FULLER H B CO - Quarter Report: 2021 May (Form 10-Q)

ful20200829_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended May 29, 2021

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

For the transition period from to .

Commission file number: 001-09225

H.B. FULLER COMPANY

(Exact name of registrant as specified in its charter)

Minnesota	41-0268370
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

1200 Willow Lake Boulevard, St. Paul, Minnesota	55110-5101
(Address of principal executive offices)	(Zip Code)

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

Not Applicable

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

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

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $1.00 per share	FUL	New York Stock Exchange

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

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

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

Large accelerated filer ☒	Accelerated filer ☐
Non-accelerated filer ☐	Smaller reporting company ☐
	Emerging growth company ☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12(b) of the Exchange Act. Yes ☐ No ☒

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PROCEEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐

APPLICABLE ONLY TO CORPORATE ISSUERS

The number of shares outstanding of the Registrant’s Common Stock, par value $1.00 per share, was 52,534,579 as of June 21, 2021.

Table of Contents

H.B. Fuller Company

Quarterly Report on Form 10-Q

Table of Contents

		Page
PART 1. FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS (Unaudited)	3

	Consolidated Statements of Income for the three and six months ended May 29, 2021 and May 30, 2020	3

	Consolidated Statements of Comprehensive Income for the three and six months ended May 29, 2021 and May 30, 2020	4

	Consolidated Balance Sheets as of May 29, 2021 and November 28, 2020	5

	Consolidated Statements of Total Equity for the three and six months ended May 29, 2021 and May 30, 2020	6

	Consolidated Statements of Cash Flows for the three and six months ended May 29, 2021 and May 30, 2020	7

	Notes to Consolidated Financial Statements	8

ITEM 2.	MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	21

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	32

ITEM 4.	CONTROLS AND PROCEDURES	32

PART II. OTHER INFORMATION		32

ITEM 1.	LEGAL PROCEEDINGS	32

ITEM 1A.	RISK FACTORS	33

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	34

ITEM 6.	EXHIBITS	35

SIGNATURES		36

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

H.B. FULLER COMPANY AND SUBSIDIARIES

Consolidated Statements of Income

(In thousands, except per share amounts)

(Unaudited)

	*Three Months Ended*						*Six Months Ended*
	*May 29,*			*May 30,*			*May 29,*			*May 30,*
	*2021*			*2020*			*2021*			*2020*
Net revenue	$	827,873		$	674,602		$	1,553,777		$	1,321,166
Cost of sales		(610,323	)		(489,701	)		(1,143,863	)		(966,003	)
Gross profit		217,550			184,901			409,914			355,163
Selling, general and administrative expenses		(148,409	)		(127,998	)		(292,423	)		(269,507	)
Other income, net		11,879			3,049			19,748			8,018
Interest expense		(19,942	)		(21,644	)		(40,303	)		(44,401	)
Interest income		2,530			2,898			5,189			5,816
Income before income taxes and income from equity method investments		63,608			41,206			102,125			55,089
Income taxes		(16,660	)		(11,471	)		(27,267	)		(17,082	)
Income from equity method investments		2,176			1,893			4,072			3,527
Net income including non-controlling interest		49,124			31,628			78,930			41,534
Net income attributable to non-controlling interest		(22	)		(15	)		(37	)		(26	)
Net income attributable to H.B. Fuller	$	49,102		$	31,613		$	78,893		$	41,508

Earnings per share attributable to H.B. Fuller common stockholders:
Basic	$	0.93		$	0.61		$	1.50		$	0.80
Diluted	$	0.90		$	0.61		$	1.47		$	0.79

Weighted-average common shares outstanding:
Basic		52,839			51,420			52,666			51,874
Diluted		54,294			52,029			53,817			52,305

Dividends declared per common share	$	0.168		$	0.163		$	0.330		$	0.323

See accompanying Notes to Unaudited Consolidated Financial Statements.

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H.B. FULLER COMPANY AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)

	*Three Months Ended*						*Six Months Ended*
	*May 29,*			*May 30,*			*May 29,*			*May 30,*
	*2021*			*2020*			*2021*			*2020*
Net income including non-controlling interest	$	49,124		$	31,628		$	78,930		$	41,534
Other comprehensive income (loss)
Foreign currency translation		55,524			(29,922	)		78,661			(32,703	)
Defined benefit pension plans adjustment, net of tax		1,371			2,070			2,746			4,156
Interest rate swaps, net of tax		3,564			(9,883	)		7,744			(18,882	)
Cross-currency swaps, net of tax		(1,241	)		5,878			(2,287	)		10,522
Other comprehensive income (loss)		59,218			(31,857	)		86,864			(36,907	)
Comprehensive income (loss)		108,342			(229	)		165,794			4,627
Less: Comprehensive income attributable to non-controlling interest		34			19			39			29
Comprehensive income (loss) attributable to H.B. Fuller	$	108,308		$	(248	)	$	165,755		$	4,598

See accompanying Notes to Unaudited Consolidated Financial Statements.

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H.B. FULLER COMPANY AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(Unaudited)

	*May 29,*			November 28,
	*2021*			2020
Assets
Current assets:
Cash and cash equivalents	$	69,597		$	100,534
Trade receivables (net of allowances of $11,486 and $12,905, as of May 29, 2021 and November 28, 2020, respectively)		583,270			514,916
Inventories		427,835			323,213
Other current assets		86,242			81,113
Total current assets		1,166,944			1,019,776

Property, plant and equipment		1,476,601			1,428,183
Accumulated depreciation		(795,025	)		(757,439	)
Property, plant and equipment, net		681,576			670,744

Goodwill		1,330,535			1,312,003
Other intangibles, net		732,760			755,968
Other assets		355,112			278,213
Total assets	$	4,266,927		$	4,036,704

Liabilities, non-controlling interest and total equity
Current liabilities:
Notes payable	$	26,857		$	16,925
Trade payables		433,515			316,460
Accrued compensation		75,902			83,598
Income taxes payable		28,074			29,173
Other accrued expenses		87,324			83,976
Total current liabilities		651,672			530,132

Long-term debt		1,685,553			1,756,985
Accrued pension liabilities		89,145			88,806
Other liabilities		277,345			278,919
Total liabilities		2,703,715			2,654,842

Commitments and contingencies (Note 12)

Equity:
H.B. Fuller stockholders' equity:
Preferred stock (no shares outstanding) shares authorized – 10,045,900		-			-
Common stock, par value $1.00 per share, shares authorized – 160,000,000, shares outstanding – 52,499,414 and 51,906,663, as of May 29, 2021 and November 28, 2020, respectively		52,499			51,907
Additional paid-in capital		190,243			157,867
Retained earnings		1,535,887			1,474,406
Accumulated other comprehensive loss		(215,997	)		(302,859	)
Total H.B. Fuller stockholders' equity		1,562,632			1,381,321
Non-controlling interest		580			541
Total equity		1,563,212			1,381,862
Total liabilities, non-controlling interest and total equity	$	4,266,927		$	4,036,704

See accompanying Notes to Unaudited Consolidated Financial Statements.

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H.B. FULLER COMPANY AND SUBSIDIARIES

Consolidated Statements of Total Equity

(In thousands)

(Unaudited)

	*H.B. Fuller Company Shareholders*
										*Accumulated*
				*Additional*						*Other*
	*Common*			*Paid-in*			*Retained*			*Comprehensive*			*Non-Controlling*
	*Stock*			*Capital*			*Earnings*			*Income (Loss)*			*Interest*		*Total*

Balance at November 28, 2020	$	51,907		$	157,867		$	1,474,406		$	(302,859	)	$	541	$	1,381,862
Comprehensive income		-			-			29,791			27,656			5		57,452
Dividends		-			-			(8,542	)		-			-		(8,542	)
Stock option exercises		147			6,251			-			-			-		6,398
Share-based compensation plans and other, net		150			7,423			-			-			-		7,573
Repurchases of common stock		(49	)		(2,531	)		-			-			-		(2,580	)
Balance at February 27, 2021	$	52,155		$	169,010		$	1,495,655		$	(275,203	)	$	546	$	1,442,163
Comprehensive income		-			-			49,102			59,206			34	$	108,342
Dividends		-			-			(8,870	)		-			-		(8,870	)
Stock option exercises		318			13,887			-			-			-		14,205
Share-based compensation plans other, net		27			7,393			-			-			-		7,420
Repurchases of common stock		(1	)		(47	)		-			-			-		(48	)
Balance at May 29, 2021	$	52,499		$	190,243		$	1,535,887		$	(215,997	)	$	580		1,563,212

	*H.B. Fuller Company Shareholders*
										*Accumulated*
				*Additional*						*Other*
	*Common*			*Paid-in*			*Retained*			*Comprehensive*			*Non-Controlling*
	*Stock*			*Capital*			*Earnings*			*Income (Loss)*			*Interest*		*Total*

Balance at November 30, 2019		51,241			130,295			1,384,411			(343,600	)		442		1,222,789
Comprehensive income (loss)		-			-			9,895			(5,049	)		10		4,856
Dividends		-			-			(8,313	)		-			-		(8,313	)
Stock option exercises		26			881			-			-			-		907
Share-based compensation plans and other, net		206			4,821			-			-			-		5,027
Repurchases of common stock		(66	)		(3,146	)		-			-			-		(3,212	)
Balance at February 29, 2020	$	51,407		$	132,851		$	1,385,993		$	(348,649	)	$	452	$	1,222,054
Comprehensive income		-			-			31,613			(31,861	)		19		(229	)
Dividends		-			-			(8,448	)		-			-		(8,448	)
Stock option exercises		24			626			-			-			-		650
Share-based compensation plans other, net		121			4,730			-			-			-		4,851
Repurchases of common stock		(1	)		(32	)		-			-			-		(33	)
Balance at May 30, 2020	$	51,551		$	138,175		$	1,409,158		$	(380,510	)	$	471	$	1,218,845

See accompanying Notes to Unaudited Consolidated Financial Statements.

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H.B. FULLER COMPANY AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	*Six Months Ended*
	*May 29, 2021*			*May 30, 2020*
Cash flows from operating activities:
Net income including non-controlling interest	$	78,930		$	41,534
Adjustments to reconcile net income including non-controlling interest to net cash provided by operating activities:
Depreciation		35,976			33,198
Amortization		35,649			35,458
Deferred income taxes		(1,167	)		(10,412	)
Income from equity method investments, net of dividends received		(4,072	)		(3,527	)
Share-based compensation		12,486			9,236
Pension and other post-retirement benefit plan activity		(15,927	)		(2,993	)
Change in assets and liabilities, net of effects of acquisitions:
Trade receivables, net		(43,191	)		33,867
Inventories		(100,358	)		(59,232	)
Other assets		(21,709	)		(13,070	)
Trade payables		115,488			42,182
Accrued compensation		(8,760	)		(21,587	)
Other accrued expenses		1,925			8,981
Income taxes payable		(1,513	)		(2,728	)
Other liabilities		(28,980	)		24,705
Other		25,055			(7,199	)
Net cash provided by operating activities		79,832			108,413

Cash flows from investing activities:
Purchased property, plant and equipment		(50,726	)		(54,533	)
Purchased businesses, net of cash acquired		(5,445	)		(9,500	)
Purchase of assets		-			(3,998	)
Proceeds from sale of property, plant and equipment		1,237			1,416
Cash payments related to government grant		(1,526	)		(2,331	)
Net cash used in investing activities		(56,460	)		(68,946	)

Cash flows from financing activities:
Repayment of long-term debt		(68,000	)		(67,000	)
Net proceeds of notes payable		9,335			6,994
Dividends paid		(17,244	)		(16,577	)
Proceeds from stock options exercised		20,621			1,557
Repurchases of common stock		(2,628	)		(3,246	)
Net cash used in financing activities		(57,916	)		(78,272	)

Effect of exchange rate changes on cash and cash equivalents		3,607			(3,040	)
Net change in cash and cash equivalents		(30,937	)		(41,845	)
Cash and cash equivalents at beginning of period		100,534			112,191
Cash and cash equivalents at end of period	$	69,597		$	70,346

See accompanying Notes to Unaudited Consolidated Financial Statements.

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H.B. FULLER COMPANY AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Amounts in thousands, except per share amounts)

(Unaudited)

Note 1: Basis of Presentation

Overview

The accompanying unaudited interim Consolidated Financial Statements of H.B. Fuller Company and Subsidiaries have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information necessary for a fair presentation of results of operations, comprehensive income, financial position and cash flows in conformity with U.S. generally accepted accounting principles. In our opinion, the unaudited interim Consolidated Financial Statements reflect all adjustments of a normal recurring nature considered necessary for the fair presentation of the results for the periods presented. Operating results for interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures at the date of the financial statements and during the reporting period. Actual results could differ from these estimates. These unaudited interim Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in our Annual Report on Form 10-K for the year ended November 28, 2020 as filed with the Securities and Exchange Commission.

Change in Accounting Principle - Credit Losses

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Statements. This ASU requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The FASB also issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, in November 2018, ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments, in April 2019 and ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments, in November 2019. ASU No. 2018-19 clarifies that receivables arising from operating leases are within the scope of Topic 842, Leases. ASU No. 2019-04 and ASU No. 2019-11 clarify various scoping and other issues arising from ASU No. 2016-13. The amendments in these ASUs affect the guidance in ASU No. 2016-13 and are effective in the same timeframe as ASU No. 2016-13. We adopted these ASUs and related standards during the first quarter ended February 27, 2021. Based on the conducted analyses on the change in accounting principle, the ASU did not have a material impact on the Consolidated Statements of Income or the Consolidated Balance Sheets. Therefore, a modified retrospective adjustment was not required. The trade receivables and allowances significant accounting policy has been changed in accordance with these ASUs as follows.

Trade Receivables and Allowances

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

New Accounting Pronouncements

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

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Note 2: Acquisitions

STR Holdings, Inc.

On January 13, 2021, we acquired certain assets of STR Holding, Inc. ("STR") for a base purchase price of $5,445 which was funded through existing cash. The agreement requires us to pay an additional $800 on the first anniversary of the acquisition and contingent consideration of up to $1,700 based on certain agreement provisions. STR, headquartered in Enfield, Connecticut, is a manufacturer of encapsulant products used in the solar industry. The acquisition fair value measurement, which includes goodwill of $849, intangible assets of $5,900 and other net assets of $1,196, was preliminary as of May 29, 2021. The fair value of the contingent consideration as of the date of acquisition was $1,700. See Note 11 for further discussion of the fair value of the contingent consideration. Goodwill is deductible for tax purposes. STR and the related goodwill are reported in our Engineering Adhesives ("EA") operating segment. The STR acquisition does not represent a material business combination, and therefore pro forma financial information is not provided.

D.H.M. Adhesives, Inc.

On February 3, 2020, we acquired certain assets of D.H.M. Adhesives, Inc. (“D.H.M.”) for approximately $9,500 which was funded through existing cash. In addition, the agreement requires us to pay contingent consideration of up to approximately $8,100 based upon a formula related to revenue during the fiscal years ended November 27, 2021 and December 3, 2022. D.H.M., headquartered in Calhoun, Georgia, is a provider of hotmelt adhesives. The acquisition fair value measurement was final as of May 30, 2020 and includes goodwill of $1,063 and customer relationship intangible of $11,900. The fair value of the contingent consideration as of the date of acquisition was $5,000 resulting in a final purchase price of $14,500. See Note 11 for further discussion of the fair value of the contingent consideration liability. Goodwill is deductible for tax purposes. D.H.M. and the related goodwill are reported in our Hygiene, Health and Consumable Adhesives operating segment. The D.H.M acquisition does not represent a material business combination, and therefore pro forma financial information is not provided.

Note 3: Restructuring Actions

The Company has approved restructuring plans consisting of consolidation plans, organizational changes and other actions related to the reorganization of our business into three segments, the integration of the operations of Royal Adhesives with the operations of the Company, and other actions to optimize operations. The following table summarizes the pre-tax charges under these restructuring plans by income statement classification:

	*Three Months Ended*					*Six Months Ended*
	*May 29, 2021*			*May 30, 2020*		*May 29, 2021*		*May 30, 2020*
Cost of sales	$	23		$	7	$	293	$	67
Selling, general and administrative		(201	)		383		1,346		367
	$	(178	)	$	390	$	1,639	$	434

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

A summary of the restructuring liability is presented below:

	*Employee-Related*			*Other*			*Total*
Balance at November 30, 2019	$	9,830		$	924		$	10,754
Expenses incurred		2,898			1,681			4,579
Cash payments		(7,051	)		(2,357	)		(9,408	)
Foreign currency translation		157			-			157
Balance at November 28, 2020		5,834			248			6,082
Expenses incurred		45			1,594			1,639
Non-cash charges		-			(135	)		(135	)
Cash payments		(3,106	)		(1,707	)		(4,813	)
Foreign currency translation		(17	)		-			(17	)
Balance at May 29, 2021	$	2,756		$	-		$	2,756

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Restructuring liabilities have been classified as a component of other accrued expenses in the Consolidated Balance Sheets.

Note 4: Inventories

The composition of inventories is as follows:

	*May 29,*		*November 28,*
	*2021*		*2020*
Raw materials	$	207,720	$	151,026
Finished goods		220,115		172,187
Total inventories	$	427,835	$	323,213

Note 5: Goodwill and Other Intangible Assets

The goodwill activity for the six months ended May 29, 2021 is presented below:

	*Hygiene, Health*
	*and Consumable*		*Engineering*		*Construction*
	*Adhesives*		*Adhesives*		*Adhesives*		*Total*
Balance at November 28, 2020	$	332,909	$	667,863	$	311,231	$	1,312,003
Acquisition		-		849		-		849
Currency impact		4,503		12,384		796		17,683
Balance at May 29, 2021	$	337,412	$	681,096	$	312,027	$	1,330,535

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

May 29, 2021

Purchased

Technology

Customer

Amortizable Intangible Assets

and Patents

Relationships

Trade Names

Other

Total

Original cost

118,086

946,526

64,380

11,422

1,140,414

Accumulated amortization

(58,867

)

(311,899

)

(32,167

)

(5,252

)

(408,185

)

Net identifiable intangibles

59,219

634,627

32,213

6,170

732,229

	*November 28, 2020*
	*Purchased*
	*Technology*			*Customer*
Amortizable Intangible Assets	*and Patents*			*Relationships*			*Trade Names*			*Other*			*Total*
Original cost	$	113,775		$	933,943		$	63,266		$	11,410		$	1,122,394
Accumulated amortization		(53,216	)		(279,586	)		(29,368	)		(4,775	)		(366,945	)
Net identifiable intangibles	$	60,559		$	654,357		$	33,898		$	6,635		$	755,449

Amortization expense with respect to amortizable intangible assets was $17,753 and $17,468 for the three months ended May 29, 2021 and May 30, 2020, respectively, and $35,649 and $35,458 for the six months ended May 29, 2021 and May 30, 2020, respectively.

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Estimated aggregate amortization expense based on the current carrying value of amortizable intangible assets for the next five fiscal years is as follows:

	*Remainder*
Fiscal Year	*2021*		*2022*		*2023*		*2024*		*2025*		*Thereafter*
Amortization expense	$	35,581	$	70,049	$	67,118	$	61,985	$	59,316	$	438,180

Non-amortizable intangible assets as of May 29, 2021 and November 28, 2020 are $531 and $519, respectively, and are related to trademarks and trade names. The change in non-amortizable assets as of May 29, 2021 compared to November 28, 2020 was due to changes in foreign currency exchange rates.

Note 6: Components of Net Periodic Benefit related to Pension and Other Postretirement Benefit Plans

	*Three Months Ended May 29, 2021 and May 30, 2020*
													*Other*
	*Pension Benefits*												*Postretirement*
	*U.S. Plans*						*Non-U.S. Plans*						*Benefits*
Net periodic cost (benefit):	*2021*			*2020*			*2021*			*2020*			*2021*			*2020*
Service cost	$	-		$	-		$	821		$	721		$	5		$	18
Interest cost		2,325			2,935			739			781			206			284
Expected return on assets		(7,781	)		(6,439	)		(3,104	)		(2,798	)		(2,236	)		(1,994	)
Amortization:
Prior service cost (benefit)		(1	)		(1	)		17			16			-			-
Actuarial loss		799			1,799			1,016			940			18			16
Net periodic benefit	$	(4,658	)	$	(1,706	)	$	(511	)	$	(340	)	$	(2,007	)	$	(1,676	)

	*Six Months Ended May 29, 2021 and May 30, 2020*
													*Other*
	*Pension Benefits*												*Postretirement*
	*U.S. Plans*						*Non-U.S. Plans*						*Benefits*
Net periodic cost (benefit):	*2021*			*2020*			*2021*			*2020*			*2021*			*2020*
Service cost	$	-		$	-		$	1,654		$	1,441		$	11		$	37
Interest cost		4,650			5,869			1,472			1,563			411			567
Expected return on assets		(15,561	)		(12,879	)		(6,181	)		(5,596	)		(4,472	)		(3,988	)
Amortization:
Prior service cost (benefit)		(2	)		(2	)		34			32			-			-
Actuarial loss		1,599			3,598			2,038			1,880			36			31
Net periodic benefit	$	(9,314	)	$	(3,414	)	$	(983	)	$	(680	)	$	(4,014	)	$	(3,353	)

Service cost is included with employee compensation cost in cost of sales and selling, general and administrative expenses in the Consolidated Statements of Income. The components of our net periodic defined benefit pension and postretirement benefit costs other than service cost are presented in other income, net in the Consolidated Statements of Income.

Note 7: Accumulated Other Comprehensive Income (Loss)

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

	*Three Months Ended May 29, 2021*											*Three Months Ended May 30, 2020*
										*Non-*											*Non-*
										*controlling*											*controlling*
	*H.B. Fuller Stockholders*									*Interest*		*H.B. Fuller Stockholders*									*Interest*
	*Pre-tax*			*Tax*			*Net*			*Net*		*Pre-tax*			*Tax*			*Net*			*Net*
Net income attributable to H.B. Fuller and non-controlling interest							$	49,102		$	22							$	31,613		$	15
Foreign currency translation adjustment¹	$	55,512		$	-			55,512			12	$	(29,926	)	$	-			(29,926	)		4
Defined benefit pension plans adjustment²		1,851			(480	)		1,371			-		2,758			(688	)		2,070			-
Interest rate swap³		4,721			(1,157	)		3,564			-		(13,069	)		3,186			(9,883	)		-
Cross currency swaps³		(1,258	)		17			(1,241	)		-		5,994			(116	)		5,878			-
Other comprehensive income (loss)	$	60,826		$	(1,620	)	$	59,206		$	12	$	(34,243	)	$	2,382		$	(31,861	)	$	4
Comprehensive income (loss)							$	108,308		$	34							$	(248	)	$	19

	*Six Months Ended May 29, 2021*											*Six Months Ended May 30, 2020*
										*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							$	78,893		$	37							$	41,508		$	26
Foreign currency translation adjustment¹	$	78,659		$	-			78,659			2	$	(32,706	)	$	-			(32,706	)		3
Defined benefit pension plans adjustment²		3,706			(960	)		2,746			-		5,537			(1,381	)		4,156			-
Interest rate swap³		10,258			(2,514	)		7,744			-		(24,970	)		6,088			(18,882	)		-
Cross currency swaps³		(2,320	)		33			(2,287	)		-		10,740			(218	)		10,522			-
Other comprehensive income (loss)	$	90,303		$	(3,441	)	$	86,862			2	$	(41,399	)	$	4,489			(36,910	)		3
Comprehensive income							$	165,755		$	39							$	4,598		$	29

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.

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The components of accumulated other comprehensive loss are as follows:

May 29, 2021

Non-

H.B. Fuller

controlling

Total

Stockholders

Interest

Foreign currency translation adjustment

(27,483

)

(27,346

)

(137

)

Interest rate swap, net of taxes of $5,306

(17,359

)

(17,359

)

Cash flow hedges, net of taxes of $(88)

5,682

Defined benefit pension plans adjustment, net of taxes of $79,696

(158,633

)

(158,633

)

Reclassification of AOCI tax effects

(18,341

)

(18,341

)

Accumulated other comprehensive loss

(216,134

)

(215,997

)

(137

)

	*November 28, 2020*
							*Non-*
				*H.B. Fuller*			*controlling*
	*Total*			*Stockholders*			*Interest*
Foreign currency translation adjustment	$	(106,140	)	$	(106,005	)	$	(135	)
Interest rate swap, net of taxes of $8,639		(25,103	)		(25,103	)		-
Cash flow hedges, net of taxes of $(121)		7,969			7,969			-
Defined benefit pension plans adjustment, net of taxes of $80,656		(161,379	)		(161,379	)		-
Reclassification of AOCI tax effects		(18,341	)		(18,341	)		-
Accumulated other comprehensive loss	$	(302,994	)	$	(302,859	)	$	(135	)

Note 8: Income Taxes

As of May 29, 2021, we had a liability of $14,962 recorded for gross unrecognized tax benefits (excluding interest) compared to $14,569 as of November 28, 2020. As of May 29, 2021 and November 28, 2020, we had accrued $3,575 and $2,881 of gross interest relating to unrecognized tax benefits, respectively.

Income tax expense for the three and six months ended May 29, 2021 includes $600 and $558 of discrete tax benefit. Excluding the discrete tax benefit, the overall effective tax rate was 27.1 percent and 27.2 percent for the three and six months ended May 29, 2021, respectively.

Income tax expense for the three and six months ended May 30, 2020 includes $45 of discrete tax benefit and $1,959 of discrete tax expense, respectively. Excluding the discrete tax benefit and expense, the overall effective tax rate was 28.0 percent and 27.5 percent for the three and six months ended May 30, 2020, respectively.

Note 9: Earnings Per Share

A reconciliation of the common share components for the basic and diluted earnings per share calculations is as follows:

Three Months Ended

Six Months Ended

May 29,

May 30,

May 29,

May 30,

(Shares in thousands)

2021

2020

2021

2020

Weighted-average common shares - basic

52,839

51,420

52,666

51,874

Equivalent shares from share-based compensations plans

1,455

609

1,151

431

Weighted-average common and common equivalent shares diluted

54,294

52,029

53,817

52,305

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.

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Share-based compensation awards for 208,888 and 5,102,912 shares for the three months ended May 29, 2021 and May 30, 2020, respectively, and 2,107,062 and 4,461,452 for the six months ended May 29, 2021 and May 30, 2020, respectively, were excluded from diluted earnings per share calculations because they were antidilutive.

Note 10: Financial Instruments

Overview

As a result of being a global enterprise, our earnings, cash flows and financial position are exposed to foreign currency risk from foreign currency denominated receivables and payables.

We use foreign currency forward contracts, cross-currency swaps and interest rate swaps to manage risks associated with foreign currency exchange rates and interest rates. We do not hold derivative financial instruments of a speculative nature or for trading purposes. We record derivatives as assets and liabilities on the balance sheet at fair value. Changes in fair value are recognized immediately in earnings unless the derivative qualifies and is designated as a hedge. Cash flows from derivatives are classified in the Consolidated Statement of Cash Flows in the same category as the cash flows from the items subject to designated hedge or undesignated (economic) hedge relationships. We evaluate hedge effectiveness at inception and on an ongoing basis. If a derivative is no longer expected to be effective, hedge accounting is discontinued. Hedge ineffectiveness, if any, is recorded in earnings.

We are exposed to credit risk in the event of nonperformance of counterparties for foreign currency forward exchange contracts and interest rate swap agreements. We select investment-grade multinational banks and financial institutions as counterparties for derivative transactions and monitor the credit quality of each of these banks on a periodic basis as warranted. We do not anticipate nonperformance by any of these counterparties, and valuation allowances, if any, are de minimis.

Cash Flow Hedges

As of May 29, 2021, we had six cross-currency swap agreements effective October 20, 2017 to convert a notional amount of $401,200 of foreign currency denominated intercompany loans into U.S. dollars, which mature in 2021 and 2022. As of May 29, 2021, the combined fair value of the swaps was a liability of $7,464 and was included in other liabilities in the Consolidated Balance Sheets. The swaps were designated as cash flow hedges for accounting treatment. The lesser amount between the cumulative change in the fair value of the actual swaps and the cumulative change in the fair value of hypothetical swaps is recorded in accumulated other comprehensive income (loss) in the Consolidated Balance Sheets and in other net cash provided by operating activities in the Consolidated Statement of Cash Flows. The differences between the cumulative change in the fair value of the actual swaps and the cumulative change in the fair value of hypothetical swaps are recorded as other income, net in the Consolidated Statements of Income. In a perfectly effective hedge relationship, the two fair value calculations would exactly offset each other. Any difference in the calculation represents hedge ineffectiveness. The amount in accumulated other comprehensive income (loss) related to cross-currency swaps was a gain of $5,682 as of May 29, 2021. The estimated net amount of the existing gain that is reported in accumulated other comprehensive income (loss) as of May 29, 2021 that is expected to be reclassified into earnings within the next twelve months is $3,823. As of May 29, 2021, we do not believe any gains or losses will be reclassified into earnings as a result of the discontinuance of these cash flow hedges because the original forecasted transaction will not occur.

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The following table summarizes the cross-currency swaps outstanding as of May 29, 2021:

	*Fiscal Year of*		*Notional*
	*Expiration*	*Interest Rate*	*Value*		*Fair Value*
Pay EUR	2021	2.75%	$	133,340	$	(3,669	)
Receive USD		4.9330%

Pay EUR	2022	3.00%	$	267,860	$	(3,795	)
Receive USD		5.1803%

Total			$	401,200	$	(7,464	)

On February 27, 2018, we entered into an interest rate swap agreement to convert $200,000 of our $2,150,000 Term Loan B to a fixed interest rate of 4.589 percent. During the second quarter of 2021, we settled a portion of this interest rate swap as the debt underlying this swap was less than the swap value due to debt paydown. We settled the ineffective portion of the interest rate swap by making a cash payment of $378 and recorded that payment to interest expense in our Consolidated Statements of Income for the three months ended May 29, 2021. On October 20, 2017, we entered into interest rate swap agreements to convert $1,050,000, which was amortized down to $925,000 on October 20, 2020, of our $2,150,000 Term Loan B to a fixed interest rate of 4.0275 percent. The combined fair value of the interest rate swaps was a liability of $22,997 at May 29, 2021 and was included in other liabilities in the Consolidated Balance Sheets. The swaps were designated for hedge accounting treatment as cash flow hedges. We are applying the hypothetical derivative method to assess hedge effectiveness for these interest rate swaps. Changes in the fair value of a hypothetically perfect swap with terms that match the critical terms of our $1,125,000 variable rate Term Loan B are compared with the change in the fair value of the swaps.

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

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

	*Three Months Ended*						*Six Months Ended*
	*May 29, 2021*			*May 30, 2020*			*May 29, 2021*			*May 30, 2020*
Cross-currency swap contracts	$	(1,258	)	$	5,994		$	(2,320	)	$	10,740
Interest rate swap contracts		4,721			(13,069	)		10,258			(24,970	)

Fair Value Hedges

On February 12, 2021, we entered into interest rate swap agreements to convert our $300,000 Public Notes that were issued on October 20, 2020 to a variable interest rate of 1-month LIBOR plus 3.28 percent. The combined fair value of the interest rate swaps was a liability of $4,242 at May 29, 2021, and was included in other liabilities in the Consolidated Balance Sheets. The swaps were designated for hedge accounting treatment as fair value hedges. We apply the short cut method and assume hedge effectiveness. Changes in the fair value of a hypothetically perfect swap with terms that match the critical terms of our $300,000 fixed rate Public Notes are compared with the change in the fair value of the swaps.

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Derivatives Not Designated As Hedging Instruments

We use foreign currency forward contracts to offset our exposure to the change in value of certain foreign currency denominated assets and liabilities held at foreign subsidiaries that are remeasured at the end of each period. Although the contracts are effective economic hedges, they are not designated as accounting hedges. Foreign currency forward contracts are recorded as assets and liabilities on the balance sheet at fair value. Changes in the value of these derivatives are recognized immediately in earnings, thereby offsetting the current earnings effect of the related foreign currency denominated assets and liabilities. See Note 11 for fair value amounts of these derivative instruments.

As of May 29, 2021, we had forward foreign currency contracts maturing between June 1, 2021 and February 16, 2022. 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 May 29, 2021 and May 30, 2020 were $404 and $(3,003), 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 May 29, 2021, there were no significant concentrations of credit risk.

Note 11: Fair Value Measurements

Overview

Estimates of fair value for financial assets and liabilities are based on the framework established in the accounting guidance for fair value measurements. The framework defines fair value, provides guidance for measuring fair value and requires certain disclosures. The framework discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow) and the cost approach (cost to replace the service capacity of an asset or replacement cost). The framework utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

	●	Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
	●	Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
	●	Level 3: Unobservable inputs that reflect management’s assumptions, and include situations where there is little, if any, market activity for the asset or liability.

Balances Measured at Fair Value on a Recurring Basis

The following table presents information about our financial assets and liabilities that are measured at fair value on a recurring basis as of May 29, 2021 and November 28, 2020, and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value.

May 29,

Fair Value Measurements Using:

Description

2021

Level 1

Level 2

Level 3

Assets:

Marketable securities

2,770

Foreign exchange contract assets

3,293

Liabilities:

Foreign exchange contract liabilities

2,889

Cross-currency cash flow hedge liabilities

7,464

Interest rate swaps, cash flow hedge liabilities

22,997

Interest rate swaps, fair value hedge liabilities

4,242

Contingent consideration liabilities

8,700

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	*November 28,*		*Fair Value Measurements Using:*
Description	*2020*		*Level 1*		*Level 2*		*Level 3*
Assets:
Marketable securities	$	22,560	$	22,560	$	-	$	-
Foreign exchange contract assets		2,320		-		2,320		-
Cross-currency cash flow hedge assets		2,823		-		2,823		-

Liabilities:
Foreign exchange contract liabilities	$	5,251	$	-	$	5,251	$	-
Cross-currency cash flow hedge liabilities		280		-		280
Interest rate swaps, cash flow hedge liabilities		33,256		-		33,256		-
Contingent consideration liability		5,800		-		-		5,800

We use the income approach in calculating the fair value of our contingent consideration liability related to the D.H.M. acquisition using a real option model with Level 3 inputs. The expected cash flows are affected by various significant judgments and assumptions, including revenue growth rates, volatility and discount rate, which are sensitive to change. Estimates of fair value are inherently uncertain and represent only management’s reasonable expectation regarding future developments. These estimates and the judgments and assumptions upon which the estimates are based will, in all likelihood, differ in some respects from actual future results.

The valuation of our contingent consideration liabilities related to the acquisitions of D.H.M. and STR resulted in a fair value of $7,000 and $1,700, respectively, as of May 29, 2021. See Note 2 for further discussion regarding our acquisitions.

	*Amounts*
Balance at November 28, 2020	$	5,800
Acquisition		1,700
Mark to market adjustment		1,200
Balance at May 29, 2021	$	8,700

Long-term debt had an estimated fair value of $1,715,934 and $1,811,562 as of May 29, 2021 and November 28, 2020, 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.

Note 12: Commitments and Contingencies

Environmental Matters

From time to time, we become aware of compliance matters relating to, or receive notices from, federal, state or local entities regarding possible or alleged violations of environmental, health or safety laws and regulations. We review the circumstances of each individual site, considering the number of parties involved, the level of potential liability or our contribution relative to the other parties, the nature and magnitude of the hazardous substances involved, the method and extent of remediation, the estimated legal and consulting expense with respect to each site and the time period over which any costs would likely be incurred. Also, from time to time, we are 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. We are also 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 $7,965 and $8,099 as of May 29, 2021 and November 28, 2020, respectively, for probable and reasonably estimable environmental remediation costs. Of the amount reserved, $3,585 and $3,703 as of May 29, 2021 and November 28, 2020, 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.

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Currently, we are involved in various environmental investigations, clean up activities and administrative proceedings and lawsuits. In particular, we are currently deemed a PRP in conjunction with numerous other parties, in a number of government enforcement actions 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. In addition, we are engaged in environmental remediation and monitoring efforts at a number of current and former operating facilities. 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 30 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 defense costs, 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*
	*May 29, 2021*		*May 30, 2020*		*November 28, 2020*
Lawsuits and claims settled		2		2		19
Settlement amounts	$	85	$	30	$	944
Insurance payments received or expected to be received	$	55	$	21	$	660

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.

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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 13: 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 SAP 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.

	*Three Months Ended*
	*May 29, 2021*					*May 30, 2020*
	*Net*		*Operating*			*Net*		*Operating*
	*Revenue*		*Income (Loss)*			*Revenue*		*Income (Loss)*
Hygiene, Health and Consumable Adhesives	$	364,814	$	38,929		$	344,673	$	35,009
Engineering Adhesives		345,373		32,075			236,063		20,149
Construction Adhesives		117,686		6,338			93,866		6,527
Total segment	$	827,873	$	77,342		$	674,602	$	61,685
Corporate Unallocated		-		(8,201	)		-		(4,782	)
Total	$	827,873	$	69,141		$	674,602	$	56,903

	*Six Months Ended*
	*May 29, 2021*					*May 30, 2020*
	*Net*		*Operating*			*Net*		*Operating*
	*Revenue*		*Income (Loss)*			*Revenue*		*Income (Loss)*
Hygiene, Health and Consumable Adhesives	$	700,482	$	68,840		$	657,185	$	57,673
Engineering Adhesives		658,037		62,493			484,958		35,514
Construction Adhesives		195,258		1,635			179,023		5,152
Total segment	$	1,553,777	$	132,968		$	1,321,166	$	98,339
Corporate Unallocated		-		(15,477	)		-		(12,683	)
Total	$	1,553,777	$	117,491		$	1,321,166	$	85,656

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*
	*May 29,*			*May 30,*			*May 29,*			*May 30,*
	*2021*			*2020*			*2021*			*2020*
Operating income	$	69,141		$	56,903		$	117,491		$	85,656
Other income, net		11,879			3,049			19,748			8,018
Interest expense		(19,942	)		(21,644	)		(40,303	)		(44,401	)
Interest income		2,530			2,898			5,189			5,816
Income before income taxes and income from equity method investments	$	63,608		$	41,206		$	102,125		$	55,089

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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 May 29, 2021

Hygiene, Health

and Consumable

Engineering

Construction

Adhesives

Total

Americas

201,458

126,450

103,996

431,904

EIMEA

108,310

121,585

6,506

236,401

Asia Pacific

55,046

97,338

7,184

159,568

Total

364,814

345,373

117,686

827,873

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	*Three Months Ended May 30, 2020*

	*Hygiene, Health*
	*and Consumable*		*Engineering*		*Construction*
	*Adhesives*		*Adhesives*		*Adhesives*		*Total*

Americas	$	190,581	$	90,012	$	84,047	$	364,640
EIMEA		98,222		71,643		4,506		174,371
Asia Pacific		55,870		74,408		5,313		135,591
Total	$	344,673	$	236,063	$	93,866	$	674,602

Six Months Ended May 29, 2021

Hygiene, Health

and Consumable

Engineering

Construction

Adhesives

Total

Americas

383,479

239,577

171,028

794,084

EIMEA

204,283

223,344

11,233

438,860

Asia Pacific

112,720

195,116

12,997

320,833

Total

700,482

658,037

195,258

1,553,777

	*Six Months Ended May 30, 2020*
	*Hygiene, Health*
	*and Consumable*		*Engineering*		*Construction*
	*Adhesives*		*Adhesives*		*Adhesives*		*Total*

Americas	$	363,855	$	195,385	$	158,306	$	717,546
EIMEA		190,606		155,318		10,631		356,555
Asia Pacific		102,724		134,255		10,086		247,065
Total	$	657,185	$	484,958	$	179,023	$	1,321,166

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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 November 28, 2020 for important background information related to our business.

Net revenue in the second quarter of 2021 increased 22.7 percent from the second quarter of 2020. Net revenue increased 17.4 percent due to sales volume and 1.4 percent due to price. Currency effects of 3.9 percent compared to the second quarter of 2020 were primarily driven by a stronger Euro, Chinese renminbi, Australian and Canadian dollars and Mexican peso, partially offset by the weaker Brazilian real, Turkish lira and Argentinian peso compared to the U.S. dollar. Gross profit margin decreased 110 basis points primarily due to higher raw material costs partially offset by higher sales volume.

Net revenue in the first six months of 2021 increased 17.5 percent from the first six months of 2020. Net revenue increased 14.0 percent due to sales volume and 0.7 percent due to price. Currency effects of 2.8 percent compared to the first six months of 2020 were primarily driven by a stronger Euro, Chinese renminbi, Australian and Canadian dollars and Mexican peso, partially offset by the weaker Brazilian real, Turkish lira and Argentinian peso compared to the U.S. dollar. Gross profit margin decreased 50 basis points primarily due to higher raw material costs partially offset by higher sales volume.

Net income attributable to H.B. Fuller in the second quarter of 2021 was $49.1 million compared to $31.6 million in the second quarter of 2020. On a diluted earnings per share basis, the second quarter of 2021 was $0.90 per share compared to $0.61 per share for the second quarter of 2020.

Net income attributable to H.B. Fuller in the first six months of 2021 was $78.9 million compared to $41.5 million in the first six months of 2020. On a diluted earnings per share basis, the first six months of 2021 was $1.47 per share compared to $0.79 per share for the second quarter of 2020.

Market Conditions

On March 11, 2020, the World Health Organization declared the outbreak of the novel coronavirus (“COVID-19”) a pandemic. COVID-19 continues to affect major economic and financial markets due to government restrictions, including travel restrictions, quarantines, shelter in place orders and shutdowns. However, we believe improvements in global COVID-19 trends provide a positive outlook. The Company has been deemed an essential business and all of our global manufacturing operations have remained open. We continue to monitor the situation to help ensure the well-being of our employees, customers and suppliers to minimize disruptions and provide for the safe and reliable supply of products to our customers.

See "Risk Factors" in Item 1A in our Annual Report on Form 10-K for the year ended November 28, 2020 as filed with the Securities and Exchange Commission for further information of the possible impact of the COVID-19 pandemic on our business.

Restructuring Plan

2020 Restructuring Plan

During the fourth quarter of 2019, we approved a restructuring plan related to organizational changes and other actions to optimize operations in connection with the realignment of the Company into three global business units (“2020 Restructuring Plan”). In implementing the 2020 Restructuring Plan, we expect to incur costs of approximately $20.0 million ($15.8 million after-tax), which includes cash expenditures for severance and related employee costs globally, costs related to streamlining of processes and other restructuring-related costs. We have incurred costs of $16.3 million under this plan as of May 29, 2021. The 2020 Restructuring Plan was implemented in the fourth quarter of 2019 and is currently expected to be completed in 2022.

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Results of Operations

Net revenue:

	Three Months Ended							Six Months Ended
	May 29,		May 30,		2021 vs			May 29,		May 30,		2021 vs
($ in millions)	2021		2020		2020			2021		2020		2020
Net revenue	$	827.9	$	674.6		22.7	%	$	1,553.8	$	1,321.2		17.5	%

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 2021 compared to the same periods in 2020:

	Three Months Ended			Six Months Ended
	May 29, 2021 vs. May 30, 2020			May 29, 2021 vs. May 30, 2020
Organic growth		18.8	%		14.7	%
M&A		0.0	%		0.0	%
Currency		3.9	%		2.8	%
Total		22.7	%		17.5	%

Organic growth was 18.8 percent in the second quarter of 2021 compared to the second quarter of 2020 driven by a 39.7 percent increase in Engineering Adhesives, a 23.2 percent increase in Construction Adhesives and a 3.3 percent increase in Hygiene, Health and Consumable Adhesives. The increase is predominately driven by an increase in sales volume. The 3.9 percent currency impact was primarily driven by a stronger Euro, Chinese renminbi, Australian and Canadian dollars and Mexican peso partially offset by the weaker Brazilian real, Turkish lira, and Argentinian peso compared to the U.S. dollar.

Organic growth was 14.7 percent in the first six months of 2021 compared to the first six months of 2020 driven by a 30.2 percent increase in Engineering Adhesives, a 7.4 percent increase in Construction Adhesives and a 5.4 percent increase in Hygiene, Health and Consumable Construction Adhesives. The increase is predominately driven by an increase in sales volume. The 2.8 percent currency impact was primarily driven by a stronger Euro, Chinese renminbi, Australian and Canadian dollars and Mexican peso partially offset by the weaker Brazilian real, Turkish lira, and Argentinian peso compared to the U.S. dollar.

Cost of sales:

	Three Months Ended									Six Months Ended
	May 29,			May 30,			2021 vs			May 29,			May 30,			2021 vs
($ in millions)	2021			2020			2020			2021			2020			2020
Raw materials	$	454.9		$	357.8			27.1	%	$	839.9		$	703.0			19.5	%
Other manufacturing costs		155.4		$	131.9			17.8	%		304.0			263.0			15.6	%
Cost of sales	$	610.3		$	489.7			24.6	%	$	1,143.9		$	966.0			18.4	%
Percent of net revenue		73.7	%		72.6	%					73.6	%		73.1	%

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Cost of sales in the second quarter of 2021 compared to the second quarter of 2020 increased 110 basis points as a percentage of net revenue. Raw material cost as a percentage of net revenue increased 190 basis points in the second quarter of 2021 compared to the second quarter of 2020 due to higher raw material costs. Other manufacturing costs as a percentage of revenue decreased 80 basis points in the second quarter of 2021 compared to the second quarter of 2020 due to higher sales volume.

Cost of sales in the first six months of 2021 compared to the first six months of 2020 increased 50 basis points as a percentage of net revenue. Raw material cost as a percentage of net revenue increased 90 basis points in the second quarter of 2021 compared to the second quarter of 2020 due to higher raw material costs. Other manufacturing costs as a percentage of revenue decreased 40 basis points in the second quarter of 2021 compared to the second quarter of 2020.

Gross profit:

	Three Months Ended									Six Months Ended
	May 29,			May 30,			2021 vs			May 29,			May 30,			2021 vs
($ in millions)	2021			2020			2020			2021			2020			2020
Gross profit	$	217.6		$	184.9			17.7	%	$	409.9		$	355.2			15.4	%
Percent of net revenue		26.3	%		27.4	%					26.4	%		26.9	%

Gross profit in the second quarter of 2021 increased 17.7 percent and gross profit margin decreased 110 basis points compared to the second quarter of 2020. The decrease in gross profit margin was primarily due to higher raw material costs partially offset by higher sales volume.

Gross profit in the first six months of 2021 increased 15.4 percent and gross profit margin decreased 50 basis points compared to the first six months of 2020. The decrease in gross profit margin was primarily due to higher raw material costs partially offset by higher sales volume.

Selling, general and administrative (SG&A) expenses:

	Three Months Ended									Six Months Ended
	May 29,			May 30,			2021 vs			May 29,			May 30,			2021 vs
($ in millions)	2021			2020			2020			2021			2020			2020
SG&A	$	148.4		$	128.0			15.9	%	$	292.4		$	269.5			8.5	%
Percent of net revenue		17.9	%		19.0	%					18.8	%		20.4	%

SG&A expenses for the second quarter of 2021 increased $20.4 million, or 15.9 percent, compared to the second quarter of 2020. The increase is primarily due to higher compensation costs compared to the prior year.

SG&A expenses for the first six months of 2021 increased $22.9 million, or 8.5 percent, compared to the first six months of 2020. The increase is primarily due to higher compensation costs compared to the prior year.

Other income, net:

	Three Months Ended							Six Months Ended
	May 29,		May 30,		2021 vs			May 29,		May 30,		2021 vs
($ in millions)	2021		2020		2020			2021		2020		2020
Other income, net	$	11.9	$	3.0		296.7	%	$	19.7	$	8.0		146.3	%

Other income, net in the second quarter of 2021 included $8.0 million of net defined benefit pension benefits and $5.2 million of other income, offset by $1.3 million of currency transaction losses. Other income in the second quarter of 2021 includes gains related to a legal entity merger and a transactional tax legal settlement in Brazil. Other income, net in the second quarter of 2020 included $4.4 million of net defined benefit pension benefits, $0.2 million of other income, offset by $1.6 million of currency transaction losses.

Other income, net in the first six months of 2021 included $15.9 million of net defined benefit pension benefits and $6.9 million of other income, offset by $3.1 million of currency transaction losses. Other income, net in the first six months quarter of 2020 included $8.9 million of net defined benefit pension benefits, $0.5 million of other income, offset by $1.4 million of currency transaction losses.

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Interest expense:

	Three Months Ended							Six Months Ended
	May 29,		May 30,		2021 vs			May 29,		May 30,		2021 vs
($ in millions)	2021		2020		2020			2021		2020		2020
Interest expense	$	19.9	$	21.6		(7.9	)%	$	40.3	$	44.4		(9.2	)%

Interest expense in the second quarter of 2021 was $19.9 million compared to $21.6 million in the second quarter of 2020. Interest expense in the second quarter of 2021 compared to the second quarter of 2020 was lower due to lower U.S. debt balances and lower interest rates.

Interest expense in the first six months of 2021 was $40.3 million compared to $44.4 million in the first six months of 2020. Interest expense in the first six months of 2021 compared to the first six months of 2020 was lower due to lower U.S. debt balances and lower interest rates.

Interest income:

	Three Months Ended							Six Months Ended
	May 29,		May 30,		2021 vs			May 29,		May 30,		2021 vs
($ in millions)	2021		2020		2020			2021		2020		2020
Interest income	$	2.5	$	2.9		(13.8	)%	$	5.2	$	5.8		(10.3	)%

Interest income in the second quarter of 2021 was $2.5 million. Interest income in the second quarter of 2020 was $2.9 million.

Interest income in the first six months of 2021 was $5.2 million. Interest income in the first six months of 2020 was $5.8 million.

Income taxes:

	Three Months Ended									Six Months Ended
	May 29,			May 30,			2021 vs			May 29,			May 30,			2021 vs
($ in millions)	2021			2020			2020			2021			2020			2020
Income taxes	$	16.7		$	11.5			45.2	%	$	27.3		$	17.1			59.6	%
Effective tax rate		26.2	%		27.9	%					26.7	%		31.0	%

Income tax expense of $16.7 million in the second quarter of 2021 includes $0.6 million of discrete tax benefit. Excluding the discrete tax benefit, the overall effective tax rate was 27.1 percent. Income tax expense of $11.5 million in the second quarter of 2020 includes less than $0.1 million of discrete tax benefit. Excluding the discrete tax benefit, the overall effective tax rate was 28.0 percent. The discrete tax benefits relate to various U.S. and foreign tax matters.

Income tax expense of $27.3 million in the first six months of 2021 includes $0.6 million of discrete tax benefit. Excluding the discrete tax benefit, the overall effective tax rate was 27.2 percent. Income tax expense of $17.1 million in the first six months of 2020 includes $2.0 million of discrete tax expense. Excluding the discrete tax expense, the overall effective tax rate was 27.5 percent. The discrete tax benefit and expense relate to various U.S. and foreign tax matters.

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Income from equity method investments:

	Three Months Ended							Six Months Ended
	May 29,		May 30,		2021 vs			May 29,		May 30,		2021 vs
($ in millions)	2021		2020		2020			2021		2020		2020
Income from equity method investments	$	2.2	$	1.9		15.8	%	$	4.1	$	3.5		17.1	%

The income from equity method investments relates to our 50 percent ownership of the Sekisui-Fuller joint venture in Japan. The higher income for the second quarter and first six months of 2021 compared to the same period of 2020 relates to higher net income in our joint venture.

Net income attributable to H.B. Fuller:

	Three Months Ended									Six Months Ended
	May 29,			May 30,			2021 vs			May 29,			May 30,			2021 vs
($ in millions)	2021			2020			2020			2021			2020			2020
Net income attributable to H.B. Fuller	$	49.1		$	31.6			55.4	%	$	78.9		$	41.5			90.1	%
Percent of net revenue		5.9	%		4.7	%					5.1	%		3.1	%

The net income attributable to H.B. Fuller for the second quarter of 2021 was $49.1 million compared to $31.6 million for the second quarter of 2020. The diluted earnings per share for the second quarter of 2021 was $0.90 per share as compared to $0.61 per share for the second quarter of 2020.

The net income attributable to H.B. Fuller for the first six months of 2021 was $78.9 million compared to $41.5 million for the first six months of 2020. The diluted earnings per share for the first six months of 2021 was $1.47 per share as compared to $0.79 per share for the first six months of 2020.

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
	May 29, 2021					May 30, 2020					May 29, 2021					May 30, 2020
	Net		% of			Net		% of			Net		% of			Net		% of
($ in millions)	Revenue		Total			Revenue		Total			Revenue		Total			Revenue		Total
Hygiene, Health and Consumable Adhesives	$	364.8		44	%	$	344.7		51	%	$	700.5		45	%	$	657.2		50	%
Engineering Adhesives		345.4		42	%		236.0		35	%		658.0		42	%		485.0		37	%
Construction Adhesives		117.7		14	%		93.9		14	%		195.3		13	%		179.0		13	%
Segment total	$	827.9		100	%	$	674.6		100	%	$	1,553.8		100	%	$	1,321.2		100	%
Corporate Unallocated		-		-			-		-			-		-			-		-
Total	$	827.9		100	%	$	674.6		100	%	$	1,553.8		100	%	$	1,321.2		100	%

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Segment Operating Income (Loss):

	Three Months Ended												Six Months Ended
	May 29, 2021						May 30, 2020						May 29, 2021						May 30, 2020
	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	$	38.9			56	%	$	35.0			62	%	$	68.9			59	%	$	57.7			67	%
Engineering Adhesives		32.1			47	%		20.2			35	%		62.5			53	%		35.5			42	%
Construction Adhesives		6.3			9	%		6.5			11	%		1.6			1	%		5.2			6	%
Segment total	$	77.3			112	%	$	61.7			108	%	$	133.0			113	%	$	98.4			115	%
Corporate Unallocated		(8.2	)		(12	)%		(4.8	)		(8	)%		(15.5	)		(13	)%		(12.7	)		(15	)%
Total	$	69.1			100	%	$	56.9			100	%	$	117.5			100	%	$	85.8			100	%

Hygiene, Health and Consumable Adhesives

	Three Months Ended									Six Months Ended
	May 29,			May 30,			2021 vs			May 29,			May 30,			2021 vs
($ in millions)	2021			2020			2020			2021			2020			2020
Net revenue	$	364.8		$	344.7			5.8	%	$	700.5		$	657.2			6.6	%
Segment operating income	$	38.9		$	35.0			11.1	%	$	68.9		$	57.7			19.4	%
Segment operating margin		10.7	%		10.2	%					9.8	%		8.8	%

The following table provides details of the Hygiene, Health and Consumable Adhesives net revenue variances:

	Three Months Ended			Six Months Ended
	May 29, 2021 vs. May 30, 2020			May 29, 2021 vs. May 30, 2020
Organic growth		3.3	%		5.4	%
Currency		2.5	%		1.2	%
Total		5.8	%		6.6	%

Net revenue increased 5.8 percent in the second quarter of 2021 compared to the second quarter of 2020. The increase in organic growth was attributable primarily to an increase in sales volume and an increase in product pricing. The positive currency effect was due to the stronger Euro, Chinese renminbi, Mexican peso and Australian dollar partially offset by a weaker Brazilian real, Turkish lira and Argentinian peso compared to the U.S. dollar. As a percentage of net revenue, raw material costs increased 30 basis points. Other manufacturing costs as a percentage of net revenue decreased 80 basis points due to higher net revenue. SG&A expenses as a percentage of net revenue was flat quarter over quarter. Segment operating income increased 11.1 percent and segment operating margin as a percentage of net revenue increased 50 basis points compared to the second quarter of 2020.

Net revenue increased 6.6 percent in the first six months of 2021 compared to the first six months of 2020. The increase in organic growth was attributable primarily to an increase in sales volume and a slight increase in product pricing. The positive currency effect was due to the stronger Euro, Chinese renminbi, and Australian and Canadian dollars partially offset by a weaker Brazilian real, Turkish lira and Argentinian peso compared to the U.S. dollar. As a percentage of net revenue, raw material costs decreased 40 basis points. Other manufacturing costs as a percentage of net revenue decreased 30 basis points. SG&A expenses as a percentage of net revenue decreased 30 basis points. Segment operating income increased 19.4 percent and segment operating margin as a percentage of net revenue increased 100 basis points compared to the first six months of 2020.

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Engineering Adhesives

	Three Months Ended									Six Months Ended
	May 29,			May 30,			2021 vs			May 29,			May 30,			2021 vs
($ in millions)	2021			2020			2020			2021			2020			2020
Net revenue	$	345.4		$	236.0			46.3	%	$	658.0		$	485.0			35.7	%
Segment operating income	$	32.1		$	20.2			58.9	%	$	62.5		$	35.5			76.1	%
Segment operating margin		9.3	%		8.6	%					9.5	%		7.3	%

The following tables provide details of the Engineering Adhesives net revenue variances:

	Three Months Ended			Six Months Ended
	May 29, 2021 vs. May 30, 2020			May 29, 2021 vs. May 30, 2020
Organic growth		39.7	%		30.2	%
Currency		6.6	%		5.5	%
Total		46.3	%		35.7	%

Net revenue increased 46.3 percent in the second quarter of 2021 compared to the second quarter of 2020. The increase in organic growth was attributable to an increase in sales volume and in product pricing. The currency effect was due to a stronger Euro and Chinese renminbi compared to the U.S. dollar. Raw material costs as a percentage of net revenue increased 360 basis points due to higher raw material costs. Other manufacturing costs as a percentage of net revenue decreased 30 basis points. SG&A expenses as a percentage of net revenue decreased 400 basis points primarily due to higher net revenue. Segment operating income increased 58.9 percent and segment operating margin increased 70 basis points compared to the second quarter of 2020.

Net revenue increased 35.7 percent in the first six months of 2021 compared to the first six months of 2020. The increase in organic growth was primarily attributable to an increase in sales volume. The currency effect was due to a stronger Euro and Chinese renminbi compared to the U.S. dollar. Raw material costs as a percentage of net revenue increased 200 basis points due to higher raw material costs. Other manufacturing costs as a percentage of net revenue decreased 40 basis points. SG&A expenses as a percentage of net revenue decreased 380 basis points primarily due to higher net revenue. Segment operating income increased 76.1 percent and segment operating margin increased 220 basis points compared to the first six months of 2020.

Construction Adhesives

	Three Months Ended									Six Months Ended
	May 29,			May 30,			2021 vs			May 29,			May 30,			2021 vs
($ in millions)	2021			2020			2020			2021			2020			2020
Net revenue	$	117.7		$	93.9			25.4	%	$	195.3		$	179.0			9.1	%
Segment operating income	$	6.3		$	6.5			(3.1	)%	$	1.6		$	5.2			(69.2	)%
Segment operating margin		5.4	%		6.9	%					0.8	%		2.9	%

The following tables provide details of the Construction Adhesives net revenue variances:

	Three Months Ended			Six Months Ended
	May 29, 2021 vs. May 30, 2020			May 29, 2021 vs. May 30, 2020
Organic growth		23.2	%		7.4	%
Currency		2.2	%		1.7	%
Total		25.4	%		9.1	%

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Net revenue increased 25.4 percent in the second quarter of 2021 compared to the second quarter of 2020. The increase in organic growth was attributable to an increase in sales volume, partially offset by slight unfavorable product pricing. The currency effect was due to a stronger Australian dollar, Euro and Canadian dollar compared to the U.S. dollar. Raw material costs as a percentage of net revenue increased 600 basis points due to higher raw material costs. Other manufacturing costs as a percentage of net revenue decreased 240 basis points due to higher sales volume. SG&A expenses as a percentage of net revenue decreased 210 basis points due to higher sales volume. Segment operating income decreased 3.1 percent and segment operating margin decreased 150 basis points compared to the second quarter of 2020.

Net revenue increased 9.1 percent in the first six months of 2021 compared to the first six months of 2020. The increase in organic growth was attributable to an increase in sales volume, partially offset by slightly unfavorable product pricing. The currency effect was due to a stronger Australian dollar, Euro and Canadian dollar compared to the U.S. dollar. Raw material costs as a percentage of net revenue increased 330 basis points due to higher raw material costs. Other manufacturing costs as a percentage of net revenue decreased 40 basis points. SG&A expenses as a percentage of net revenue decreased 80 basis points due to higher sales volume. Segment operating income decreased 69.2 percent and segment operating margin decreased 210 basis points compared to the first six months of 2020.

Corporate Unallocated

	Three Months Ended									Six Months Ended
	May 29,			May 30,			2021 vs			May 29,			May 30,			2021 vs
($ in millions)	2021			2020			2020			2021			2020			2020
Net revenue	$	-		$	-			0.0	%	$	-		$	-			0.0	%
Segment operating loss	$	(8.2	)	$	(4.8	)		70.8	%	$	(15.5	)	$	(12.7	)		22.0	%
Segment operating margin	NMP			NMP						NMP			NMP

NMP = Non-meaningful percentage

Segment operating loss in the second quarter and first six months of 2021 increased 70.8 percent and 22.0 percent compared to the second quarter and first six months of 2020 reflecting increased organizational realignment costs.

Financial Condition, Liquidity and Capital Resources

Total cash and cash equivalents as of May 29, 2021 were $69.6 million compared to $100.5 million as of November 28, 2020 and $70.3 million as of May 30, 2020. The majority of the $69.6 million in cash and cash equivalents as of May 29, 2021 was held outside the United States. Total long and short-term debt was $1,712.4 million as of May 29, 2021, $1,773.9 million as of November 28, 2020 and $1,928.0 million as of May 30, 2020. The total debt to total capital ratio as measured by Total Debt divided by (Total Debt plus Total Stockholders’ Equity) was 52.2 percent as of May 29, 2021 as compared to 56.1 percent as of November 28, 2020 and 61.3 percent as of May 30, 2020.

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.

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Our credit agreements include restrictive covenants that, if not met, could lead to a renegotiation of our credit lines and a significant increase in our cost of financing. At May 29, 2021, we were in compliance with all covenants of our contractual obligations as shown in the following table:

Covenant	Debt Instrument	Measurement	Result as of May 29, 2021
Secured Indebtedness / TTM EBITDA	Term Loan B Credit Agreement	Not greater than 5.9		2.5
Secured Indebtedness / TTM EBITDA	Revolving Credit Agreement	Not greater than 5.9		2.4
TTM EBITDA / Consolidated Interest Expense	Revolving Credit Agreement	Not less than 2.0		5.5

●

TTM = Trailing 12 months

●

EBITDA for Term Loan B covenant purposes is defined as consolidated net income, plus interest expense, expense for taxes paid or accrued, depreciation and amortization, certain non-cash impairment losses, extraordinary non-cash losses incurred other than in the ordinary course of business, nonrecurring extraordinary non-cash restructuring charges and the non-cash impact of purchase accounting, expenses related to the Royal Adhesives acquisition not to exceed $40.0 million, expenses relating to the integration of Royal Adhesives during the fiscal years ending in 2017, 2018 and 2019 not exceeding $30 million in aggregate, restructuring expenses that began prior to the Royal Adhesives acquisition incurred in fiscal years ending in 2017 and 2018 not exceeding $28 million in aggregate, and non-capitalized charges relating to the SAP implementation during fiscal years ending in 2017 through 2021 not exceeding $13 million in any single fiscal year, minus extraordinary non-cash gains. For the 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 Term Loan B Credit Agreement and can be found in the Company’s Form 8-K filing dated October 20, 2017.

●

EBITDA for Revolving Credit Facility covenant purposes is defined as consolidated net income, plus interest expense, expense for taxes paid or accrued, depreciation and amortization, non-cash impairment losses related to long-lived assets, intangible assets or goodwill, nonrecurring or unusual non-cash losses incurred other than in the ordinary course of business, nonrecurring or unusual non-cash restructuring charges and the non-cash impact of purchase accounting, fees, premiums, expenses and other transaction costs incurred or paid by the borrower or any of its Subsidiaries on the effective date in connection with the transactions, this agreement and the other loan documents, the 2020 supplemental indenture and the transactions contemplated hereby and thereby, one-time, non-capitalized charges and expenses relating to the Company’s SAP implementation during fiscal years ending in 2017 through 2024, in an amount not exceeding $15.0 million in any single fiscal year of the Company, charges and expenses relating to the ASP Royal Acquisition, including but not limited to advisory and financing costs, during the Company’s fiscal years ending in 2020 and 2021, in an aggregate amount (as to such years combined) not exceeding $40.0 million, charges and expenses related to the reorganization of the Company and its subsidiaries from five business units to three business units to reduce costs during the Company’s fiscal years ending in 2020 and 2021 in an aggregate amount (as to such years combined) not exceeding $24.0 million, and charges and expenses related to the Company’s manufacturing and operations project to improve delivery, implement cost savings and reduce inventory during the Company’s fiscal years ending in 2020, 2021 and 2022 in an aggregate amount (as to such years combined) not exceeding $15.5 million.

●

Consolidated Interest Expense for the Revolving Credit Facility is defined as the interest expense (including without limitation the portion of capital lease obligations that constitutes imputed interest in accordance with GAAP) of the Company and its subsidiaries calculated on a consolidated basis for such period with respect to all outstanding indebtedness of the Company and its subsidiaries allocable to such period in accordance with GAAP.

We believe we have the ability to meet all of our contractual obligations and commitments in fiscal 2021.

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.

	May 29,			May 30,
	2021			2020
Net working capital as a percentage of annualized net revenue¹		16.7	%		19.2	%
Accounts receivable DSO (in days)²		61			60
Inventory days on hand (in days)³		67			76
Free cash flow after dividends⁴	$	11.8		$	37.3
Total debt to total capital ratio⁵		52.2	%		61.3	%

¹Current 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).

²Trade 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.

³Total 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).

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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 Free cash flow after dividends

	Six Months Ended
($ in millions)	May 29, 2021		May 30, 2020
Net cash provided by operating activities	$	79.8	$	108.4
Less: Purchased property, plant and equipment		50.7		54.5
Less: Dividends paid		17.2		16.6
Free cash flow after dividends	$	11.8	$	37.3

Summary of Cash Flows

Cash Flows from Operating Activities:

	Six Months Ended
	May 29,		May 30,
($ in millions)	2021		2020
Net cash provided by operating activities	$	79.8	$	108.4

Net income including non-controlling interest was $78.9 million in the first six months of 2021 compared to $41.5 million in the first six months of 2020. Depreciation and amortization expense totaled $71.6 million in the first six months of 2021 compared to $68.7 million in the first six months of 2020. Deferred income taxes was a use of cash of $1.2 million in 2021 compared to $10.4 million in the first six months of 2020. Accrued compensation was a use of cash of $8.8 million in 2021 compared to $21.6 million last year. Other assets was a use of cash of $21.7 million in the first six months of 2021 compared to $13.1 million in the first six months of 2020. Other liabilities was a use of cash of $29.0 million in the first six months of 2021 compared to a source of cash of $24.7 million in the first six months of 2020.

Changes in net working capital (trade receivables, inventory and trade payables) accounted for a use of cash of $28.1 million compared to a source of cash of $16.9 million last year. The table below provides the cash flow impact due to changes in the components of net working capital:

	Six Months Ended
	May 29,			May 30,
($ in millions)	2021			2020
Trade receivables, net	$	(43.2	)	$	33.9
Inventory		(100.4	)		(59.2	)
Trade payables		115.5			42.2
Total cash flow impact	$	(28.1	)	$	16.9

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Trade Receivables, net – Trade receivables, net was a use of cash of $43.2 million compared to a source of $33.9 million in the first six months of 2021 and 2020, respectively. The use of cash in 2021 compared to 2020 was due to higher revenue in the first six months of 2021 compared to 2020 and more cash collected on trade receivables in the prior year compared to the current year. The DSO were 61 and 60 days at May 29, 2021 and May 30, 2020, respectively.

●

Inventory – Inventory was a use of cash of $100.4 million and $59.2 million in the first six months of 2021 and 2020, respectively. The higher use of cash in 2021 is due to increasing inventory costs in 2021 compared to 2020. Inventory days on hand were 67 days as of May 29, 2021 and 76 days as of May 30, 2020.

●

Trade Payables – Trade payables was a source of cash of $115.5 million compared to $42.2 million in the first six months of 2021 and 2020, respectively. The higher source of cash in 2021 compared to 2020 reflects lower payments on trade payables in the current year.

Cash Flows from Investing Activities:

	Six Months Ended
	May 29,			May 30,
($ in millions)	2021			2020
Net cash used in investing activities	$	(56.5	)	$	(68.9	)

Purchases of property, plant and equipment were $50.7 million during the first six months of 2021. This is compared to $54.5 million for the same period of 2020. This difference also reflects the timing of capital projects and expenditures related to growth initiatives.

Cash Flows from Financing Activities:

	Six Months Ended
	May 29,			May 30,
($ in millions)	2021			2020
Net cash used in financing activities	$	(57.9	)	$	(78.3	)

Repayments of long-term debt were $68.0 million in the first six months of 2021 and $67.0 million in the first six months of 2020. Net proceeds of notes payable were $9.3 million in the first six months of 2021 compared to $7.0 million in the same period of 2020. Cash dividends paid were $17.2 million in the first six months of 2021 compared to $16.6 million in the same period of 2020. Repurchases of common stock were $2.6 million in the first six months of 2021 compared to $3.2 million in the same period of 2020.

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.

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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 November 28, 2020 for further discussion of these market risks. There have been no material changes in the reported market risk of the Company since November 28, 2020.

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 May 29, 2021. Based on this evaluation, our president and chief executive officer and executive vice president, chief financial officer concluded that, as of May 29, 2021, 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.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Environmental Matters

From time to time, we become aware of compliance matters relating to, or receive notices from, federal, state or local entities regarding possible or alleged violations of environmental, health or safety laws and regulations. Also, from time to time, we are 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. We are also 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.

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We are also engaged in environmental remediation and monitoring efforts at a number of current and former operating facilities. To the extent we can reasonably estimate the amount of our probable liabilities for environmental matters, we establish a financial provision. It is reasonably possible that we may have additional liabilities related to these known environmental matters. However, the full extent of our future liability for environmental matters is difficult to predict because of uncertainty as to the cost of investigation and clean up of the sites, our responsibility for such hazardous substances and the number of and financial condition of other potentially responsible parties.

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. However, adverse developments and/or periodic settlements could negatively impact the results of operations or cash flows in one or more future periods.

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 12 to our Consolidated Financial Statements.

Item 1A. Risk Factors

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 November 28, 2020. 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 November 28, 2020.

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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 May 29, 2021 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)

February 28, 2021 - April 3, 2021		307	$	63.25	$	187,170

April 4, 2021 - May 1, 2021		230	$	66.82	$	187,170

May 2, 2021 - May 29, 2021		192	$	69.09	$	187,170

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 6, 2017, the Board of Directors authorized a new share repurchase program of up to $200.0 million of our outstanding common shares. 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 September 30, 2010 authorization to repurchase shares.

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Item 6. Exhibits

31.1

Form of 302 Certification –James J. Owens

31.2

Form of 302 Certification –John J. Corkrean

32.1

Form of 906 Certification –James J. Owens

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 May 29, 2021 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).

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SIGNATURES

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, 2021		/s/ John J. Corkrean
		John J. Corkrean
		Executive Vice President,
		Chief Financial Officer

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Exhibit Index

Exhibits

	31.1	Form of 302 Certification – James J. Owens
	31.2	Form of 302 Certification – John J. Corkrean
	32.1	Form of 906 Certification –James J. Owens
	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 May 29, 2021 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).