UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
H.B. FULLER COMPANY
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer |
| incorporation or organization) | Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (
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 |
| | | |
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.
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).
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):
| 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
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
Quarterly Report on Form 10-Q
Table of Contents
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 | |||||||||||||||
| June 3, | May 28, | June 3, | May 28, | |||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net revenue | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gross profit | ||||||||||||||||
| Selling, general and administrative expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income, net | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest income | ||||||||||||||||
| Income before income taxes and income from equity method investments | ||||||||||||||||
| Income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income from equity method investments | ||||||||||||||||
| Net income including non-controlling interest | ||||||||||||||||
| Net income attributable to non-controlling interest | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income attributable to H.B. Fuller | $ | $ | $ | $ | ||||||||||||
| Earnings per share attributable to H.B. Fuller common stockholders: | ||||||||||||||||
| Basic | $ | $ | $ | $ | ||||||||||||
| Diluted | $ | $ | $ | $ | ||||||||||||
| Weighted-average common shares outstanding: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
| Dividends declared per common share | $ | $ | $ | $ | ||||||||||||
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 | |||||||||||||||
| June 3, | May 28, | June 3, | May 28, | |||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net income including non-controlling interest | $ | $ | $ | $ | ||||||||||||
| Other comprehensive income (loss) | ||||||||||||||||
| Foreign currency translation | ( | ) | ( | ) | ||||||||||||
| Defined benefit pension plans adjustment, net of tax | ||||||||||||||||
| Interest rate swaps, net of tax | ( | ) | ( | ) | ||||||||||||
| Cross-currency swaps, net of tax | ( | ) | ( | ) | ||||||||||||
| Net investment hedges, net of tax | ( | ) | ( | ) | ||||||||||||
| Other comprehensive income (loss) | ( | ) | ( | ) | ||||||||||||
| Comprehensive income (loss) | ( | ) | ||||||||||||||
| Less: Comprehensive income attributable to non-controlling interest | ||||||||||||||||
| Comprehensive income (loss) attributable to H.B. Fuller | $ | $ | ( | ) | $ | $ | ||||||||||
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)
| June 3, | December 3, | |||||||
| 2023 | 2022 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Trade receivables (net of allowances of $ and $, as of June 3, 2023 and December 3, 2022, respectively) | ||||||||
| Inventories | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Property, plant and equipment, net | ||||||||
| Goodwill | ||||||||
| Other intangibles, net | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities, non-controlling interest and total equity | ||||||||
| Current liabilities | ||||||||
| Notes payable | $ | $ | ||||||
| Trade payables | ||||||||
| Accrued compensation | ||||||||
| Income taxes payable | ||||||||
| Other accrued expenses | ||||||||
| Total current liabilities | ||||||||
| Long-term debt | ||||||||
| Accrued pension liabilities | ||||||||
| Other liabilities | ||||||||
| Total liabilities | $ | $ | ||||||
| Commitments and contingencies (Note 13) | ||||||||
| Equity | ||||||||
| H.B. Fuller stockholders' equity: | ||||||||
| Preferred stock ( shares outstanding) shares authorized – | ||||||||
| Common stock, par value $ per share, shares authorized – , shares outstanding – and as of June 3, 2023 and December 3, 2022, respectively | $ | $ | ||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total H.B. Fuller stockholders' equity | ||||||||
| Non-controlling interest | ||||||||
| Total equity | ||||||||
| Total liabilities, non-controlling interest and total equity | $ | $ | ||||||
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 December 3, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||
| Comprehensive income | ||||||||||||||||||||||||
| Dividends | ( | ) | ( | ) | ||||||||||||||||||||
| Stock option exercises | ||||||||||||||||||||||||
| Share-based compensation plans and other, net | ||||||||||||||||||||||||
| Repurchases of common stock | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Balance at March 4, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||
| Comprehensive income | ||||||||||||||||||||||||
| Dividends | ( | ) | ( | ) | ||||||||||||||||||||
| Stock option exercises | ||||||||||||||||||||||||
| Share-based compensation plans other, net | ||||||||||||||||||||||||
| Repurchases of common stock | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Balance at June 3, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| 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 |
$ | $ | $ | $ | ( |
) | $ | $ | ||||||||||||||||
| Comprehensive income |
||||||||||||||||||||||||
| Dividends |
( |
) | ( |
) | ||||||||||||||||||||
| Stock option exercises |
||||||||||||||||||||||||
| Share-based compensation plans and other, net |
||||||||||||||||||||||||
| Repurchases of common stock |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
| Balance at February 26, 2022 |
$ | $ | $ | $ | ( |
) | $ | $ | ||||||||||||||||
| Comprehensive income (loss) |
( |
) | ( |
) | ||||||||||||||||||||
| Dividends |
( |
) | ( |
) | ||||||||||||||||||||
| Stock option exercises |
||||||||||||||||||||||||
| Share-based compensation plans other, net |
||||||||||||||||||||||||
| Repurchases of common stock |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
| Balance at May 28, 2022 |
$ | $ | $ | $ | ( |
) | $ | $ | ||||||||||||||||
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 | ||||||||
| June 3, 2023 | May 28, 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income including non-controlling interest | $ | $ | ||||||
| Adjustments to reconcile net income including non-controlling interest to net cash provided by (used in) operating activities: | ||||||||
| Depreciation | ||||||||
| Amortization | ||||||||
| Deferred income taxes | ( | ) | ( | ) | ||||
| Income from equity method investments, net of dividends received | ( | ) | ( | ) | ||||
| Debt issuance costs write-off | ||||||||
| Gain on mark to market adjustment on contingent consideration liability | ( | ) | ||||||
| Gain on sale or disposal of assets | ( | ) | ( | ) | ||||
| Share-based compensation | ||||||||
| Pension and other post-retirement benefit plan activity | ( | ) | ( | ) | ||||
| Change in assets and liabilities, net of effects of acquisitions: | ||||||||
| Trade receivables, net | ( | ) | ||||||
| Inventories | ( | ) | ||||||
| Other assets | ( | ) | ( | ) | ||||
| Trade payables | ( | ) | ||||||
| Accrued compensation | ( | ) | ( | ) | ||||
| Other accrued expenses | ( | ) | ||||||
| Income taxes payable | ( | ) | ||||||
| Other liabilities | ( | ) | ||||||
| Other | ( | ) | ||||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| Cash flows from investing activities: | ||||||||
| Purchased property, plant and equipment | ( | ) | ( | ) | ||||
| Purchased businesses, net of cash acquired | ( | ) | ( | ) | ||||
| Proceeds from sale of property, plant and equipment | ||||||||
| Cash received from government grant | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of long-term debt | ||||||||
| Repayment of long-term debt | ( | ) | ||||||
| Payment of debt issuance costs | ( | ) | ( | ) | ||||
| Net payment of notes payable | ( | ) | ||||||
| Dividends paid | ( | ) | ( | ) | ||||
| Contingent consideration payment | ( | ) | ||||||
| Proceeds from stock options exercised | ||||||||
| Repurchases of common stock | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ) | ||||||
| Net change in cash and cash equivalents | ||||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
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 December 3, 2022 as filed with the Securities and Exchange Commission.
New Accounting Pronouncements
In September 2022, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations. This ASU requires that a buyer in a supplier finance program disclose sufficient information about the program to allow a user of the financial statements to understand the program's nature, activity during the period, changes from period to period, and potential magnitude. To achieve that objective, the buyer should disclose qualitative and quantitative information about its supplier finance programs. Our effective date of this ASU is our fiscal year ending December 1, 2024. We are evaluating the effect that this guidance will have on our Consolidated Financial Statements.
Recently issued accounting standards or pronouncements not disclosed above have been excluded as they are not relevant to the company.
Note 2: Acquisitions
Beardow Adams Holdings Ltd.
On May 1, 2023, we acquired Beardow Adams Holdings Ltd. (“Beardow Adams”) for a total purchase price of
Aspen Research Corporation
On January 31, 2023, we acquired the assets of Aspen Research Corporation (“Aspen”) for a total purchase price of $
Lemtapes Oy
On December 15, 2022, we acquired Lemtapes Oy (“Lemtapes”) for a total purchase price of
GSSI Sealants
On October 24, 2022, we acquired GSSI Sealants, Inc. ("GSSI") for a total purchase price of $
ZKLT Polymer Co.
On August 16, 2022, we acquired ZKLT Polymer Co., Ltd. ("ZKLT") for a base purchase price of
Apollo
On January 26, 2022, we acquired Apollo Chemicals Limited, Apollo Roofing Solutions Limited and Apollo Construction Solutions Limited (collectively, "Apollo") for a total purchase price of
Fourny NV
On January 11, 2022, we acquired Fourny NV ("Fourny") for a base purchase price of
Note 3: Restructuring Actions
During fiscal year 2023, the Company approved restructuring plans related to organizational changes and other actions to optimize operations and are currently expected to be completed during fiscal year 2025.
The following table summarizes the pre-tax distribution of restructuring charges by income statement classification:
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 3, 2023 | May 28, 2022 | June 3, 2023 | May 28, 2022 | |||||||||||||
| Cost of sales | $ | $ | $ | $ | ( | ) | ||||||||||
| Selling, general and administrative | ( | ) | ||||||||||||||
| $ | $ | $ | $ | ( | ) | |||||||||||
The restructuring charges are all recorded in Corporate Unallocated for segment reporting purposes.
A summary of the restructuring liability is presented below:
| Employee-Related | ||||
| Balance at November 27, 2021 | $ | |||
| Expenses incurred | ( | ) | ||
| Cash payments | ( | ) | ||
| Foreign currency translation | ( | ) | ||
| Balance at December 3, 2022 | $ | |||
| Expenses incurred | ||||
| Cash payments | ( | ) | ||
| Foreign currency translation | ( | ) | ||
| Balance at June 3, 2023 | $ | |||
Restructuring liabilities have been classified as a component of other accrued expenses on the Consolidated Balance Sheets.
Note 4: Inventories
The composition of inventories is as follows:
| June 3, | December 3, | |||||||
| 2023 | 2022 | |||||||
| Raw materials | $ | $ | ||||||
| Finished goods | ||||||||
| Total inventories | $ | $ | ||||||
Note 5: Goodwill and Other Intangible Assets
The goodwill activity by reportable segment for the six months ended June 3, 2023 is presented below:
| Hygiene, Health | ||||||||||||||||
| and Consumable | Engineering | Construction | ||||||||||||||
| Adhesives | Adhesives | Adhesives | Total | |||||||||||||
| Balance at December 3, 2022 | $ | $ | $ | $ | ||||||||||||
| Acquisitions | $ | $ | $ | |||||||||||||
| Foreign currency translation effect | $ | $ | $ | |||||||||||||
| Balance at June 3, 2023 | $ | $ | $ | $ | ||||||||||||
Balances of amortizable identifiable intangible assets, excluding goodwill and other non-amortizable intangible assets, are as follows:
| June 3, 2023 | ||||||||||||||||||||
| Purchased | ||||||||||||||||||||
| Technology | Customer | |||||||||||||||||||
| Amortizable Intangible Assets | and Patents | Relationships | Trade Names | Other | Total | |||||||||||||||
| Original cost | $ | $ | $ | $ | $ | |||||||||||||||
| Accumulated amortization | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Net identifiable intangibles | $ | $ | $ | $ | $ | |||||||||||||||
| December 3, 2022 | ||||||||||||||||||||
| Purchased | ||||||||||||||||||||
| Technology | Customer | |||||||||||||||||||
| Amortizable Intangible Assets | and Patents | Relationships | Trade Names | Other | Total | |||||||||||||||
| Original cost | $ | $ | $ | $ | $ | |||||||||||||||
| Accumulated amortization | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Net identifiable intangibles | $ | $ | $ | $ | $ | |||||||||||||||
Amortization expense with respect to amortizable intangible assets was $
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 | 2023 | 2024 | 2025 | 2026 | 2027 | Thereafter | ||||||||||||||||||
| Amortization expense | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Non-amortizable intangible assets as of June 3, 2023 and December 3, 2022 were $
Note 6: Long-Term Debt
On February 15, 2023, we entered into a credit agreement with a consortium of financial institutions (“Second Amended and Restated Credit Agreement”) which replaces our existing revolving credit agreement under the amended and restated revolving credit agreement dated October 20, 2020 and also replaces our secured term loan credit agreement dated October 20, 2017. The Second Amended and Restated Credit Agreement provides for a new senior secured term loan A facility in an aggregate principal amount of $
Term Loans
Interest on Term Loan A is payable at the Secured Overnight Financing Rate ("SOFR") plus an adjustment of
On January 12, 2023, we entered into an interest rate swap agreement to convert $
On March 16, 2023, we entered into interest rate swap agreements to convert $
Revolving Credit Facility
Interest on the Revolving Credit Facility is payable at SOFR plus an adjustment of
The Revolving Credit Facility can be drawn upon for general corporate purposes up to a maximum of $
Covenants and Other
Under the Second Amended and Restated Credit Agreement, the Revolving Credit Facility and Term Loan A are subject to certain covenants and restrictions. For these facilities, we are required to maintain a secured leverage ratio, as defined in the agreement, no greater than
Restrictive covenants include, but are not limited to, limitations on secured and unsecured borrowings, interest coverage, intercompany transfers and investments, third party investments, dispositions of assets, leases, liens, dividends and distributions, and contains a maximum total debt to trailing twelve months EBITDA requirement. Certain covenants become less restrictive after meeting leverage or other financial ratios. In addition, we cannot be a member of any consolidated group as defined for income tax purposes other than with our subsidiaries.
We are subject to mandatory prepayments in the first quarter of each fiscal year equal to
The principal balance of the Term Loan B loans will be repayable in equal quarterly installments in an aggregate annual amount equal to
Note 7: Components of Net Periodic Benefit related to Pension and Other Postretirement Benefit Plans
| Three Months Ended June 3, 2023 and May 28, 2022 | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Pension Benefits | Postretirement | |||||||||||||||||||||||
| U.S. Plans | Non-U.S. Plans | Benefits | ||||||||||||||||||||||
| Net periodic (benefit) cost: | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||
| Service cost | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Interest cost | ||||||||||||||||||||||||
| Expected return on assets | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Amortization: | ||||||||||||||||||||||||
| Prior service (benefit) cost | ( | ) | ||||||||||||||||||||||
| Actuarial loss (gain) | ( | ) | ||||||||||||||||||||||
| Settlement charge | ||||||||||||||||||||||||
| Net periodic (benefit) cost | $ | ( | ) | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||
| Six Months Ended June 3, 2023 and May 28, 2022 | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Pension Benefits | Postretirement | |||||||||||||||||||||||
| U.S. Plans | Non-U.S. Plans | Benefits | ||||||||||||||||||||||
| Net periodic (benefit) cost: | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||
| Service cost | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Interest cost | ||||||||||||||||||||||||
| Expected return on assets | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Amortization: | ||||||||||||||||||||||||
| Prior service (benefit) cost | ( | ) | ||||||||||||||||||||||
| Actuarial loss (gain) | ( | ) | ||||||||||||||||||||||
| Settlement charge | ||||||||||||||||||||||||
| Net periodic (benefit) cost | $ | ( | ) | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||
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 $
Note 8: Accumulated Other Comprehensive Income (Loss)
The following table provides details of total comprehensive income (loss):
| Three Months Ended June 3, 2023 | Three Months Ended May 28, 2022 | |||||||||||||||||||||||||||||||
| 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 | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Foreign currency translation¹ | $ | $ | - | ( | ) | $ | ( | ) | $ | - | ( | ) | ( | ) | ||||||||||||||||||
| Defined benefit pension plans adjustment² | ( | ) | - | ( | ) | - | ||||||||||||||||||||||||||
| Interest rate swaps³ | ( | ) | ( | ) | - | ( | ) | - | ||||||||||||||||||||||||
| Cross-currency swaps³ | - | ( | ) | ( | ) | - | ||||||||||||||||||||||||||
| Net investment hedges³ | ( | ) | ( | ) | - | - | ||||||||||||||||||||||||||
| Other comprehensive income (loss) | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||
| Comprehensive income (loss) | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||
| Six Months Ended June 3, 2023 | Six Months Ended May 28, 2022 | |||||||||||||||||||||||||||||||
| 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 | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Foreign currency translation adjustment¹ | $ | $ | - | ( | ) | $ | ( | ) | $ | - | ( | ) | ( | ) | ||||||||||||||||||
| Defined benefit pension plans adjustment² | ( | ) | - | ( | ) | - | ||||||||||||||||||||||||||
| Interest rate swap³ | ( | ) | ( | ) | - | ( | ) | - | ||||||||||||||||||||||||
| Cross-currency swaps³ | - | ( | ) | ( | ) | - | ||||||||||||||||||||||||||
| Net investment hedges³ | ( | ) | ( | ) | - | - | - | - | - | |||||||||||||||||||||||
| Other comprehensive income (loss) | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ( | ) | ( | ) | |||||||||||||||||
| Comprehensive income | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| 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, net. |
The components of accumulated other comprehensive loss are as follows:
| June 3, 2023 | ||||||||||||
| Non- | ||||||||||||
| H.B. Fuller | controlling | |||||||||||
| Total | Stockholders | Interest | ||||||||||
| Foreign currency translation adjustment | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Interest rate swap, net of taxes of $ | ( | ) | ( | ) | ||||||||
| Net investment hedges, net of taxes of $ | ( | ) | ( | ) | ||||||||
| Defined benefit pension plans adjustment, net of taxes of $ | ( | ) | ( | ) | ||||||||
| Reclassification of AOCI tax effects | ( | ) | ( | ) | ||||||||
| Accumulated other comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| December 3, 2022 | ||||||||||||
| Non- | ||||||||||||
| H.B. Fuller | controlling | |||||||||||
| Total | Stockholders | Interest | ||||||||||
| Foreign currency translation adjustment | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Net investment hedges, net of taxes of $ | ( | ) | ( | ) | ||||||||
| Defined benefit pension plans adjustment, net of taxes of $ | ( | ) | ( | ) | ||||||||
| Reclassification of AOCI tax effects | ( | ) | ( | ) | ||||||||
| Accumulated other comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
Note 9: Income Taxes
Income tax expense for the three and six months ended June 3, 2023 includes $
Income tax expense for the three and six months ended May 28, 2022 includes $
As of June 3, 2023, we had a liability of $
Note 10: 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 | Six Months Ended | |||||||||||||||
| June 3, | May 28, | June 3, | May 28, | |||||||||||||
| (Shares in thousands) | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| Weighted-average common shares - basic | ||||||||||||||||
| Equivalent shares from share-based compensations plans | ||||||||||||||||
| Weighted-average common and common equivalent shares diluted | ||||||||||||||||
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.
Share-based compensation awards of
Note 11: Financial Instruments
Overview
As a result of being a global enterprise, foreign currency exchange rates and fluctuations in those rates may affect the Company's net investment in foreign subsidiaries, and 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, interest rate swaps and net investment hedges 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
On January 12, 2023, we entered into an interest rate swap agreement to convert $
On March 16, 2023, we entered into an interest rate swap agreement to convert $
On March 16, 2023, we entered into an interest rate swap agreement to convert $
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 | Six Months Ended | |||||||||||||||
| June 3, 2023 | May 28, 2022 | June 3, 2023 | May 28, 2022 | |||||||||||||
| Cross-currency swap contracts | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Interest rate swap contracts | ( | ) | ( | ) | ||||||||||||
Fair Value Hedges
On February 12, 2021, we entered into interest rate swap agreements to convert our $
Net Investment Hedges
On October 17, 2022, we entered into a float-to-float cross-currency interest rate swap agreement with a notional amount of maturing in October 2028. On October 20, 2022, we entered into fixed-to-fixed cross-currency interest rate swap agreements for a total notional amount of with tranches maturing in August 2025, August 2026 and February 2027. As of June 3, 2023, the combined fair value of the swaps was a liability of $
The swaps are designated as net investment hedges for accounting treatment. The net gains or losses attributable to changes in spot exchange rates are recorded in the cumulative translation adjustment within other comprehensive income (loss). The gains or losses are reclassified into earnings upon a liquidation event or deconsolidation of the foreign subsidiary. Any ineffective portions of net investment hedges are reclassified from accumulated other comprehensive income (loss) into earnings during the period of change. The amount in accumulated other comprehensive income (loss) related to net investment hedge cross-currency swaps was a loss of $
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.
As of June 3, 2023, we had forward foreign currency contracts maturing between June 5, 2023 and May 13, 2024. 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 gains (losses) recognized in other income, net related to derivative instruments not designated as hedging instruments for the six months ended June 3, 2023 and May 28, 2022 were $
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 June 3, 2023, there were no significant concentrations of credit risk.
Note 12: 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 June 3, 2023 and December 3, 2022, and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value.
| June 3, | Fair Value Measurements Using: | |||||||||||||||
| Description | 2023 | Level 1 | Level 2 | Level 3 | ||||||||||||
| Assets: | ||||||||||||||||
| Marketable securities | $ | $ | $ | - | $ | - | ||||||||||
| Foreign exchange contract assets | - | - | ||||||||||||||
| Interest rate swaps, cash flow hedge assets | ||||||||||||||||
| Liabilities: | ||||||||||||||||
| Foreign exchange contract liabilities | $ | $ | - | $ | - | |||||||||||
| Interest rate swaps, cash flow hedge liabilities | ||||||||||||||||
| Interest rate swaps, fair value hedge liabilities | ||||||||||||||||
| Net investment hedge liabilities | ||||||||||||||||
| Contingent consideration liabilities | ||||||||||||||||
| December 3, | Fair Value Measurements Using: | |||||||||||||||
| Description | 2022 | Level 1 | Level 2 | Level 3 | ||||||||||||
| Assets: | ||||||||||||||||
| Marketable securities | $ | $ | $ | - | $ | - | ||||||||||
| Foreign exchange contract assets | - | - | ||||||||||||||
| Liabilities: | ||||||||||||||||
| Foreign exchange contract liabilities | $ | $ | - | $ | $ | - | ||||||||||
| Interest rate swaps, fair value hedge liabilities | - | |||||||||||||||
| Net investment hedge liabilities | ||||||||||||||||
| Contingent consideration liabilities | ||||||||||||||||
The valuation of our contingent consideration liability related to the acquisitions of ZKLT and TissueSeal was $
| Amounts | ||||
| Balance at December 3, 2022 | $ | |||
| Mark to market adjustment | ( | ) | ||
| Foreign currency translation adjustment | ( | ) | ||
| Balance at June 3, 2023 | $ | |||
Balances Measured at Fair Value on a Nonrecurring Basis
We measure certain assets and liabilities at fair value on a nonrecurring basis. These assets include intangible assets acquired in an acquisition. The identified intangible assets of customer relationships, technology and tradenames acquired in connection with our acquisitions were measured using unobservable (Level 3) inputs. The fair value of the intangible assets was calculated using either the income or cost approach. Significant inputs include estimated revenue growth rates, gross margins, operating expenses, attrition rate, royalty rate and discount rate.
See Note 2 for further discussion regarding our acquisitions.
Balances Disclosed at Fair Value
Long-term debt had an estimated fair value of $
Note 13: Commitments and Contingencies
Environmental Matters
We are involved in environmental investigations, clean-up activities and administrative proceedings related to environmental compliance matters at former and current operating facilities. We have also been identified as a potentially responsible party (“PRP”) under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) and/or similar state laws that impose liability for costs relating to the clean-up of contamination resulting from past spills, disposal or other release of hazardous substances associated with landfills and/or hazardous waste sites. As a PRP, we may be required to pay a share of the costs of investigation and clean-up of these sites. We are subject to similar laws in some of the countries where current and former facilities are located. Our environmental, health and safety department monitors compliance with applicable laws on a global basis. To the extent we can reasonably estimate the amount of our probable liabilities for environmental matters, we establish an undiscounted financial provision. We recorded liabilities of $
While uncertainties exist with respect to the amounts and timing of the ultimate environmental liabilities, based on currently available information, we have concluded that these matters, individually or in the aggregate, will not have a material adverse effect on our results of operations, financial condition or cash flow.
Other Legal Proceedings
From time to time and in the ordinary course of business, we are a party to, or a target of, lawsuits, claims, investigations and proceedings, including product liability, personal injury, contract, patent and intellectual property, environmental, health and safety, tax and employment matters. While we are unable to predict the outcome of these matters, we have concluded, based upon currently available information, that the ultimate resolution of any pending matter, individually or in the aggregate, including the asbestos litigation described in the following paragraphs, will not have a material adverse effect on our results of operations, financial condition or cash flow.
We have been named as a defendant in lawsuits in which plaintiffs have alleged injury due to products containing asbestos manufactured more than 35 years ago. The plaintiffs generally bring these lawsuits against multiple defendants and seek damages (both actual and punitive) in very large amounts. In many cases, plaintiffs are unable to demonstrate that they have suffered any compensable injuries or that the injuries suffered were the result of exposure to products manufactured by us. We are typically dismissed as a defendant in such cases without payment. If the plaintiff presents evidence indicating that compensable injury occurred as a result of exposure to our products, the case is generally settled for an amount that reflects the seriousness of the injury, the length, intensity and character of exposure to products containing asbestos, the number and solvency of other defendants in the case, and the jurisdiction in which the case has been brought.
A significant portion of the defense costs and settlements in asbestos-related litigation is paid by third parties, including indemnification pursuant to the provisions of a 1976 agreement under which we acquired a business from a third party. Currently, this third party is defending and paying settlement amounts, under a reservation of rights, in most of the asbestos cases tendered to the third party.
In addition to the indemnification arrangements with third parties, we have insurance policies that generally provide coverage for asbestos liabilities, including defense costs. Historically, insurers have paid a significant portion of our defense costs and settlements in asbestos-related litigation. However, certain of our insurers are insolvent. We have entered into cost-sharing agreements with our insurers that provide for the allocation of defense costs and settlements and judgments in asbestos-related lawsuits. These agreements require, among other things, that we fund a share of settlements and judgments allocable to years in which the responsible insurer is insolvent.
A summary of the number of and settlement amounts for asbestos-related lawsuits and claims is as follows:
| Six Months Ended | 3 Years Ended | |||||||||||
| June 3, 2023 | May 28, 2022 | December 3, 2022 | ||||||||||
| Lawsuits and claims settled | ||||||||||||
| Settlement amounts | $ | $ | $ | |||||||||
| Insurance payments received or expected to be received | $ | $ | $ | |||||||||
We do not believe that it would be meaningful to disclose the aggregate number of asbestos-related lawsuits filed against us because relatively few of these lawsuits are known to involve exposure to asbestos-containing products that we manufactured. Rather, we believe it is more meaningful to disclose the number of lawsuits that are settled and result in a payment to the plaintiff. To the extent we can reasonably estimate the amount of our probable liabilities for pending asbestos-related claims, we establish a financial provision and a corresponding receivable for insurance recoveries.
Based on currently available information, we have concluded that the resolution of any pending matter, including asbestos-related litigation, individually or in the aggregate, will not have a material adverse effect on our results of operations, financial condition or cash flow.
Note 14: Segments
We are required to report segment information in the same way that we internally organize our business for assessing performance and making decisions regarding allocation of resources. Revenue and operating income of each of our segments are regularly reviewed by our chief operating decision maker to make decisions about resources to be allocated to the segments and assess their performance. Segment operating income is identified as gross profit less SG&A expenses. Corporate expenses, other than those included in Corporate Unallocated, are allocated to each operating segment. Consistent with our internal management reporting, Corporate Unallocated amounts include business acquisition and integration costs, organizational restructuring charges and project costs associated with our implementation of Project ONE. Corporate assets are not allocated to the operating segments. Inter-segment revenues are recorded at cost plus a markup for administrative costs.
We have
The table below provides certain information regarding net revenue and operating income (loss) for each of our operating segments.
| Three Months Ended | ||||||||||||||||
| June 3, 2023 | May 28, 2022 | |||||||||||||||
| Net | Operating | Net | Operating | |||||||||||||
| Revenue | Income (Loss) | Revenue | Income (Loss) | |||||||||||||
| Hygiene, Health and Consumable Adhesives | $ | $ | $ | $ | ||||||||||||
| Engineering Adhesives | ||||||||||||||||
| Construction Adhesives | ||||||||||||||||
| Total segment | $ | $ | $ | $ | ||||||||||||
| Corporate Unallocated1 | ( | ) | ( | ) | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| Six Months Ended | ||||||||||||||||
| June 3, 2023 | May 28, 2022 | |||||||||||||||
| Net | Operating | Net | Operating | |||||||||||||
| Revenue | Income (Loss) | Revenue | Income (Loss) | |||||||||||||
| Hygiene, Health and Consumable Adhesives | $ | $ | $ | $ | ||||||||||||
| Engineering Adhesives | ||||||||||||||||
| Construction Adhesives | ( | ) | ||||||||||||||
| Total segment | $ | $ | $ | $ | ||||||||||||
| Corporate Unallocated | - | ( | ) | - | ( | ) | ||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
1 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.
The table below provides a reconciliation of operating income to income before income taxes and income from equity method investments:
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 3, | May 28, | June 3, | May 28, | |||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Operating income | $ | $ | $ | $ | ||||||||||||
| Other income, net | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest income | ||||||||||||||||
| Income before income taxes and income from equity method investments | $ | $ | $ | $ | ||||||||||||
We view the following disaggregation of net revenue by geographic region as useful to understanding the composition of revenue recognized during the respective reporting periods:
| Three Months Ended June 3, 2023 | ||||||||||||||||
| Hygiene, Health | ||||||||||||||||
| and Consumable | Engineering | Construction | ||||||||||||||
| Adhesives | Adhesives | Adhesives | Total | |||||||||||||
| Americas | $ | $ | $ | $ | ||||||||||||
| EIMEA | ||||||||||||||||
| Asia Pacific | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| Three Months Ended May 28, 2022 | ||||||||||||||||
| Hygiene, Health | ||||||||||||||||
| and Consumable | Engineering | Construction | ||||||||||||||
| Adhesives | Adhesives | Adhesives | Total | |||||||||||||
| Americas | $ | $ | $ | $ | ||||||||||||
| EIMEA | ||||||||||||||||
| Asia Pacific | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| Six Months Ended June 3, 2023 | ||||||||||||||||
| Hygiene, Health | ||||||||||||||||
| and Consumable | Engineering | Construction | ||||||||||||||
| Adhesives | Adhesives | Adhesives | Total | |||||||||||||
| Americas | $ | $ | $ | $ | ||||||||||||
| EIMEA | ||||||||||||||||
| Asia Pacific | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| Six Months Ended May 28, 2022 | ||||||||||||||||
| Hygiene, Health | ||||||||||||||||
| and Consumable | Engineering | Construction | ||||||||||||||
| Adhesives | Adhesives | Adhesives | Total | |||||||||||||
| Americas | $ | $ | $ | $ | ||||||||||||
| EIMEA | ||||||||||||||||
| Asia Pacific | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Note 15: Subsequent Events
Acquisitions
On June 12, 2023, we completed the acquisition of XChem International LLC ("XChem") for a base purchase price of approximately $
On June 23, 2023, we completed the acquisition of Adhezion Biomedical LLC (“Adhezion”) for a base purchase price of approximately $
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview
The Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the MD&A included in our Annual Report on Form 10-K for the year ended December 3, 2022 for important background information related to our business.
Net revenue in the second quarter of 2023 decreased 9.6 percent from the second quarter of 2022. Net revenue decreased 14.2 percent due to sales volume and 3.4 percent due to negative currency effects, offset by a 5.9 percent increase in pricing and a 2.1 percent increase due to acquisitions compared to the second quarter of 2022. The negative currency effects were primarily driven by a weaker Chinese renminbi, Egyptian pound, Argentinian peso and Turkish lira compared to the U.S. dollar. Gross profit margin increased 310 basis points due to an increase in product pricing.
Net revenue in the first six months of 2023 decreased 7.7 percent from the first six months of 2022. Net revenue decreased 12.6 percent due to sales volume and 4.1 percent due to negative currency effects, offset by a 7.0 percent increase in pricing and a 2.0 percent increase due to acquisitions compared to the first six months of 2022. The negative currency effects were primarily driven by a weaker Chinese renminbi, Egyptian pound, Argentinian peso, Turkish lira and Euro compared to the U.S. dollar. Gross profit margin increased 240 basis points due to an increase in product pricing.
Net income attributable to H.B. Fuller in the second quarter of 2023 was $40.4 million compared to $47.2 million in the second quarter of 2022. On a diluted earnings per share basis, the second quarter of 2023 was $0.73 per share compared to $0.86 per share for the second quarter of 2022.
Net income attributable to H.B. Fuller in the first six months of 2023 was $62.3 million compared to $85.5 million in the first six months of 2022. On a diluted earnings per share basis, the first six months of 2023 was $1.12 per share compared to $1.55 per share for the first six months of 2022.
Restructuring Plan
On March 27, 2023, the Company approved a restructuring plan (the “Plan”) related to organizational changes and other actions to optimize operations. In implementing the Plan, the Company currently expects to incur costs of approximately $15.0 million to $20.0 million ($12.4 million to $16.4 million after-tax), which includes (i) cash expenditures of approximately $13.8 million to $15.0 million ($11.1 million to $12.1 million after tax) for severance and related employee costs globally and (ii) other restructuring costs related to the streamlining of processes and the payment of anticipated income taxes in certain jurisdictions related to the Plan. We have incurred costs of $8.5 million under this plan as of June 3, 2023. The Plan was implemented in the second quarter of fiscal year 2023 and is currently expected to be completed during fiscal year 2025. The restructuring costs will be spread across the next several fiscal quarters as the measures are implemented with the majority of the charges recognized and cash payments occurring in fiscal 2023 and 2024.
Results of Operations
Net revenue:
| Three Months Ended |
Six Months Ended |
|||||||||||||||||||||||
| June 3, |
May 28, |
2023 vs |
June 3, |
May 28, |
2023 vs |
|||||||||||||||||||
| ($ in millions) |
2023 |
2022 |
2022 |
2023 |
2022 |
2022 |
||||||||||||||||||
| Net revenue |
$ | 898.2 | $ | 993.3 | (9.6 | )% | $ | 1,707.4 | $ | 1,849.7 | (7.7 | )% | ||||||||||||
We review variances in net revenue in terms of changes related to sales volume, product pricing, business acquisitions and divestitures (“M&A”) and changes in foreign currency exchange rates. The following table shows the net revenue variance analysis for the second quarter and first six months of 2023 compared to the second quarter and first six months of 2022:
| Three Months Ended |
Six Months Ended |
|||||||
| June 3, 2023 vs. May 28, 2022 |
June 3, 2023 vs. May 28, 2022 |
|||||||
| Organic growth |
(8.3 | )% | (5.6 | )% | ||||
| M&A |
2.1 | % | 2.0 | % | ||||
| Currency |
(3.4 | )% | (4.1 | )% | ||||
| Total |
(9.6 | )% | (7.7 | )% | ||||
Organic growth was a negative 8.3 percent in the second quarter of 2023 compared to the second quarter of 2022 and consisted of a 5.5 percent decrease in Hygiene, Health and Consumable Adhesives, a 9.0 percent decrease in Engineering Adhesives and a 14.2 percent decrease in Construction Adhesives. The decrease is driven by a decrease in volume partially offset by an increase in product pricing. The 2.1 percent increase from M&A is due to our acquisitions that occurred in the first six months of 2023. The negative 3.4 percent foreign currency impact was primarily driven by a weaker Chinese renminbi, Egyptian pound, Argentinian peso and Turkish lira compared to the U.S. dollar.
Organic growth was a negative 5.6 percent in the first six months of 2023 compared to the first six months of 2022 and consisted of a 0.8 percent decrease in Hygiene, Health and Consumable Adhesives, a 6.1 percent decrease in Engineering Adhesives and a 19.2 percent decrease in Construction Adhesives. The decrease is driven by a decrease in volume partially offset by an increase in product pricing. The 2.0 percent increase from M&A is due to our acquisitions that occurred in the first six months of 2023. The negative 4.1 percent foreign currency impact was primarily driven by a weaker Chinese renminbi, Egyptian pound, Argentinian peso, Turkish lira and Euro compared to the U.S. dollar.
Cost of sales:
| Three Months Ended |
Six Months Ended |
|||||||||||||||||||||||
| June 3, |
May 28, |
2023 vs |
June 3, |
May 28, |
2023 vs |
|||||||||||||||||||
| ($ in millions) |
2023 |
2022 |
2022 |
2023 |
2022 |
2022 |
||||||||||||||||||
| Cost of sales |
$ | 641.5 | $ | 739.7 | (13.3 | )% | $ | 1,235.8 | $ | 1,383.3 | (10.7 | )% | ||||||||||||
| Percent of net revenue |
71.4 | % | 74.5 | % | 72.4 | % | 74.8 | % | ||||||||||||||||
Cost of sales in the second quarter of 2023 compared to the second quarter of 2022 decreased 310 basis points as a percentage of net revenue. Higher product pricing partially offset by slightly higher raw material costs and the impact of lower sales volume led to the decrease.
Cost of sales in the first six months of 2023 compared to the first six months of 2022 decreased 240 basis points as a percentage of net revenue. Higher product pricing partially offset by higher raw material costs and the impact of lower sales volume led to the decrease.
Gross profit:
| Three Months Ended |
Six Months Ended |
|||||||||||||||||||||||
| June 3, |
May 28, |
2023 vs |
June 3, |
May 28, |
2023 vs |
|||||||||||||||||||
| ($ in millions) |
2023 |
2022 |
2022 |
2023 |
2022 |
2022 |
||||||||||||||||||
| Gross profit |
$ | 256.8 | $ | 253.5 | 1.3 | % | $ | 471.6 | $ | 466.4 | 1.1 | % | ||||||||||||
| Percent of net revenue |
28.6 | % | 25.5 | % | 27.6 | % | 25.2 | % | ||||||||||||||||
Gross profit in the second quarter of 2023 increased 1.3 percent and gross profit margin increased 310 basis points compared to the second quarter of 2022. The increase in gross profit margin was primarily due to higher product pricing partially offset by slightly higher raw material costs and the impact of lower sales volume.
Gross profit in the first six months of 2023 increased 1.1 percent and gross profit margin increased 240 basis points compared to the first six months of 2022. The increase in gross profit margin was primarily due to higher product pricing partially offset by higher raw material costs and the impact of lower sales volume.
Selling, general and administrative (SG&A) expenses:
| Three Months Ended |
Six Months Ended |
|||||||||||||||||||||||
| June 3, |
May 28, |
2023 vs |
June 3, |
May 28, |
2023 vs |
|||||||||||||||||||
| ($ in millions) |
2023 |
2022 |
2022 |
2023 |
2022 |
2022 |
||||||||||||||||||
| SG&A |
$ | 166.6 | $ | 166.0 | 0.4 | % | $ | 321.2 | $ | 321.9 | (0.2 | )% | ||||||||||||
| Percent of net revenue |
18.5 | % | 16.7 | % | 18.8 | % | 17.4 | % | ||||||||||||||||
SG&A expenses for the second quarter of 2023 compared to the second quarter of 2022 increased 180 basis points as a percentage of net revenue. The increase is due to lower net revenue and higher compensation costs, partially offset by the favorable impact of foreign currency exchange rates on spending outside the U.S.
SG&A expenses for the first six months of 2023 compared to the first six months of 2022 increased 140 basis points as a percentage of net revenue. The increase is due to lower net revenue and higher compensation costs, partially offset by the favorable impact of foreign currency exchange rates on spending outside the U.S.
Other income, net:
| Three Months Ended |
Six Months Ended |
|||||||||||||||||||||||
| June 3, |
May 28, |
2023 vs |
June 3, |
May 28, |
2023 vs |
|||||||||||||||||||
| ($ in millions) |
2023 |
2022 |
2022 |
2023 |
2022 |
2022 |
||||||||||||||||||
| Other income, net |
$ | 0.6 | $ | 0.0 | NMP | $ | 3.2 | $ | 6.1 | (47.5 | )% | |||||||||||||
NMP = Non-meaningful percentage
Other income, net in the second quarter of 2023 included $3.6 million of net defined benefit pension benefits and $0.4 million of other income, partially offset by $3.4 million of currency transaction losses. Other income, net in the second quarter of 2022 included $4.1 million of net defined benefit pension benefits and $1.4 million of other income, partially offset by $5.5 million of currency transaction losses. The $4.1 million of net defined benefit pension benefits in the second quarter of 2022 included a $3.3 million settlement loss related to the termination of our Canadian defined benefit pension plan.
Other income, net in the first six months of 2023 included $10.1 million of net defined benefit pension benefits and $0.7 million of other income, partially offset by $7.6 million of currency transaction losses. Other income, net in the first six months of 2022 included $11.5 million of net defined benefit pension benefits and $1.6 million of other income, partially offset by $7.0 million of currency transaction losses. The $11.5 million of net defined benefit pension benefits in the second quarter of 2022 included a $3.3 million settlement loss related to the termination of our Canadian defined benefit pension plan.
Interest expense:
| Three Months Ended |
Six Months Ended |
|||||||||||||||||||||||
| June 3, |
May 28, |
2023 vs |
June 3, |
May 28, |
2023 vs |
|||||||||||||||||||
| ($ in millions) |
2023 |
2022 |
2022 |
2023 |
2022 |
2022 |
||||||||||||||||||
| Interest expense |
$ | 33.1 | $ | 19.8 | 67.2 | % | $ | 66.2 | $ | 38.0 | 74.2 | % | ||||||||||||
Interest expense in the second quarter of 2023 was $33.1 million compared to $19.8 million in the second quarter of 2022 and was higher primarily due to higher debt balances and higher interest rates.
Interest expense in the first six months of 2023 was $66.2 million compared to $38.0 million in the first six months of 2022 and was higher primarily due to higher debt balances and higher interest rates.
Interest income:
| Three Months Ended |
Six Months Ended |
|||||||||||||||||||||||
| June 3, |
May 28, |
2023 vs |
June 3, |
May 28, |
2023 vs |
|||||||||||||||||||
| ($ in millions) |
2023 |
2022 |
2022 |
2023 |
2022 |
2022 |
||||||||||||||||||
| Interest income |
$ | 0.9 | $ | 2.1 | (57.1 | )% | $ | 1.6 | $ | 4.0 | (60.0 | )% | ||||||||||||
Interest income in the second quarter of 2023 and 2022 was $0.9 million and $2.1 million, respectively, consisting primarily of interest on cross-currency swap activity and other miscellaneous interest income.
Interest income in the first six months of 2023 and 2022 was $1.6 million and $4.0 million, respectively, consisting primarily of interest on cross-currency swap activity and other miscellaneous interest income.
Income taxes:
| Three Months Ended |
Six Months Ended |
|||||||||||||||||||||||
| June 3, |
May 28, |
2023 vs |
June 3, |
May 28, |
2023 vs |
|||||||||||||||||||
| ($ in millions) |
2023 |
2022 |
2022 |
2023 |
2022 |
2022 |
||||||||||||||||||
| Income taxes |
$ | 19.3 | $ | 23.6 | (18.2 | )% | $ | 29.0 | $ | 33.8 | (14.2 | )% | ||||||||||||
| Effective tax rate |
33.0 | % | 33.9 | % | 32.6 | % | 29.0 | % | ||||||||||||||||
Income tax expense of $19.3 million in the second quarter of 2023 includes $2.0 million of discrete tax expense. Excluding the discrete tax expense, the overall effective tax rate was 29.5 percent. The discrete tax expense relates to various foreign tax matters. Income tax expense of $23.6 million in the second quarter of 2022 includes $4.1 million of discrete tax expense. Excluding the discrete tax expense, the overall effective tax rate was 27.9 percent. The discrete tax expense relates to impacts of the revaluation of cross-currency swap agreements due to depreciation of the Euro versus the U.S. dollar and other various foreign tax matters.
Income tax expense of $29.0 million in the first six months of 2023 includes $2.9 million of discrete tax expense. Excluding the discrete tax expense, the overall effective tax rate was 29.4 percent. The discrete tax expense relates to various foreign tax matters offset by an excess tax benefit related to U.S. stock compensation. Income tax expense of $33.8 million in the first six months of 2022 includes $1.2 million of discrete tax expense. Excluding the discrete tax expense, the overall effective tax rate was 27.9 percent. The discrete tax expense relates to the revaluation of cross-currency swap agreements due to depreciation of the Euro versus the U.S. dollar, as well as various foreign tax matters offset by the tax effect of legal entity mergers.
Income from equity method investments:
| Three Months Ended |
Six Months Ended |
|||||||||||||||||||||||
| June 3, |
May 28, |
2023 vs |
June 3, |
May 28, |
2023 vs |
|||||||||||||||||||
| ($ in millions) |
2023 |
2022 |
2022 |
2023 |
2022 |
2022 |
||||||||||||||||||
| Income from equity method investments |
$ | 1.2 | $ | 1.1 | 9.1 | % | $ | 2.3 | $ | 2.6 | (11.5 | )% | ||||||||||||
The income from equity method investments relates to our 50 percent ownership of the Sekisui-Fuller joint venture in Japan. The lower income for the second quarter and first six months of 2023 compared to the same period of 2022 is due to the unfavorable impact of the weakening of the Japanese yen against the U.S. dollar and lower net income in our joint venture.
Net income attributable to H.B. Fuller:
| Three Months Ended |
Six Months Ended |
|||||||||||||||||||||||
| June 3, |
May 28, |
2023 vs |
June 3, |
May 28, |
2023 vs |
|||||||||||||||||||
| ($ in millions) |
2023 |
2022 |
2022 |
2023 |
2022 |
2022 |
||||||||||||||||||
| Net income attributable to H.B. Fuller |
$ | 40.4 | $ | 47.2 | (14.4 | )% | $ | 62.3 | $ | 85.5 | (23.2 | )% | ||||||||||||
| Percent of net revenue |
4.5 | % | 4.8 | % | 3.6 | % | 4.6 | % | ||||||||||||||||
The net income attributable to H.B. Fuller for the second quarter of 2023 was $40.4 million compared to $47.2 million for the second quarter of 2022. The diluted earnings per share for the second quarter of 2023 was $0.73 per share as compared to $0.86 per share for the second quarter of 2022.
The net income attributable to H.B. Fuller for the first six months of 2023 was $62.3 million compared to $85.5 million for the first six months of 2022. The diluted earnings per share for the first six months of 2023 was $1.12 per share as compared to $1.55 per share for the first six months of 2022.
Operating Segment Results
We have three reportable segments: Hygiene, Health and Consumable Adhesives, Engineering Adhesives and Construction Adhesives. Operating results of each of these segments are regularly reviewed by our chief operating decision maker to make decisions about resources to be allocated to the segments and assess their performance.
The tables below provide certain information regarding the net revenue and operating income of each of our operating segments.
Corporate Unallocated amounts include business acquisition and integration costs, organizational restructuring charges and project costs associated with our implementation of Project ONE.
Net Revenue by Segment:
| Three Months Ended |
Six Months Ended |
|||||||||||||||||||||||||||||||
| June 3, 2023 |
May 28, 2022 |
June 3, 2023 |
May 28, 2022 |
|||||||||||||||||||||||||||||
| Net |
% of |
Net |
% of |
Net |
% of |
Net |
% of |
|||||||||||||||||||||||||
| ($ in millions) |
Revenue |
Total |
Revenue |
Total |
Revenue |
Total |
Revenue |
Total |
||||||||||||||||||||||||
| Hygiene, Health and Consumable Adhesives |
$ | 404.5 | 45 | % | $ | 437.9 | 44 | % | $ | 788.0 | 46 | % | $ | 827.4 | 45 | % | ||||||||||||||||
| Engineering Adhesives |
364.1 | 41 | % | 405.4 | 41 | % | 697.1 | 41 | % | 759.3 | 41 | % | ||||||||||||||||||||
| Construction Adhesives |
129.6 | 14 | % | 150.0 | 15 | % | 222.3 | 13 | % | 263.0 | 14 | % | ||||||||||||||||||||
| Segment total |
$ | 898.2 | 100 | % | $ | 993.3 | 100 | % | $ | 1,707.4 | 100 | % | $ | 1,849.7 | 100 | % | ||||||||||||||||
| Corporate Unallocated |
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||
| Total |
$ | 898.2 | 100 | % | $ | 993.3 | 100 | % | $ | 1,707.4 | 100 | % | $ | 1,849.7 | 100 | % | ||||||||||||||||
Segment Operating Income (Loss):
| Three Months Ended |
Six Months Ended |
|||||||||||||||||||||||||||||||
| June 3, 2023 |
May 28, 2022 |
June 3, 2023 |
May 28, 2022 |
|||||||||||||||||||||||||||||
| Segment |
Segment |
Segment |
Segment |
|||||||||||||||||||||||||||||
| Operating |
Operating |
Operating |
Operating |
|||||||||||||||||||||||||||||
| Income |
% of |
Income |
% of |
Income |
% of |
Income |
% of |
|||||||||||||||||||||||||
| ($ in millions) |
(Loss) |
Total |
(Loss) |
Total |
(Loss) |
Total |
(Loss) |
Total |
||||||||||||||||||||||||
| Hygiene, Health and Consumable Adhesives |
$ | 51.6 | 57 | % | $ | 43.3 | 49 | % | $ | 96.7 | 64 | % | $ | 75.5 | 52 | % | ||||||||||||||||
| Engineering Adhesives |
44.4 | 49 | % | 42.9 | 49 | % | 76.9 | 51 | % | 75.5 | 52 | % | ||||||||||||||||||||
| Construction Adhesives |
6.0 | 7 | % | 11.3 | 13 | % | (3.7 | ) | (2 | )% | 15.6 | 11 | % | |||||||||||||||||||
| Segment total |
$ | 102.0 | 113 | % | $ | 97.5 | 111 | % | $ | 169.9 | 113 | % | $ | 166.6 | 115 | % | ||||||||||||||||
| Corporate Unallocated |
(11.8 | ) | (13 | )% | (10.0 | ) | (11 | )% | (19.5 | ) | (13 | )% | (22.1 | ) | (15 | )% | ||||||||||||||||
| Total |
$ | 90.2 | 100 | % | $ | 87.5 | 100 | % | $ | 150.4 | 100 | % | $ | 144.5 | 100 | % | ||||||||||||||||
Hygiene, Health and Consumable Adhesives
| Three Months Ended |
Six Months Ended |
|||||||||||||||||||||||
| June 3, |
May 28, |
2023 vs |
June 3, |
May 28, |
2023 vs |
|||||||||||||||||||
| ($ in millions) |
2023 |
2022 |
2022 |
2023 |
2022 |
2022 |
||||||||||||||||||
| Net revenue |
$ | 404.5 | $ | 437.9 | (7.6 | )% | $ | 788.0 | $ | 827.4 | (4.8 | )% | ||||||||||||
| Segment operating income |
$ | 51.6 | $ | 43.3 | 19.2 | % | $ | 96.7 | $ | 75.5 | 28.2 | % | ||||||||||||
| Segment operating margin |
12.8 | % | 9.9 | % | 12.3 | % | 9.1 | % | ||||||||||||||||
The following table provides details of the Hygiene, Health and Consumable Adhesives net revenue variances:
| Three Months Ended |
Six Months Ended |
|||||||
| June 3, 2023 vs. May 28, 2022 |
June 3, 2023 vs. May 28, 2022 |
|||||||
| Organic growth |
(5.5 | )% | (0.8 | )% | ||||
| M&A |
2.7 | % | 1.5 | % | ||||
| Currency |
(4.8 | )% | (5.5 | )% | ||||
| Total |
(7.6 | )% | (4.8 | )% | ||||
Net revenue decreased 7.6 percent in the second quarter of 2023 compared to the second quarter of 2022. The decrease in organic growth was attributable to a decrease in sales volume, partially offset by an increase in product pricing. The 2.7 percent increase in net revenue from M&A was due to the acquisitions of Lemtapes in the first quarter of 2023 and Beardow Adams in the second quarter of 2023. The negative currency effect was due to a weaker Egyptian pound, Argentinian peso, Turkish lira, Chinese renminbi, Colombian peso and Brazilian real compared to the U.S. dollar. As a percentage of net revenue, gross margin increased due to higher product pricing partially offset by higher raw material costs and the impact of lower sales volume. SG&A expenses as a percentage of net revenue increased due to higher compensation costs and lower net revenue. Segment operating income increased 19.2 percent and segment operating margin as a percentage of net revenue increased 290 basis points compared to the second quarter of 2022.
Net revenue decreased 4.8 percent in the first six months of 2023 compared to the first six months of 2022. The decrease in organic growth was attributable to a decrease in sales volume, partially offset by an increase in product pricing. The 1.5 percent increase in net revenue from M&A was due to the acquisitions of Lemtapes during the first quarter of 2023 and Beardow Adams in the second quarter of 2023. The negative currency effect was due to a weaker Egyptian pound, Argentinian peso, Turkish lira, Chinese renminbi and Colombian peso compared to the U.S. dollar. As a percentage of net revenue, gross margin increased due to higher product pricing partially offset by higher raw material costs and the impact of lower sales volume. SG&A expenses as a percentage of net revenue increased due to higher compensation costs and lower net revenue. Segment operating income increased 28.2 percent and segment operating margin as a percentage of net revenue increased 320 basis points compared to the first six months of 2022.
Engineering Adhesives
| Three Months Ended |
Six Months Ended |
|||||||||||||||||||||||
| June 3, |
May 28, |
2023 vs |
June 3, |
May 28, |
2023 vs |
|||||||||||||||||||
| ($ in millions) |
2023 |
2022 |
2022 |
2023 |
2022 |
2022 |
||||||||||||||||||
| Net revenue |
$ | 364.1 | $ | 405.4 | (10.2 | )% | $ | 697.1 | $ | 759.3 | (8.2 | )% | ||||||||||||
| Segment operating income |
$ | 44.4 | $ | 42.9 | 3.5 | % | $ | 76.9 | $ | 75.5 | 1.8 | % | ||||||||||||
| Segment operating margin |
12.2 | % | 10.6 | % | 11.0 | % | 9.9 | % | ||||||||||||||||
The following tables provide details of the Engineering Adhesives net revenue variances:
| Three Months Ended |
Six Months Ended |
|||||||
| June 3, 2023 vs. May 28, 2022 |
June 3, 2023 vs. May 28, 2022 |
|||||||
| Organic growth |
(9.0 | )% | (6.1 | )% | ||||
| M&A |
1.6 | % | 1.5 | % | ||||
| Currency |
(2.8 | )% | (3.6 | )% | ||||
| Total |
(10.2 | )% | (8.2 | )% | ||||
Net revenue decreased 10.2 percent in the second quarter of 2023 compared to the second quarter of 2022. The decrease in organic growth was attributable to a decrease in sales volume, partially offset by an increase in product pricing. The 1.6 percent increase in net revenue from M&A was due to the acquisition of Aspen in the first quarter of 2023. The negative currency effect was due to a weaker Chinese renminbi and Turkish lira compared to the U.S. dollar. Gross margin as a percentage of net revenue increased due to higher product pricing and lower raw material costs partially offset by the impact of lower sales volume. SG&A expenses as a percentage of net revenue increased due to higher compensation costs and lower net revenue. Segment operating income increased 3.5 percent and segment operating margin increased 160 basis points compared to the second quarter of 2022.
Net revenue decreased 8.2 percent in the first six months of 2023 compared to the first six months of 2022. The decrease in organic growth was attributable to a decrease in sales volume, partially offset by an increase in product pricing. The 1.5 percent increase in net revenue from M&A was due to the acquisition of Aspen in the first quarter of 2023. The negative currency effect was due to a weaker Chinese renminbi, Euro and Turkish lira compared to the U.S. dollar. Gross margin as a percentage of net revenue increased due to higher product pricing partially offset by the impact of lower sales volume. SG&A expenses as a percentage of net revenue increased due to higher compensation costs and lower net revenue. Segment operating income increased 1.8 percent and segment operating margin increased 110 basis points compared to the first six months of 2022.
Construction Adhesives
| Three Months Ended |
Six Months Ended |
|||||||||||||||||||||||
| June 3, |
May 28, |
2023 vs |
June 3, |
May 28, |
2023 vs |
|||||||||||||||||||
| ($ in millions) |
2023 |
2022 |
2022 |
2023 |
2022 |
2022 |
||||||||||||||||||
| Net revenue |
$ | 129.6 | $ | 150.0 | (13.6 | )% | $ | 222.3 | $ | 263.0 | (15.5 | )% | ||||||||||||
| Segment operating income (loss) |
$ | 6.0 | $ | 11.3 | (47.1 | )% | $ | (3.7 | ) | $ | 15.6 | (126.4 | )% | |||||||||||
| Segment operating margin |
4.6 | % | 7.5 | % | (1.7 | )% | 5.9 | % | ||||||||||||||||
The following tables provide details of the Construction Adhesives net revenue variances:
| Three Months Ended |
Six Months Ended |
|||||||
| June 3, 2023 vs. May 28, 2022 |
June 3, 2023 vs. May 28, 2022 |
|||||||
| Organic growth |
(14.2 | )% | (19.2 | )% | ||||
| M&A |
1.7 | % | 5.0 | % | ||||
| Currency |
(1.1 | )% | (1.3 | )% | ||||
| Total |
(13.6 | )% | (15.5 | )% | ||||
Net revenue decreased 13.6 percent in the second quarter of 2023 compared to the second quarter of 2022. The decrease in organic growth was attributable to a decrease in sales volume, partially offset by an increase in product pricing. The 1.7 percent increase in net revenue from M&A was due to the acquisition of GSSI in the fourth quarter of 2022. The negative currency effect was due to a weaker Australian dollar and British pound sterling compared to the U.S. dollar. Gross margin as a percentage of net revenue decreased primarily due to the impact of lower sales volume partially offset by higher product pricing. SG&A expenses as a percentage of net revenue increased due to lower net revenue. Segment operating income decreased 47.1 percent and segment operating margin decreased 290 basis points compared to the second quarter of 2022.
Net revenue decreased 15.5 percent in the first six months of 2023 compared to the first six months of 2022. The decrease in organic growth was attributable to a decrease in sales volume, partially offset by a slight increase in product pricing. The 5.0 percent increase in net revenue from M&A was due to the acquisitions of Fourny and Apollo in the first quarter of 2022 and GSSI in the fourth quarter of 2022. The negative currency effect was due to a weaker Australian dollar and British pound sterling compared to the U.S. dollar. Gross margin as a percentage of net revenue decreased primarily due to the impact of lower sales volume partially offset by higher product pricing and slightly lower raw material costs. SG&A expenses as a percentage of net revenue increased due to lower net revenue. Segment operating income decreased 126.4 percent and segment operating margin decreased 760 basis points compared to the first six months of 2022.
Corporate Unallocated
| Three Months Ended |
Six Months Ended |
|||||||||||||||||||||||
| June 3, |
May 28, |
2023 vs |
June 3, |
May 28, |
2023 vs |
|||||||||||||||||||
| ($ in millions) |
2023 |
2022 |
2022 |
2023 |
2022 |
2022 |
||||||||||||||||||
| Net revenue |
$ | - | $ | - | 0.0 | % | $ | - | $ | - | 0.0 | % | ||||||||||||
| Segment operating loss |
$ | (11.8 | ) | $ | (10.0 | ) | 18.6 | % | $ | (19.5 | ) | $ | (22.1 | ) | (11.6 | )% | ||||||||
| Segment operating margin |
NMP |
NMP |
NMP |
NMP |
||||||||||||||||||||
NMP = Non-meaningful percentage
Corporate Unallocated includes acquisition and integration-related charges, restructuring-related charges, and costs related to the implementation of Project ONE.
Segment operating loss in the second quarter of 2023 increased 18.6 percent compared to the second quarter of 2022 due to higher acquisition and restructuring costs for the second quarter of 2023 and decreased 11.6 percent compared to the first six months of 2022 as acquisition costs on a year-to-date basis were lower in 2023.
Financial Condition, Liquidity and Capital Resources
Total cash and cash equivalents as of June 3, 2023 were $103.2 million compared to $79.9 million as of December 3, 2022 and $68.1 million as of May 28, 2022. The majority of the $103.2 million in cash and cash equivalents as of June 3, 2023 was held outside the United States. Total long and short-term debt was $1,882.3 million as of June 3, 2023, $1,765.1 million as of December 3, 2022 and $1,935.8 million as of May 28, 2022. The total debt to total capital ratio as measured by total debt divided by total debt plus total stockholders’ equity was 52.8 percent as of June 3, 2023 as compared to 52.3 percent as of December 3, 2022 and 54.5 percent as of May 28, 2022.
We believe that cash flows from operating activities will be adequate to meet our ongoing liquidity and capital expenditure needs. In addition, we believe we have the ability to obtain both short-term and long-term debt to meet our financing needs for the foreseeable future. Cash available in the United States has historically been sufficient and we expect it will continue to be sufficient to fund U.S. operations, U.S. capital spending and U.S. pension and other postretirement benefit contributions in addition to funding U.S. acquisitions, dividend payments, debt service and share repurchases as needed. For those international earnings considered to be reinvested indefinitely, we currently have no intention to, and plans do not indicate a need to, repatriate these funds for U.S. operations.
Our credit agreements include restrictive covenants beginning for the quarter ending June 3, 2023 that, if not met, could lead to a renegotiation of our credit lines and a significant increase in our cost of financing. Those covenants are as follows:
| Covenant |
Debt Instrument |
Measurement |
Result as of June 3, 2023 |
|||
| Secured Total Indebtedness / TTM1 EBITDA |
Revolving Facility and Term Loan A Facility |
Not greater than 4.752 |
2.3 |
|||
| TTM1 EBITDA / Consolidated Interest Expense |
Revolving Facility and Term Loan A Facility |
Not less than 2.0 |
4.7 |
| 1 TTM = Trailing 12 months | |
| 2 The Maximum Secured Leverage Ratio prior to June 1, 2024, shall be 4.75 to 1.00 and will step down to 4.50 to 1.0 with respect to quarters ending after June 1, 2024 |
| EBITDA for covenant purposes is defined as consolidated net income, plus (i) interest expense, (ii) expense for taxes paid or accrued, (iii) depreciation and amortization, (iv) certain non-cash impairment losses, (v) extraordinary non-cash losses incurred other than in the ordinary course of business, (vi) nonrecurring extraordinary non-cash restructuring charges and the non-cash impact of purchase accounting, (vii) any non-cash charge for the excess of rent expense over actual cash rent paid due to the use of straight-line rent, non-cash charge pursuant to any management equity plan, stock option plan or any other management or employee benefit, (viii) any non-cash finance charges in respect of any pension liabilities or other provisions and income (loss) attributable to deferred compensation plans, (ix) any non-recurring or unusual cash restructuring charges and operating improvements, (x) cost savings initiative and cost synergies related to acquisitions within 12 months, (xi) non-capitalized charges relating to the Borrower’s SAP implementation, (xii) fees, costs, expenses and charges incurred in connection with the financing, (xiii) fees, costs, expenses, make-whole or penalty payments and other similar items arising out of acquisitions, investments and dispositions, the incurrence, issuance, repayment or refinancing of indebtedness and any issuance of equity interests; minus, non-recurring or unusual non-cash gains incurred not in the ordinary course of business. Provided that the aggregate amounts that may be added back for any period pursuant to clauses (ix), (x) and (xi) shall not exceed 15% of EBITDA for such period (calculated prior to giving effect to all addbacks and adjustments). For Secured Total Indebtedness / TTM EBITDA ratio, TTM EBITDA is adjusted for the pro forma results from Material Acquisitions and Material Divestitures as if the acquisition or divestiture occurred at the beginning of the calculation period. The full definition is set forth in the Second Amended and Restated Credit Agreement and can be found in the Company’s 8-K filing dated February 21, 2023. |
| Consolidated Interest Expense for covenant purposes is defined as the interest expense (including without limitation to the portion of capital lease obligations that constitutes imputed interest in accordance with GAAP) of the Borrower and its subsidiaries calculated on a consolidated basis for such period with respect to all outstanding indebtedness allocable to such period in accordance with GAAP, including net costs (or benefits) under Interest Rate Swap Agreements and commissions, discounts and other fees and charges with respect to letters of credit and the interest component of all Attributable Receivables Indebtedness. |
We believe we have the ability to meet all of our contractual obligations and commitments in fiscal 2023.
Selected Metrics of Liquidity
Key metrics we monitor are net working capital as a percent of annualized net revenue, trade receivable days sales outstanding (“DSO”), inventory days on hand, free cash flow after dividends and debt capitalization ratio.
| June 3, |
May 28, |
|||||||
| 2023 |
2022 |
|||||||
| Net working capital as a percentage of annualized net revenue1 |
18.1 | % | 17.1 | % | ||||
| Accounts receivable DSO (in days)2 |
59 | 59 | ||||||
| Inventory days on hand (in days)3 |
74 | 71 | ||||||
| Free (negative) cash flow after dividends4 |
$ | 4.5 | $ | (97.2 | ) | |||
| Total debt to total capital ratio5 |
52.8 | % | 54.5 | % | ||||
1 Current quarter net working capital (trade receivables, net of allowance for doubtful accounts plus inventory minus trade payables) divided by annualized net revenue (current quarter multiplied by four).
2 Trade receivables net of the allowance for doubtful accounts at the balance sheet date multiplied by 91 (13 weeks) and divided by the net revenue for the quarter.
3 Total inventory multiplied by 91 and divided by cost of sales (excluding delivery costs) for the quarter.
4 Year-to-date net cash provided by operating activities, less purchased property, plant and equipment and dividends paid. See reconciliation of net cash provided by operating activities to free cash flow after dividends below.
5 Total debt divided by (total debt plus total stockholders’ equity).
Free cash flow after dividends, a non-GAAP financial measure, is defined as net cash provided by operations less purchased property, plant and equipment and dividends paid. Free cash flow after dividends is an integral financial measure used by the Company to assess its ability to generate cash in excess of its operating needs, therefore, the Company believes this financial measure provides useful information to investors. The following table reflects the manner in which free cash flow after dividends is determined and provides a reconciliation of free cash flow after dividends to net cash provided by operating activities, the most directly comparable financial measure calculated and reported in accordance with U.S. GAAP.
Reconciliation of "Net cash provided by operating activities" to (Negative) free cash flow after dividends
| Six Months Ended |
||||||||
| ($ in millions) |
June 3, 2023 |
May 28, 2022 |
||||||
| Net cash provided by operating activities |
$ | 108.4 | $ | (9.1 | ) | |||
| Less: Purchased property, plant and equipment |
82.6 | 69.1 | ||||||
| Less: Dividends paid |
21.3 | 19.0 | ||||||
| Free (negative) cash flow after dividends |
$ | 4.5 | $ | (97.2 | ) | |||
Summary of Cash Flows
Cash Flows from Operating Activities:
| Six Months Ended |
||||||||
| June 3, |
May 28, |
|||||||
| ($ in millions) |
2023 |
2022 |
||||||
| Net cash provided by (used in) operating activities |
$ | 108.4 | $ | (9.1 | ) | |||
Net income including non-controlling interest was $62.3 million in the first six months of 2023 compared to $85.5 million in the first six months of 2022. Depreciation and amortization expense totaled $77.0 million in the first six months of 2023 compared to $72.7 million in the first six months of 2022. Deferred income taxes was a use of cash of $16.8 million in 2023 compared to $5.0 million in the first six months of 2022. Accrued compensation was a use of cash of $42.2 million in 2023 compared to $40.4 million last year. Other assets was a use of cash of $37.0 million in the first six months of 2023 compared to $21.9 million in the first six months of 2022. Other liabilities was a source of cash of $18.8 million in the first six months of 2023 compared to a use of cash of $23.6 million in the first six months of 2022.
Changes in net working capital (trade receivables, inventory and trade payables) accounted for a source of cash of $54.9 million compared to a use of cash of $103.7 million last year. The table below provides the cash flow impact due to changes in the components of net working capital:
| Six Months Ended |
||||||||
| June 3, |
May 28, |
|||||||
| ($ in millions) |
2023 |
2022 |
||||||
| Trade receivables, net |
$ | 66.9 | $ | (35.5 | ) | |||
| Inventory |
8.3 | (95.4 | ) | |||||
| Trade payables |
(20.3 | ) | 27.2 | |||||
| Total cash flow impact |
$ | 54.9 | $ | (103.7 | ) | |||
| ● |
Trade receivables, net – Trade receivables, net was a source of cash of $66.9 million and a use of cash of $35.5 million in the first six months of 2023 and 2022, respectively. The source of cash in 2023 compared to the use of cash in 2022 was due to more cash collected on trade receivables in the current year compared to the prior year. The DSO were 59 days at both June 3, 2023 and May 28, 2022. |
|
|
● |
Inventory – Inventory was a source of cash of $8.3 million and use of cash of $95.4 million in the first six months of 2023 and 2022, respectively. The source of cash in 2023 compared to the use of cash in 2022 is due to lower inventory purchases in 2023 compared to 2022. Inventory days on hand were 74 days as of June 3, 2023 and 71 days as of May 28, 2022. |
| ● |
Trade payables – Trade payables was a use of cash of $20.3 million and a source of cash of $27.2 million in the first six months of 2023 and 2022, respectively. The use of cash in 2023 compared to the source of cash in 2022 reflects higher payments on trade payables in the current year compared to the prior year. |
Cash Flows from Investing Activities:
| Six Months Ended |
||||||||
| June 3, |
May 28, |
|||||||
| ($ in millions) |
2023 |
2022 |
||||||
| Net cash used in investing activities |
$ | (183.7 | ) | $ | (293.2 | ) | ||
Purchases of property, plant and equipment were $82.6 million during the first six months of 2023 compared to $69.1 million for the same period of 2022. This difference reflects the timing of capital projects and expenditures related to growth initiatives.
During the first six months of 2023, we paid cash to acquire Lemtapes for $7.4 million, Aspen for $9.3 million and Beardow Adams for $87.0 million, net of cash acquired. During the first six months of 2022, we paid cash to acquire TissueSeal for $22.2 million, Fourny for $14.5 million, net of cash acquired and Apollo for $192.6 million, net of cash acquired.
Cash Flows from Financing Activities:
| Six Months Ended |
||||||||
| June 3, |
May 28, |
|||||||
| ($ in millions) |
2023 |
2022 |
||||||
| Net cash provided by financing activities |
$ | 93.3 | $ | 318.2 | ||||
In the first six months of 2023, we refinanced our debt and as a result have proceeds from the issuance of long-term debt of $1,300.0 million and repayment of long-term debt of $1,176.7 million. These borrowings are to finance acquisitions and for general working capital purposes. No payment was made for long-term debt in the first six months of 2022 and borrowings on our long-term debt were $335.0 million. Payment of debt issue costs were $10.2 million and $0.6 million in the first six months of 2023 and 2022, respectively. Net payments of notes payable were $0.2 million in the first six months of 2023 and net proceeds of notes payable were $3.6 million in the same period of 2022. Cash dividends paid were $21.3 million in the first six months of 2023 compared to $19.0 million in the same period of 2022. Repurchases of common stock were $2.6 million in the first six months of 2023 compared to $3.6 million in the same period of 2022.
Forward-Looking Statements and Risk Factors
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may be identified by the use of words like "plan," "expect," "aim," "believe," "project," "anticipate," "intend," "estimate," "will," "should," "could" (including the negative or variations thereof) and other expressions that indicate future events and trends. These plans and expectations are based upon certain underlying assumptions, including those mentioned with the specific statements. Such assumptions are in turn based upon internal estimates and analyses of current market conditions and trends, our plans and strategies, economic conditions and other factors. These plans and expectations and the assumptions underlying them are necessarily subject to risks and uncertainties inherent in projecting future conditions and results. Actual results could differ materially from expectations expressed in the forward-looking statements if one or more of the underlying assumptions and expectations proves to be inaccurate or is unrealized. In addition to the factors described in this report, Item 1A. Risk Factors identifies some of the important factors that could cause our actual results to differ materially from those in any such forward-looking statements. In order to comply with the terms of the safe harbor, we have identified these important factors which could affect our financial performance and could cause our actual results for future periods to differ materially from the anticipated results or other expectations expressed in the forward-looking statements. These factors should be considered, together with any similar risk factors or other cautionary language that may be made elsewhere in this Quarterly Report on Form 10-Q.
The list of important factors in Item 1A. Risk Factors does not necessarily present the risk factors in order of importance. This disclosure, including that under Forward-Looking Statements and Risk Factors, and other forward-looking statements and related disclosures made by us in this report and elsewhere from time to time, represents our best judgment as of the date the information is given. We do not undertake responsibility for updating any of such information, whether as a result of new information, future events, or otherwise, except as required by law. Investors are advised, however, to consult any further public company disclosures (such as in filings with the SEC or in our press releases) on related subjects.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to various market risks, including changes in interest rates, foreign currency rates and prices of raw materials. Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates and foreign currency exchange rates. See Part II, Item 7A in our Annual Report on Form 10-K for the year ended December 3, 2022 for further discussion of these market risks. There have been no material changes in the reported market risk of the Company since December 3, 2022.
Item 4. Controls and Procedures
Controls and Procedures
We conducted an evaluation, under the supervision and with the participation of our president and chief executive officer and executive vice president, chief financial officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (Exchange Act)) as of June 3, 2023. Based on this evaluation, our president and chief executive officer and executive vice president, chief financial officer concluded that, as of June 3, 2023, our disclosure controls and procedures were effective.
For purposes of Rule 13a-15(e), the term disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its president and chief executive officer and executive vice president, chief financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during our most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect our internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act.
Environmental Matters
We are involved in environmental investigations, clean-up activities and administrative proceedings related to environmental compliance matters at former and current operating facilities. We have also been identified as a potentially responsible party (“PRP”) under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) and/or similar state laws that impose liability for costs relating to the clean up of contamination resulting from past spills, disposal or other release of hazardous substances associated with landfills and/or hazardous waste sites. As a PRP, we may be required to pay a share of the costs of investigation and clean-up of these sites. We are subject to similar laws in some of the countries where current and former facilities are located. Our environmental, health and safety department monitors compliance with applicable laws on a global basis.
To the extent we can reasonably estimate the amount of our probable liabilities for environmental matters, we establish a financial provision.
While uncertainties exist with respect to the amounts and timing of the ultimate environmental liabilities, based on currently available information, we have concluded that these matters, individually or in the aggregate, will not have a material adverse effect on our results of operations, financial condition or cash flow.
Other Legal Proceedings
From time to time and in the ordinary course of business, we are a party to, or a target of, lawsuits, claims, investigations and proceedings, including product liability, personal injury, contract, patent and intellectual property, environmental, health and safety, tax and employment matters. While we are unable to predict the outcome of these matters, we have concluded, based upon currently available information, that the ultimate resolution of any pending matter, individually or in the aggregate, including asbestos-related litigation, will not have a material adverse effect on our results of operations, financial condition or cash flow. However, adverse developments and/or periodic settlements could negatively impact the results of operations or cash flows in one or more future periods.
For additional information regarding environmental matters and other legal proceedings, see Note 13 to our Consolidated Financial Statements.
This Form 10-Q contains forward-looking statements concerning our future programs, products, expenses, revenue, liquidity and cash needs as well as our plans and strategies. These forward-looking statements are based on current expectations and we assume no obligation to update this information. Numerous factors could cause actual results to differ significantly from the results described in these forward-looking statements, including the risk factors identified under Part I, Item 1A. Risk Factors contained in our Annual Report on Form 10-K for the fiscal year ended December 3, 2022. There have been no material changes in the risk factors disclosed by us under Part I, Item 1A. Risk Factors contained in the Annual Report on Form 10-K for the fiscal year ended December 3, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
Information on our purchases of equity securities during the second quarter ended June 3, 2023 is as follows:
| (d) |
||||||||||||
| Maximum |
||||||||||||
| Approximate Dollar |
||||||||||||
| (a) |
Value of Shares that |
|||||||||||
| Total |
(b) |
may yet be |
||||||||||
| Number of |
Average |
Purchased Under the |
||||||||||
| Shares |
Price Paid |
Plan or Program |
||||||||||
| Period |
Purchased1 |
per Share |
(millions) |
|||||||||
| March 5, 2023 - April 8, 2023 |
1,402 | $ | 67.27 | $ | 300,000 | |||||||
| April 9, 2023 - May 6, 2023 |
137 | $ | 70.40 | $ | 300,000 | |||||||
| May 7, 2023 - June 3, 2023 |
- | $ | - | $ | 300,000 | |||||||
1 The total number of shares purchased are shares withheld to satisfy the employees’ withholding taxes upon vesting of restricted stock.
Repurchases of common stock are made to support our stock-based employee compensation plans and for other corporate purposes. Upon vesting of restricted stock awarded to employees, shares are withheld to cover the employees’ minimum withholding taxes.
On April 7, 2022, the Board of Directors authorized a new share repurchase program of up to $300.0 million of our outstanding common shares for a period of up to five years. Under the program, we are authorized to repurchase shares for cash on the open market, from time to time, in privately negotiated transactions or block transactions, or through an accelerated repurchase agreement. The timing of such repurchases is dependent on price, market conditions and applicable regulatory requirements. Upon repurchase of the shares, we reduce our common stock for the par value of the shares with the excess being applied against additional paid-in capital. This authorization replaces the April 6, 2017 authorization to repurchase shares.
| *10.1 | Second Amended and Restated H.B. Fuller Company 2020 Master Incentive Plan(1) | |
| *10.2 | Form of Non-Qualified Stock Option Agreement under the Second Amended and Restated H.B. Fuller Company 2020 Master Incentive Plan for awards made on or after April 6, 2023 | |
| *10.3 | Form of Restricted Stock Unit Award Agreement under the Second Amended and Restated H.B. Fuller Company 2020 Master Incentive Plan for awards made on or after April 6, 2023 | |
| *10.4 | Form of Performance Share Award Agreement under the Second Amended and Restated H.B. Fuller Company 2020 Master Incentive Plan for awards made on or after April 6, 2023 | |
| *10.5 | Form of Restricted Stock Unit Award Agreement for Non-Employee Directors under the Second Amended and Restated H.B. Fuller Company 2020 Master Incentive Plan for awards made on or after April 6, 2023 | |
| 31.1 |
||
| 31.2 |
||
| 32.1 |
||
| 32.2 |
||
| 101 |
The following materials from the H.B. Fuller Company Quarterly Report on Form 10-Q for the quarter ended June 3, 2023 formatted in Inline Extensible Business Reporting Language (Inline XBRL): (i) the Consolidated Statements of Income, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Total Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements. |
|
| 104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
|
| * Asterisked items are management contracts or compensatory plans or arrangements required to be filed. | ||
| (1) Incorporated by reference to Appendix B to the H.B. Fuller Company Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on February 22, 2023 |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| H.B. Fuller Company | |||
| Dated: June 29, 2023 |
/s/ John J. Corkrean |
||
| John J. Corkrean |
|||
| Executive Vice President, |
|||
| Chief Financial Officer |
|||
Exhibit Index
Exhibits
| *10.1 | Second Amended and Restated H.B. Fuller Company 2020 Master Incentive Plan(1) | |
| *10.2 | Form of Non-Qualified Stock Option Agreement under the Second Amended and Restated H.B. Fuller Company 2020 Master Incentive Plan for awards made on or after April 6, 2023 | |
| *10.3 | Form of Restricted Stock Unit Award Agreement under the Second Amended and Restated H.B. Fuller Company 2020 Master Incentive Plan for awards made on or after April 6, 2023 | |
| *10.4 | Form of Performance Share Award Agreement under the Second Amended and Restated H.B. Fuller Company 2020 Master Incentive Plan for awards made on or after April 6, 2023 | |
| *10.5 | Form of Restricted Stock Unit Award Agreement for Non-Employee Directors under the Second Amended and Restated H.B. Fuller Company 2020 Master Incentive Plan for awards made on or after April 6, 2023 | |
| 31.1 | Form of 302 Certification – Celeste B. Mastin |
|
| 31.2 |
Form of 302 Certification – John J. Corkrean |
|
| 32.1 |
Form of 906 Certification – Celeste B. Mastin |
|
| 32.2 |
Form of 906 Certification – John J. Corkrean |
|
| 101 |
The following materials from the H.B. Fuller Company Quarterly Report on Form 10-Q for the quarter ended June 3, 2023 formatted in Inline Extensible Business Reporting Language (Inline XBRL): (i) the Consolidated Statements of Income, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Total Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements. |
|
| 104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
|
| * Asterisked items are management contracts or compensatory plans or arrangements required to be filed. | ||
| (1) Incorporated by reference to Appendix B to the H.B. Fuller Company Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on February 22, 2023 |
Exhibit 10.2
H.B. FULLER COMPANY
NON-QUALIFIED STOCK OPTION AGREEMENT
(Under the Second Amended and Restated H.B. Fuller Company 2020 Master Incentive Plan)
THIS AGREEMENT, dated as of ________________, 20__ (the "Grant Date") is entered into between H.B. Fuller Company, a Minnesota corporation (the “Company”), and ______________, an employee of the Company or an Affiliate of the Company (the “Participant”).
WHEREAS, the Company, pursuant to the Second Amended and Restated H.B. Fuller Company 2020 Master Incentive Plan (the “Plan”), wishes to grant stock options for the purchase of Common Stock, par value $1.00 per share, of the Company (“Common Stock”), to the Participant on the terms and conditions contained in this Agreement and the Plan;
WHEREAS, the Participant’s rights to receive options for the purchase of Common Stock hereunder are sometimes referred to as the “Option(s)” in this Agreement.
NOW, THEREFORE, in consideration of the premises and agreements set forth herein, the parties hereto hereby agree as follows:
1. Grant of Option. The Company, effective as of the date of this Agreement, hereby grants to the Participant, as a matter of separate agreement and not in lieu of salary or other compensation for services rendered, the right and option (the “Option”) to purchase all or any part of an aggregate of ____________ shares of Common Stock (the “Shares”) at the price of $______ [INSERT CLOSING PRICE ON GRANT DATE] per share on the terms and conditions set forth in this Agreement. The Option is not intended to be an incentive stock option within the meaning of the Internal Revenue Code of 1986 (the “Code”), as amended.
2. Vesting and Term of Option.
(a) The Option may not be exercised prior to the one year anniversary date of the Grant Date. Commencing on the first anniversary of the Grant Date, the Option may be exercised by the Participant prior to its termination in cumulative annual installments as follows:
|
|
Percentage of Shares as to |
|
Date |
which Option is Exercisable |
|
the ____ anniversary of the Grant Date |
__% |
|
the ____ anniversary of the Grant Date |
__% |
|
the ____ anniversary of the Grant Date |
__% |
|
the ____ anniversary of the Grant Date |
__% |
|
the ____ anniversary of the Grant Date |
__% |
The Option shall in all events terminate on_____________, 20__ or such earlier date as prescribed herein.
(b) Notwithstanding the vesting provision contained in Section 2(a) above, but subject to the other terms and conditions set forth herein, in the event of a Change in Control of the Company and the Participant incurs a Qualifying Termination of Employment during the Protected Period, the Option may be exercised, in whole or in part.
(c) For the purposes of this Agreement, a “Change in Control” shall be deemed to have occurred upon any of the following events:
(i) a public announcement (which, for purposes hereof, shall include, without limitation, a report filed pursuant to Section 13(d) of the Exchange Act) that any individual, corporation, partnership, association, trust or other entity becomes the beneficial owner (as defined in Rule 13(d)(3) promulgated under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the Voting Power of the Company then outstanding;
(ii) the individuals who, as of the date of this Agreement, are members of the Board of Directors of the Company (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board (provided, however, that if the election or nomination for election by the Company’s shareholders of any new director was approved by a vote of at least a majority of the Incumbent Board, such new director shall be considered to be a member of the Incumbent Board);
(iii) the approval of the shareholders of the Company, and consummation, of (A) any consolidation, merger or statutory share exchange of the Company with any person in which the surviving entity would not have as its directors at least 60% of the Incumbent Board and as a result of which those persons who were shareholders of the Company immediately prior to such transaction would not hold, immediately after such transaction, at least 60% of the Voting Power of the Company then outstanding or the combined voting power of the surviving entity’s then outstanding voting securities; (B) any sale, lease, exchange or other transfer in one transaction or series of related transactions substantially all of the assets of the Company; or (C) the adoption of any plan or proposal for the complete or partial liquidation or dissolution of the Company; or
(iv) a determination by a majority of the members of the Incumbent Board, in their sole and absolute discretion, that there has been a Change in Control of the Company.
(d) For the purposes of this Agreement, a “Qualifying Termination of Employment” shall mean either (i) an involuntary termination of employment by the Company or an Affiliate other than for Cause or Disability during the Protected Period; or (ii) a voluntary resignation by the Participant for Good Reason during the Protected Period.
(e) For purposes of this Agreement, “Protected Period” means the 24-month period beginning on and immediately following each and every Change in Control. “Cause” means any act by the Participant that is materially inimical to the best interests of the Company and that constitutes common law fraud, a felony or other gross malfeasance of duty on the part of the Participant. “Disability” disabled within the meaning of Section 409A(a)(2)(C)(i) of the Code. “Good Reason” shall mean the occurrence of any of the following events, in each case, after the Participant has provided written notice to the Company within 60 days of the occurrence of such event and the Company has failed to cure the cause of such event within 60 days after the date of such written notice (and the Participant terminates employment within 60 days of the expiration of such cure period), except for the occurrence of such an event in connection with the termination or reassignment of the Participant’s employment by the Company or an Affiliate for Cause or for Disability:
(i) a material change in the Participant’s pay consisting of a 10% or more reduction in total cash compensation opportunity as in effect immediately prior to the Change in Control (unless such reduction is part of an across-the-board uniformly applied reduction affecting all similarly situated Participants); or
(ii) a significant diminution in the Participant’s authority and duties as in effect immediately prior to the Change of Control (excluding an isolated, insubstantial or inadvertent action not taken in bad faith that is remedied promptly by the Company after receiving notice); provided, however, that a change of the individual or officer to whom the Participant reports, in and of itself, would not constitute diminution; or
(iii) a change of the Participant’s principal work location of 50 or more miles from that immediately prior to the Change in Control.
For purposes of Section 2(c), “Voting Power” when used with reference to the Company shall mean the voting power of all classes and series of capital stock of the Company now or hereafter authorized.
3. Effect of Termination of Employment. The Option shall terminate and may no longer be exercised if the Participant ceases to be employed by the Company or an Affiliate of the Company, except that:
(a) If the Participant voluntarily terminates the Participant’s employment or if the Company or an Affiliate of the Company terminates the Participant’s employment for any reason other than Cause, Disability, Retirement or death, the Participant may exercise the Option at any time within ninety (90) days after such termination of employment to the extent that the Option was exercisable by the Participant on the date of such termination, but not after the expiration of the term of the Option.
(b) If the Company or an Affiliate of the Company terminates the Participant’s employment for Cause, the Option shall be terminated as of the date of termination of the Participant’s employment.
(c) If the Participant’s employment is terminated by reason of Disability the restrictions on the Participant’s ability to exercise any percentage of the Option as set forth in Section 2(a), shall lapse and the Option shall vest in full. If the Participant’s employment is terminated by reason of Disability, the Participant may exercise the Option at any time within three years after such termination of employment, but not after the expiration of the term of the Option. If the Participant shall die following any such termination, the Option may be exercised at any time within 12 months after the date of the Participant’s death by the personal representatives or administrators of the Participant or by any beneficiary designated in a manner established by the Committee or person or persons to whom the Option has been transferred by will or the applicable laws of descent and distribution, subject to the condition that the Option shall not be exercisable after the expiration of the term of the Option.
(d) If the Participant’s employment is terminated by reason of retirement, the Option, as long as such retirement is at least 180 days after the Grant Date, will not terminate and will become immediately exercisable in full. The Participant may exercise the Option at any time prior to the end of the term of the Option, but not after the expiration of the term of the Option. If the Participant shall die following any such termination, the Option may be exercised at any time within 12 months after the date of the Participant’s death by the personal representatives or administrators of the Participant or by any beneficiary designated in a manner established by the Committee or person or persons to whom the Option has been transferred by will or the applicable laws of descent and distribution, subject to the condition that the Option shall not be exercisable after the expiration of the term of the Option.
(e) If the Participant shall die while in the employ of the Company or an Affiliate of the Company, the restrictions on the Participant’s (or his or her heirs’) ability to exercise any percentage of the Option as set forth in Section 2(a), shall lapse and the Option shall vest in full. The Option may be exercised at any time within 12 months after the date of the Participant’s death by the personal representatives or administrators of the Participant or by any beneficiary designated in a manner established by the Committee or person or persons to whom the Option has been transferred by will or the applicable laws of descent and distribution, subject to the condition that the Option shall not be exercisable after the expiration of the term of the Option.
For purposes of this Agreement, “Retirement” shall mean the voluntary or involuntary termination of the Participant’s employment for any reason other than Cause, Disability or death, after the Participant has completed at least ten years of service as an employee of the Company and/or an Affiliate and has attained age 55.
For avoidance of doubt, if the Participant is employed by an Affiliate that is sold or otherwise ceases to be an Affiliate of the Company, the Participant shall incur a termination of employment by the Company and all Affiliates of the Company under this Agreement.
4. Method of Exercising Option.
(a) Subject to the terms and conditions of this Agreement, the Option shall be exercised by following the procedures established by the Company from time to time, which may require the delivery of a written or electronic notice of exercise (the “Notice”) to the Company (to the attention of the Equity Compensation Specialist) or its agent. The Notice shall be in such form as the Company may prescribe and shall state the election to exercise the Option, the number of Shares as to which the Option is being exercised and the manner of payment and shall be signed by the person or persons so exercising the Option. The Notice shall be accompanied by payment in full of the exercise price for all Shares designated in the notice. The Notice shall also be accompanied by such other information and documents as the Company, in its discretion, may request. To the extent that the Option is exercised after the Participant’s death, the Notice shall also be accompanied by appropriate proof of the right of such person or persons to exercise the Option.
(b) Payment of the exercise price shall be made to the Company through one or a combination of the following methods:
(i) delivery of a certified or cashier’s check, or a wire transfer, payable to the Company or cash, in United States currency;
(ii) delivery of shares of Common Stock acquired by the Participant more than six months prior to the date of exercise having a Fair Market Value on the date of exercise equal to the Option exercise price. The Participant shall duly endorse all certificates delivered to the Company in blank and shall represent and warrant in writing that the Participant is the owner of the shares so delivered, free and clear of all liens, encumbrances, security interests and restrictions;
(iii) if permitted by the Company in its sole discretion, by executing a “cashless exercise” through the Company’s designated broker; or
(iv) delivery of an attestation from the Participant that the Participant owns a number of shares of Common Stock acquired by the Participant more than six months prior to the date of exercise having a Fair Market Value on the date of exercise equal to the Option exercise price (the “Exercise Price Shares”). In such attestation, the Participant shall represent and warrant that the Participant is the owner of the Exercise Price Shares. In the event the Participant exercises the Option in this manner, the number of shares of Common Stock issued to the Participant upon exercise of the Option shall be (A) the number of shares subject to the Option exercise, less (B) the number of Exercise Price Shares.
5. Income Tax Withholding. In order to provide the Company with the opportunity to claim the benefit of any income tax deduction which may be available to it upon the exercise of the Option, and in order to comply with all applicable federal, state, local and foreign income tax laws or regulations, the Company may take such action as it deems appropriate to ensure that all applicable federal, state, local or foreign payroll, withholding, income or other taxes, which are the sole and absolute responsibility of the Participant, are withheld or collected from the Participant. The Participant may, at the Participant’s election (the “Tax Election”), satisfy applicable tax withholding obligations by (a) electing to have the Company withhold a portion of the Shares of Common Stock otherwise to be delivered upon exercise of the Option having a Fair Market Value equal to the amount of such taxes (but only to the extent necessary to satisfy minimum statutory withholding requirements if required under ASC Topic 718) or (b) delivering to the Company shares of Common Stock having a Fair Market Value equal to the amount of such taxes. The Tax Election must be made on or before the date that the amount of tax to be withheld is determined.
6. Securities Matters. No Shares shall be issued hereunder prior to such time as counsel to the Company shall have determined that the issuance of the Shares will not violate any federal or state securities or other laws, rules or regulations. The Company shall not be required to deliver any Shares of Common Stock until the requirements of any applicable securities or other laws, rules or regulations (including the rules of any securities exchange) as may be determined by the Company to be applicable are satisfied. In addition, the grant of this Option and/or the delivery of any Shares of Common Stock under this Agreement are subject to the Company’s Executive and Key Manager Compensation Clawback Policy and any other clawback policies the Company may adopt in the future to conform to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (or any other applicable law) and any applicable rules and regulations of the Securities and Exchange Commission or applicable stock exchange.
7. Tax Consequences. The Participant agrees that the Company does not have a duty to design or administer the Plan or its other compensation programs in a manner that minimize the Participant’s tax liabilities. The Participant will not make any claim against the Company, or any of its officers, directors, employees or Affiliates related to tax liabilities arising from the Option or the Participant’s other compensation.
8. Adjustments. In the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash, shares, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of shares or other securities of the Company, issuance of warrants or other rights to purchase shares or other securities of the Company or other similar corporate transaction or event affects the Shares covered by the Option such that an adjustment is necessary to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under this Agreement, then the Committee shall, in such manner as it may deem equitable, in its sole discretion, adjust any or all of the number and type of the Shares covered by the Option and the exercise price of the Option.
9. General Provisions.
(a) Interpretations. This Agreement is subject in all respects to the terms of the Plan. Terms used herein which are defined in the Plan shall have the respective meanings given to such terms in the Plan, unless otherwise defined herein. In the event that any provision of this Agreement is inconsistent with the terms of the Plan, the terms of the Plan shall govern. Any question of administration or interpretation arising under this Agreement shall be determined by the Committee, and such determination shall be final, conclusive and binding upon all parties in interest.
(b) No Rights as a Shareholder. Neither the Participant nor the Participant’s legal representatives shall have any of the rights and privileges of a shareholder of the Company with respect to the Shares of Common Stock subject to the Option until such Shares shall have been issued upon exercise of the Option.
(c) No Right to Employment. Nothing in this Agreement or the Plan shall be construed as giving the Participant the right to be retained as an employee of the Company or any Affiliate. In addition, the Company or an Affiliate may at any time dismiss the Participant from employment, free from any liability or any claim under this Agreement, unless otherwise expressly provided in this Agreement or the Plan.
(d) Option Not Transferable. The Option shall not be transferable other than (i) by will or by the laws of descent and distribution, or (ii) by designating a beneficiary or beneficiaries (in a manner established by the Committee) to exercise the rights of the Participant and receive any property distributable with respect to any Option upon the death of the Participant. During the Participant’s lifetime the Option shall be exercisable only by the Participant or, if permissible under applicable law, by the Participant’s guardian or legal representative. The Option may not be pledged, alienated, attached or otherwise encumbered, and any purported pledge, alienation, attachment or encumbrance of the Option shall be void and unenforceable against the Company.
(e) Reservation of Shares. The Company shall at all times during the term of the Option reserve and keep available such number of shares of Common Stock as will be sufficient to satisfy the requirements of this Agreement.
(f) Headings. Headings are given to the sections and subsections of this Agreement solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of this Agreement or any provision hereof.
(g) Venue and Governing Law. The internal law, and not the law of conflicts, of the State of Minnesota will govern all questions concerning the validity, construction and effect of this Agreement. For purposes of any action, lawsuit or other proceedings brought to enforce the Agreement, relating to it, or arising from it, the parties hereby submit to and consent to the sole and exclusive jurisdiction of the courts of Ramsey County, Minnesota, or the federal courts for the United States for the District of Minnesota, and no other courts, where this grant is made and/or to be performed.
(h) Addendum. Notwithstanding the provisions of this Agreement, the award shall be subject to any special terms and conditions for the Participant’s country set forth in the Addendum to this Agreement. To the extent any provision in the Addendum is inconsistent with a provision in the body of this Agreement, the provision in the Addendum shall prevail. Moreover, if the Participant relocates to one of the countries included in the Addendum, the terms and conditions for such country will apply to the Participant to the extent the Company determines that the application of such terms and conditions is necessary or advisable for legal or administrative reasons.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be effective as of the date first set forth above.
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H.B. FULLER COMPANY
By:
Participant
Date: |
Exhibit 10.3
FORM OF RESTRICTED STOCK UNIT AGREEMENT
H.B. FULLER COMPANY
RESTRICTED STOCK UNIT AWARD AGREEMENT
(Under the Second Amended and Restated H.B. Fuller Company 2020 Master Incentive Plan)
THIS AGREEMENT, dated as of _______________, 20___ (the "Grant Date"), is entered into between H.B. Fuller Company, a Minnesota corporation (the “Company”), and ____________________, an employee of the Company or an affiliate of the Company (“Participant”).
WHEREAS, the Company, pursuant to the Second Amended and Restated H.B. Fuller Company 2020 Master Incentive Plan (the “Plan”), wishes to award to the Participant Restricted Stock Units, representing the right to receive shares (“Shares”) of common stock, par value $1.00 per share, of the Company (“Common Stock”), subject to certain restrictions and on the terms and conditions contained in this Agreement and the Plan;
WHEREAS, the Participant’s rights to receive Shares of Common Stock hereunder are sometimes referred to as “Restricted Stock Units” in this Agreement.
NOW, THEREFORE, in consideration of the premises and agreements set forth herein, the parties hereto hereby agree as follows:
1. Award of Restricted Stock Units. The Company, effective as of the Grant Date, hereby grants to the Participant an award of ______ Restricted Stock Units, each Restricted Stock Unit representing the right to receive one Share of Common Stock on such date as set forth herein, plus an additional amount pursuant to Section 2(b) hereof, subject to the terms and conditions set forth in this Agreement and the Plan.
2. Rights of the Participant with Respect to the Restricted Stock Units.
(a) No Shareholder Rights. The Restricted Stock Units granted pursuant to this Agreement do not and shall not entitle the Participant to any rights of a shareholder of Common Stock. The rights of the Participant with respect to the Restricted Stock Units shall remain forfeitable at all times prior to the date on which such rights become vested, and the restrictions with respect to the Restricted Stock Units lapse, in accordance with Section 3 hereof.
(b) Dividend Equivalents. As long as the Participant holds Restricted Stock Units granted pursuant to this Agreement on the applicable record date, the Company shall credit to the Participant, on each date that the Company pays a cash dividend to holders of Common Stock generally, an additional number of Restricted Stock Units (“Additional Restricted Stock Units”) equal to the total number of whole Restricted Stock Units and Additional Restricted Stock Units previously credited to the Participant under this Agreement multiplied by the dollar amount of the cash dividend paid per Share of Common Stock by the Company on such date, divided by the Fair Market Value of a Share of Common Stock on such date. Any fractional Restricted Stock Unit resulting from such calculation shall be included in the Additional Restricted Stock Units. The Additional Restricted Stock Units so credited shall be subject to the same terms and conditions as the Restricted Stock Units granted pursuant to this Agreement and the Additional Restricted Stock Units shall be forfeited in the event that the Restricted Stock Units with respect to which the dividend equivalents were credited are forfeited.
(c) Issuance of Shares; Conversion of Restricted Stock Units. No Shares of Common Stock shall be issued to the Participant prior to the date on which the Restricted Stock Units vest, and the restrictions with respect to the Restricted Stock Units lapse, in accordance with Section 3 hereof. Neither this Section 2(c) nor any action taken pursuant to or in accordance with this Section 2(c) shall be construed to create a trust of any kind. After any Restricted Stock Units vest pursuant to Section 3 hereof, the Company shall promptly cause to be issued, in either certificated or uncertificated form, Shares of Common Stock registered in the Participant’s name or in the name of the Participant’s legal representatives, beneficiaries or heirs, as the case may be, in payment of such vested whole Restricted Stock Units and any Additional Restricted Stock Units and shall cause such certificated or uncertificated Shares to be delivered to the Participant or the Participant’s legal representatives, beneficiaries or heirs, as the case may be. In no event shall issuance of Shares occur more than ninety (90) days after the applicable vesting date. The value of any fractional Restricted Stock Unit shall be cancelled at the time certificated or uncertificated Shares are delivered to the Participant in payment of the Restricted Stock Units and any Additional Restricted Stock Units.
3. Vesting; Forfeiture.
(a) Subject to the terms and conditions of this Agreement, the Restricted Stock Units shall vest in full in _______ annual installment(s) and the restrictions with respect to the Restricted Stock Units shall lapse on the vesting date(s) (each, a “Vesting Date”) set forth below if the Participant remains continuously employed by the Company or an Affiliate of the Company through the applicable Vesting Date:
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____ anniversary of the Grant Date |
__% |
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____ anniversary of the Grant Date |
__% |
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____ anniversary of the Grant Date |
__% |
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____ anniversary of the Grant Date |
__% |
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____ anniversary of the Grant Date |
__% |
(b) Change in Control. Notwithstanding the foregoing provisions of this Agreement, but subject to the other terms and conditions set forth herein, in the event that a Change in Control of the Company occurs prior to a Vesting Date, and the Participant incurs a Qualifying Termination of Employment during the Protected Period, all unvested Restricted Stock Units then outstanding (and not previously forfeited) shall immediately vest, and the Participant shall be entitled to receive a payment of the Shares of Common Stock corresponding to such Vesting Date. Such payment shall be made promptly following the Qualifying Termination of Employment. For the purposes of this Agreement, a “Change in Control” shall be deemed to have occurred upon any of the following events:
(i) a public announcement (which, for purposes hereof, shall include, without limitation, a report filed pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that any individual, corporation, partnership, association, trust or other entity becomes the beneficial owner (as defined in Rule 13(d)(3) promulgated under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the voting power of the Company then outstanding;
(ii) the individuals who, as of the date of this Agreement, are members of the Board of Directors of the Company (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board (provided, however, that if the election or nomination for election by the Company’s shareholders of any new director was approved by a vote of at least a majority of the Incumbent Board, such new director shall be considered to be a member of the Incumbent Board);
(iii) the approval of the shareholders of the Company, and consummation, of (A) any consolidation, merger or statutory share exchange of the Company with any person in which the surviving entity would not have as its directors at least 60% of the Incumbent Board and as a result of which those persons who were shareholders of the Company immediately prior to such transaction would not hold, immediately after such transaction, at least 60% of the voting power of the Company then outstanding or the combined voting power of the surviving entity’s then outstanding voting securities; (B) any sale, lease, exchange or other transfer in one transaction or series of related transactions substantially all of the assets of the Company; or (C) the adoption of any plan or proposal for the complete or partial liquidation or dissolution of the Company; or
(iv) a determination by a majority of the members of the Incumbent Board, in their sole and absolute discretion, that there has been a Change in Control of the Company.
For purposes of this Section 3(b), “voting power” when used with reference to the Company shall mean the voting power of all classes and series of capital stock of the Company now or hereafter authorized.
Notwithstanding the foregoing, if any payment due under this Section 3(b) is deferred compensation subject to Section 409A of the Code, any payment made on account of the Participant’s termination of employment (other than a Disability) shall not be made unless such termination of employment constitutes the Participant’s separation from service, and such payment shall be subject to any additional required delay under Section 9(a).
(c) For the purposes of this Agreement, a “Qualifying Termination of Employment” shall mean either (i) an involuntary termination of employment by the Company or an Affiliate other than for Cause or Disability during the Protected Period; or (ii) a voluntary resignation by the Participant for Good Reason during the Protected Period.
(d) For purposes of this Agreement, “Protected Period” means the 24-month period beginning on and immediately following each and every Change in Control. “Cause” means any act by the Participant that is materially inimical to the best interests of the Company and that constitutes common law fraud, a felony or other gross malfeasance of duty on the part of the Participant. “Disability” means disabled within the meaning of Section 409A(a)(2)(C)(i) of the Code. “Good Reason” shall mean the occurrence of any of the following events, in each case, after the Participant has provided written notice to the Company within 60 days of the occurrence of such event and the Company has failed to cure the cause of such event within 60 days after the date of such written notice (and the Participant terminates employment within 60 days of the expiration of such cure period), except for the occurrence of such an event in connection with the termination or reassignment of Participant’s employment by the Company or an Affiliate for Cause or for Disability:
(i) a material change in the Participant’s pay consisting of a 10% or more reduction in total cash compensation opportunity as in effect immediately prior to the Change in Control (unless such reduction is part of an across-the-board uniformly applied reduction affecting all similarly situated Participants of the Company); or
(ii) a significant diminution in the Participant’s authority and duties as in effect immediately prior to the Change of Control (excluding an isolated, insubstantial or inadvertent action not taken in bad faith that is remedied promptly by the Company after receiving notice); provided, however, that a change of the individual or officer to whom the Participant reports, in and of itself, would not constitute diminution; or
(iii) a change of the Participant’s principal work location of 50 or more miles from that immediately prior to the Change in Control.
(e) Effect of Other Termination of Employment. In the event that the Participant’s employment with the Company and all Affiliates is terminated prior to a Vesting Date (other than a Qualifying Termination of Employment), the Participant’s right to receive any Shares (including the right to receive any Shares relating to Additional Restricted Stock Units) corresponding to that Vesting Date shall be immediately and irrevocably forfeited, unless such termination is by reason of:
(i) the Participant’s Disability;
(ii) the Participant’s death; or
(iii) the Participant’s retirement (as defined below in Section 3(g) below).
For avoidance of doubt, if the Participant is employed by an Affiliate that is sold or otherwise ceases to be an Affiliate of the Company, the Participant shall incur a termination of employment by the Company and all Affiliates of the Company under this Agreement.
(f) Early Vesting on Death or Disability. In the event the Participant dies or becomes permanently disabled prior to a Vesting Date, all unvested Restricted Stock Units then outstanding (and not previously forfeited) shall immediately vest, and the Participant or the Participant’s estate shall be entitled to receive a payment of all corresponding Shares of Common Stock. Such payment shall be made as soon as administratively feasible (but in no event more than ninety (90) days) following the Participant’s death or permanent disability, as applicable.
(g) Retirement. In the event the Participant retires prior to a Vesting Date, as long as such retirement is at least 180 days after the Grant Date, then the Participant’s rights under this Agreement shall remain outstanding as if the Participant had remained employed through the Vesting Date. For purposes of this Section 3, “retirement” shall mean the voluntary or involuntary termination of the Participant’s employment for any reason other than Cause, Disability or death, after the Participant has completed at least ten years of service as an employee of the Company and/or an Affiliate and has attained age 55, so long as the Participant has at all times that Restricted Stock Units are outstanding under this Agreement complied with the terms of any applicable confidentiality, non-disclosure and/or non-competition agreement between the Company and the Participant. In all other cases, any unvested Restricted Stock Units and Additional Restricted Stock Units shall terminate upon retirement.
(h) Forfeiture. If the Participant ceases to be employed by the Company or an Affiliate of the Company for any reason other than “retirement” as defined in Section 3(g) above or the Participant’s death or permanent disability as specified in Section 3(f) hereof, or a Qualifying Termination of Employment as defined in Section 3(c) hereof, prior to the vesting of the Restricted Stock Units pursuant to Section 3(a) hereof, the Participant’s rights to all of the unvested Restricted Stock Units shall be immediately and irrevocably forfeited, including the right to receive any Additional Restricted Stock Units.
If any early payment is made pursuant to Section 3(b) or (f), no payment shall be made pursuant to Section 3(a) of this Agreement.
4. Restrictions on Transfer. The Restricted Stock Units shall not be transferable other than by will or by the laws of descent and distribution. Notwithstanding the foregoing, the Participant may, in the manner established by the Committee, designate a beneficiary or beneficiaries to exercise the rights of the Participant and receive any property distributable with respect to the Restricted Stock Units upon the death of the Participant. Each right under this Agreement shall be exercisable during the Participant’s lifetime only by the Participant or, if permissible under applicable law, by the Participant’s legal representative. The Restricted Stock Units and any rights under this Agreement may not be sold, assigned, transferred, pledged, alienated, attached or otherwise encumbered and any purported sale, assignment, transfer, pledge, alienation, attachment or encumbrance shall be void and unenforceable against the Company or any Affiliate.
5. Income Tax Matters. In order to comply with all applicable federal, foreign, state or local income tax laws or regulations, the Company may take such action as it deems appropriate to ensure that all applicable federal, foreign, state or local payroll, withholding, income or other taxes, which are the sole and absolute responsibility of the Participant, are withheld or collected from the Participant. Upon vesting of the Restricted Stock Units and the lapse of the restrictions with respect to the Restricted Stock Units under the terms of this Award Agreement, the Participant shall be obligated to pay any applicable withholding taxes arising from such vesting and lapse of restrictions. Unless the Company receives an irrevocable written instruction, addressed to the attention of the Secretary of the Company, from the Participant prior to the date that the Restricted Stock Units vest and the restrictions lapse, the Company shall automatically withhold as payment the number of Shares of Common Stock, determined by the Fair Market Value on the applicable vesting date as set forth in Section 3 and lapse of restrictions, required to pay the applicable withholding taxes (but only to the extent necessary to satisfy minimum statutory withholding requirements if required under ASC Topic 718).
6. Securities Matters. No Shares of Common Stock shall be issued pursuant to this Agreement prior to such time as counsel to the Company shall have determined that the issuance of such shares will not violate any securities or other laws, rules or regulations. The Company shall not be required to deliver any Shares of Common Stock until the requirements of any applicable securities or other laws, rules or regulations (including the rules of any securities exchange) as may be determined by the Company to be applicable are satisfied. In addition, the grant of these Restricted Stock Units and/or the delivery of any Shares of Common Stock under this Agreement are subject to the Company’s Executive and Key Manager Compensation Clawback Policy and any other clawback policies the Company may adopt in the future to conform to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (or any other applicable law) and any applicable rules and regulations of the Securities and Exchange Commission or applicable stock exchange.
7. Tax Consequences. The Participant agrees that the Company does not have a duty to design or administer the Plan or its other compensation programs in a manner that minimize the Participant’s tax liabilities. The Participant will not make any claim against the Company, or any of its officers, directors, employees or Affiliates related to tax liabilities arising from the Restricted Stock Units or the Participant’s other compensation.
8. Adjustments. In the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash, shares, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of shares or other securities of the Company, issuance of warrants or other rights to purchase shares or other securities of the Company or other similar corporate transaction or event affects the Common Stock such that an adjustment is necessary in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under this Agreement, then the Committee shall, in such manner as it may deem equitable, in its sole discretion, adjust any or all of the number and type of shares subject to the Restricted Stock Units.
9. General Provisions.
(a) Section 409A. Notwithstanding the foregoing, to the extent that any payment due hereunder is (i) deferred compensation subject to Section 409A of the Code (“Section 409A”), and (ii) is payable to a specified employee (as that term is defined in Section 409A), and (iii) is payable on account of the specified employee’s separation from service (as that term is defined in Section 409A), payment of any part of such amount that would have been made during the six (6) months following the separation from service shall not then be paid but shall rather be paid on the first day of the seventh (7th) month following the separation from service.
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(i) |
For this purpose, specified employees shall be identified by the Company on a basis consistent with regulations issued under Section 409A, and consistently applied to all plans, programs, contracts, etc. maintained by the Company that are subject to Section 409A. |
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(ii) |
For this purpose, “termination of employment” shall be defined as “separation from service” as that term is defined under Section 409A. |
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(iii) |
To the extent that Section 409A is applicable to this Agreement, this Agreement shall be construed and administered to comply with the rules of Section 409A. Neither the Company nor any of its officers, directors, agents or affiliates shall be obligated, directly or indirectly, to any participant or any other person for any taxes, penalties, interest or like amounts that may be imposed on the participant or other person on account of any amounts under this Plan or on account of any failure to comply with any Code section. |
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(iv) |
The rules of section 409A of the Code shall apply to this Agreement, and this Agreement shall be construed and administered accordingly. Notwithstanding the foregoing, neither the Company nor any of its officers, directors, agents or affiliates shall be obligated, directly or indirectly, to any Participant or any other person for any taxes, penalties, interest or like amounts that may be imposed on the Participant or other person on account of any amounts under this Agreement or on account of any failure to comply with any section of the Code. |
(b) Interpretations. This Agreement is subject in all respects to the terms of the Plan. Terms used herein which are defined in the Plan shall have the respective meanings ascribed to such terms in the Plan, unless otherwise defined herein. In the event that any provision of this Agreement is inconsistent with the terms of the Plan, the terms of the Plan shall govern. Any question of administration or interpretation arising under this Agreement shall be determined by the Committee, and such determination shall be final and conclusive upon all parties in interest.
(c) No Right to Employment. The grant of the Restricted Stock Units shall not be construed as giving the Participant the right to be retained as an employee of the Company or any Affiliate. In addition, the Company or an Affiliate may at any time dismiss the Participant from employment, free from any liability or any claim under this Agreement, unless otherwise expressly provided in this Agreement or the Plan.
(d) Headings. Headings are given to the sections and subsections of this Agreement solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of this Agreement or any provision hereof.
(e) Severability. If any provision of this Agreement is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction under any law deemed to be applicable by the Committee, such provision shall be construed or deemed amended to conform to the applicable law, or if it cannot be so construed or amended without, in the determination of the Committee, materially altering the purpose or intent of this Agreement, such provision shall be stricken as to such jurisdiction or this Agreement, and the remainder of this Agreement shall remain in full force and effect.
(f) Venue and Governing Law. The internal law, and not the law of conflicts, of the State of Minnesota will govern all questions concerning the validity, construction and effect of this Agreement. For purposes of any action, lawsuit or other proceedings brought to enforce the Agreement, relating to it, or arising from it, the parties hereby submit to and consent to the sole and exclusive jurisdiction of the courts of Ramsey County, Minnesota, or the federal courts for the United States for the District of Minnesota, and no other courts, where this grant is made and/or to be performed.
(g) Addendum. Notwithstanding the provisions of this Agreement, the award shall be subject to any special terms and conditions for the Participant’s country set forth in the Addendum to this Agreement. To the extent any provision in the Addendum is inconsistent with a provision in the body of this Agreement, the provision in the Addendum shall prevail. Moreover, if the Participant relocates to one of the countries included in the Addendum, the terms and conditions for such country will apply to the Participant to the extent the Company determines that the application of such terms and conditions is necessary or advisable for legal or administrative reasons.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first set forth above.
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Exhibit 10.4
H.B. FULLER COMPANY
PERFORMANCE SHARE AWARD AGREEMENT
(Under the Second Amended and Restated H.B. Fuller Company 2020 Master Incentive Plan)
THIS AGREEMENT, dated as of ____________, 20__ (the "Grant Date"), is entered into between H.B. Fuller Company, a Minnesota corporation (the “Company”), and _____________, an employee of the Company or an affiliate of the Company (“Participant”).
WHEREAS, the Company, pursuant to the Second Amended and Restated H.B. Fuller Company 2020 Master Incentive Plan (the “Plan”), wishes to award to the Participant a Performance Share Award representing the right to receive shares (“Shares”) of common stock, par value $1.00 per share, of the Company (“Common Stock”), subject to certain restrictions and on the terms and conditions contained in this Performance Share Award Agreement and the Plan;
WHEREAS, the Participant’s rights to receive Shares of Common Stock hereunder are sometimes referred to as “Restricted Stock Units” in this Agreement.
NOW, THEREFORE, in consideration of the premises and agreements set forth herein, the parties hereto hereby agree as follows:
1. Performance Share Award. The Company, effective as of the Grant Date, hereby grants to the Participant a Performance Share Award representing the right to receive a specified number of Shares of Common Stock as set forth below and subject to the terms and conditions set forth in this Agreement and the Plan:
(a) ______ Target Number of Shares Subject to Award. The Target Number shall consist of one (1) tranche (the “tranche”). The number of Shares payable with respect to the tranche ranges from a maximum number of Shares equal to 200% of the tranche to a potential for a -0- payout in the event the threshold level of performance for the Tranche is not achieved (see Exhibit A).
(b) The Performance Period(s) and Vesting Date(s)(s) for purposes of determining whether, and the extent to which, Shares of Common Stock within the tranche become payable hereunder shall be:
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Performance Period |
Tranche | Vesting Date |
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____________, 20__ – ___________, 20__ |
100% |
third (3rd) anniversary date of the Grant Date |
The performance goal(s) for purposes of determining whether, and the extent to which, the Shares of Common Stock will be paid are set forth in Exhibit A to this Agreement, which Exhibit is made a part of this Agreement.
2. Rights of Participant with Respect to the Restricted Stock Units.
(a) No Shareholder Rights. The Restricted Stock Units granted pursuant to this Agreement do not and shall not entitle the Participant to any rights of a shareholder of Common Stock. The rights of the Participant with respect to the Restricted Stock Units shall remain forfeitable at all times prior to the date on which such rights become vested, and the restrictions with respect to the Restricted Stock Units lapse, in accordance with Section 3 hereof.
(b) Dividend Equivalents. As long as the Participant holds Restricted Stock Units granted pursuant to this Agreement on the applicable record date, the Company shall credit to the Participant, on each date that the Company pays a cash dividend to holders of Common Stock generally, an additional number of Restricted Stock Units (“Additional Restricted Stock Units”) equal to the total number of whole Restricted Stock Units and Additional Restricted Stock Units previously credited to the Participant under this Agreement multiplied by the dollar amount of the cash dividend paid per share of Common Stock by the Company on such date, divided by the Fair Market Value of a share of Common Stock on such date. Any fractional Restricted Stock Unit resulting from such calculation shall be included in the Additional Restricted Stock Units. The Additional Restricted Stock Units so credited shall be subject to the same terms and conditions as the Restricted Stock Units granted pursuant to this Agreement and the Additional Restricted Stock Units shall be forfeited in the event that the Restricted Stock Units with respect to which the dividend equivalents were credited are forfeited.
(c) Issuance of Shares; Conversion of Restricted Stock Units. No Shares of Common Stock shall be issued to the Participant prior to the date on which the Restricted Stock Units vest, and the restrictions with respect to the Restricted Stock Units lapse, in accordance with Section 1 or Section 3 hereof. Neither this Section 2(c) nor any action taken pursuant to or in accordance with this Section 2(c) shall be construed to create a trust of any kind. After any Restricted Stock Units vest pursuant to Section 1 or Section 3 hereof, the Company shall promptly cause to be issued, in either certificated or uncertificated form, Shares of Common Stock registered in the Participant’s name or in the name of the Participant’s legal representatives, beneficiaries or heirs, as the case may be, in payment of such vested whole Restricted Stock Units and any Additional Restricted Stock Units and shall cause such certificated or uncertificated shares to be delivered to the Participant or the Participant’s legal representatives, beneficiaries or heirs, as the case may be. In no event shall issuance of Shares occur more than ninety (90) days after the applicable vesting date. The value of any fractional Restricted Stock Unit shall be cancelled at the time certificated or uncertificated shares are delivered to the Participant in payment of the Restricted Stock Units and any Additional Restricted Stock Units.
3. Vesting; Forfeiture.
(a) Termination of Employment. In the event that the Participant’s employment with the Company and all Affiliates is terminated prior to the Vesting Date, the Participant’s right to receive any Shares (including the right to receive any Shares relating to Additional Restricted Stock Units) shall be immediately and irrevocably forfeited, unless such termination is by reason of:
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(i) |
the Participant’s permanent disability (within the meaning of Section 409A(a)(2)(C)(i) of the Code); |
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(ii) |
the Participant’s death; or |
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(iii) |
the Participant’s retirement (as defined below in Section 3(c) below). |
For avoidance of doubt, if the Participant is employed by an Affiliate that is sold or otherwise ceases to be an Affiliate of the Company, the Participant shall incur a termination of employment by the Company and all Affiliates of the Company under this Agreement.
(b) Early Vesting on Death or Disability. In the event the Participant dies or becomes permanently disabled prior to the commencement or completion of a Performance Period, or after completion of a Performance Period but prior to the Vesting Date, then the Participant or the Participant’s estate shall be entitled to receive a payment of the Shares of Common Stock based on, and assuming that, performance would be achieved at the target level for the Performance Period, as set forth in Exhibit A to this Agreement. Such payment shall be made as soon as administratively feasible (but in no event more than ninety (90) days) following the Participant’s death or permanent disability, as applicable. If a payment is made pursuant to this Section 3(b), no payment shall be made pursuant to Section 1 of this Agreement.
(c) Retirement. In the event the Participant retires prior to the commencement or completion of a Performance Period or prior to the Vesting Date, as long as such retirement is at least 180 days after the Grant Date, then the Participant’s rights under the Performance Award shall remain outstanding as if the Participant had remained employed for the duration of the Performance Period and through the Vesting Date. The Participant shall be entitled to receive payment of the Performance Award, if any, that becomes payable under Section 1 based on actual performance achieved. For purposes of this Section 3, “retirement” shall mean the voluntary or involuntary termination of the Participant’s employment for any reason other than Cause, Disability or death, after the Participant has completed at least ten years of service as an employee of the Company and/or an Affiliate of the Company, and has attained age 55, so long as the Participant has at all times that Restricted Stock Units are outstanding under this Agreement complied with the terms of any applicable confidentiality, non-disclosure and/or non-competition agreement between the Company and the Participant.
(d) Change in Control. Notwithstanding the foregoing provisions of this Agreement, but subject to the other terms and conditions set forth herein, in the event that a Change in Control of the Company occurs prior to the Vesting Date, and the Participant incurs a Qualifying Termination of Employment during the Protected Period, the Participant shall be entitled to receive a payment of the Shares of Common Stock based on, and assuming that, performance would have been achieved at the target level for the Performance Period, as set forth in Exhibit A to this Agreement. Such payment shall be made promptly following the date of the Qualifying Termination of Employment. For the purposes of this Agreement, a “Change in Control” shall be deemed to have occurred upon any of the following events:
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(i) |
a public announcement (which, for purposes hereof, shall include, without limitation, a report filed pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that any individual, corporation, partnership, association, trust or other entity becomes the beneficial owner (as defined in Rule 13(d)(3) promulgated under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the voting power of the Company then outstanding; |
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(ii) |
the individuals who, as of the date of this Agreement, are members of the Board of Directors of the Company (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board (provided, however, that if the election or nomination for election by the Company’s shareholders of any new director was approved by a vote of at least a majority of the Incumbent Board, such new director shall be considered to be a member of the Incumbent Board); |
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(iii) |
the approval of the shareholders of the Company, and consummation, of (i) any consolidation, merger or statutory share exchange of the Company with any person in which the surviving entity would not have as its directors at least 60% of the Incumbent Board and as a result of which those persons who were shareholders of the Company immediately prior to such transaction would not hold, immediately after such transaction, at least 60% of the voting power of the Company then outstanding or the combined voting power of the surviving entity’s then outstanding voting securities; (ii) any sale, lease, exchange or other transfer in one transaction or series of related transactions substantially all of the assets of the Company; or (iii) the adoption of any plan or proposal for the complete or partial liquidation or dissolution of the Company; or |
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(iv) |
a determination by a majority of the members of the Incumbent Board, in their sole and absolute discretion, that there has been a Change in Control of the Company. |
For purposes of this Section 3(d), “voting power” when used with reference to the Company shall mean the voting power of all classes and series of capital stock of the Company now or hereafter authorized.
If a payment is made pursuant to this Section 3(d), no payment shall be made pursuant to Section 1 of this Agreement. Notwithstanding the foregoing, if any payment due under this Section 3(d) is deferred compensation subject to Section 409A of the Code, any payment made on account of the Participant’s termination of employment (other than a Disability) shall not be made unless such termination of employment constitutes the Participant’s separation from service, and such payment shall be subject to any additional required delay under Section 9(a).
For the purposes of this Agreement, a “Qualifying Termination of Employment” shall mean either (i) an involuntary termination of employment by the Company or an Affiliate other than for Cause or Disability during the Protected Period; or (ii) a voluntary resignation by the Participant for Good Reason during the Protected Period.
(e) For purposes of this Agreement, “Protected Period” means the 24-month period beginning on and immediately following each and every Change in Control. “Cause” means any act by the Participant that is materially inimical to the best interests of the Company and that constitutes common law fraud, a felony or other gross malfeasance of duty on the part of the Participant. “Disability” means disabled within the meaning of Section 409A(a)(2)(C)(i) of the Code. “Good Reason” shall mean the occurrence of any of the following events, in each case, after the Participant has provided written notice to the Company within 60 days of the occurrence of such event and the Company has failed to cure the cause of such event within 60 days after the date of such written notice (and the Participant terminates employment within 60 days of the expiration of such cure period), except for the occurrence of such an event in connection with the termination or reassignment of the Participant’s employment by the Company or an Affiliate for Cause or for Disability:
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(i) |
a material change in the Participant’s pay consisting of a 10% or more reduction in total cash compensation opportunity as in effect immediately prior to the Change in Control (unless such reduction is part of an across-the-board uniformly applied reduction affecting similarly situated executives of the Company); or |
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(ii) |
a significant diminution in the Participant’s authority and duties as in effect immediately prior to the Change of Control (excluding an isolated, insubstantial or inadvertent action not taken in bad faith that is remedied promptly by the Company after receiving notice); provided, however, that a change of the individual or officer to whom the Participant reports, in and of itself, would not constitute diminution; or |
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(iii) |
a change of the Participant’s principal work location of 50 or more miles from that immediately prior to the Change in Control. |
4. Restrictions on Transfer. The Restricted Stock Units shall not be transferable other than by will or by the laws of descent and distribution. Notwithstanding the foregoing, the Participant may, in the manner established by the Committee, designate a beneficiary or beneficiaries to exercise the rights of the Participant and receive any property distributable with respect to the Restricted Stock Units upon the death of the Participant. Each right under this Agreement shall be exercisable during the Participant’s lifetime only by the Participant or, if permissible under applicable law, by the Participant’s legal representative. The Restricted Stock Units and any rights under this Agreement may not be sold, assigned, transferred, pledged, alienated, attached or otherwise encumbered and any purported sale, assignment, transfer, pledge, alienation, attachment or encumbrance shall be void and unenforceable against the Company or any Affiliate.
5. Income Tax Matters. In order to comply with all applicable federal, foreign, state or local income tax laws or regulations, the Company may take such action as it deems appropriate to ensure that all applicable federal, foreign, state or local payroll, withholding, income or other taxes, which are the sole and absolute responsibility of the Participant, are withheld or collected from the Participant. Upon vesting of the Restricted Stock Units and the lapse of the restrictions with respect to the Restricted Stock Units under the terms of this Award Agreement, the Participant shall be obligated to pay any applicable withholding taxes arising from such vesting and lapse of restrictions. Unless the Company receives an irrevocable written instruction, addressed to the attention of the Secretary of the Company, from the Participant prior to the date that the Restricted Stock Units vest and the restrictions lapse, the Company shall automatically withhold as payment the number of Shares of Common Stock, determined by the Fair Market Value on the applicable vesting date as set forth in Section 3 and lapse of restrictions, required to pay the applicable withholding taxes (but only to the extent necessary to satisfy minimum statutory withholding requirements if required under ASC Topic 718).
6. Securities Matters. No Shares of Common Stock shall be issued pursuant to this Agreement prior to such time as counsel to the Company shall have determined that the issuance of such shares will not violate any securities or other laws, rules or regulations. The Company shall not be required to deliver any Shares of Common Stock until the requirements of any applicable securities or other laws, rules or regulations (including the rules of any securities exchange) as may be determined by the Company to be applicable are satisfied. In addition, the grant of these Restricted Stock Units and/or the delivery of any Shares of Common Stock under this Agreement are subject to the Company’s Executive and Key Manager Compensation Clawback Policy and any other clawback policies the Company may adopt in the future to conform to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (or any other applicable law) and any applicable rules and regulations of the Securities and Exchange Commission or applicable stock exchange.
7. Tax Consequences. The Participant agrees that the Company does not have a duty to design or administer the Plan or its other compensation programs in a manner that minimize the Participant’s tax liabilities. The Participant will not make any claim against the Company, or any of its officers, directors, employees or Affiliates related to tax liabilities arising from the Restricted Stock Units or the Participant’s other compensation.
8. Adjustments. In the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash, shares, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of shares or other securities of the Company, issuance of warrants or other rights to purchase shares or other securities of the Company or other similar corporate transaction or event affects the Common Stock such that an adjustment is necessary in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under this Agreement, then the Committee shall, in such manner as it may deem equitable, in its sole discretion, adjust any or all of the number and type of shares subject to the Restricted Stock Units.
9. General Provisions.
(a) Section 409A. Notwithstanding the foregoing, to the extent that any payment due hereunder is (i) deferred compensation subject to Section 409A of the Code (“Section 409A”), and (ii) is payable to a specified employee (as that term is defined in Section 409A), and (iii) is payable on account of the specified employee’s separation from service (as that term is defined in Section 409A), payment of any part of such amount that would have been made during the six (6) months following the separation from service shall not then be paid but shall rather be paid on the first day of the seventh (7th) month following the separation from service.
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(i) |
For this purpose, specified employees shall be identified by the Company on a basis consistent with regulations issued under Section 409A, and consistently applied to all plans, programs, contracts, etc. maintained by the Company that are subject to Section 409A. |
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(ii) |
For this purpose, “termination of employment” shall be defined as “separation from service” as that term is defined under Section 409A. |
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(iii) |
To the extent that Section 409A is applicable to this Agreement, this Agreement shall be construed and administered to comply with the rules of Section 409A. Neither the Company nor any of its officers, directors, agents or affiliates shall be obligated, directly or indirectly, to any participant or any other person for any taxes, penalties, interest or like amounts that may be imposed on the participant or other person on account of any amounts under this Plan or on account of any failure to comply with any Code section. |
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(iv) |
The rules of section 409A of the Code shall apply to this Agreement, and this Agreement shall be construed and administered accordingly. Notwithstanding the foregoing, neither the Company nor any of its officers, directors, agents or affiliates shall be obligated, directly or indirectly, to any Participant or any other person for any taxes, penalties, interest or like amounts that may be imposed on the Participant or other person on account of any amounts under this Agreement or on account of any failure to comply with any section of the Code. |
(b) Interpretations. This Agreement is subject in all respects to the terms of the Plan. Terms used herein which are defined in the Plan shall have the respective meanings ascribed to such terms in the Plan, unless otherwise defined herein. In the event that any provision of this Agreement is inconsistent with the terms of the Plan, the terms of the Plan shall govern. Any question of administration or interpretation arising under this Agreement shall be determined by the Committee, and such determination shall be final and conclusive upon all parties in interest.
(c) No Right to Employment. The grant of the Restricted Stock Units shall not be construed as giving the Participant the right to be retained as an employee of the Company or any Affiliate. In addition, the Company or an Affiliate may at any time dismiss the Participant from employment, free from any liability or any claim under this Agreement, unless otherwise expressly provided in this Agreement or the Plan.
(d) Headings. Headings are given to the sections and subsections of this Agreement solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of this Agreement or any provision hereof.
(e) Severability. If any provision of this Agreement is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction under any law deemed to be applicable by the Committee, such provision shall be construed or deemed amended to conform to the applicable law, or if it cannot be so construed or amended without, in the determination of the Committee, materially altering the purpose or intent of this Agreement, such provision shall be stricken as to such jurisdiction or this Agreement, and the remainder of this Agreement shall remain in full force and effect.
(f) Venue and Governing Law. The internal law, and not the law of conflicts, of the State of Minnesota will govern all questions concerning the validity, construction and effect of this Agreement. For purposes of any action, lawsuit or other proceedings brought to enforce the Agreement, relating to it, or arising from it, the parties hereby submit to and consent to the sole and exclusive jurisdiction of the courts of Ramsey County, Minnesota, or the federal courts for the United States for the District of Minnesota, and no other courts, where this grant is made and/or to be performed.
(g) Addendum. Notwithstanding the provisions of this Agreement, the award shall be subject to any special terms and conditions for the Participant’s country set forth in the Addendum to this Agreement. To the extent any provision in the Addendum is inconsistent with a provision in the body of this Agreement, the provision in the Addendum shall prevail. Moreover, if the Participant relocates to one of the countries included in the Addendum, the terms and conditions for such country will apply to the Participant to the extent the Company determines that the application of such terms and conditions is necessary or advisable for legal or administrative reasons.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first set forth above.
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H.B. FULLER COMPANY |
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By: |
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Exhibit A
Performance Goals for the Performance Period
_____________, 20__ – ____________, 20__: 100%
Metric is a 3-year average of annual ROIC. Each year’s ROIC will be calculated according to the formula below and subject to adjustments for acquisitions, and those calculations will be averaged and assessed relative to the predetermined goal and range noted in the table below.
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ROIC Performance |
Payout (as % of Target) |
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Target + 4% [Superior] |
200% |
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Target + 3% |
175% |
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Target + 2% |
150% |
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Target + 1% |
125% |
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Target |
100% |
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Target - 1% |
75% |
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Target - 2% [Threshold] |
50% |
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Less than threshold |
0% |
Performance between threshold and target and target and superior will be calculated on a pro rata basis. The level of achievement of the performance goal shall be determined by the Compensation Committee of the Board of Directors of the Company.
Definition of ROIC:
| NOPAT1 |
| (Short-Term Debt + Long-Term Debt + Total Equity - Cash)2 |
Acquisitions will be treated as follows:
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Material Acquisition |
Acquisition |
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Year 1: For acquisitions in Q3/Q4, year 1 includes the following fiscal year. |
Year 1: For acquisitions in Q3/Q4, year 1 includes the following fiscal year. |
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Year 2: Remove expected acquisition performance from measurement completely |
Year 2: Remove amortization from the calculation of ROIC |
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Year 3: Remove amortization from the calculation of ROIC |
Year 3: No adjustments |
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Year 4: No adjustments |
ROIC will be adjusted for divestitures based on timing and relevant impact.
1 NOPAT = (Gross Profit – SG&A Expense + Other Income (Expense), net) * (1-Effective Tax Rate) + Income from Equity Investments
Includes adjustments as publicly disclosed in the Company’s quarterly earnings release. Also includes adjustments for any change in GAAP or in the application thereof that has occurred since the grant date.
Effective tax rate defined as (Adjusted Tax Expense / Adjusted Pretax Earnings)
2 End-of-year metrics. Denominator also includes redeemable non-controlling interest
Exhibit 10.5
FORM OF RESTRICTED STOCK UNIT AGREEMENT
FOR NON‑EMPLOYEE DIRECTORS
H.B. FULLER COMPANY
RESTRICTED STOCK UNIT AWARD AGREEMENT
(Under the Second Amended and Restated H.B. Fuller Company 2020 Master Incentive Plan)
THIS AGREEMENT, dated as of _______________, 20__ (the "Grant Date"), is entered into between H.B. Fuller Company, a Minnesota corporation (the “Company”), and ____________________, a non‑employee director of the Company (the “Participant”).
WHEREAS, the Company, pursuant to the Second Amended and Restated H.B. Fuller Company 2020 Master Incentive Plan (the “Plan”), wishes to award to the Participant Restricted Stock Units, representing the right to receive shares (“Shares”) of common stock, par value $1.00 per share, of the Company (“Common Stock”), subject to certain restrictions and on the terms and conditions contained in this Agreement and the Plan;
WHEREAS, the Participant’s rights to receive Shares of Common Stock hereunder are sometimes referred to as “Restricted Stock Units” in this Agreement.
NOW, THEREFORE, in consideration of the premises and agreements set forth herein, the parties hereto hereby agree as follows:
1. Award of Restricted Stock Units. The Company, effective as of the Grant Date, hereby grants to the Participant an award of ______ Restricted Stock Units, each Restricted Stock Unit representing the right to receive one Share of Common Stock on such date as set forth herein, plus an additional amount pursuant to Section 2(b) hereof, subject to the terms and conditions set forth in this Agreement and the Plan.
2. Rights of the Participant with Respect to the Restricted Stock Units.
(a) No Shareholder Rights. The Restricted Stock Units granted pursuant to this Agreement do not and shall not entitle the Participant to any rights of a shareholder of Common Stock. The rights of the Participant with respect to the Restricted Stock Units shall remain forfeitable at all times prior to the date on which such rights become vested, and the restrictions with respect to the Restricted Stock Units lapse, in accordance with Section 3 hereof.
(b) Dividend Equivalents. As long as the Participant holds Restricted Stock Units granted pursuant to this Agreement on the applicable record date, the Company shall credit to the Participant, on each date that the Company pays a cash dividend to holders of Common Stock generally, an additional number of Restricted Stock Units (“Additional Restricted Stock Units”) equal to the total number of whole Restricted Stock Units and Additional Restricted Stock Units previously credited to the Participant under this Agreement multiplied by the dollar amount of the cash dividend paid per Share of Common Stock by the Company on such date, divided by the Fair Market Value of a Share of Common Stock on such date. Any fractional Restricted Stock Unit resulting from such calculation shall be included in the Additional Restricted Stock Units. The Additional Restricted Stock Units so credited shall be subject to the same terms and conditions as the Restricted Stock Units granted pursuant to this Agreement and the Additional Restricted Stock Units shall be forfeited in the event that the Restricted Stock Units with respect to which the dividend equivalents were credited are forfeited.
(c) Issuance of Shares; Conversion of Restricted Stock Units. No Shares of Common Stock shall be issued to the Participant prior to the date on which the Restricted Stock Units vest, and the restrictions with respect to the Restricted Stock Units lapse, in accordance with Section 3 hereof. Neither this Section 2(c) nor any action taken pursuant to or in accordance with this Section 2(c) shall be construed to create a trust of any kind. After any Restricted Stock Units vest pursuant to Section 3 hereof, the Company shall promptly cause to be issued, in either certificated or uncertificated form, Shares of Common Stock registered in the Participant’s name or in the name of the Participant’s legal representatives, beneficiaries or heirs, as the case may be, in payment of such vested whole Restricted Stock Units and any Additional Restricted Stock Units and shall cause such certificated or uncertificated Shares to be delivered to the Participant or the Participant’s legal representatives, beneficiaries or heirs, as the case may be. In no event shall issuance of Shares occur more than ninety (90) days after the applicable vesting date. The value of any fractional Restricted Stock Unit shall be cancelled at the time certificated or uncertificated Shares are delivered to the Participant in payment of the Restricted Stock Units and any Additional Restricted Stock Units.
3. Vesting; Forfeiture.
(a) Vesting. Subject to the terms and conditions of this Agreement, the Restricted Stock Units shall vest in full, and the restrictions with respect to the Restricted Stock Units shall lapse, on the earlier of (i) _____________, or (ii) the date on which the director reaches the mandatory retirement age under the Company’s policy with respect to directors’ retirement from the Board of Directors, provided, in each case, that the Participant continuously serves as a director of the Company until the earliest of such dates.
(b) Early Vesting. Notwithstanding the vesting provision contained in Section 3(a) above, but subject to the other terms and conditions set forth herein, upon the occurrence of a “Change in Control” (as defined below) or in the event of the Participant’s death or permanent disability (within the meaning of Section 409A(a)(2)(C)(i) of the Code), the Participant or the Participant’s legal representatives, beneficiaries or heirs, as the case may be, shall become immediately vested in all of the Restricted Stock Units, and the restrictions with respect to the Restricted Stock Units shall lapse, as of the date of such Change in Control, death or permanent disability. Issuance of the shares shall be made as soon as administratively feasible (but in no event more than ninety (90) days) following the Participant’s death or permanent disability, as applicable. Such payment shall be made promptly following the date of the Change in Control.
(c) Change in Control. For the purposes of this Agreement, a “Change in Control” shall be deemed to have occurred upon any of the following events:
(i) a public announcement (which, for purposes hereof, shall include, without limitation, a report filed pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that any individual, corporation, partnership, association, trust or other entity becomes the beneficial owner (as defined in Rule 13(d)(3) promulgated under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the voting power of the Company then outstanding;
(ii) the individuals who, as of the date of this Agreement, are members of the Board of Directors of the Company (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board (provided, however, that if the election or nomination for election by the Company’s shareholders of any new director was approved by a vote of at least a majority of the Incumbent Board, such new director shall be considered to be a member of the Incumbent Board);
(iii) the approval of the shareholders of the Company, and consummation, of (A) any consolidation, merger or statutory share exchange of the Company with any person in which the surviving entity would not have as its directors at least 60% of the Incumbent Board and as a result of which those persons who were shareholders of the Company immediately prior to such transaction would not hold, immediately after such transaction, at least 60% of the voting power of the Company then outstanding or the combined voting power of the surviving entity’s then outstanding voting securities; (B) any sale, lease, exchange or other transfer in one transaction or series of related transactions substantially all of the assets of the Company; or (C) the adoption of any plan or proposal for the complete or partial liquidation or dissolution of the Company; or
(iv) a determination by a majority of the members of the Incumbent Board, in their sole and absolute discretion, that there has been a Change in Control of the Company; and
(v) the Participant incurs a Qualifying Termination of his/her position as director of the Company during the Protected Period.
For purposes of this Section 3(c), “voting power” when used with reference to the Company shall mean the voting power of all classes and series of capital stock of the Company now or hereafter authorized.
(d) For the purposes of this Agreement, a “Qualifying Termination” shall mean a resignation of the Participant’s position as director of the Company.
(e) For purposes of this Agreement, “Protected Period” means the 24-month period beginning on and immediately following each and every Change in Control.
(f) Forfeiture. If the Participant ceases to serve as a director of the Company for any reason other than those set forth in Section 3(b) hereof prior to the vesting of the Restricted Stock Units pursuant to Section 3(b) hereof, the Participant’s rights to all of the unvested Restricted Stock Units shall be immediately and irrevocably forfeited, including the right to receive any Additional Restricted Stock Units.
If any early payment is made pursuant to Section 3(b), no payment shall be made pursuant to Section 3(a) of this Agreement.
4. Restrictions on Transfer. The Restricted Stock Units shall not be transferable other than by will or by the laws of descent and distribution. Notwithstanding the foregoing, the Participant may, in the manner established by the Committee, designate a beneficiary or beneficiaries to exercise the rights of the Participant and receive any property distributable with respect to the Restricted Stock Units upon the death of the Participant. Each right under this Agreement shall be exercisable during the Participant’s lifetime only by the Participant or, if permissible under applicable law, by the Participant’s legal representative. The Restricted Stock Units and any rights under this Agreement may not be sold, assigned, transferred, pledged, alienated, attached or otherwise encumbered and any purported sale, assignment, transfer, pledge, alienation, attachment or encumbrance shall be void and unenforceable against the Company or any Affiliate.
5. Income Tax Matters. The Participant understands and agrees that the Company has not advised the Participant regarding the Participant's income tax liability in connection with the grant of Restricted Stock Units pursuant to this Agreement. The Participant further understands and agrees that he or she is responsible for consulting his or her own tax counsel on questions regarding his or her tax liability in connection with the grant of the Shares and upon the vesting of the Shares and any subsequent disposition of the Shares, and that the Participant is solely responsible for such tax liability.
6. Securities Matters. No Shares of Common Stock shall be issued pursuant to this Agreement prior to such time as counsel to the Company shall have determined that the issuance of such shares will not violate any securities or other laws, rules or regulations. The Company shall not be required to deliver any Shares of Common Stock until the requirements of any applicable securities or other laws, rules or regulations (including the rules of any securities exchange) as may be determined by the Company to be applicable are satisfied. In addition, the grant of these Restricted Stock Units and/or the delivery of any Shares of Common Stock under this Agreement are subject to the Company’s Executive and Key Manager Compensation Clawback Policy and any other clawback policies the Company may adopt in the future to conform to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (or any other applicable law) and any applicable rules and regulations of the Securities and Exchange Commission or applicable stock exchange.
7. Tax Consequences. The Participant agrees that the Company does not have a duty to design or administer the Plan or its other compensation programs in a manner that minimize the Participant’s tax liabilities. The Participant will not make any claim against the Company, or any of its officers, directors, employees or Affiliates related to tax liabilities arising from the Restricted Stock Units or the Participant’s other compensation.
8. Adjustments. In the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash, shares, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of shares or other securities of the Company, issuance of warrants or other rights to purchase shares or other securities of the Company or other similar corporate transaction or event affects the Common Stock such that an adjustment is necessary in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under this Agreement, then the Committee shall, in such manner as it may deem equitable, in its sole discretion, adjust any or all of the number and type of shares subject to the Restricted Stock Units.
9. General Provisions.
(a) Interpretations. This Agreement is subject in all respects to the terms of the Plan. Terms used herein which are defined in the Plan shall have the respective meanings ascribed to such terms in the Plan, unless otherwise defined herein. In the event that any provision of this Agreement is inconsistent with the terms of the Plan, the terms of the Plan shall govern. Any question of administration or interpretation arising under this Agreement shall be determined by the Committee, and such determination shall be final and conclusive upon all parties in interest.
(b) Headings. Headings are given to the sections and subsections of this Agreement solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of this Agreement or any provision hereof.
(c) Severability. If any provision of this Agreement is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction under any law deemed to be applicable by the Committee, such provision shall be construed or deemed amended to conform to the applicable law, or if it cannot be so construed or amended without, in the determination of the Committee, materially altering the purpose or intent of this Agreement, such provision shall be stricken as to such jurisdiction or this Agreement, and the remainder of this Agreement shall remain in full force and effect.
(d) Venue and Governing Law. The internal law, and not the law of conflicts, of the State of Minnesota will govern all questions concerning the validity, construction and effect of this Agreement. For purposes of any action, lawsuit or other proceedings brought to enforce the Agreement, relating to it, or arising from it, the parties hereby submit to and consent to the sole and exclusive jurisdiction of the courts of Ramsey County, Minnesota, or the federal courts for the United States for the District of Minnesota, and no other courts, where this grant is made and/or to be performed.
(e) Consent to Collection/Processing/Transfer of Personal Data. Pursuant to applicable personal data protection laws, the Company hereby notifies the Participant of the following in relation to the Participant’s personal Data (as defined below) and the collection, use, processing and transfer of such Data in relation to the Company’s grant of this award and the Participant’s participation in the Plan. The collection, use, processing and transfer of the Participant’s Data is necessary for the Company’s administration of the Plan and the Participant’s participation in the Plan, and the Participant’s denial and/or objection to the collection, use, processing and transfer of Data may affect the Participant’s participation in the Plan. As such, the Participant hereby voluntarily acknowledges and consents (where required under applicable law) to the collection, use, processing and transfer of Data as described in this paragraph.
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(i) |
The Company and the Participant hold certain personal information about the Participant, including the Participant’s name, home address, email address and telephone number, date of birth, social security number, passport number or other employee identification number, salary, nationality, job title, any shares of Common Stock or directorships held in the Company, details of all stock awards or any other entitlement to shares of Common Stock awarded, canceled, purchased, vested, unvested or outstanding in the Participant’s favor, for the purpose of managing and administering the Plan (“Data”). Data may be provided by the Participant or collected, where lawful, from third parties, and Company will process Data for the exclusive purpose of implementing, administering and managing the Participant’s participation in the Plan. Data processing will take place through electronic and non-electronic means according to logics and procedures strictly correlated to the purposes for which Data are collected and with confidentiality and security provisions as set forth by applicable laws and regulations in the Participant’s country of residence. Data processing operations will be performed minimizing the use of personal and identification data when such operations are unnecessary for the processing purposes sought. Data will be accessible within Company’s organization only by those persons requiring access for purposes of the implementation, administration and operation of the Plan and for the Participant’s participation in the Plan. |
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(ii) |
Company and the Participant’s employer (if the Participant’s employer is not the Company) “Employer” will transfer Data amongst themselves as necessary for the purpose of implementation, administration and management of the Participant’s participation in the Plan, and Company and the Employer may each further transfer Data to any third parties assisting Company in the implementation, administration and management of the Plan. As permitted by applicable personal data protection laws, if Company or the Employer becomes involved in a merger, acquisition, sale of assets, joint venture, securities offering, bankruptcy, reorganization, liquidation, dissolution, or other transaction or if the ownership of all or substantially all of Company or the Employer otherwise changes, Company or the Employer may transfer Data to a third party or parties in connection therewith. These recipients may be located in the European Economic Area, or elsewhere throughout the world, such as the United States. The Participant hereby authorizes (where required under applicable law) them to receive, possess, use, retain and transfer Data, in electronic or other form, for purposes of implementing, administering and managing the Participant’s participation in the Plan, including any requisite transfer of such Data as may be required for the administration of the Plan and/or the subsequent holding of shares of Common Stock on the Participant’s behalf to a broker or other third party with whom the Participant may elect to deposit any shares of Common Stock acquired pursuant to the Plan. |
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(iii) |
The Participant may, at any time, exercise his or her rights provided under applicable personal data protection laws, which may include the right to (a) obtain confirmation as to the existence of Data, (b) verify the content, origin and accuracy of Data, (c) request the integration, update, amendment, deletion, or blockage (for breach of applicable laws) of Data, and (d) to oppose, for legal reasons, the collection, processing or transfer of Data which is not necessary or required for the implementation, administration and/or operation of the Plan and the Participant’s participation in the Plan. The Participant may seek to exercise these rights by contacting the Employer’s local HR manager or Company’s Human Resources Department. The Participant understands that he or she is providing the consent herein on a purely voluntary basis. If the Participant does not consent or later seeks to remove his or her consent, the Participant’s salary from or employment with the Employer will not be affected; the only consequence of refusing or withdrawing his or her consent is that Company would not be able to grant the Participant Restricted Stock Units or other equity awards or participate in the Plan. |
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(iv) |
Finally, the Participant understands that Company may rely on a different legal basis for the processing and/or transfer of Data in the future and/or request that the Participant provide another data privacy consent or acknowledgment. If applicable and upon request of Company or the Employer, the Participant agrees to provide an executed acknowledgment or data privacy consent form (or any other acknowledgment, agreement or consent) to Company or the Employer that Company and/or the Employer may deem necessary to obtain under the data privacy laws in the Participant’s country, either now or in the future. The Participant understands that he or she will not be able to participate in the Plan if the Participant fails to execute any such acknowledgment or consent requested by Company or the Employer. |
(f) Addendum. Notwithstanding the provisions of this Agreement, the award shall be subject to any special terms and conditions for the Participant’s country set forth in the Addendum to this Agreement. To the extent any provision in the Addendum is inconsistent with a provision in the body of this Agreement, the provision in the Addendum shall prevail. Moreover, if the Participant relocates to one of the countries included in the Addendum, the terms and conditions for such country will apply to the Participant to the extent the Company determines that the application of such terms and conditions is necessary or advisable for legal or administrative reasons.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first set forth above.
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H.B. FULLER COMPANY |
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Addendum
This Addendum intentionally left blank.
Exhibit 31.1
CERTIFICATION
I, Celeste B. Mastin, certify that:
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1. |
I have reviewed this report on Form 10-Q of H.B. Fuller Company; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-115(e) and 15d-115(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d–15(f)) for the registrant and have: |
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a.) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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b.) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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c.) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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d.) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
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a.) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
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Date: June 29, 2023
/s/ Celeste B. Mastin |
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Celeste B. Mastin President and Chief Executive Officer |
Exhibit 31.2
CERTIFICATION
I, John J. Corkrean, certify that:
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1. |
I have reviewed this report on Form 10-Q of H.B. Fuller Company; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-115(e) and 15d-115(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d–15(f)) for the registrant and have: |
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a.) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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b.) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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c.) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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d.) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
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a.) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
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Date: June 29, 2023
/s/ John J. Corkrean |
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John J. Corkrean Executive Vice President, Chief Financial Officer |
Exhibit 32.1
CERTIFICATION
I, Celeste B. Mastin, in connection with the Quarterly Report of H.B. Fuller Company on Form 10-Q for the quarter ended June 3, 2023 (the “Report”), hereby certify that:
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(a) |
the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)), and |
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(b) |
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of H.B. Fuller Company. |
Date: June 29, 2023
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/s/ Celeste B. Mastin |
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Celeste B. Mastin President and Chief Executive Officer |
Exhibit 32.2
CERTIFICATION
I, John J. Corkrean, in connection with the Quarterly Report of H.B. Fuller Company on Form 10-Q for the quarter ended June 3, 2023 (the “Report”), hereby certify that:
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(a) |
the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)), and |
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(b) |
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of H.B. Fuller Company. |
Date: June 29, 2023
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/s/ John J. Corkrean |
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John J. Corkrean Executive Vice President, Chief Financial Officer |
Consolidated Statements of Income (Unaudited) - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 03, 2023 |
May 28, 2022 |
Jun. 03, 2023 |
May 28, 2022 |
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| Net revenue | $ 898,239 | $ 993,258 | $ 1,707,421 | $ 1,849,739 |
| Cost of sales | (641,464) | (739,737) | (1,235,838) | (1,383,326) |
| Gross profit | 256,775 | 253,521 | 471,583 | 466,413 |
| Selling, general and administrative expenses | (166,625) | (166,007) | (321,167) | (321,898) |
| Other income, net | 605 | 0 | 3,209 | 6,142 |
| Interest expense | (33,131) | (19,828) | (66,200) | (38,025) |
| Interest income | 932 | 2,091 | 1,599 | 4,030 |
| Income before income taxes and income from equity method investments | 58,556 | 69,777 | 89,024 | 116,662 |
| Income taxes | (19,291) | (23,616) | (29,024) | (33,765) |
| Income from equity method investments | 1,157 | 1,066 | 2,338 | 2,649 |
| Net income including non-controlling interest | 40,422 | 47,227 | 62,338 | 85,546 |
| Net income attributable to non-controlling interest | (21) | (24) | (48) | (37) |
| Net income attributable to H.B. Fuller | $ 40,401 | $ 47,203 | $ 62,290 | $ 85,509 |
| Earnings per share attributable to H.B. Fuller common stockholders: | ||||
| Basic (in dollars per share) | $ 0.74 | $ 0.88 | $ 1.15 | $ 1.60 |
| Diluted (in dollars per share) | $ 0.73 | $ 0.86 | $ 1.12 | $ 1.55 |
| Weighted-average common shares outstanding: | ||||
| Basic (in shares) | 54,269 | 53,497 | 54,222 | 53,425 |
| Diluted (in shares) | 55,717 | 55,078 | 55,818 | 55,237 |
| Dividends declared per common share (in dollars per share) | $ 0.205 | $ 0.190 | $ 0.395 | $ 0.358 |
Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||||
|---|---|---|---|---|---|---|
Jun. 03, 2023 |
May 28, 2022 |
Jun. 03, 2023 |
May 28, 2022 |
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| Net income including non-controlling interest | $ 40,422 | $ 47,227 | $ 62,338 | $ 85,546 | ||
| Foreign currency translation | 26,410 | (84,110) | 22,774 | (77,579) | ||
| Defined benefit pension plans adjustment, net of tax | 858 | 2,803 | 1,709 | 3,292 | ||
| Derivatives, net of tax | (5,384) | 0 | (5,683) | 0 | ||
| Other comprehensive income (loss) | 12,396 | (79,170) | 17,647 | (68,002) | ||
| Comprehensive income (loss) | 52,818 | (31,943) | 79,985 | 17,544 | ||
| Less: Comprehensive income attributable to non-controlling interest | 6 | 12 | 43 | 16 | ||
| Comprehensive income (loss) attributable to H.B. Fuller | 52,812 | (31,955) | 79,942 | 17,528 | ||
| Interest Rate Swap [Member] | ||||||
| Derivatives, net of tax | (9,488) | 3,347 | (1,153) | 9,578 | ||
| Cross Currency Interest Rate Contract [Member] | ||||||
| Derivatives, net of tax | [1] | $ 0 | $ (1,210) | $ 0 | $ (3,293) | |
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Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ in Thousands |
Jun. 03, 2023 |
Dec. 03, 2022 |
|---|---|---|
| Trade receivables, allowances | $ 11,512 | $ 10,939 |
| Preferred stock, shares authorized (in shares) | 10,045,900 | 10,045,900 |
| Preferred stock, shares outstanding (in shares) | 0 | 0 |
| Common stock, par value (in dollars per share) | $ 1.00 | $ 1.00 |
| Common stock, shares authorized (in shares) | 160,000,000 | 160,000,000 |
| Common stock, shares outstanding (in shares) | 53,859,908 | 53,676,576 |
Consolidated Statements of Total Equity (Unaudited) - USD ($) $ in Thousands |
Common Stock [Member] |
Additional Paid-in Capital [Member] |
Retained Earnings [Member] |
AOCI Attributable to Parent [Member] |
Noncontrolling Interest [Member] |
Total |
|---|---|---|---|---|---|---|
| Balance at Nov. 27, 2021 | $ 52,778 | $ 213,637 | $ 1,600,601 | $ (270,247) | $ 591 | $ 1,597,360 |
| Comprehensive income | 0 | 0 | 38,306 | 11,177 | 4 | 49,487 |
| Dividends | 0 | 0 | (8,964) | 0 | 0 | (8,964) |
| Stock option exercises | 126 | 5,628 | 0 | 0 | 0 | 5,754 |
| Share-based compensation plans and other, net | 187 | 5,601 | 0 | 0 | 0 | 5,788 |
| Repurchases of common stock | (49) | (3,528) | 0 | 0 | 0 | (3,577) |
| Balance at Feb. 26, 2022 | 53,042 | 221,338 | 1,629,943 | (259,070) | 595 | 1,645,848 |
| Balance at Nov. 27, 2021 | 52,778 | 213,637 | 1,600,601 | (270,247) | 591 | 1,597,360 |
| Comprehensive income | 17,544 | |||||
| Balance at May. 28, 2022 | 53,153 | 232,253 | 1,666,969 | (338,228) | 607 | 1,614,754 |
| Balance at Feb. 26, 2022 | 53,042 | 221,338 | 1,629,943 | (259,070) | 595 | 1,645,848 |
| Comprehensive income | 0 | 0 | 47,203 | (79,158) | 12 | (31,943) |
| Dividends | 0 | 0 | (10,177) | 0 | 0 | (10,177) |
| Stock option exercises | 47 | 2,036 | 0 | 0 | 0 | 2,083 |
| Share-based compensation plans and other, net | 65 | 8,910 | 0 | 0 | 0 | 8,975 |
| Repurchases of common stock | (1) | (31) | 0 | 0 | 0 | (32) |
| Balance at May. 28, 2022 | 53,153 | 232,253 | 1,666,969 | (338,228) | 607 | 1,614,754 |
| Balance at Dec. 03, 2022 | 53,677 | 266,491 | 1,741,359 | (451,357) | 624 | 1,610,794 |
| Comprehensive income | 0 | 0 | 21,889 | 5,241 | 37 | 27,167 |
| Dividends | 0 | 0 | (10,305) | 0 | 0 | (10,305) |
| Stock option exercises | 76 | 3,520 | 0 | 0 | 0 | 3,596 |
| Share-based compensation plans and other, net | 102 | 5,221 | 0 | 0 | 0 | 5,323 |
| Repurchases of common stock | (36) | (2,412) | 0 | 0 | 0 | (2,448) |
| Balance at Mar. 04, 2023 | 53,819 | 272,820 | 1,752,943 | (446,116) | 661 | 1,634,127 |
| Balance at Dec. 03, 2022 | 53,677 | 266,491 | 1,741,359 | (451,357) | 624 | 1,610,794 |
| Comprehensive income | 79,985 | |||||
| Balance at Jun. 03, 2023 | 53,860 | 280,120 | 1,782,215 | (433,705) | 667 | 1,683,157 |
| Balance at Mar. 04, 2023 | 53,819 | 272,820 | 1,752,943 | (446,116) | 661 | 1,634,127 |
| Comprehensive income | 0 | 0 | 40,401 | 12,411 | 6 | 52,818 |
| Dividends | 0 | 0 | (11,129) | 0 | 0 | (11,129) |
| Stock option exercises | 13 | 584 | 0 | 0 | 0 | 597 |
| Share-based compensation plans and other, net | 30 | 6,818 | 0 | 0 | 0 | 6,848 |
| Repurchases of common stock | (2) | (102) | 0 | 0 | 0 | (104) |
| Balance at Jun. 03, 2023 | $ 53,860 | $ 280,120 | $ 1,782,215 | $ (433,705) | $ 667 | $ 1,683,157 |
Note 1 - Basis of Presentation |
6 Months Ended |
|---|---|
Jun. 03, 2023 | |
| Notes to Financial Statements | |
| Business Description and Accounting Policies [Text Block] |
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 December 3, 2022 as filed with the Securities and Exchange Commission.
New Accounting Pronouncements
In September 2022, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations. This ASU requires that a buyer in a supplier finance program disclose sufficient information about the program to allow a user of the financial statements to understand the program's nature, activity during the period, changes from period to period, and potential magnitude. To achieve that objective, the buyer should disclose qualitative and quantitative information about its supplier finance programs. Our effective date of this ASU is our fiscal year ending December 1, 2024. We are evaluating the effect that this guidance will have on our Consolidated Financial Statements.
Recently issued accounting standards or pronouncements not disclosed above have been excluded as they are not relevant to the company.
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Note 2 - Acquisitions |
6 Months Ended |
|---|---|
Jun. 03, 2023 | |
| Notes to Financial Statements | |
| Mergers, Acquisitions and Dispositions Disclosures [Text Block] |
Note 2: Acquisitions
Beardow Adams Holdings Ltd.
On May 1, 2023, we acquired Beardow Adams Holdings Ltd. (“Beardow Adams”) for a total purchase price of 79,570 British pound sterling, or approximately $99,426, which was funded through borrowings on our credit facility. This includes a holdback amount of 8,000 British pound sterling that will be paid on the 18-month anniversary of the closing date. Beardow Adams, based in the United Kingdom, develops and manufactures adhesives, sealants, coatings and primers, principally in the fields of packaging, labeling, bookbinding, hygiene, wood and product assembly. The acquisition of Beardow Adams is expected to accelerate profitable growth in many of our core end markets and generate business synergies through production optimization, an expanded distribution platform, and difference-making innovation. The acquisition fair value measurement was preliminary as of June 3, 2023 and includes intangible assets of $40,485, goodwill of $42,585 and other net assets of $16,356. Beardow Adams is included in our Hygiene, Health and Consumable Adhesives operating segment.
Aspen Research Corporation
On January 31, 2023, we acquired the assets of Aspen Research Corporation (“Aspen”) for a total purchase price of $9,850, which was funded through existing cash. This includes a holdback amount of $500 that will be paid on the 18-month anniversary of the closing date. Aspen, located in Maple Grove, Minnesota, is a contract research organization that develops and manufactures innovative solutions for some of the adhesives used in our insulating glass market. Aspen is known for their superior understanding of materials science, engineering and analytical testing and specializes in custom materials manufacturing for chemicals and adhesives products. The acquisition of Aspen is expected to expand our Engineering Adhesives footprint in North America and strengthen our capabilities in the insulating glass market, in addition to bringing additive continuous flow, process manufacturing capabilities that we plan to leverage. The acquisition fair value measurement was preliminary as of June 3, 2023 and includes intangible assets of $7,777 and other net assets of $2,073. Aspen is included in our Engineering Adhesives operating segment.
Lemtapes Oy
On December 15, 2022, we acquired Lemtapes Oy (“Lemtapes”) for a total purchase price of 8,048 Euro, or approximately $8,552 which was funded through existing cash. This includes a holdback amount of 850 Euro that will be paid on the 18-month anniversary of the closing date. Lemtapes, located in Valkeakoski, Finland, is a solutions provider of ecological, innovative tapes and adhesives for the packaging and plywood industries. The acquisition of Lemtapes is expected to reinforce our strategic position in Europe, especially for our Adhesives Coated Solutions products. This acquisition will also accelerate our growth strategy of fast-growing, high margin businesses while adding technology capabilities and strong customer relationships. The acquisition fair value measurement was preliminary as of June 3, 2023 and includes intangible assets of $6,535 and other net assets of $2,017. Lemtapes is included in our Hygiene, Health and Consumable Adhesives operating segment.
GSSI Sealants
On October 24, 2022, we acquired GSSI Sealants, Inc. ("GSSI") for a total purchase price of $7,701, which was funded through existing cash. This includes a holdback amount of $1,050 that will be paid on the 12-month anniversary of the closing date. GSSI, headquartered in Houston, Texas, is a manufacturer of premier elastomeric butyl rubber sealant tapes. The acquisition of GSSI is expected to support our strategy to expand our Construction Adhesives business selectively via high margin applications and expand our reach to new regions. The acquisition fair value measurement was preliminary as of June 3, 2023 and includes intangible assets of $4,523 and other net assets of $3,178. GSSI is included in our Construction Adhesives operating segment.
ZKLT Polymer Co.
On August 16, 2022, we acquired ZKLT Polymer Co., Ltd. ("ZKLT") for a base purchase price of 102,812 Chinese renminbi, or approximately $15,183, which was funded through existing cash. We are also required to pay 27,000 Chinese renminbi, or approximately $3,987, with half to be paid on each of the 12-month and 18-month anniversaries of the closing date, as well as contingent consideration up to 30,000 Chinese renminbi, or approximately $4,430, following the completion of certain performance goals and conditions. ZKLT, headquartered in Chongquin City, China, is a manufacturer of liquid adhesives primarily for the automotive market. The acquisition of ZKLT is expected to add unique technology, strong customer relationships and a strategic manufacturing location to further strengthen our presence in central China. The acquisition fair value measurement was preliminary as of June 3,2023 and includes intangible assets of $5,183, goodwill of $3,902 and other net assets of $10,085. Goodwill is not deductible for tax purposes. See Note 12 for further discussion of the fair value of the contingent consideration. ZKLT is included in our Engineering Adhesives operating segment.
Apollo
On January 26, 2022, we acquired Apollo Chemicals Limited, Apollo Roofing Solutions Limited and Apollo Construction Solutions Limited (collectively, "Apollo") for a total purchase price of 152,714 British pound sterling, or approximately $205,592, which was funded through borrowings on our credit facility. 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 final as of December 3, 2022 and includes intangible assets of $76,198, goodwill of $119,358 and other net assets of $10,036. Goodwill is deductible for tax purposes. The acquisition is included in our Construction Adhesives operating segment.
Fourny NV
On January 11, 2022, we acquired Fourny NV ("Fourny") for a base purchase price of 12,867 Euro, or approximately $14,627, which was funded through existing cash. The agreement requires us to pay an additional 3,100 Euro, or approximately $3,524, 18 months following the date of acquisition. Fourny, headquartered in Willebroek, Belgium, is a manufacturer of construction adhesives. Fourny is expected to enhance our position in key high-value, high-margin markets in Europe. The acquisition fair value measurement was final as of December 3, 2022 and includes intangible assets of $10,117, goodwill of $6,455 and other net assets of $1,391. Goodwill is deductible for tax purposes. Fourny is included in our Construction Adhesives operating segment.
All acquisitions, individually and in the aggregate, are
not material and therefore pro forma financial information is
not provided.
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Note 3 - Restructuring Actions |
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| Restructuring and Related Activities Disclosure [Text Block] |
Note 3: Restructuring Actions
During fiscal year 2023, the Company approved restructuring plans related to organizational changes and other actions to optimize operations and are currently expected to be completed during fiscal year 2025.
The following table summarizes the pre-tax distribution of restructuring charges by income statement classification:
The restructuring charges are all recorded in Corporate Unallocated for segment reporting purposes.
A summary of the restructuring liability is presented below:
Restructuring liabilities have been classified as a component of other accrued expenses on the Consolidated Balance Sheets. |
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| Inventory Disclosure [Text Block] |
Note 4: Inventories
The composition of inventories is as follows:
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Note 5 - Goodwill and Other Intangible Assets |
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| Goodwill and Intangible Assets Disclosure [Text Block] |
Note 5: Goodwill and Other Intangible Assets
The goodwill activity by reportable segment for the six months ended June 3, 2023 is presented below:
Balances of amortizable identifiable intangible assets, excluding goodwill and other non-amortizable intangible assets, are as follows:
Amortization expense with respect to amortizable intangible assets was $19,130 and $18,620 for the three months ended June 3, 2023 and May 28, 2022, respectively, and $37,813 and $36,412 for the six months ended June 3, 2023 and May 28, 2022, respectively.
Estimated aggregate amortization expense based on the current carrying value of amortizable intangible assets for the next five fiscal years is as follows:
Non-amortizable intangible assets as of June 3, 2023 and December 3, 2022 were $467 and $459, respectively, and relate to trademarks and trade names. The change in non-amortizable assets as of June 3, 2023 compared to December 3, 2022 was due to changes in foreign currency exchange rates. |
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Note 6 - Notes Payable, Long-term Debt and Lines of Credit |
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| Notes to Financial Statements | |
| Debt Disclosure [Text Block] |
Note 6: Long-Term Debt
On February 15, 2023, we entered into a credit agreement with a consortium of financial institutions (“Second Amended and Restated Credit Agreement”) which replaces our existing revolving credit agreement under the amended and restated revolving credit agreement dated October 20, 2020 and also replaces our secured term loan credit agreement dated October 20, 2017. The Second Amended and Restated Credit Agreement provides for a new senior secured term loan A facility in an aggregate principal amount of $500,000 (“Term Loan A”), a new senior secured term loan B facility in an aggregate principal amount of $800,000 (“Term Loan B”) and amendments to and extension of our existing senior secured revolving credit facility with an aggregate commitment in the amount of $700,000 (“Revolving Credit Facility”). A portion of the proceeds of the combined facilities, (the “Credit Facilities”) was used to pay off the existing term loan and revolver. The Credit Facilities will generally be used to finance working capital needs and acquisitions, and for general corporate purposes. All of our obligations under the Credit Facilities will be secured by a first-lien security interest in substantially all personal property and material real property of the Company and its material U.S. subsidiaries, and will be guaranteed by all of the Company’s material U.S. subsidiaries.
Term Loans
Interest on Term Loan A is payable at the Secured Overnight Financing Rate ("SOFR") plus an adjustment of 0.10 percent and an interest rate spread of 1.75 percent (6.99 percent at June 3, 2023). The interest rate spread is based on a secured leverage grid. Term Loan A matures on February 15, 2028. Interest on Term Loan B is payable at SOFR plus an interest rate spread of 2.50 percent with a SOFR floor of 0.50 percent (7.64 percent at June 3, 2023). Term Loan B matures on February 15, 2030.
On January 12, 2023, we entered into an interest rate swap agreement to convert $400,000 of our variable rate 1-month LIBOR rate debt to a fixed rate of 3.6895 percent. On February 28, 2023, after entering into the Second Amended and Restated Credit Agreement, we amended the interest rate swap agreement to 1-month SOFR and a fixed rate of 3.7260 in accordance with the practical expedients included in ASC 848, Reference Rate Reform. See Note 11 for further discussion of this interest rate swap.
On March 16, 2023, we entered into interest rate swap agreements to convert $300,000 of our 1-month SOFR rate debt to a fixed rate of 3.7210 percent and to convert $100,000 of our 1-month SOFR rate debt to a fixed rate of 3.8990 percent. See Note 11 for further discussion of these interest rate swaps.
Revolving Credit Facility
Interest on the Revolving Credit Facility is payable at SOFR plus an adjustment of 0.10 percent and an interest rate spread of 1.75 percent (6.99 percent at June 3, 2023). A facility fee of 25 basis points of the unused commitment under the Revolving Credit Facility is payable quarterly. The interest rate spread and the facility fee are based on a secured leverage grid. At June 3, 2023, there was no balance outstanding on the Revolving Credit Facility. The Revolving Credit Facility matures on February 15, 2028.
The Revolving Credit Facility can be drawn upon for general corporate purposes up to a maximum of $700,000, less issued letters of credit. At June 3, 2023, letters of credit reduced the available amount under the Revolving Credit Facility by $9,968.
Covenants and Other
Under the Second Amended and Restated Credit Agreement, the Revolving Credit Facility and Term Loan A are subject to certain covenants and restrictions. For these facilities, we are required to maintain a secured leverage ratio, as defined in the agreement, no greater than 4.75 to 1.00 for our fiscal quarters ending on or prior to June 1, 2024 and then 4.50 to 1.00 thereafter. We are also required to maintain an interest coverage ratio of not less than 2.00 to 1.00.
Restrictive covenants include, but are not limited to, limitations on secured and unsecured borrowings, interest coverage, intercompany transfers and investments, third party investments, dispositions of assets, leases, liens, dividends and distributions, and contains a maximum total debt to trailing twelve months EBITDA requirement. Certain covenants become less restrictive after meeting leverage or other financial ratios. In addition, we cannot be a member of any consolidated group as defined for income tax purposes other than with our subsidiaries.
We are subject to mandatory prepayments in the first quarter of each fiscal year equal to 50 percent of Excess Cash Flow, as defined in the Second Amended and Restated Credit Agreement, of the prior fiscal year less any voluntary prepayments made during that fiscal year. The Excess Cash Flow Percentage shall be reduced to 25 percent when our Secured Leverage Ratio is below 4.25:1.00 and to 0 percent when our Secured Leverage Ratio is below 3.75:1.00.
The principal balance of the Term Loan B loans will be repayable in equal quarterly installments in an aggregate annual amount equal to 1 percent of the original principal amount thereof, with the balance due at maturity on February 15, 2030. The principal balance of the Term Loan A loans will be repayable in quarterly installments as follows: (i) with respect to the first eight fiscal quarters ended after the effective date of the Second Amended and Restated Credit Agreement, 1.25 percent of the aggregate principal amount of the original principal of the Term Loan A loans, (ii) with respect to the eight fiscal quarters ended after the end of the period set forth in the preceding clause (i), 1.875 percent of the aggregate principal amount of the original principal amount of the Term Loan A loans, and (iii) thereafter, 2.5 percent of the original principal amount of the Term Loan A loans, with the balance due at maturity on February 15, 2028.
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Note 7 - Pension and Postretirement Benefits |
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| Retirement Benefits [Text Block] |
Note 7: Components of Net Periodic Benefit related to Pension and Other Postretirement Benefit Plans
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 Statement of Income.
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Note 8 - Accumulated Other Comprehensive Income (Loss) |
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| Accumulated Other Comprehensive Income (Loss) Disclosure [Text Block] |
Note 8: Accumulated Other Comprehensive Income (Loss)
The following table provides details of total comprehensive income (loss):
The components of accumulated other comprehensive loss are as follows:
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Note 9 - Income Taxes |
6 Months Ended |
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Jun. 03, 2023 | |
| Notes to Financial Statements | |
| Income Tax Disclosure [Text Block] |
Note 9: Income Taxes
Income tax expense for the three and six months ended June 3, 2023 includes $2,042 and $2,888 of discrete tax expense, respectively, relating to various foreign tax matters offset by an excess tax benefit related to U.S. stock compensation. Excluding the discrete tax expense, the overall effective tax rate was 29.5 percent and 29.4 percent for the three and six months ended June 3, 2023, respectively.
Income tax expense for the three and six months ended May 28, 2022 includes $4,149 and $1,248 of discrete tax expense, respectively, relating to the revaluation of cross-currency swap agreements due to depreciation of the Euro versus the U.S. Dollar, as well as various foreign tax matters offset by the tax effect of legal entity mergers. Excluding the discrete tax expense, the overall effective tax rate was 27.9 percent for both the three and six months ended May 28, 2022.
As of June 3, 2023, we had a liability of $16,434 recorded for gross unrecognized tax benefits (excluding interest) compared to $17,582 as of December 3, 2022. As of June 3, 2023 and December 3, 2022, we had accrued $5,933 and $5,680 of gross interest relating to unrecognized tax benefits, respectively.
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Note 10 - Earnings Per Share |
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| Earnings Per Share [Text Block] |
Note 10: Earnings Per Share
A reconciliation of the common share components for the basic and diluted earnings per share calculations is as follows:
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.
Share-based compensation awards of 1,026,155 and 658,511 shares for the three months ended June 3, 2023 and May 28, 2022, respectively, and 1,156,557 and 744,479 shares for the six months ended June 3, 2023 and May 28, 2022, respectively, were excluded from diluted earnings per share calculations because they were antidilutive. |
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Note 11 - Financial Instruments |
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| Derivative Instruments and Hedging Activities Disclosure [Text Block] |
Note 11: Financial Instruments
Overview
As a result of being a global enterprise, foreign currency exchange rates and fluctuations in those rates may affect the Company's net investment in foreign subsidiaries, and 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, interest rate swaps and net investment hedges 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
On January 12, 2023, we entered into an interest rate swap agreement to convert $400,000 of our variable rate 1-month LIBOR rate debt to a fixed rate of 3.6895 percent. On February 28, 2023, after refinancing our debt, we amended the interest rate swap agreement to our 1-month SOFR rate debt to a fixed rate of 3.7260 in accordance with the practical expedients included in ASC 848, Reference Rate Reform. The combined fair value of the interest rate swap was an asset of $322 at June 3, 2023 and was included in other assets in the Consolidated Balance Sheets. The swap was designated for hedge accounting treatment as a cash flow hedge. We are applying the hypothetical derivative method to assess hedge effectiveness for this interest rate swap. Changes in the fair value of a hypothetically perfect swap with terms that match the critical terms of our variable rate debt are compared with the change in the fair value of the swap.
On March 16, 2023, we entered into an interest rate swap agreement to convert $300,000 of our 1-month SOFR rate debt to a fixed rate of 3.7210 percent. The combined fair value of the interest rate swap was a liability of $1,354 at June 3, 2023 and was included in other liabilities in the Consolidated Balance Sheets. The swap was designated for hedge accounting treatment as a cash flow hedge. We are applying the hypothetical derivative method to assess hedge effectiveness for this interest rate swap. Changes in the fair value of a hypothetically perfect swap with terms that match the critical terms of our variable rate debt are compared with the change in the fair value of the swaps.
On March 16, 2023, we entered into an interest rate swap agreement to convert $100,000 of our 1-month SOFR rate debt to a fixed rate of 3.8990 percent. The combined fair value of the interest rate swap was a liability of $709 at June 3, 2023 and was included in other liabilities in the Consolidated Balance Sheets. The swap was designated for hedge accounting treatment as a cash flow hedge. 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 variable rate debt are compared with the change in the fair value of the swaps.
The amounts of pretax gains (losses) recognized in Comprehensive Income related to derivative instruments designated as cash flow hedges are as follows:
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. These interest rate swap agreements mature on October 15, 2028. The combined fair value of the interest rate swaps was a liability of $42,831 at June 3, 2023, 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.
Net Investment Hedges
On October 17, 2022, we entered into a float-to-float cross-currency interest rate swap agreement with a notional amount of maturing in October 2028. On October 20, 2022, we entered into fixed-to-fixed cross-currency interest rate swap agreements for a total notional amount of with tranches maturing in August 2025, August 2026 and February 2027. As of June 3, 2023, the combined fair value of the swaps was a liability of $61,584 and was included in other liabilities in the Consolidated Balance Sheets. The cross-currency interest rate swaps hedge a portion of the Company’s investment in Euro denominated foreign subsidiaries.
The swaps are designated as net investment hedges for accounting treatment. The net gains or losses attributable to changes in spot exchange rates are recorded in the cumulative translation adjustment within other comprehensive income (loss). The gains or losses are reclassified into earnings upon a liquidation event or deconsolidation of the foreign subsidiary. Any ineffective portions of net investment hedges are reclassified from accumulated other comprehensive income (loss) into earnings during the period of change. The amount in accumulated other comprehensive income (loss) related to net investment hedge cross-currency swaps was a loss of $46,426 as of June 3, 2023. The amounts of pretax loss recognized in comprehensive income related to the net investment hedge was $7,538 for the six months ended June 3, 2023. As of June 3, 2023, we did not reclassify any gains or losses into earnings from net investment hedges and we do not expect to reclassify any such gain or loss into earnings within the next twelve months. No amounts related to net investment hedges have been excluded from the assessment of hedge effectiveness.
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.
As of June 3, 2023, we had forward foreign currency contracts maturing between June 5, 2023 and May 13, 2024. 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 gains (losses) recognized in other income, net related to derivative instruments not designated as hedging instruments for the six months ended June 3, 2023 and May 28, 2022 were $1,276 and $5,089, 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 June 3, 2023, there were no significant concentrations of credit risk.
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Note 12 - Fair Value Measurements |
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| Fair Value Disclosures [Text Block] |
Note 12: 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:
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 June 3, 2023 and December 3, 2022, and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value.
The valuation of our contingent consideration liability related to the acquisitions of ZKLT and TissueSeal was $1,095 and $500, respectively, as of June 3, 2023. Adjustments to the fair value of contingent consideration are recorded to selling, general and administrative expenses in the Statement of Income. See Note 2 for further discussion regarding our acquisitions. The following table provides details of the contingent consideration liabilities:
Balances Measured at Fair Value on a Nonrecurring Basis
We measure certain assets and liabilities at fair value on a nonrecurring basis. These assets include intangible assets acquired in an acquisition. The identified intangible assets of customer relationships, technology and tradenames acquired in connection with our acquisitions were measured using unobservable (Level 3) inputs. The fair value of the intangible assets was calculated using either the income or cost approach. Significant inputs include estimated revenue growth rates, gross margins, operating expenses, attrition rate, royalty rate and discount rate.
See Note 2 for further discussion regarding our acquisitions.
Balances Disclosed at Fair Value
Long-term debt had an estimated fair value of $1,662,706 and $1,713,257 as of June 3, 2023 and December 3, 2022, respectively. The fair value of long-term debt is based on quoted market prices for the same or similar issues or on the current rates offered for debt of similar maturities. The estimated fair value of these long-term obligations is not necessarily indicative of the amount that would be realized in a current market exchange. |
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Note 13 - Commitments and Contingencies |
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| Commitments and Contingencies Disclosure [Text Block] |
Note 13: Commitments and Contingencies
Environmental Matters
We are involved in environmental investigations, clean-up activities and administrative proceedings related to environmental compliance matters at former and current operating facilities. We have also been identified as a potentially responsible party (“PRP”) under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) and/or similar state laws that impose liability for costs relating to the clean-up of contamination resulting from past spills, disposal or other release of hazardous substances associated with landfills and/or hazardous waste sites. As a PRP, we may be required to pay a share of the costs of investigation and clean-up of these sites. We are subject to similar laws in some of the countries where current and former facilities are located. Our environmental, health and safety department monitors compliance with applicable laws on a global basis. To the extent we can reasonably estimate the amount of our probable liabilities for environmental matters, we establish an undiscounted financial provision. We recorded liabilities of $5,530 and $5,754 as of June 3, 2023 and December 3, 2022, respectively, for probable and reasonably estimable environmental remediation costs. Of the amount reserved, $2,640 and $2,789 as of June 3, 2023 and December 3, 2022, respectively, is attributable to a facility we own in Simpsonville, South Carolina as a result of our Royal Adhesives acquisition that is a designated site under CERCLA.
While uncertainties exist with respect to the amounts and timing of the ultimate environmental liabilities, based on currently available information, we have concluded that these matters, individually or in the aggregate, will not have a material adverse effect on our results of operations, financial condition or cash flow.
Other Legal Proceedings
From time to time and in the ordinary course of business, we are a party to, or a target of, lawsuits, claims, investigations and proceedings, including product liability, personal injury, contract, patent and intellectual property, environmental, health and safety, tax and employment matters. While we are unable to predict the outcome of these matters, we have concluded, based upon currently available information, that the ultimate resolution of any pending matter, individually or in the aggregate, including the asbestos litigation described in the following paragraphs, will not have a material adverse effect on our results of operations, financial condition or cash flow.
We have been named as a defendant in lawsuits in which plaintiffs have alleged injury due to products containing asbestos manufactured more than 35 years ago. The plaintiffs generally bring these lawsuits against multiple defendants and seek damages (both actual and punitive) in very large amounts. In many cases, plaintiffs are unable to demonstrate that they have suffered any compensable injuries or that the injuries suffered were the result of exposure to products manufactured by us. We are typically dismissed as a defendant in such cases without payment. If the plaintiff presents evidence indicating that compensable injury occurred as a result of exposure to our products, the case is generally settled for an amount that reflects the seriousness of the injury, the length, intensity and character of exposure to products containing asbestos, the number and solvency of other defendants in the case, and the jurisdiction in which the case has been brought.
A significant portion of the defense costs and settlements in asbestos-related litigation is paid by third parties, including indemnification pursuant to the provisions of a 1976 agreement under which we acquired a business from a third party. Currently, this third party is defending and paying settlement amounts, under a reservation of rights, in most of the asbestos cases tendered to the third party.
In addition to the indemnification arrangements with third parties, we have insurance policies that generally provide coverage for asbestos liabilities, including defense costs. Historically, insurers have paid a significant portion of our defense costs and settlements in asbestos-related litigation. However, certain of our insurers are insolvent. We have entered into cost-sharing agreements with our insurers that provide for the allocation of defense costs and settlements and judgments in asbestos-related lawsuits. These agreements require, among other things, that we fund a share of settlements and judgments allocable to years in which the responsible insurer is insolvent.
A summary of the number of and settlement amounts for asbestos-related lawsuits and claims is as follows:
We do not believe that it would be meaningful to disclose the aggregate number of asbestos-related lawsuits filed against us because relatively few of these lawsuits are known to involve exposure to asbestos-containing products that we manufactured. Rather, we believe it is more meaningful to disclose the number of lawsuits that are settled and result in a payment to the plaintiff. To the extent we can reasonably estimate the amount of our probable liabilities for pending asbestos-related claims, we establish a financial provision and a corresponding receivable for insurance recoveries.
Based on currently available information, we have concluded that the resolution of any pending matter, including asbestos-related litigation, individually or in the aggregate, will not have a material adverse effect on our results of operations, financial condition or cash flow. |
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Note 14 - Segments |
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| Segment Reporting Disclosure [Text Block] |
Note 14: Segments
We are required to report segment information in the same way that we internally organize our business for assessing performance and making decisions regarding allocation of resources. Revenue and operating income of each of our segments are regularly reviewed by our chief operating decision maker to make decisions about resources to be allocated to the segments and assess their performance. Segment operating income is identified as gross profit less SG&A expenses. Corporate expenses, other than those included in Corporate Unallocated, are allocated to each operating segment. Consistent with our internal management reporting, Corporate Unallocated amounts include business acquisition and integration costs, organizational restructuring charges and project costs associated with our implementation of Project ONE. Corporate assets are not allocated to the operating segments. Inter-segment revenues are recorded at cost plus a markup for administrative costs.
We have three reportable segments: Hygiene, Health and Consumable Adhesives, Engineering Adhesives and Construction Adhesives. The business components within each operating segment are managed to maximize the results of the overall operating segment rather than the results of any individual business component of the operating segment. Results of individual components of each operating segment are subject to numerous allocations of segment-wide costs that may or may not have been focused on that particular component for a particular reporting period. The costs for these allocated resources are not tracked on a "where-used" basis as financial performance is assessed at the total operating segment level.
The table below provides certain information regarding net revenue and operating income (loss) for each of our operating segments.
1 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.
The table below provides a reconciliation of operating income to income before income taxes and income from equity method investments:
We view the following disaggregation of net revenue by geographic region as useful to understanding the composition of revenue recognized during the respective reporting periods:
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Note 15 - Subsequent Event |
6 Months Ended |
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Jun. 03, 2023 | |
| Notes to Financial Statements | |
| Subsequent Events [Text Block] |
Note 15: Subsequent Events
Acquisitions
On June 12, 2023, we completed the acquisition of XChem International LLC ("XChem") for a base purchase price of approximately $12,347. XChem, headquartered in Ras Al-Khaimah United Arab Emirates, is a manufacturer of adhesives, coatings and sealants for flooring, waterproofing, HVAC, and other construction-related applications. The acquisition will be included in our Construction Adhesives operating segment.
On June 23, 2023, we completed the acquisition of Adhezion Biomedical LLC (“Adhezion”) for a base purchase price of approximately $80,038 as well as contingent consideration up to $15,000 following the completion of certain performance goals and conditions. Adhezion, headquartered in Wyomissing, Pennsylvania, is a manufacturer of cyanoacrylate-based medical adhesives and infection prevention products. The acquisition will be included in our Hygiene, Health and Consumable Adhesives operating segment.
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Note 3 - Restructuring Actions (Tables) |
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Note 5 - Goodwill and Other Intangible Assets (Tables) |
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Note 7 - Pension and Postretirement Benefits (Tables) |
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Jun. 03, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Net Benefit Costs [Table Text Block] |
|
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Note 8 - Accumulated Other Comprehensive Income (Loss) (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 03, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive Income (Loss) [Table Text Block] |
|
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| Schedule of Accumulated Other Comprehensive Income (Loss) [Table Text Block] |
|
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Note 10 - Earnings Per Share (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 03, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Earnings Per Share, Basic and Diluted [Table Text Block] |
|
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Note 11 - Financial Instruments (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 03, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative Instruments, Gain (Loss) [Table Text Block] |
|
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Note 12 - Fair Value Measurements (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 03, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block] |
|
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| Contingent Consideration Liability [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Table Text Block] |
|
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Note 13 - Commitments and Contingencies (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 03, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Loss Contingencies by Contingency [Table Text Block] |
|
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Note 14 - Segments (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Segment Reporting Information, by Segment [Table Text Block] |
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| Reconciliation of Operating Profit (Loss) from Segments to Consolidated [Table Text Block] |
|
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| Disaggregation of Revenue [Table Text Block] |
|
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Note 3 - Restructuring Actions - Restructuring Charges (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 03, 2023 |
May 28, 2022 |
Jun. 03, 2023 |
May 28, 2022 |
|
| Expenses incurred | $ 5,402 | $ 14 | $ 8,328 | $ (227) |
| Cost of Sales [Member] | ||||
| Expenses incurred | 2,784 | 0 | 5,085 | (152) |
| Selling, General and Administrative Expenses [Member] | ||||
| Expenses incurred | $ 2,618 | $ 14 | $ 3,243 | $ (75) |
Note 3 - Restructuring Actions - Restructuring Reserve (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|---|
Jun. 03, 2023 |
May 28, 2022 |
Jun. 03, 2023 |
May 28, 2022 |
Dec. 03, 2022 |
|
| Expenses incurred | $ 5,402 | $ 14 | $ 8,328 | $ (227) | |
| Employee Related [Member] | |||||
| Balance | 57 | $ 1,095 | $ 1,095 | ||
| Expenses incurred | 8,328 | (449) | |||
| Cash payments | (2,083) | (529) | |||
| Foreign currency translation | (610) | (60) | |||
| Balance | $ 5,692 | $ 5,692 | $ 57 | ||
Note 4 - Inventories - Inventories (Details) - USD ($) $ in Thousands |
Jun. 03, 2023 |
Dec. 03, 2022 |
|---|---|---|
| Raw materials | $ 229,341 | $ 237,071 |
| Finished goods | 269,934 | 254,710 |
| Total inventories | $ 499,275 | $ 491,781 |
Note 5 - Goodwill and Other Intangible Assets (Details Textual) - USD ($) |
3 Months Ended | 6 Months Ended | |||
|---|---|---|---|---|---|
Jun. 03, 2023 |
May 28, 2022 |
Jun. 03, 2023 |
May 28, 2022 |
Dec. 03, 2022 |
|
| Amortization of Intangible Assets | $ 19,130 | $ 18,620 | $ 37,813 | $ 36,412 | |
| Indefinite Lived Trademarks and Trade Names | $ 467,000 | $ 467,000 | $ 459,000 | ||
Note 5 - Goodwill and Other Intangible Assets - Goodwill Balance (Details) $ in Thousands |
6 Months Ended |
|---|---|
|
Jun. 03, 2023
USD ($)
| |
| Balance | $ 1,392,627 |
| Acquisitions | 42,585 |
| Foreign currency translation effect | 6,202 |
| Balance | 1,441,414 |
| Hygiene, Health, and Consumable Adhesives [Member] | |
| Balance | 328,962 |
| Acquisitions | 42,585 |
| Foreign currency translation effect | 2,222 |
| Balance | 373,769 |
| Engineering Adhesives [Member] | |
| Balance | 637,910 |
| Acquisitions | 0 |
| Foreign currency translation effect | 2,434 |
| Balance | 640,344 |
| Construction Adhesives [Member] | |
| Balance | 425,755 |
| Acquisitions | 0 |
| Foreign currency translation effect | 1,546 |
| Balance | $ 427,301 |
Note 5 - Goodwill and Other Intangible Assets - Amortizable Intangible Assets (Details) - USD ($) $ in Thousands |
Jun. 03, 2023 |
Dec. 03, 2022 |
|---|---|---|
| Original cost | $ 1,217,943 | $ 1,184,112 |
| Accumulated amortization | (496,846) | (482,479) |
| Net identifiable intangibles | 721,097 | 701,633 |
| Purchased Technology And Patents [Member] | ||
| Original cost | 105,868 | 118,727 |
| Accumulated amortization | (53,809) | (66,433) |
| Net identifiable intangibles | 52,059 | 52,294 |
| Customer Relationships [Member] | ||
| Original cost | 1,048,314 | 1,004,008 |
| Accumulated amortization | (415,783) | (388,394) |
| Net identifiable intangibles | 632,531 | 615,614 |
| Trade Names [Member] | ||
| Original cost | 52,802 | 50,324 |
| Accumulated amortization | (20,710) | (21,401) |
| Net identifiable intangibles | 32,092 | 28,923 |
| Other Intangible Assets [Member] | ||
| Original cost | 10,959 | 11,053 |
| Accumulated amortization | (6,544) | (6,251) |
| Net identifiable intangibles | $ 4,415 | $ 4,802 |
Note 5 - Goodwill and Other Intangible Assets - Estimated Aggregate Amortization Expense (Details) $ in Thousands |
Jun. 03, 2023
USD ($)
|
|---|---|
| 2023 | $ 68,435 |
| 2024 | 69,181 |
| 2025 | 67,465 |
| 2026 | 61,828 |
| 2027 | 59,086 |
| Thereafter | $ 395,102 |
Note 7 - Pension and Postretirement Benefits (Details Textual) |
6 Months Ended |
|---|---|
|
May 28, 2022
USD ($)
| |
| Nonoperating Income (Expense) [Member] | |
| Defined Benefit Plan, Net Periodic Benefit Cost (Credit), Gain (Loss) Due to Settlement | $ (3,329) |
Note 7 - Pension and Postretirement Benefits - Components of Net Periodic Benefit Cost (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 03, 2023 |
May 28, 2022 |
Jun. 03, 2023 |
May 28, 2022 |
|
| UNITED STATES | ||||
| Net periodic (benefit) cost | $ (3,095) | $ (3,737) | $ (6,190) | $ (7,475) |
| Foreign Plan [Member] | ||||
| Net periodic (benefit) cost | 599 | 3,748 | 1,207 | 4,175 |
| Pension Plan [Member] | UNITED STATES | ||||
| Service cost | 0 | 0 | 0 | 0 |
| Interest cost | 3,475 | 2,368 | 6,951 | 4,735 |
| Expected return on assets | (7,205) | (7,117) | (14,412) | (14,235) |
| Prior service (benefit) cost | 0 | (1) | 0 | (2) |
| Actuarial loss (gain) | 635 | 1,013 | 1,271 | 2,027 |
| Settlement charge | 0 | 0 | 0 | 0 |
| Pension Plan [Member] | Foreign Plan [Member] | ||||
| Service cost | 413 | 700 | 833 | 1,420 |
| Interest cost | 1,410 | 736 | 2,846 | 1,525 |
| Expected return on assets | (1,730) | (1,644) | (3,492) | (3,391) |
| Prior service (benefit) cost | 15 | 16 | 30 | 32 |
| Actuarial loss (gain) | 491 | 611 | 990 | 1,260 |
| Settlement charge | 0 | 3,329 | 0 | 3,329 |
| Other Postretirement Benefits Plan [Member] | ||||
| Service cost | 0 | 0 | 0 | 0 |
| Interest cost | 301 | 184 | 602 | 367 |
| Expected return on assets | (2,465) | (2,719) | (4,929) | (5,437) |
| Prior service (benefit) cost | 0 | 0 | 0 | 0 |
| Actuarial loss (gain) | 0 | (845) | 0 | (1,690) |
| Settlement charge | 0 | 0 | 0 | 0 |
| Net periodic (benefit) cost | $ (2,164) | $ (3,380) | $ (4,327) | $ (6,760) |
Note 8 - Accumulated Other Comprehensive Income (Loss) - Comprehensive Income (Loss) Information (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||||||
|---|---|---|---|---|---|---|---|---|
Jun. 03, 2023 |
May 28, 2022 |
Jun. 03, 2023 |
May 28, 2022 |
|||||
| Net income attributable to H.B. Fuller and non-controlling interest | $ 40,401 | $ 47,203 | $ 62,290 | $ 85,509 | ||||
| Net income attributable to H.B. Fuller and non-controlling interest | 21 | 24 | 48 | 37 | ||||
| Foreign currency translation adjustment¹, pretax | 26,425 | (84,098) | 22,779 | (77,558) | ||||
| Foreign currency translation¹ | 26,425 | (84,098) | 22,779 | (77,558) | ||||
| Foreign currency translation adjustment¹, non-controlling interests | (15) | (12) | (5) | (21) | ||||
| Defined benefit pension plans adjustment², pretax | [1] | 1,151 | 3,872 | 2,292 | 4,705 | |||
| Defined benefit pension plans adjustment², tax | [1] | (293) | (1,069) | (583) | (1,413) | |||
| Defined benefit pension plans adjustment² | [1] | 858 | 2,803 | 1,709 | 3,292 | |||
| Cash flow hedge | (5,384) | 0 | (5,683) | 0 | ||||
| Other comprehensive income (loss), pretax | 7,851 | (77,019) | 16,004 | (63,506) | ||||
| Other comprehensive income (loss), tax | 4,560 | (2,139) | 1,648 | (4,475) | ||||
| Other comprehensive income (loss) | 12,411 | (79,158) | 17,652 | (67,981) | ||||
| Other comprehensive income (loss), non-controlling interests | (15) | (12) | (5) | (21) | ||||
| Comprehensive income (loss) | 52,812 | (31,955) | 79,942 | 17,528 | ||||
| Comprehensive income (loss), non-controlling interests | 6 | 12 | 43 | 16 | ||||
| Foreign currency translation adjustment¹, non-controlling interests | (15) | (12) | (5) | (21) | ||||
| Interest Rate Swap [Member] | ||||||||
| Cash flow hedge, pretax³ | (12,584) | 4,435 | (1,529) | 12,690 | ||||
| Cash flow hedge, tax³ | 3,096 | (1,088) | 376 | (3,112) | ||||
| Cash flow hedge | (9,488) | 3,347 | (1,153) | 9,578 | ||||
| Cash flow hedge, tax³ | 3,096 | (1,088) | 376 | (3,112) | ||||
| Derivative instruments | (12,584) | 4,435 | (1,529) | 12,690 | ||||
| Cross Currency Interest Rate Contract [Member] | ||||||||
| Cash flow hedge, pretax³ | [2] | 0 | (1,228) | 0 | (3,343) | |||
| Cash flow hedge, tax³ | [2] | 0 | 18 | 0 | 50 | |||
| Cash flow hedge | [2] | 0 | (1,210) | 0 | (3,293) | |||
| Cash flow hedge, tax³ | [2] | 0 | 18 | 0 | 50 | |||
| Derivative instruments | [2] | 0 | (1,228) | 0 | $ (3,343) | |||
| Net Investment Hedges [Member] | ||||||||
| Cash flow hedge, pretax³ | (7,141) | 0 | (7,538) | |||||
| Cash flow hedge, tax³ | 1,757 | 0 | 1,855 | |||||
| Cash flow hedge | 0 | |||||||
| Cash flow hedge, tax³ | 1,757 | 0 | 1,855 | |||||
| Derivative instruments | (7,141) | $ 0 | (7,538) | |||||
| Net Investment Hedge [Member] | ||||||||
| Cash flow hedge | $ (5,384) | $ (5,683) | ||||||
| ||||||||
Note 8 - Accumulated Other Comprehensive Income (Loss) - Components of Accumulated Other Comprehensive Income (Loss) (Details) (Parentheticals) - USD ($) $ in Thousands |
6 Months Ended | 12 Months Ended |
|---|---|---|
Jun. 03, 2023 |
Dec. 03, 2022 |
|
| Accumulated Defined Benefit Plans Adjustment Including Portion Attributable to Noncontrolling Interest [Member] | ||
| Before Reclassifications, tax | $ 67,161 | $ 67,744 |
| Interest Rate Swap [Member] | ||
| Before Reclassifications, tax | 376 | |
| Net Investment Hedges [Member] | ||
| Before Reclassifications, tax | $ 15,152 | |
| Net Investment Hedges [Member] | Accumulated Gain (Loss), Cash Flow Hedge, Including Noncontrolling Interest [Member] | ||
| Before Reclassifications, tax | $ 13,297 |
Note 9 - Income Taxes (Details Textual) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | |||
|---|---|---|---|---|---|
Jun. 03, 2023 |
May 28, 2022 |
Jun. 03, 2023 |
May 28, 2022 |
Dec. 03, 2022 |
|
| Effective Income Tax Rate Reconciliation, Other Adjustments, Amount | $ 2,042 | $ 4,149 | $ 2,888 | $ 1,248 | |
| Effective Income Tax Rate Reconciliation, Percent, Excluding Discrete Tax Benefit | 29.50% | 27.90% | 29.40% | 27.90% | |
| Unrecognized Tax Benefits | $ 16,434 | $ 16,434 | $ 17,582 | ||
| Unrecognized Tax Benefits, Income Tax Penalties and Interest Accrued | $ 5,933 | $ 5,933 | $ 5,680 | ||
Note 10 - Earnings Per Share (Details Textual) - shares |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 03, 2023 |
May 28, 2022 |
Jun. 03, 2023 |
May 28, 2022 |
|
| Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in shares) | 1,026,155 | 658,511 | 1,156,557 | 744,479 |
Note 10 - Earnings Per Share - Earnings Per Share (Details) - shares shares in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 03, 2023 |
May 28, 2022 |
Jun. 03, 2023 |
May 28, 2022 |
|
| Weighted-average common shares - basic (in shares) | 54,269 | 53,497 | 54,222 | 53,425 |
| Equivalent shares from share-based compensations plans (in shares) | 1,448 | 1,581 | 1,596 | 1,812 |
| Weighted-average common and common equivalent shares diluted (in shares) | 55,717 | 55,078 | 55,818 | 55,237 |
Note 11 - Financial Instruments - Gains (Losses) on Derivative Instruments (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 03, 2023 |
May 28, 2022 |
Jun. 03, 2023 |
May 28, 2022 |
|
| Interest Rate Swap [Member] | ||||
| Derivative instruments | $ (12,584) | $ 4,435 | $ (1,529) | $ 12,690 |
| Cash Flow Hedging [Member] | Designated as Hedging Instrument [Member] | Currency Swap [Member] | ||||
| Derivative instruments | 0 | (1,228) | 0 | (3,343) |
| Cash Flow Hedging [Member] | Designated as Hedging Instrument [Member] | Interest Rate Swap [Member] | ||||
| Derivative instruments | $ (12,584) | $ 4,435 | $ (1,529) | $ 12,690 |
Note 12 - Fair Value Measurements (Details Textual) - USD ($) $ in Thousands |
Jun. 30, 2023 |
Jun. 03, 2023 |
Dec. 03, 2022 |
|---|---|---|---|
| Long-Term Debt, Fair Value | $ 1,662,706 | $ 1,713,257 | |
| ZKLT Polymer Co., Ltd [Member] | |||
| Business Combination, Contingent Consideration, Liability | $ 1,095 | ||
| Tissue Seal, LLC [Member] | |||
| Business Combination, Contingent Consideration, Liability | $ 500 |
Note 12 - Fair Value Measurements - Fair Value Measurements (Details) - Fair Value, Recurring [Member] - USD ($) $ in Thousands |
Jun. 03, 2023 |
Dec. 03, 2022 |
|---|---|---|
| Assets: | ||
| Marketable securities | $ 2,447 | $ 4,013 |
| Foreign exchange contract assets | 3,231 | 10,282 |
| Interest Rate Cash Flow Hedge Asset at Fair Value | 322 | |
| Liabilities: | ||
| Foreign exchange contract liabilities | 1,956 | 4,570 |
| Interest rate swaps, cash flow hedge liabilities | 2,063 | |
| Interest rate swaps, fair value hedge liabilities | 42,831 | 42,542 |
| Contingent consideration liabilities | 1,595 | 1,977 |
| Net Investment Hedges [Member] | ||
| Liabilities: | ||
| Net investment hedge liabilities | 61,584 | 54,046 |
| Fair Value, Inputs, Level 1 [Member] | ||
| Assets: | ||
| Marketable securities | 2,447 | 4,013 |
| Interest Rate Cash Flow Hedge Asset at Fair Value | 0 | |
| Liabilities: | ||
| Interest rate swaps, cash flow hedge liabilities | ||
| Interest rate swaps, fair value hedge liabilities | ||
| Contingent consideration liabilities | 0 | 0 |
| Fair Value, Inputs, Level 1 [Member] | Net Investment Hedges [Member] | ||
| Liabilities: | ||
| Net investment hedge liabilities | 0 | 0 |
| Fair Value, Inputs, Level 2 [Member] | ||
| Assets: | ||
| Foreign exchange contract assets | 3,231 | 10,282 |
| Interest Rate Cash Flow Hedge Asset at Fair Value | 322 | |
| Liabilities: | ||
| Foreign exchange contract liabilities | 1,956 | 4,570 |
| Interest rate swaps, cash flow hedge liabilities | 2,063 | |
| Interest rate swaps, fair value hedge liabilities | 42,831 | 42,542 |
| Contingent consideration liabilities | 0 | 0 |
| Fair Value, Inputs, Level 2 [Member] | Net Investment Hedges [Member] | ||
| Liabilities: | ||
| Net investment hedge liabilities | 61,584 | 54,046 |
| Fair Value, Inputs, Level 3 [Member] | ||
| Assets: | ||
| Interest Rate Cash Flow Hedge Asset at Fair Value | 0 | |
| Liabilities: | ||
| Interest rate swaps, cash flow hedge liabilities | ||
| Interest rate swaps, fair value hedge liabilities | ||
| Contingent consideration liabilities | 1,595 | 1,977 |
| Fair Value, Inputs, Level 3 [Member] | Net Investment Hedges [Member] | ||
| Liabilities: | ||
| Net investment hedge liabilities | $ 0 | $ 0 |
Note 12 - Fair Value Measurements - Contingent Consideration (Details) - Contingent Consideration Liability [Member] $ in Thousands |
6 Months Ended |
|---|---|
|
Jun. 03, 2023
USD ($)
| |
| Balance | $ 1,977 |
| Mark to market adjustment | (220) |
| Foreign currency translation adjustment | (162) |
| Balance | $ 1,595 |
Note 13 - Commitments and Contingencies (Details Textual) - USD ($) $ in Thousands |
Jun. 03, 2023 |
Mar. 04, 2023 |
Dec. 03, 2022 |
|---|---|---|---|
| Accrued Environmental Loss Contingencies, Noncurrent | $ 5,530 | $ 5,754 | |
| Facility in Simpsonville, South Carolina [Member] | |||
| Accrual for Environmental Loss Contingencies, Ending Balance | $ 2,640 | $ 2,789 |
Note 13 - Commitments and Contingencies - Asbestos Related Lawsuits and Claims (Details) - Asbestos Related Lawsuits and Claims [Member] Pure in Thousands, $ in Thousands |
6 Months Ended | 36 Months Ended | |
|---|---|---|---|
|
Jun. 03, 2023
USD ($)
|
May 28, 2022
USD ($)
|
Dec. 03, 2022
USD ($)
|
|
| Lawsuits and claims settled | 5 | 3 | 13 |
| Settlement amounts | $ 3,495 | $ 206 | $ 511 |
| Insurance payments received or expected to be received | $ 1,944 | $ 139 | $ 338 |
Note 14 - Segments (Details Textual) |
3 Months Ended |
|---|---|
Jun. 03, 2023 | |
| Number of Reportable Segments | 3 |
Note 14 - Segments - Reportable Operating Segment Financial Information (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||||||
|---|---|---|---|---|---|---|---|---|
Jun. 03, 2023 |
May 28, 2022 |
Jun. 03, 2023 |
May 28, 2022 |
|||||
| Revenue | $ 898,239 | $ 993,258 | $ 1,707,421 | $ 1,849,739 | ||||
| Operating income | 90,150 | 87,514 | 150,416 | 144,515 | ||||
| Corporate, Non-Segment [Member] | ||||||||
| Revenue | [1] | 0 | 0 | |||||
| Operating income | (11,811) | [1] | (9,955) | [1] | (19,533) | (22,095) | ||
| Hygiene, Health, and Consumable Adhesives [Member] | ||||||||
| Revenue | 404,486 | 437,889 | 788,014 | 827,427 | ||||
| Hygiene, Health, and Consumable Adhesives [Member] | Operating Segments [Member] | ||||||||
| Revenue | 404,486 | 437,889 | 788,014 | 827,427 | ||||
| Operating income | 51,592 | 43,267 | 96,738 | 75,480 | ||||
| Engineering Adhesives [Member] | ||||||||
| Revenue | 364,080 | 405,346 | 697,147 | 759,323 | ||||
| Engineering Adhesives [Member] | Operating Segments [Member] | ||||||||
| Revenue | 364,080 | 405,346 | 697,147 | 759,323 | ||||
| Operating income | 44,400 | 42,917 | 76,875 | 75,489 | ||||
| Construction Adhesives [Member] | ||||||||
| Revenue | 129,673 | 150,023 | 222,260 | 262,989 | ||||
| Construction Adhesives [Member] | Operating Segments [Member] | ||||||||
| Revenue | 129,673 | 150,023 | 222,260 | 262,989 | ||||
| Operating income | 5,969 | 11,285 | (3,664) | 15,641 | ||||
| Total Segment [Member] | ||||||||
| Revenue | 898,239 | 993,258 | 1,707,421 | 1,849,739 | ||||
| Total Segment [Member] | Operating Segments [Member] | ||||||||
| Operating income | $ 101,961 | $ 97,469 | $ 169,949 | $ 166,610 | ||||
| ||||||||
Note 14 - Segments - Reconciliation of Segment Operating Income to Income From Continuing Operations Before Income Taxes and Income From Equity Method Investments (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 03, 2023 |
May 28, 2022 |
Jun. 03, 2023 |
May 28, 2022 |
|
| Operating income | $ 90,150 | $ 87,514 | $ 150,416 | $ 144,515 |
| Other income, net | 605 | 0 | 3,209 | 6,142 |
| Interest expense | (33,131) | (19,828) | (66,200) | (38,025) |
| Interest income | 932 | 2,091 | 1,599 | 4,030 |
| Income before income taxes and income from equity method investments | $ 58,556 | $ 69,777 | $ 89,024 | $ 116,662 |
Note 14 - Segments - Disaggregated Revenue Information (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||||
|---|---|---|---|---|---|---|
Jun. 03, 2023 |
May 28, 2022 |
Jun. 03, 2023 |
May 28, 2022 |
|||
| Revenue | $ 898,239 | $ 993,258 | $ 1,707,421 | $ 1,849,739 | ||
| Corporate, Non-Segment [Member] | ||||||
| Revenue | [1] | 0 | 0 | |||
| Americas [Member] | Corporate, Non-Segment [Member] | ||||||
| Revenue | 488,206 | 541,222 | 916,259 | 990,822 | ||
| EIMEA [Member] | Corporate, Non-Segment [Member] | ||||||
| Revenue | 253,839 | 280,790 | 488,848 | 522,479 | ||
| Asia Pacific [Member] | Corporate, Non-Segment [Member] | ||||||
| Revenue | 156,194 | 171,246 | 302,314 | 336,438 | ||
| Hygiene, Health, and Consumable Adhesives [Member] | ||||||
| Revenue | 404,486 | 437,889 | 788,014 | 827,427 | ||
| Hygiene, Health, and Consumable Adhesives [Member] | Operating Segments [Member] | ||||||
| Revenue | 404,486 | 437,889 | 788,014 | 827,427 | ||
| Hygiene, Health, and Consumable Adhesives [Member] | Americas [Member] | Operating Segments [Member] | ||||||
| Revenue | 237,325 | 255,243 | 460,944 | 475,938 | ||
| Hygiene, Health, and Consumable Adhesives [Member] | EIMEA [Member] | Operating Segments [Member] | ||||||
| Revenue | 114,723 | 123,145 | 221,794 | 237,797 | ||
| Hygiene, Health, and Consumable Adhesives [Member] | Asia Pacific [Member] | Operating Segments [Member] | ||||||
| Revenue | 52,438 | 59,501 | 105,276 | 113,692 | ||
| Engineering Adhesives [Member] | ||||||
| Revenue | 364,080 | 405,346 | 697,147 | 759,323 | ||
| Engineering Adhesives [Member] | Operating Segments [Member] | ||||||
| Revenue | 364,080 | 405,346 | 697,147 | 759,323 | ||
| Engineering Adhesives [Member] | Americas [Member] | Operating Segments [Member] | ||||||
| Revenue | 149,239 | 166,559 | 282,709 | 299,886 | ||
| Engineering Adhesives [Member] | EIMEA [Member] | Operating Segments [Member] | ||||||
| Revenue | 119,199 | 133,932 | 232,559 | 249,752 | ||
| Engineering Adhesives [Member] | Asia Pacific [Member] | Operating Segments [Member] | ||||||
| Revenue | 95,642 | 104,855 | 181,879 | 209,685 | ||
| Construction Adhesives [Member] | ||||||
| Revenue | 129,673 | 150,023 | 222,260 | 262,989 | ||
| Construction Adhesives [Member] | Operating Segments [Member] | ||||||
| Revenue | 129,673 | 150,023 | 222,260 | 262,989 | ||
| Construction Adhesives [Member] | Americas [Member] | Operating Segments [Member] | ||||||
| Revenue | 101,642 | 119,420 | 172,606 | 214,998 | ||
| Construction Adhesives [Member] | EIMEA [Member] | Operating Segments [Member] | ||||||
| Revenue | 19,917 | 23,713 | 34,495 | 34,930 | ||
| Construction Adhesives [Member] | Asia Pacific [Member] | Operating Segments [Member] | ||||||
| Revenue | $ 8,114 | $ 6,890 | $ 15,159 | $ 13,061 | ||
| ||||||
Note 15 - Subsequent Event (Details Textual) - Subsequent Event [Member] - USD ($) $ in Thousands |
Jun. 23, 2023 |
Jun. 12, 2023 |
|---|---|---|
| Xchem [Member] | ||
| Business Combination, Consideration Transferred, Total | $ 12,347 | |
| Adhezion [Member] | ||
| Business Combination, Consideration Transferred, Total | $ 80,038 | |
| Business Combination, Contingent Consideration Arrangements, Range of Outcomes, Value, High | $ 15,000 |
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