

Interest cost

  4,735   4,650   1,525   1,472   367   411 

Expected return on assets

  (14,235)  (15,561)  (3,391)  (6,181)  (5,437)  (4,472)

Amortization:

                        

Prior service cost (benefit)

  (2)  (2)  32   34   -   - 

Actuarial loss

  2,027   1,599   1,260   2,038   (1,690)  36 

Settlement charge

  -   -   3,329   -   -   - 

Net periodic benefit

 $(7,475) $(9,314) $4,175  $(983) $(6,760) $(4,014)

 

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.

 

In the second quarter of 2022, we recognized a non-cash settlement charge of $3,329 related to the termination of our Canadian defined benefit pension plan. The settlement charge is included in other income, net in the Consolidated Statements of Income.

 

12

 
 

Note 7: Accumulated Other Comprehensive Income (Loss)

 

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

 

  

Three Months Ended May 28, 2022

  

Three Months Ended May 29, 2021

 
              

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

         $47,203  $24          $49,102  $22 

Foreign currency translation adjustment¹

 $(84,098) $-   (84,098)  (12) $55,512  $-   55,512   12 

Defined benefit pension plans adjustment²

  3,872   (1,069)  2,803   -   1,851   (480)  1,371   - 

Interest rate swap³

  4,435   (1,088)  3,347   -   4,721   (1,157)  3,564   - 

Cross currency swaps³

  (1,228)  18   (1,210)  -   (1,258)  17   (1,241)  - 

Other comprehensive income (loss)

 $(77,019) $(2,139) $(79,158) $(12) $60,826  $(1,620) $59,206  $12 

Comprehensive income (loss)

         $(31,955) $12          $108,308  $34 

 

  

Six Months Ended May 28, 2022

  

Six Months Ended May 29, 2021

 
              

Non-

              

Non-

 
              

controlling

              

controlling

 
  

H.B. Fuller Stockholders

  

Interest

  

H.B. Fuller Stockholders

  

Interest

 
  

Pretax

  

Tax

  

Net

  

Net

  

Pretax

  

Tax

  

Net

  

Net

 

Net income attributable to H.B. Fuller and non-controlling interest

         $85,509  $37          $78,893  $37 

Foreign currency translation adjustment¹

 $(77,558) $-   (77,558)  (21) $78,659  $-   78,659   2 

Defined benefit pension plans adjustment²

  4,705   (1,413)  3,292   -   3,706   (960)  2,746