Change in Accounting Principl

e – Accounting for Inventory

During the year ended

December 2, 2018,

we elected to change our method of accounting for certain inventories in the United States within the Company’s Americas Adhesives and Construction Adhesives segments from the last-in,

first

-out method (“LIFO”) to weighted-average cost. We retrospectively adjusted the Consolidated Financial Statements for all periods presented to reflect this change.

Change in Accounting Principle – Revenue Recognition

May 2014,

the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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

three

months 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 2, 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

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

and were adopted during the

three

months ended

March 2, 2019

with ASU

No.

2014

as discussed above.

Change in Accounting Principle –

Income Tax Impact of

Intra-Entity Transfers of Assets Other Than Inventory

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

three

months ended

March 2, 2019.

We recorded a decrease to opening retained earnings of

$733

as of

December 2, 2018

as a result of the adoption of this ASU.

Change in Accounting Principle –

Net Periodic Defined Benefit Pension and Postretirement Benefit Costs

March 2017,

the FASB issued ASU

No.

2017

07,

Compensation-Retirement Benefits (Topic

715

): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,

which requires employers to include only the service cost component of net periodic pension cost and net periodic postretirement benefit cost in operating expenses. The other components of net benefit cost, including amortization of prior service cost/credit, and settlement and curtailment effects, are to be included in non-operating expenses. The classification requirements of this ASU are applied on a retrospective basis. The ASU also stipulates that only the service cost component of net benefit cost is eligible for capitalization on a prospective basis. We adopted this ASU during the

three

months ended

March 2, 2019.

As a result of adoption, the components of our net periodic defined benefit pension and postretirement benefit costs other than service cost are now presented as non-operating expenses for all periods presented. Service cost remains in operating expenses. As a result of the retrospective adjustment for the change in accounting principle, certain amounts in our Condensed Consolidated Statement of Income for the

three

months ended

March 3, 2018

were adjusted as follows:

	As Reported			Impact of Adoption of ASU 2017-07			As Adjusted
Cost of sales	$	(525,374	)	$	(2,192	)	$	(527,566	)
Gross profit		187,705			(2,192	)		185,513
Selling, general and administrative expenses		(151,020	)		(1,687	)		(152,707	)
Other income (expense), net		1,033			3,879			4,912

Net income including non-controlling interests		47,667			-			47,667

Net income attributable to H.B. Fuller		47,682			-			47,682
Basic	$	0.94		$	-		$	0.94

Diluted		0.92			-			0.92

New Accounting Pronouncements

August 2018,

the FASB issued ASU

No.

2018

15,

Intangibles - Goodwill and Other - Internal-Use Software (Subtopic

350

): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force).

This ASU requires entities that are customers in cloud computing arrangements to defer implementation costs if they would be capitalized by the entity in software licensing arrangements under the internal-use software guidance. The ASU

may

be applied retrospectively or prospectively to implementation costs incurred after the date of adoption. Our effective date for adoption of this ASU is our fiscal year beginning

November 29, 2020

with early adoption permitted. We early adopted this ASU during the

three

months ended

March 2, 2019

on a prospective basis which did

not

have a material impact on our Consolidated Financial Statements and related disclosures.

August 2018,

the FASB issued ASU

No.

2018

13,

Fair Value Measurement (Topic

820

): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.

This ASU modifies the disclosure requirements on fair value measurements. The ASU removes the requirement to disclose: the amount of and reasons for transfers between Level

and Level

of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level

fair value measurements. The ASU requires disclosure of changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level

fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level

fair value measurements. Our effective date for adoption of this ASU is our fiscal year beginning

November 29, 2020

with early adoption permitted. We have evaluated the effect that this ASU will have on our Consolidated Financial Statements and related disclosures and determined it will

not

have a material impact.

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. The amendments in this ASU are effective in the same timeframe as ASU

No.

2016

as discussed below. We are incorporating this ASU into our assessment and adoption of ASU

No.

2016

02.

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 are incorporating into our assessment and adoption of ASU

No.

2016

02.

The amendments in this ASU are effective in the same timeframe as ASU

No.

2016

as discussed below.

August 2016,

the FASB issued ASU

No.

2016

15,

Statement of Cash Flows (Topic

230

): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force).

This ASU requires changes in the presentation of certain items including, but

not

limited to, debt prepayment or debt extinguishment costs; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies and distributions received from equity method investees. We adopted this ASU during the

three

months ended

March 2, 2019.

Adoption of this ASU will have a presentation impact only and will result in a retrospective reclassification of debt prepayment and extinguishment costs of

$16,598

within the Consolidated Statement of Cash Flows for the year ended

December 2, 2017

from operating to financing cash outflows.

June 2016,

the FASB issued ASU

No.

2016

, 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. In

November 2018,

the FASB also issued ASU

No.

2018

19,

Codification Improvements to Topic

326,

Financial Instruments - Credit Losses.

This ASU clarifies that receivables arising from operating leases are within the scope of Topic

842,

Leases

. The amendments in this ASU affect the guidance in ASU

No.

2016

and are effective in the same timeframe as ASU

No.

2016

13.

Our effective date for adoption of this ASU is our fiscal year beginning

November 29, 2020.

We are currently evaluating the effect that this ASU will have on our Consolidated Financial Statements.

February 2016,

the FASB issued 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. Our effective date for adoption of this ASU is our fiscal year beginning

December 1, 2019

with early adoption permitted. The new ASU must be adopted using a modified retrospective transition approach, and provides for certain practical expedients. We have begun implementing lease accounting software and are currently evaluating the impact that the new ASU will have on our Consolidated Financial Statements.