FULLER H B CO - Quarter Report: 2022 August (Form 10-Q)

ful20220930_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 August 27, 2022

☐	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. ☐

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

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS

The number of shares outstanding of the Registrant’s Common Stock, par value $1.00 per share, was 53,312,943 as of September 16, 2022.

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H.B. Fuller Company

Quarterly Report on Form 10-Q

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		Page
PART 1. FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS (Unaudited)	4

	Consolidated Statements of Income for the three and nine months ended August 27, 2022 and August 28, 2021	4

	Consolidated Statements of Comprehensive Income for the three and nine months ended August 27, 2022 and August 28, 2021	5

	Consolidated Balance Sheets as of August 27, 2022 and November 27, 2021	6

	Consolidated Statements of Total Equity for the three and nine months ended August 27, 2022 and August 28, 2021	7

	Consolidated Statements of Cash Flows for the nine months ended August 27, 2022 and August 28, 2021	8

	Notes to Consolidated Financial Statements	9

ITEM 2.	MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	23

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	34

ITEM 4.	CONTROLS AND PROCEDURES	34

PART II. OTHER INFORMATION		34

ITEM 1.	LEGAL PROCEEDINGS	34

ITEM 1A.	RISK FACTORS	35

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	36

ITEM 6.	EXHIBITS	37

SIGNATURES		38

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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*						*Nine Months Ended*
	*August 27,*			*August 28,*			*August 27,*			*August 28,*
	*2022*			*2021*			*2022*			*2021*
Net revenue	$	941,230		$	826,830		$	2,790,969		$	2,380,607
Cost of sales		(692,066	)		(632,880	)		(2,075,392	)		(1,776,744	)
Gross profit		249,164			193,950			715,577			603,863
Selling, general and administrative expenses		(161,210	)		(134,497	)		(483,109	)		(426,921	)
Other income, net		6,559			6,150			12,701			25,899
Interest expense		(23,450	)		(19,396	)		(61,475	)		(59,699	)
Interest income		2,139			2,520			6,170			7,709
Income before income taxes and income from equity method investments		73,202			48,727			189,864			150,851
Income taxes		(28,259	)		(19,095	)		(62,023	)		(46,362	)
Income from equity method investments		1,587			1,998			4,236			6,071
Net income including non-controlling interest		46,530			31,630			132,077			110,560
Net income attributable to non-controlling interest		(33	)		(14	)		(70	)		(51	)
Net income attributable to H.B. Fuller	$	46,497		$	31,616		$	132,007		$	110,509

Earnings per share attributable to H.B. Fuller common stockholders:
Basic	$	0.87		$	0.60		$	2.47		$	2.09
Diluted	$	0.84		$	0.58		$	2.39		$	2.04

Weighted-average common shares outstanding:
Basic		53,644			53,049			53,498			52,794
Diluted		55,130			54,646			55,201			54,093

Dividends declared per common share	$	0.190		$	0.168		$	0.548		$	0.498

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*						*Nine Months Ended*
	*August 27,*			*August 28,*			*August 27,*			*August 28,*
	*2022*			*2021*			*2022*			*2021*
Net income including non-controlling interest	$	46,530		$	31,630		$	132,077		$	110,560
Other comprehensive (loss) income
Foreign currency translation		(87,789	)		(32,006	)		(165,369	)		46,655
Defined benefit pension plans adjustment, net of tax		684			1,375			3,976			4,121
Interest rate swaps, net of tax		1,346			3,830			10,924			11,574
Cross-currency swaps, net of tax		(371	)		(1,289	)		(3,664	)		(3,576	)
Other comprehensive (loss) income		(86,130	)		(28,090	)		(154,133	)		58,774
Comprehensive (loss) income		(39,600	)		3,540			(22,056	)		169,334
Less: Comprehensive income (loss) attributable to non-controlling interest		(13	)		(13	)		3			26
Comprehensive (loss) income attributable to H.B. Fuller	$	(39,587	)	$	3,553		$	(22,059	)	$	169,308

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)

	*August 27,*			*November 27,*
	*2022*			*2021*
Assets
Current assets:
Cash and cash equivalents	$	60,708		$	61,786
Trade receivables (net of allowances of $12,662 and $9,935, as of August 27, 2022 and November 27, 2021, respectively)		649,727			614,645
Inventories		547,278			448,404
Other current assets		163,213			96,335
Total current assets		1,420,926			1,221,170

Property, plant and equipment		1,526,602			1,500,989
Accumulated depreciation		(820,132	)		(805,622	)
Property, plant and equipment, net		706,470			695,367

Goodwill		1,375,964			1,298,845
Other intangibles, net		707,690			687,075
Other assets		360,588			372,073
Total assets	$	4,571,638		$	4,274,530

Liabilities, non-controlling interest and total equity
Current liabilities:
Notes payable	$	33,116		$	24,983
Trade payables		485,479			500,321
Accrued compensation		88,744			109,542
Income taxes payable		42,792			15,943
Other accrued expenses		87,260			86,061
Total current liabilities		737,391			736,850

Long-term debt		1,885,041			1,591,479
Accrued pension liabilities		66,704			71,651
Other liabilities		303,817			277,190
Total liabilities		2,992,953			2,677,170

Commitments and contingencies (Note 12)

Equity:
H.B. Fuller stockholders' equity:
Preferred stock (no shares outstanding) shares authorized – 10,045,900		-			-
Common stock, par value $1.00 per share, shares authorized – 160,000,000, shares outstanding – 53,298,831 and 52,777,753 as of August 27, 2022 and November 27, 2021, respectively		53,299			52,778
Additional paid-in capital		245,826			213,637
Retained earnings		1,703,278			1,600,601
Accumulated other comprehensive loss		(424,312	)		(270,247	)
Total H.B. Fuller stockholders' equity		1,578,091			1,596,769
Non-controlling interest		594			591
Total equity		1,578,685			1,597,360
Total liabilities, non-controlling interest and total equity	$	4,571,638		$	4,274,530

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 27, 2021	$	52,778		$	213,637		$	1,600,601		$	(270,247	)	$	591		$	1,597,360
Comprehensive income		-			-			38,306			11,177			4			49,487
Dividends		-			-			(8,964	)		-			-			(8,964	)
Stock option exercises		126			5,628			-			-			-			5,754
Share-based compensation plans and other, net		187			5,601			-			-			-			5,788
Repurchases of common stock		(49	)		(3,528	)		-			-			-			(3,577	)
Balance at February 26, 2022	$	53,042		$	221,338		$	1,629,943		$	(259,070	)	$	595		$	1,645,848
Comprehensive income (loss)		-			-			47,203			(79,158	)		12			(31,943	)
Dividends		-			-			(10,177	)		-			-			(10,177	)
Stock option exercises		47			2,036			-			-			-			2,083
Share-based compensation plans other, net		65			8,910			-			-			-			8,975
Repurchases of common stock		(1	)		(31	)		-			-			-			(32	)
Balance at May 28, 2022	$	53,153		$	232,253		$	1,666,969		$	(338,228	)	$	607			1,614,754
Comprehensive income (loss)		-			-			46,497			(86,084	)		(13	)		(39,600	)
Dividends		-			-			(10,188	)		-			-			(10,188	)
Stock option exercises		135			5,549			-			-			-			5,684
Share-based compensation plans other, net		15			8,295			-			-			-			8,310
Repurchases of common stock		(4	)		(271	)		-			-			-			(275	)
Balance at August 27, 2022	$	53,299		$	245,826		$	1,703,278		$	(424,312	)	$	594			1,578,685

	*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
Comprehensive income		-			-			31,616			(28,063	)		(13	)		3,540
Dividends		-			-			(8,884	)		-			-			(8,884	)
Stock option exercises		49			1,401			-			-			-			1,450
Share-based compensation plans other, net		3			8,575			-			-			-			8,578
Repurchases of common stock		(1	)		(39	)		-			-			-			(40	)
Balance at August 28, 2021	$	52,550		$	200,180		$	1,558,619		$	(244,060	)	$	567		$	1,567,856

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)

	*Nine Months Ended*
	*August 27, 2022*			*August 28, 2021*
Cash flows from operating activities:
Net income including non-controlling interest	$	132,077		$	110,560
Adjustments to reconcile net income including non-controlling interest to net cash (used in) provided by operating activities:
Depreciation		54,297			54,158
Amortization		55,088			53,464
Deferred income taxes		(4,968	)		(1,547	)
Income from equity method investments, net of dividends received		1,420			4,363
Loss (gain) on sale or disposal of assets		(1,130	)		641
Share-based compensation		20,358			19,400
Pension and other post-retirement benefit plan activity		(15,324	)		(23,192	)
Change in assets and liabilities, net of effects of acquisitions:
Trade receivables, net		(51,629	)		(61,900	)
Inventories		(112,390	)		(141,112	)
Other assets		(40,329	)		(26,060	)
Trade payables		17,381			176,210
Accrued compensation		(17,275	)		(1,283	)
Other accrued expenses		1,614			(2,292	)
Income taxes payable		10,201			1,001
Other liabilities		(35,940	)		(53,498	)
Other		35,246			52,221
Net cash provided by operating activities		48,697			161,134

Cash flows from investing activities:
Purchased property, plant and equipment		(98,352	)		(77,237	)
Purchased businesses, net of cash acquired		(242,870	)		(5,445	)
Proceeds from sale of property, plant and equipment		1,281			2,751
Cash received from government grant		3,928			5,800
Cash payments related to government grant		-			(1,526	)
Net cash used in investing activities		(336,013	)		(75,657	)

Cash flows from financing activities:
Proceeds from debt		335,000			-
Repayment of long-term debt		(15,000	)		(118,000	)
Payment of debt issuance costs		(600	)		-
Net proceeds of notes payable		6,707			9,846
Dividends paid		(29,067	)		(26,045	)
Contingent consideration payment		(5,000	)		-
Proceeds from stock options exercised		13,522			22,053
Repurchases of common stock		(3,885	)		(2,668	)
Net cash provided by (used in) financing activities		301,677			(114,814	)

Effect of exchange rate changes on cash and cash equivalents		(15,439	)		(3,063	)
Net change in cash and cash equivalents		(1,078	)		(32,400	)
Cash and cash equivalents at beginning of period		61,786			100,534
Cash and cash equivalents at end of period	$	60,708		$	68,134

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 27, 2021 as filed with the Securities and Exchange Commission.

New Accounting Pronouncements

In November 2021, the FASB issued ASU No. 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. This ASU requires business entities to make annual disclosures about transactions with a government they account for by analogizing to a grant or contribution accounting model under ASC 958-605. Our effective date for adoption of this ASU is our fiscal year beginning December 4, 2022 with early adoption permitted. We have evaluated the effect that this guidance will have on our Consolidated Financial Statements and determined it will not have a material impact.

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Note 2: Acquisitions

ZKLT

On August 16, 2022, we acquired ZKLT Polymer Co., Ltd. ("ZKLT") for a base purchase price of 102,812 Chinese renminbi, or approximately $15,183, which was funded through existing cash. We are also required to pay 27,000 Chinese renminbi, or approximately $3,987, with half to be paid on each of the 12 month and 18 month anniversaries of the closing date, as well as contingent consideration up to 30,000 Chinese renminbi, or approximately $4,430, following the completion of certain performance goals and conditions. ZKLT, headquartered in Chongquin City, China, is a manufacturer of liquid adhesives primarily for the automotive market. The acquisition of ZKLT is expected to add market knowledge, strong customer relationships and a strategic manufacturing location to further strengthen our presence in Southwest China. The acquisition fair value measurement was preliminary as of August 27, 2022 and includes intangible assets of $3,042, goodwill of $8,175 and other net assets of $7,953. Goodwill is not deductible for tax purposes. See Note 11 for further discussion of the fair value of the contingent consideration. ZKLT will be included in our Engineering Adhesives operating segment. The ZKLT acquisition does not represent a material business combination, and therefore pro forma financial information is not provided.

Apollo

On January 26, 2022, we acquired Apollo Chemicals Limited, Apollo Roofing Solutions Limited and Apollo Construction Solutions Limited (collectively, "Apollo") for a base purchase price of 151,214 British pound sterling, or approximately $203,573, which was funded through borrowings on our credit facility. The agreement requires us to pay an additional 1,500 British pound sterling, or approximately $2,019, following the completion of certain environmental studies. As of August 27, 2022, the environmental studies were complete and the $2,019 was paid. Apollo, headquartered in Tamworth, UK, is a manufacturer of liquid adhesives, coatings and primers for the roofing, industrial and construction markets. Apollo is expected to enhance our position in key high-value, high-margin markets in the UK and throughout Europe. The acquisition fair value measurement was preliminary as of August 27, 2022. The acquisition will be included in our Construction Adhesives operating segment.

The following table summarizes the preliminary fair value measurement of the assets acquired and liabilities assumed as of the date of acquisition:

	*February 26, 2022*			*Adjustments*			*August 27, 2022*
Cash	$	12,165			-		$	12,165
Current assets		17,283			(51	)		17,232
Property, plant and equipment		7,877			-			7,877
Goodwill		104,885			13,410			118,295
Other intangibles
Customer relationships		82,256			(14,809	)		67,447
Trademarks/trade names		2,154			135			2,289
Technology		9,558			(3,096	)		6,462
Other assets		1,590			-			1,590
Current liabilities		(8,293	)		(41	)		(8,334	)
Other liabilities		(23,883	)		4,452			(19,431	)
Total	$	205,592		$	-		$	205,592

The expected useful lives of the acquired intangible assets are 15 years for technology, 10 years for customer relationships and five years for trademarks/trade names.

Based on the fair value measurement of the assets acquired and liabilities assumed, we allocated $118,295 to goodwill for the expected synergies from combining Apollo with our existing business. Such goodwill is not deductible for tax purposes. The goodwill was assigned to our Construction Adhesives operating segment. The Apollo acquisition does not represent a material business combination, and therefore pro forma financial information is not provided.

Fourny NV

On January 11, 2022, we acquired Fourny NV ("Fourny") for a base purchase price of 12,867 Euro, or approximately $14,627, which was funded through existing cash. The agreement requires us to pay an additional 3,100 Euro, or approximately $3,524, 18 months following the date of acquisition. Fourny, headquartered in Willebroek, Belgium, is a manufacturer of construction and automotive adhesives. Fourny is expected to enhance our position in key high-value, high-margin markets in Europe. The acquisition fair value measurement was preliminary as of August 27, 2022 and includes intangible assets of $10,117, goodwill of $6,617, cash of $75 and other net assets of $1,342. Goodwill is not deductible for tax purposes. Fourny is recorded in our Construction Adhesives operating segment. The Fourny acquisition does not represent a material business combination, and therefore pro forma financial information is not provided.

Tissue Seal, LLC

On November 30, 2021, we acquired certain assets of Tissue Seal, LLC ("TissueSeal") for a base purchase price of $22,167, which was funded through existing cash. The agreement requires us to pay an additional $2,475 on the first anniversary of the acquisition and contingent consideration of up to $500 on November 30, 2024 based on certain agreement provisions. TissueSeal, headquartered in Ann Arbor, Michigan, is a distributor of topical tissue adhesives and sutures. With this acquisition, we add TissueSeal's regulatory clearances, customer and distribution relationships, regulatory approvals and trademarks into our portfolio of products. The acquisition fair value measurement was preliminary as of August 27, 2022 and includes intangible assets of $11,160, goodwill of $13,765 and other net assets of $217. Goodwill is deductible for tax purposes. See Note 11 for further discussion of the fair value of the contingent consideration liability. TissueSeal is recorded in our Hygiene, Health and Consumable Adhesives operating segment. The TissueSeal acquisition does not represent a material business combination, and therefore pro forma financial information is not provided.

STR Holdings, Inc.

On January 13, 2021, we acquired certain assets of STR Holding, Inc. ("STR") for a base purchase price of $5,445 which was funded through existing cash. The agreement required us to pay an additional $800 on the first anniversary of the acquisition and contingent consideration of up to $1,700 based on certain agreement provisions. STR, headquartered in Enfield, Connecticut, is a manufacturer of encapsulant products used in the solar industry. The acquisition fair value measurement, which includes intangible assets of $6,700 and other net assets of $1,245, was final as of November 27, 2021. The agreement provisions for the contingent consideration were met, and as a result, $1,700 was paid as of November 27, 2021. No goodwill was recorded for this acquisition. STR is reported in our Engineering Adhesives operating segment. The STR acquisition does not represent a material business combination, and therefore pro forma financial information is not provided.

D.H.M. Adhesives, Inc.

On February 3, 2020, we acquired certain assets of D.H.M. Adhesives, Inc. (“D.H.M.”) for approximately $9,500 which was funded through existing cash. In addition, the agreement required us to pay contingent consideration of up to approximately $8,100 based upon a formula related to revenue during the fiscal years ended November 27, 2021 and December 3, 2022. D.H.M., headquartered in Calhoun, Georgia, is a provider of hotmelt adhesives. The acquisition fair value measurement was final as of May 30, 2020 and includes goodwill of $1,063 and customer relationship intangible of $11,900. The fair value of the contingent consideration as of the date of acquisition was $5,000 resulting in a final purchase price of $14,500. As of November 27, 2021, the agreement provisions for the contingent consideration were met, and as a result, $8,100 was paid during the period ended February 26, 2022. Goodwill is deductible for tax purposes. D.H.M. and the related goodwill are reported in our Hygiene, Health and Consumable Adhesives operating segment. The D.H.M acquisition does not represent a material business combination, and therefore pro forma financial information is not provided.

Note 3: Restructuring Actions

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

	*Three Months Ended*						*Nine Months Ended*
	*August 27, 2022*			*August 28, 2021*			*August 27, 2022*			*August 28, 2021*
Cost of sales	$	-		$	(5	)	$	(152	)	$	288
Selling, general and administrative		(222	)		(187	)		(297	)		1,159
	$	(222	)	$	(192	)	$	(449	)	$	1,447

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

A summary of the restructuring liability is presented below:

	*Employee-Related*			*Other*			*Total*
Balance at November 28, 2020	$	5,834		$	248		$	6,082
Expenses incurred		(807	)		1,594			787
Non-cash charges		-			(135	)		(135	)
Cash payments		(3,917	)		(1,707	)		(5,624	)
Foreign currency translation		(15	)		-			(15	)
Balance at November 27, 2021		1,095			-			1,095
Expenses incurred		(449	)		-			(449	)
Cash payments		(529	)		-			(529	)
Foreign currency translation		(47	)		-			(47	)
Balance at August 27, 2022	$	70		$	-		$	70

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Non-cash charges include accelerated depreciation resulting from the cessation of use of certain long-lived assets. Restructuring liabilities have been classified as a component of other accrued expenses in the Consolidated Balance Sheets.

Note 4: Inventories

The composition of inventories is as follows:

	*August 27,*		*November 27,*
	*2022*		*2021*
Raw materials	$	264,779	$	226,723
Finished goods		282,499		221,681
Total inventories	$	547,278	$	448,404

Note 5: Goodwill and Other Intangible Assets

The goodwill activity by reportable segment for the nine months ended August 27, 2022 is presented below:

	*Hygiene, Health*
	*and Consumable*			*Engineering*			*Construction*
	*Adhesives*			*Adhesives*			*Adhesives*			*Total*
Balance at November 27, 2021	$	325,470		$	662,021		$	311,354		$	1,298,845
TissueSeal acquisition		13,765			-			-			13,765
Fourny acquisition		-			-			6,617			6,617
Apollo acquisition		-			-			118,295			118,295
ZKLT acquisition		-			8,175			-			8,175
Foreign currency translation effect		(17,100	)		(36,536	)		(16,097	)		(69,733	)
Balance at August 27, 2022	$	322,135		$	633,660		$	420,169		$	1,375,964

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

August 27, 2022

Purchased

Technology

Customer

Amortizable Intangible Assets

and Patents

Relationships

Trade Names

Other

Total

Original cost

117,440

991,789

49,379

11,004

1,169,612

Accumulated amortization

(63,926

)

(372,198

)

(20,252

)

(5,980

)

(462,356

)

Net identifiable intangibles

53,514

619,591

29,127

5,024

707,256

	*November 27, 2021*
	*Purchased*
	*Technology*			*Customer*
Amortizable Intangible Assets	*and Patents*			*Relationships*			*Trade Names*			*Other*			*Total*
Original cost	$	115,980		$	932,644		$	63,543		$	11,343		$	1,123,510
Accumulated amortization		(62,364	)		(335,143	)		(33,786	)		(5,635	)		(436,928	)
Net identifiable intangibles	$	53,616		$	597,501		$	29,757		$	5,708		$	686,582

Amortization expense with respect to amortizable intangible assets was $18,676 and $17,815 for the three months ended August 27, 2022 and August 28, 2021, respectively, and $55,088 and $53,464 for the nine months ended August 27, 2022 and August 28, 2021, 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	*2022*		*2023*		*2024*		*2025*		*2026*		*Thereafter*
Amortization expense	$	31,804	$	67,995	$	64,095	$	61,948	$	55,709	$	425,705

Non-amortizable intangible assets as of August 27, 2022 and November 27, 2021 are $434 and $493, respectively, and are related to trademarks and trade names. The change in non-amortizable assets as of August 27, 2022 compared to November 27, 2021 was due to changes in foreign currency exchange rates.

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

	*Three Months Ended August 27, 2022 and August 28, 2021*
													*Other*
	*Pension Benefits*												*Postretirement*
	*U.S. Plans*						*Non-U.S. Plans*						*Benefits*
Net periodic cost (benefit):	*2022*			*2021*			*2022*			*2021*			*2022*			*2021*
Service cost	$	-		$	-		$	666		$	824		$	-		$	5
Interest cost		2,368			2,325			679			743			184			206
Expected return on assets		(7,117	)		(7,781	)		(1,525	)		(3,120	)		(2,719	)		(2,236	)
Amortization:
Prior service cost (benefit)		(1	)		(1	)		15			17			-			-
Actuarial loss (gain)		1,013			799			570			1,020			(845	)		18
Settlement charge		-			-			-			-			-			-
Net periodic benefit	$	(3,737	)	$	(4,658	)	$	405		$	(516	)	$	(3,380	)	$	(2,007	)

	*Nine Months Ended August 27, 2022 and August 28, 2021*
													*Other*
	*Pension Benefits*												*Postretirement*
	*U.S. Plans*						*Non-U.S. Plans*						*Benefits*
Net periodic cost (benefit):	*2022*			*2021*			*2022*			*2021*			*2022*			*2021*
Service cost	$	-		$	-		$	2,086		$	2,478		$	-		$	16
Interest cost		7,103			6,974			2,204			2,215			551			616
Expected return on assets		(21,353	)		(23,342	)		(4,916	)		(9,301	)		(8,156	)		(6,708	)
Amortization:
Prior service cost (benefit)		(2	)		(2	)		47			51			-			-
Actuarial loss (gain)		3,040			2,398			1,830			3,059			(2,535	)		55
Settlement charge		-			-			3,329			-			-			-
Net periodic benefit	$	(11,212	)	$	(13,972	)	$	4,580		$	(1,498	)	$	(10,140	)	$	(6,021	)

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

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

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Note 7: Accumulated Other Comprehensive Income (Loss)

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

	*Three Months Ended August 27, 2022*												*Three Months Ended August 28, 2021*
										*Non-*												*Non-*
										*controlling*												*controlling*
	*H.B. Fuller Stockholders*									*Interest*			*H.B. Fuller Stockholders*									*Interest*
	*Pre-tax*			*Tax*			*Net*			*Net*			*Pre-tax*			*Tax*			*Net*			*Net*
Net income attributable to H.B. Fuller and non-controlling interest							$	46,497		$	33								$	31,616		$	14
Foreign currency translation adjustment¹	$	(87,743	)	$	-			(87,743	)		(46	)	$	(31,979	)	$	-			(31,979	)		(27	)
Defined benefit pension plans adjustment²		778			(94	)		684			-			1,855			(480	)		1,375			-
Interest rate swap³		1,783			(437	)		1,346			-			5,074			(1,244	)		3,830			-
Cross currency swaps³		(377	)		6			(371	)		-			(1,309	)		20			(1,289	)		-
Other comprehensive loss	$	(85,559	)	$	(525	)	$	(86,084	)	$	(46	)	$	(26,359	)	$	(1,704	)	$	(28,063	)	$	(27	)
Comprehensive income (loss)							$	(39,587	)	$	(13	)							$	3,553		$	(13	)

	*Nine Months Ended August 27, 2022*												*Nine Months Ended August 28, 2021*
										*Non-*												*Non-*
										*controlling*												*controlling*
	*H.B. Fuller Stockholders*									*Interest*			*H.B. Fuller Stockholders*									*Interest*
	*Pretax*			*Tax*			*Net*			*Net*			*Pretax*			*Tax*			*Net*			*Net*
Net income attributable to H.B. Fuller and non-controlling interest							$	132,007		$	70								$	110,509		$	51
Foreign currency translation adjustment¹	$	(165,302	)	$	-			(165,302	)		(67	)	$	46,680		$	-			46,680			(25	)
Defined benefit pension plans adjustment²		5,483			(1,507	)		3,976			-			5,561			(1,440	)		4,121			-
Interest rate swap³		14,473			(3,549	)		10,924			-			15,332			(3,758	)		11,574			-
Cross currency swaps³		(3,720	)		56			(3,664	)		-			(3,629	)		53			(3,576	)		-
Other comprehensive income (loss)	$	(149,066	)	$	(5,000	)	$	(154,066	)		(67	)	$	63,944		$	(5,145	)		58,799			(25	)
Comprehensive income							$	(22,059	)	$	3								$	169,308		$	26

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:

August 27, 2022

Non-

H.B. Fuller

controlling

Total

Stockholders

Interest

Foreign currency translation adjustment

(297,604

)

(297,568

)

(36

)

Interest rate swap, net of taxes of ($325)

1,000

Cash flow hedges, net of taxes of $3

(181

)

(181

)

Defined benefit pension plans adjustment, net of taxes of $62,418

(109,222

)

(109,222

)

Reclassification of AOCI tax effects

(18,341

)

(18,341

)

Accumulated other comprehensive loss

(424,348

)

(424,312

)

(36

)

	*November 27, 2021*
							*Non-*
				*H.B. Fuller*			*controlling*
	*Total*			*Stockholders*			*Interest*
Foreign currency translation adjustment	$	(132,370	)	$	(132,267	)	$	(103	)
Interest rate swap, net of taxes of $3,224		(9,924	)		(9,924	)		-
Cash flow hedges, net of taxes of ($53)		3,483			3,483			-
Defined benefit pension plans adjustment, net of taxes of $63,925		(113,198	)		(113,198	)		-
Reclassification of AOCI tax effects		(18,341	)		(18,341	)		-
Accumulated other comprehensive loss	$	(270,350	)	$	(270,247	)	$	(103	)

Note 8: Income Taxes

Income tax expense for the three and nine months ended August 27, 2022 includes $6,449 and $7,696 of discrete tax expense, respectively, primarily relating to the revaluation of cross-currency swap agreements due to depreciation of the Euro versus the U.S. Dollar, as well as various foreign tax matters offset by the tax effect of legal entity mergers. Excluding the discrete tax expense, the overall effective tax rate was 29.9 percent and 28.7 percent for the three and nine months ended August 27, 2022 respectively.

Income tax expense for the three and nine months ended August 28, 2021 includes $5,626 and $5,068 of discrete tax expense, respectively, relating to the revaluation of cross-currency swap agreements due to depreciation of the Euro versus the U.S. Dollar, as well as various foreign tax matters. Excluding the discrete tax expense, the overall effective tax rate was 27.6 percent and 27.4 percent for the three and nine months ended August 28, 2021 respectively.

As of August 27, 2022, we had a liability of $14,541 recorded for gross unrecognized tax benefits (excluding interest) compared to $13,281 as of November 27, 2021. As of August 27, 2022 and November 27, 2021, we had accrued $4,555 and $2,448 of gross interest relating to unrecognized tax benefits, respectively.

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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

Nine Months Ended

August 27,

August 28,

August 27,

August 28,

(Shares in thousands)

2022

2021

2022

2021

Weighted-average common shares - basic

53,644

53,049

53,498

52,794

Equivalent shares from share-based compensations plans

1,486

1,597

1,703

1,299

Weighted-average common and common equivalent shares diluted

55,130

54,646

55,201

54,093

Basic earnings per share is calculated by dividing net income attributable to H.B. Fuller by the weighted-average number of common shares outstanding during the applicable period. Diluted earnings per share is based upon the weighted-average number of common and common equivalent shares outstanding during the applicable period. The difference between basic and diluted earnings per share is attributable to share-based compensation awards. We use the treasury stock method to calculate the effect of outstanding shares, which computes total employee proceeds as the sum of (a) the amount the employee must pay upon exercise of the award and (b) the amount of unearned share-based compensation costs attributed to future services. Share-based compensation awards for which total employee proceeds exceed the average market price over the applicable period have an antidilutive effect on earnings per share, and accordingly, are excluded from the calculation of diluted earnings per share.

Share-based compensation awards of 573,914 and 93,876 shares for the three months ended August 27, 2022 and August 28, 2021, respectively, and 691,856 and 1,655,852 shares for the nine months ended August 27, 2022 and August 28, 2021, 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.

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Cash Flow Hedges

As of August 27, 2022, we had cash flow hedges of four cross-currency swap agreements effective October 20, 2017 to convert a notional amount of $267,860 of foreign currency denominated intercompany loans into U.S. dollars, which mature in 2022. As of August 27, 2022, the combined fair value of the swaps was an asset of $42,329 and was included in other current assets 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 loss of$181 as of August 27, 2022. The estimated net amount of the existing loss that is reported in accumulated other comprehensive income (loss) as of August 27, 2022 that is expected to be reclassified into earnings within the next twelve months is $181. As of August 27, 2022, 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.

The following table summarizes the cross-currency swaps outstanding as of August 27, 2022:

	*Fiscal Year of*		*Notional*
	*Expiration*	*Interest Rate*	*Value*		*Fair Value*
Pay EUR	2022	3.00%	$	267,860	$	42,329
Receive USD		5.1803%

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 during the second quarter of 2021. On October 20, 2017, we entered into interest rate swap agreements to convert $1,050,000, which was amortized down to $800,000 on October 20, 2021, of our $2,150,000 Term Loan B to a fixed interest rate of 4.0275 percent. These interest rate swap agreements mature on October 20, 2022. The combined fair value of the interest rate swaps was an asset of $802 at August 27, 2022 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.

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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*						*Nine Months Ended*
	*August 27, 2022*			*August 28, 2021*			*August 27, 2022*			*August 28, 2021*
Cross-currency swap contracts	$	(377	)	$	(1,309	)	$	(3,720	)	$	(3,629	)
Interest rate swap contracts		1,783			5,074			14,473			15,332

Fair Value Hedges

On February 12, 2021, we entered into interest rate swap agreements to convert our $300,000 Public Notes that were issued on October 20, 2020 to a variable interest rate of 1-month LIBOR plus 3.28 percent. These interest rate swap agreements mature on October 15, 2028.The combined fair value of the interest rate swaps was a liability of $38,069 at August 27, 2022, 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.

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 August 27, 2022, we had forward foreign currency contracts maturing between August 29, 2022 and December 13, 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 recognized in other income, net related to derivative instruments not designated as hedging instruments for the nine months ended August 27, 2022 and August 28, 2021 were $2,378 and $1,428, 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 August 27, 2022, there were no significant concentrations of credit risk.

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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 August 27, 2022 and November 27, 2021, and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value.

August 27,

Fair Value Measurements Using:

Description

2022

Level 1

Level 2

Level 3

Assets:

Marketable securities

3,388

Foreign exchange contract assets

6,381

Cross-currency cash flow hedge assets

42,329

Interest rate swaps, cash flow hedge liabilities

802

Liabilities:

Foreign exchange contract liabilities

4,003

Interest rate swaps, fair value hedge liabilities

38,069

Contingent consideration liabilities

4,930

	*November 27,*		*Fair Value Measurements Using:*
Description	*2021*		*Level 1*		*Level 2*		*Level 3*
Assets:
Marketable securities	$	2,079	$	2,079	$	-	$	-
Foreign exchange contract assets		5,725		-		5,725		-
Cross-currency cash flow hedge assets		14,496		-		14,496		-

Liabilities:
Foreign exchange contract liabilities	$	6,082	$	-	$	6,082	$	-
Interest rate swaps, cash flow hedge liabilities		12,366		-		12,366
Interest rate swaps, fair value hedge liabilities		10,539		-		10,539		-
Contingent consideration liability		8,100		-		-		8,100

Adjustments to the fair value of contingent consideration are recorded to selling, general and administrative expenses in the Statement of Income.

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The valuation of our contingent consideration liability related to the acquisition of ZKLT with a fair value of $4,430 and TissueSeal with a fair value of $500 as of August 27, 2022. As of November 27, 2021, the agreement provisions for the D.H.M contingent consideration were met, and as a result, $8,122 was paid during the period ended February 26, 2022. See Note 2 for further discussion regarding our acquisitions. The following table provides details of the contingent consideration liabilities:

	*Amounts*
Balance at November 27, 2021	$	8,100
Acquisitions		4,930
Payment of contingent consideration		(8,122	)
Mark to market adjustment		22
Balance at August 27, 2022	$	4,930

Balances Measured at Fair Value on a Nonrecurring Basis

We measure certain assets and liabilities at fair value on a nonrecurring basis. These assets include intangible assets acquired in an acquisition. The identified intangible assets of customer relationships, technology and tradenames acquired in connection with our acquisitions were measured using unobservable (Level 3) inputs. The fair value of the intangible assets was calculated using either the income or cost approach. Significant inputs include estimated revenue growth rates, gross margins, operating expenses, attrition rate, royalty rate and discount rate.

See Note 2 for further discussion regarding our acquisitions.

Balances Disclosed at Fair Value

Long-term debt had an estimated fair value of $1,508,239 and $1,618,291 as of August 27, 2022 and November 27, 2021, 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 $6,127 and $6,603 as of August 27, 2022 and November 27, 2021, respectively, for probable and reasonably estimable environmental remediation costs. Of the amount reserved, $2,962 and $3,333 as of August 27, 2022 and November 27, 2021, 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.

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.

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We have been named as a defendant in lawsuits in which plaintiffs have alleged injury due to products containing asbestos manufactured more than 35 years ago. The plaintiffs generally bring these lawsuits against multiple defendants and seek damages (both actual and punitive) in very large amounts. In many cases, plaintiffs are unable to demonstrate that they have suffered any compensable injuries or that the injuries suffered were the result of exposure to products manufactured by us. We are typically dismissed as a defendant in such cases without payment. If the plaintiff presents evidence indicating that compensable injury occurred as a result of exposure to our products, the case is generally settled for an amount that reflects the seriousness of the injury, the length, intensity and character of exposure to products containing asbestos, the number and solvency of other defendants in the case, and the jurisdiction in which the case has been brought.

A significant portion of the defense costs and settlements in asbestos-related litigation is paid by third parties, including indemnification pursuant to the provisions of a 1976 agreement under which we acquired a business from a third party. Currently, this third party is defending and paying settlement amounts, under a reservation of rights, in most of the asbestos cases tendered to the third party.

In addition to the indemnification arrangements with third parties, we have insurance policies that generally provide coverage for asbestos liabilities, including defense costs. Historically, insurers have paid a significant portion of our defense costs and settlements in asbestos-related litigation. However, certain of our insurers are insolvent. We have entered into cost-sharing agreements with our insurers that provide for the allocation of defense costs and settlements and judgments in asbestos-related lawsuits. These agreements require, among other things, that we fund a share of 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:

	*Nine Months Ended*				*3 Years Ended*
	*August 27, 2022*		*August 28, 2021*		*November 27, 2021*
Lawsuits and claims settled		3		2		14
Settlement amounts	$	206	$	85	$	639
Insurance payments received or expected to be received	$	139	$	55	$	434

We do not believe that it would be meaningful to disclose the aggregate number of asbestos-related lawsuits filed against us because relatively few of these lawsuits are known to involve exposure to asbestos-containing products that we manufactured. Rather, we believe it is more meaningful to disclose the number of lawsuits that are settled and result in a payment to the plaintiff. To the extent we can reasonably estimate the amount of our probable liabilities for pending asbestos-related claims, we establish a financial provision and a corresponding receivable for insurance recoveries.

Based on currently available information, we have concluded that the resolution of any pending matter, including asbestos-related litigation, individually or in the aggregate, will not have a material adverse effect on our results of operations, financial condition or cash flow.

Note 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 Project ONE. Corporate assets are not allocated to the operating segments. Inter-segment revenues are recorded at cost plus a markup for administrative costs.

We have three reportable segments: Hygiene, Health and Consumable Adhesives, Engineering Adhesives and Construction Adhesives. The business components within each operating segment are managed to maximize the results of the overall operating segment rather than the results of any individual business component of the operating segment. Results of individual components of each operating segment are subject to numerous allocations of segment-wide costs that may or may not have been focused on that particular component for a particular reporting period. The costs for these allocated resources are not tracked on a "where-used" basis as financial performance is assessed at the total operating segment level.

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The table below provides certain information regarding net revenue and operating income (loss) for each of our operating segments.

	*Three Months Ended*
	*August 27, 2022*					*August 28, 2021*
	*Net*		*Operating*			*Net*		*Operating*
	*Revenue*		*Income (Loss)*			*Revenue*		*Income (Loss)*
Hygiene, Health and Consumable Adhesives	$	424,978	$	47,470		$	369,439	$	29,652
Engineering Adhesives		378,264		39,776			342,300		34,087
Construction Adhesives		137,988		6,391			115,091		3,339
Total segment	$	941,230	$	93,637		$	826,830	$	67,078
Corporate Unallocated¹		-		(5,683	)		-		(7,625	)
Total	$	941,230	$	87,954		$	826,830	$	59,453

	*Nine Months Ended*
	*August 27, 2022*					*August 28, 2021*
	*Net*		*Operating*			*Net*		*Operating*
	*Revenue*		*Income (Loss)*			*Revenue*		*Income (Loss)*
Hygiene, Health and Consumable Adhesives	$	1,252,405	$	122,950		$	1,069,922	$	98,493
Engineering Adhesives		1,137,587		115,266			1,000,337		96,580
Construction Adhesives		400,977		22,032			310,348		4,974
Total segment	$	2,790,969	$	260,248		$	2,380,607	$	200,047
Corporate Unallocated		-		(27,780	)		-		(23,105	)
Total	$	2,790,969	$	232,468		$	2,380,607	$	176,942

¹ Consistent with our internal management reporting, Corporate Unallocated amounts in the tables above include charges that are not allocated to the Company’s reportable segments.

The table below provides a reconciliation of operating income to income before income taxes and income from equity method investments:

	*Three Months Ended*						*Nine Months Ended*
	*August 27,*			*August 28,*			*August 27,*			*August 28,*
	*2022*			*2021*			*2022*			*2021*
Operating income	$	87,954		$	59,453		$	232,468		$	176,942
Other income, net		6,559			6,150			12,701			25,899
Interest expense		(23,450	)		(19,396	)		(61,475	)		(59,699	)
Interest income		2,139			2,520			6,170			7,709
Income before income taxes and income from equity method investments	$	73,202		$	48,727		$	189,864		$	150,851

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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 August 27, 2022

Hygiene, Health

and Consumable

Engineering

Construction

Adhesives

Total

Americas

261,751

165,398

106,169

533,318

EIMEA

114,186

111,734

23,519

249,439

Asia Pacific

49,041

101,132

8,300

158,473

Total

424,978

378,264

137,988

941,230

	*Three Months Ended August 28, 2021*

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

Americas	$	210,589	$	127,683	$	103,475	$	441,747
EIMEA		108,626		121,905		4,958		235,489
Asia Pacific		50,224		92,712		6,658		149,594
Total	$	369,439	$	342,300	$	115,091	$	826,830

Nine Months Ended August 27, 2022

Hygiene, Health

and Consumable

Engineering

Construction

Adhesives

Total

Americas

737,689

465,285

321,167

1,524,141

EIMEA

351,983

361,485

58,450

771,918

Asia Pacific

162,733

310,817

21,360

494,910

Total

1,252,405

1,137,587

400,977

2,790,969

	*Nine Months Ended August 28, 2021*
	*Hygiene, Health*
	*and Consumable*		*Engineering*		*Construction*
	*Adhesives*		*Adhesives*		*Adhesives*		*Total*

Americas	$	594,071	$	367,260	$	274,502	$	1,235,833
EIMEA		312,908		345,249		16,191		674,348
Asia Pacific		162,943		287,828		19,655		470,426
Total	$	1,069,922	$	1,000,337	$	310,348	$	2,380,607

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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 27, 2021 for important background information related to our business.

Net revenue in the third quarter of 2022 increased 13.8 percent from the third quarter of 2021. Net revenue increased 18.7 percent due to price and 2.0 percent due to the acquisition of Fourny and Apollo, partially offset by a 0.3 percent decrease in sales volume. Negative currency effects of 6.6 percent compared to the third quarter of 2021 were primarily driven by a weaker Euro, Turkish lira, Chinese renminbi, British pound and Argentinian peso compared to the U.S. dollar. Gross profit margin increased 300 basis points primarily due to higher product pricing partially offset by higher raw material costs.

Net revenue in the first nine months of 2022 increased 17.2 percent from the first nine months of 2021. Net revenue increased 17.6 percent due to price, 2.8 percent due to sales volume and 1.6 percent due to the acquisitions of Fourny and Apollo. Negative currency effects of 4.8 percent compared to the first nine months of 2021 were primarily driven by a weaker Euro, Turkish lira, British pound and Argentinian peso, partially offset by a stronger Brazilian real compared to the U.S. dollar. Gross profit margin increased 20 basis points.

Net income attributable to H.B. Fuller in the third quarter of 2022 was $46.5 million compared to $31.6 million in the third quarter of 2021. On a diluted earnings per share basis, the third quarter of 2022 was $0.84 per share compared to $0.58 per share for the third quarter of 2021.

Net income attributable to H.B. Fuller in the first nine months of 2022 was $132.0 million compared to $110.5 million in the first nine months of 2021. On a diluted earnings per share basis, the first nine months of 2022 was $2.39 per share compared to $2.04 per share for the first nine months of 2021.

Market Conditions

On March 11, 2020, the World Health Organization declared the outbreak of the novel coronavirus ("COVID-19") a pandemic. The COVID-19 pandemic continues to have an impact on global economies, supply chains and industrial production. Although government restrictions have been relaxed, it is currently not possible to estimate additional impacts this outbreak may have on our business. We continue to effectively manage our global operations focusing on the health and safety of our employees and ensuring business continuity across our supplier, manufacturing and distribution networks.

See "Risk Factors" in Item 1A in our Annual Report on Form 10-K for the year ended November 27, 2021 as filed with the Securities and Exchange Commission for further information of the effects of the COVID-19 pandemic on our business including raw material cost and availability.

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”). We have incurred costs of $20.1 million under this plan as of August 27, 2022, which is substantially complete.

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Results of Operations

Net revenue:

	Three Months Ended							Nine Months Ended
	August 27,		August 28,		2022 vs			August 27,		August 28,		2022 vs
($ in millions)	2022		2021		2021			2022		2021		2021
Net revenue	$	941.2	$	826.8		13.8	%	$	2,791.0	$	2,380.6		17.2	%

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 third quarter and first nine months of 2022 compared to the same periods in 2021:

	Three Months Ended			Nine Months Ended
	August 27, 2022 vs. August 28, 2021			August 27, 2022 vs. August 28, 2021
Organic growth		18.4	%		20.4	%
M&A		2.0	%	1.6		%
Currency		(6.6	)%	(4.8		)%
Total		13.8	%	17.2		%

Organic growth was 18.4 percent in the third quarter of 2022 compared to the third quarter of 2021 driven by a 22.9 percent increase in Hygiene, Health and Consumable Adhesives, a 17.5 percent increase in Engineering Adhesives and a 6.9 percent increase in Construction Adhesives. The increase is predominately driven by an increase in product pricing, partially offset by a slight decrease in volume. The 2.0 percent increase from M&A is due to the acquisitions of Fourny and Apollo. The negative 6.6 percent currency impact was primarily driven by a weaker Euro, Turkish lira, Chinese Renminbi, British pound and Argentinian peso compared to the U.S. dollar.

Organic growth was 20.4 percent in the first nine months of 2022 compared to the first nine months of 2021 driven by a 22.7 percent increase in Hygiene, Health and Consumable Adhesives, a 18.7 percent increase in Engineering Adhesives and a 17.6 percent increase in Construction Adhesives. The increase is driven by an increase in product pricing and sales volume. The 1.6 percent increase from M&A is due to the acquisitions of Fourny and Apollo. The negative 4.8 percent currency impact was primarily driven by a weaker Euro, Turkish lira, British pound and Argentinian peso, partially offset by a stronger Brazilian real compared to the U.S. dollar.

Cost of sales:

	Three Months Ended									Nine Months Ended
	August 27,			August 28,			2022 vs			August 27,			August 28,			2022 vs
($ in millions)	2022			2021			2021			2022			2021			2021
Raw materials	$	540.3		$	477.9			13.1	%	$	1,606.7		$	1,317.7			21.9	%
Other manufacturing costs		151.8			155.0			(2.1	)%		468.7			459.0			2.1	%
Cost of sales	$	692.1		$	632.9			9.4	%	$	2,075.4		$	1,776.7			16.8	%
Percent of net revenue		73.5	%		76.5	%					74.4	%		74.6	%

Cost of sales in the third quarter of 2022 compared to the third quarter of 2021 decreased 300 basis points as a percentage of net revenue. Raw material cost as a percentage of net revenue decreased 40 basis points in the third quarter of 2022 compared to the third quarter of 2021. Other manufacturing costs as a percentage of revenue decreased 260 basis points in the third quarter of 2022 compared to the third quarter of 2021 due to higher product pricing.

Cost of sales in the first nine months of 2022 compared to the first nine months of 2021 decreased 20 basis points as a percentage of net revenue. Raw material cost as a percentage of net revenue increased 220 basis points in the first nine months of 2022 compared to the first nine months of 2021 due to higher raw material costs. Other manufacturing costs as a percentage of revenue decreased 240 basis points in the first nine months of 2022 compared to the first nine months of 2021 due to higher net revenue.

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Gross profit:

	Three Months Ended									Nine Months Ended
	August 27,			August 28,			2022 vs			August 27,			August 28,			2022 vs
($ in millions)	2022			2021			2021			2022			2021			2021
Gross profit	$	249.2		$	194.0			28.5	%	$	715.6		$	603.9			18.5	%
Percent of net revenue		26.5	%		23.5	%					25.6	%		25.4	%

Gross profit in the third quarter of 2022 increased 28.5 percent and gross profit margin increased 300 basis points compared to the third quarter of 2021. The increase in gross profit margin was primarily due to higher product pricing.

Gross profit in the first nine months of 2022 increased 18.5 percent and gross profit margin increased 20 basis points compared to the first nine months of 2021.

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

	Three Months Ended									Nine Months Ended
	August 27,			August 28,			2022 vs			August 27,			August 28,			2022 vs
($ in millions)	2022			2021			2021			2022			2021			2021
SG&A	$	161.2		$	134.5			19.9	%	$	483.1		$	426.9			13.2	%
Percent of net revenue		17.1	%		16.3	%					17.3	%		17.9	%

SG&A expenses for the third quarter of 2022 increased $26.7 million, or 19.9 percent, compared to the third quarter of 2021. The increase is primarily due to higher compensation and acquisition project costs, partially offset by the favorable impact of foreign currency exchange rates on spending outside the U.S.

SG&A expenses for the first nine months of 2022 increased $56.2 million, or 13.2 percent, compared to the first nine months of 2021. The increase is primarily due to higher compensation and acquisition project costs and the impact of acquisitions.

Other income, net:

	Three Months Ended							Nine Months Ended
	August 27,		August 28,		2022 vs			August 27,		August 28,		2022 vs
($ in millions)	2022		2021		2021			2022		2021		2021
Other income, net	$	6.6	$	6.2		6.5	%	$	12.7	$	25.9		(51.0	)%

Other income, net in the third quarter of 2022 included $7.4 million of net defined benefit pension benefits and $1.8 million of other income, offset by $2.6 million of currency transaction losses. Other income, net in the third quarter of 2021 included $8.0 million of net defined benefit pension benefits, partially offset by $1.4 million of currency transaction losses and $0.4 million of other income.

Other income, net in the first nine months of 2022 included $18.9 million of net defined benefit pension benefits and $3.4 million of other income, partially offset by $9.6 million of currency transaction losses. The $18.9 million of net defined benefit pension benefits included a $3.3 million settlement loss related to the termination of our Canadian defined benefit pension plan. Other income, net in the first nine months of 2021 included $23.9 million of net defined benefit pension benefits and $6.5 million of other income, partially offset by $4.5 million of currency transaction losses.

Interest expense:

	Three Months Ended							Nine Months Ended
	August 27,		August 28,		2022 vs			August 27,		August 28,		2022 vs
($ in millions)	2022		2021		2021			2022		2021		2021
Interest expense	$	23.5	$	19.4		21.1	%	$	61.5	$	59.7		3.0	%

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Interest expense in the third quarter of 2022 was $23.5 million compared to $19.4 million in the third quarter of 2021. Interest expense in the third quarter of 2022 compared to the third quarter of 2021 was higher due to higher interest rates and higher debt balances.

Interest expense in the first nine months of 2022 was $61.5 million compared to $59.7 million in the first nine months of 2021. Interest expense in the first nine months of 2022 compared to the first nine months of 2021 was higher due to higher interest rates and higher debt balances.

Interest income:

	Three Months Ended							Nine Months Ended
	August 27,		August 28,		2022 vs			August 27,		August 28,		2022 vs
($ in millions)	2022		2021		2021			2022		2021		2021
Interest income	$	2.1	$	2.5		(16.0	)%	$	6.2	$	7.7		(19.5	)%

Interest income in the third quarter of 2022 and 2021 was $2.1 million and $2.5 million, respectively, consisting primarily of interest on cross-currency swap activity and other miscellaneous interest income.

Interest income in the first nine months of 2022 and 2021 was $6.2 million and $7.7 million, respectively, consisting primarily of interest on cross-currency swap activity and other miscellaneous interest income.

Income taxes:

	Three Months Ended									Nine Months Ended
	August 27,			August 28,			2022 vs			August 27,			August 28,			2022 vs
($ in millions)	2022			2021			2021			2022			2021			2021
Income taxes	$	28.3		$	19.1			48.2	%	$	62.0		$	46.4			33.6	%
Effective tax rate		38.7	%		39.2	%					32.7	%		30.7	%

Income tax expense of $28.3 million in the third quarter of 2022 includes $6.4 million of discrete tax expense. Excluding the discrete tax expense, the overall effective tax rate was 29.9 percent. The discrete tax expense relates to impacts of the revaluation of cross-currency swap agreements due to depreciation of the Euro versus the U.S. dollar and other various U.S. and foreign tax matters. Income tax expense of $19.1 million in the third quarter of 2021 includes $5.6 million of discrete tax expense. Excluding the discrete tax expense, the overall effective tax rate was 27.6 percent. The discrete tax expense relates to the revaluation of cross-currency swap agreements due to depreciation of the Euro versus the U.S. dollar and other various U.S. and foreign tax matters.

Income tax expense of $62.0 million in the first nine months of 2022 includes $7.7 million of discrete tax expense. Excluding the discrete tax expense, the overall effective tax rate was 28.7 percent. The discrete tax expense relates to the revaluation of cross-currency swap agreements due to depreciation of the Euro versus the U.S. dollar, as well as various U.S. and foreign tax matters offset by the tax effect of legal entity mergers. Income tax expense of $46.4 million in the first nine months of 2021 includes $5.1 million of discrete tax expense. Excluding the discrete tax expense, the overall effective tax rate was 27.4 percent. The discrete tax expense relates to the revaluation of cross-currency swap agreements due to depreciation of the Euro versus the U.S. dollar and various U.S. and foreign tax matters.

Income from equity method investments:

	Three Months Ended							Nine Months Ended
	August 27,		August 28,		2022 vs			August 27,		August 28,		2022 vs
($ in millions)	2022		2021		2021			2022		2021		2021
Income from equity method investments	$	1.6	$	2.0		(20.0	)%	$	4.2	$	6.1		(31.1	)%

The income from equity method investments relates to our 50 percent ownership of the Sekisui-Fuller joint venture in Japan. The lower income for the third quarter and first nine months of 2022 compared to the same period of 2021 is due to the unfavorable impact of the weakening of the Japanese yen against the U.S. dollar offset by higher net income in the joint venture.

Net income attributable to H.B. Fuller:

	Three Months Ended									Nine Months Ended
	August 27,			August 28,			2022 vs			August 27,			August 28,			2022 vs
($ in millions)	2022			2021			2021			2022			2021			2021
Net income attributable to H.B. Fuller	$	46.5		$	31.6			47.2	%	$	132.0		$	110.5			19.5	%
Percent of net revenue		4.9	%		3.8	%					4.7	%		4.6	%

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The net income attributable to H.B. Fuller for the third quarter of 2022 was $46.5 million compared to $31.6 million for the third quarter of 2021. The diluted earnings per share for the third quarter of 2022 was $0.84 per share as compared to $0.58 per share for the third quarter of 2021.

The net income attributable to H.B. Fuller for the first nine months of 2022 was $132.0 million compared to $110.5 million for the first nine months of 2021. The diluted earnings per share for the first nine months of 2022 was $2.39 per share as compared to $2.04 per share for the first nine months of 2021.

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 SAP ONE.

Net Revenue by Segment:

	Three Months Ended										Nine Months Ended
	August 27, 2022					August 28, 2021					August 27, 2022					August 28, 2021
	Net		% of			Net		% of			Net		% of			Net		% of
($ in millions)	Revenue		Total			Revenue		Total			Revenue		Total			Revenue		Total
Hygiene, Health and Consumable Adhesives	$	425.0		45	%	$	369.4		45	%	$	1,252.4		45	%	$	1,069.9		45	%
Engineering Adhesives		378.2		40	%		342.3		41	%		1,137.6		41	%		1,000.3		42	%
Construction Adhesives		138.0		15	%		115.1		14	%		401.0		14	%		310.4		13	%
Segment total	$	941.2		100	%	$	826.8		100	%	$	2,791.0		100	%	$	2,380.6		100	%
Corporate Unallocated		-		-			-		-			-		-			-		-
Total	$	941.2		100	%	$	826.8		100	%	$	2,791.0		100	%	$	2,380.6		100	%

Segment Operating Income (Loss):

	Three Months Ended												Nine Months Ended
	August 27, 2022						August 28, 2021						August 27, 2022						August 28, 2021
	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	$	47.5			54	%	$	29.7			50	%	$	122.9			53	%	$	98.5			56	%
Engineering Adhesives		39.8			45	%		34.1			57	%		115.3			50	%		96.6			54	%
Construction Adhesives		6.4			7	%		3.3			6	%		22.0			9	%		4.9			3	%
Segment total	$	93.7			106	%	$	67.1			113	%	$	260.2			112	%	$	200.0			113	%
Corporate Unallocated		(5.7	)		(6	)%		(7.6	)		(13	)%		(27.7	)		(12	)%		(23.1	)		(13	)%
Total	$	88.0			100	%	$	59.5			100	%	$	232.5			100	%	$	176.9			100	%

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Hygiene, Health and Consumable Adhesives

	Three Months Ended									Nine Months Ended
	August 27,			August 28,			2022 vs			August 27,			August 28,			2022 vs
($ in millions)	2022			2021			2021			2022			2021			2021
Net revenue	$	425.0		$	369.4			15.1	%	$	1,252.4		$	1,069.9			17.0	%
Segment operating income	$	47.5		$	29.7			59.9	%	$	122.9		$	98.5			24.8	%
Segment operating margin		11.2	%		8.0	%					9.8	%		9.2	%

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

	Three Months Ended			Nine Months Ended
	August 27, 2022 vs. August 28, 2021			August 27, 2022 vs. August 28, 2021
Organic growth		22.9	%		22.7	%
Currency		(7.8	)%		(5.7	)%
Total		15.1	%		17.0	%

Net revenue increased 15.1 percent in the third quarter of 2022 compared to the third quarter of 2021. The increase in organic growth was attributable to an increase in product pricing, partially offset by sales volume. The negative currency effect was due to a weaker Euro, Turkish lira, Argentinian peso, Egyptian pound and Chinese renminbi 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 360 basis points due to higher net revenue. SG&A expenses as a percentage of net revenue increased 10 basis points. Segment operating income increased 59.9 percent and segment operating margin as a percentage of net revenue increased 320 basis points compared to the third quarter of 2021.

Net revenue increased 17.0 percent in the first nine months of 2022 compared to the first nine months of 2021. The increase in organic growth was attributable to an increase in product pricing and sales volume. The negative currency effect was due to a weaker Euro, Turkish lira and Argentinian peso, partially offset by a stronger Brazilian real compared to the U.S. dollar. As a percentage of net revenue, raw material costs increased 310 basis points due to higher raw material costs. Other manufacturing costs as a percentage of net revenue decreased 280 basis points due to higher net revenue. SG&A expenses as a percentage of net revenue decreased 90 basis points due to higher net revenue. Segment operating income increased 24.8 percent and segment operating margin as a percentage of net revenue increased 60 basis points compared to the first nine months of 2021.

Engineering Adhesives

	Three Months Ended									Nine Months Ended
	August 27,			August 28,			2022 vs			August 27,			August 28,			2022 vs
($ in millions)	2022			2021			2021			2022			2021			2021
Net revenue	$	378.2		$	342.3			10.5	%	$	1,137.6		$	1,000.3			13.7	%
Segment operating income	$	39.8		$	34.1			16.7	%	$	115.3		$	96.6			19.4	%
Segment operating margin		10.5	%		10.0	%					10.1	%		9.7	%

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

	Three Months Ended			Nine Months Ended
	August 27, 2022 vs. August 28, 2021			August 27, 2022 vs. August 28, 2021
Organic growth		17.5	%		18.7	%
Currency		(7.0	)%		(5.0	)%
Total		10.5	%		13.7	%

Net revenue increased 10.5 percent in the third quarter of 2022 compared to the third quarter of 2021. The increase in organic growth was attributable primarily due to an increase in product pricing and sales volume. The negative currency effect was due to a weaker Euro, Chinese renminbi and Turkish lira compared to the U.S. dollar. Raw material costs as a percentage of net revenue decreased 120 basis points due to higher net revenue. Other manufacturing costs as a percentage of net revenue decreased 150 basis points due to higher net revenue. SG&A expenses as a percentage of net revenue increased 220 basis points due to higher compensation costs. Segment operating income increased 16.7 percent and segment operating margin increased 50 basis points compared to the third quarter of 2021.

Net revenue increased 13.7 percent in the first nine months of 2022 compared to the first nine months of 2021. The increase in organic growth was attributable primarily due to an increase in product pricing and sales volume. The negative currency effect was due to a weaker Euro and Turkish lira compared to the U.S. dollar. Raw material costs as a percentage of net revenue increased 180 basis points due to higher raw material costs. Other manufacturing costs as a percentage of net revenue decreased 200 basis points due to higher net revenue. SG&A expenses as a percentage of net revenue decreased 20 basis points. Segment operating income increased 19.4 percent and segment operating margin increased 40 basis points compared to the first nine months of 2021.

Construction Adhesives

	Three Months Ended									Nine Months Ended
	August 27,			August 28,			2022 vs			August 27,			August 28,			2022 vs
($ in millions)	2022			2021			2021			2022			2021			2021
Net revenue	$	138.0		$	115.1			19.8	%	$	401.0		$	310.4			29.2	%
Segment operating income (loss)	$	6.4		$	3.3			93.9	%	$	22.0		$	4.9			349.0	%
Segment operating margin		4.6	%		2.9	%					5.5	%		1.6	%

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

	Three Months Ended			Nine Months Ended
	August 27, 2022 vs. August 28, 2021			August 27, 2022 vs. August 28, 2021
Organic growth		6.9	%		17.6	%
M&A		14.2	%		12.6	%
Currency		(1.3	)%		(1.0	)%
Total		19.8	%		29.2	%

Net revenue increased 19.8 percent in the third quarter of 2022 compared to the third quarter of 2021. The increase in organic growth was attributable primarily to an increase in product pricing partially offset by a decrease in sales volume. The increase in net revenue from M&A was due to the acquisitions of Fourny and Apollo during the first quarter of 2022. The negative currency effect was due to a weaker Euro and Australian dollar compared to the U.S. dollar. Raw material costs as a percentage of net revenue decreased 50 basis points. Other manufacturing costs as a percentage of net revenue decreased 130 basis points due to higher net revenue and the impact of acquisitions. SG&A expenses as a percentage of net revenue increased 10 basis points. Segment operating income increased 93.9 percent and segment operating margin increased 170 basis points compared to the third quarter of 2021.

Net revenue increased 29.2 percent in the first nine months of 2022 compared to the first nine months of 2021. The increase in organic growth was attributable primarily to an increase in product pricing and sales volume. The increase in net revenue from M&A was due to the acquisitions of Fourny and Apollo during the first quarter of 2022. The negative currency effect was due to a weaker British pound, Euro and Australian dollar compared to the U.S. dollar. Raw material costs as a percentage of net revenue increased 70 basis points due to higher raw material costs partially offset by higher net revenue. Other manufacturing costs as a percentage of net revenue decreased 240 basis points due to higher net revenue and the impact of acquisitions. SG&A expenses as a percentage of net revenue decreased 220 basis points due to higher net revenue. Segment operating income increased 349.0 percent and segment operating margin increased 390 basis points compared to the first nine months of 2021.

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Corporate Unallocated

	Three Months Ended									Nine Months Ended
	August 27,			August 28,			2022 vs			August 27,			August 28,			2022 vs
($ in millions)	2022			2021			2021			2022			2021			2021
Net revenue	$	-		$	-			0.0	%	$	-		$	-			0.0	%
Segment operating loss	$	(5.7	)	$	(7.6	)		(25.0	)%	$	(27.7	)	$	(23.1	)		19.9	%
Segment operating margin		NMP			NMP						NMP			NMP

NMP = Non-meaningful percentage

Corporate Unallocated includes acquisition and integration-related charges, restructuring-related charges, and costs related to the implementation of Project ONE.

Segment operating loss in the third quarter and first nine months of 2022 increased 25.0 percent and 19.9 percent compared to the third quarter and first nine months of 2021, respectively, reflecting increased acquisition project costs.

Financial Condition, Liquidity and Capital Resources

Total cash and cash equivalents as of August 27, 2022 were $60.7 million compared to $61.8 million as of November 27, 2021 and $68.1 million as of August 28, 2021. The majority of the $60.7 million in cash and cash equivalents as of August 27, 2022 was held outside the United States. Total long and short-term debt was $1,918.2 million as of August 27, 2022, $1,616.5 million as of November 27, 2021 and $1,664.0 million as of August 28, 2021. The total debt to total capital ratio as measured by Total Debt divided by (Total Debt plus Total Stockholders’ Equity) was 54.9 percent as of August 27, 2022 as compared to 50.2 percent as of November 27, 2021 and 51.4 percent as of August 28, 2021.

We believe that cash flows from operating activities will be adequate to meet our ongoing liquidity and capital expenditure needs. In addition, we believe we have the ability to obtain both short-term and long-term debt to meet our financing needs for the foreseeable future. Cash available in the United States has historically been sufficient and we expect it will continue to be sufficient to fund U.S. operations, U.S. capital spending and U.S. pension and other postretirement benefit contributions in addition to funding U.S. acquisitions, dividend payments, debt service and share repurchases as needed. For those international earnings considered to be reinvested indefinitely, we currently have no intention to, and plans do not indicate a need to, repatriate these funds for U.S. operations.

Our credit agreements include restrictive covenants that, if not met, could lead to a renegotiation of our credit lines and a significant increase in our cost of financing. At August 27, 2022, we were in compliance with all covenants of our contractual obligations as shown in the following table:

Covenant	Debt Instrument	Measurement	Result as of August 27, 2022
Secured Indebtedness / TTM EBITDA	Term Loan B Credit Agreement	Not greater than 5.9		2.7
Secured Indebtedness / TTM EBITDA	Revolving Credit Agreement	Not greater than 5.9		2.7
TTM EBITDA / Consolidated Interest Expense	Revolving Credit Agreement	Not less than 2.0		6.1

●

TTM = Trailing 12 months

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●

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 2022.

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.

	August 27,			August 28,
	2022			2021
Net working capital as a percentage of annualized net revenue¹		18.9	%		16.6	%
Accounts receivable DSO (in days)²		63			63
Inventory days on hand (in days)³		75			70
Free cash flow after dividends⁴	$	(78.8	)	$	57.9
Total debt to total capital ratio⁵		54.9	%		51.4	%

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.

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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).

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

	Nine Months Ended
($ in millions)	August 27, 2022			August 28, 2021
Net cash provided by operating activities	$	48.7		$	161.1
Less: Purchased property, plant and equipment		98.4			77.2
Less: Dividends paid		29.1			26.0
(Negative) free cash flow after dividends	$	(78.8	)	$	57.9

Summary of Cash Flows

Cash Flows from Operating Activities:

	Nine Months Ended
	August 27,		August 28,
($ in millions)	2022		2021
Net cash provided by operating activities	$	48.7	$	161.1

Net income including non-controlling interest was $132.1 million in the first nine months of 2022 compared to $110.6 million in the first nine months of 2021. Depreciation and amortization expense totaled $109.4 million in the first nine months of 2022 compared to $107.6 million in the first nine months of 2021. Deferred income taxes was a use of cash of $5.0 million in 2022 compared to $1.5 million in the first nine months of 2021. Accrued compensation was a use of cash of $17.3 million in 2022 compared to $1.3 million last year. Other assets was a use of cash of $40.3 million in the first nine months of 2022 compared to $26.1 million in the first nine months of 2021. Other liabilities was a use of cash of $35.9 million in the first nine months of 2022 compared to $53.5 million in the first nine months of 2021.

Changes in net working capital (trade receivables, inventory and trade payables) accounted for a use of cash of $146.6 million compared to a use of cash of $26.8 million last year. The table below provides the cash flow impact due to changes in the components of net working capital:

	Nine Months Ended
	August 27,			August 28,
($ in millions)	2022			2021
Trade receivables, net	$	(51.6	)	$	(61.9	)
Inventory		(112.4	)		(141.1	)
Trade payables		17.4			176.2
Total cash flow impact	$	(146.6	)	$	(26.8	)

●

Trade receivables, net – Trade receivables, net was a use of cash of $51.6 million and $61.9 million in the first nine months of 2022 and 2021, respectively. The lower use of cash in 2022 compared to 2021 was due to more cash collected on trade receivables in the current year compared to the prior year. The DSO were 63 days at August 27, 2022 and August 28, 2021.

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●

Inventory – Inventory was a use of cash of $112.4 million and $141.1 million in the first nine months of 2022 and 2021, respectively. The lower use of cash in 2022 is due to lower inventory purchases in 2022 compared to 2021. Inventory days on hand were 75 days as of August 27, 2022 and 70 days as of August 28, 2021.

●

Trade payables – Trade payables was a source of cash of $17.4 million and $176.2 million in the first nine months of 2022 and 2021, respectively. The lower source of cash in 2022 compared to 2021 reflects higher payments on trade payables in the current year compared to the prior year.

Cash Flows from Investing Activities:

	Nine Months Ended
	August 27,			August 28,
($ in millions)	2022			2021
Net cash used in investing activities	$	(336.0	)	$	(75.7	)

Purchases of property, plant and equipment were $98.4 million during the first nine months of 2022 compared to $77.2 million for the same period of 2021. This difference reflects the timing of capital projects and expenditures related to growth initiatives.

During the first nine months of 2022, we paid cash to acquire TissueSeal for $22.2 million, Fourny for $14.5 million, net of cash acquired, Apollo for $192.6 million, net of cash acquired and ZKLT for $13.6 million, net of cash acquired.

Cash Flows from Financing Activities:

	Nine Months Ended
	August 27,		August 28,
($ in millions)	2022		2021
Net cash provided by (used in) financing activities	$	301.7	$	(114.8	)

Borrowings on our revolving credit facility were $335.0 million in the first nine months of 2022 to finance acquisitions and for general working capital purposes. Payments on our revolving credit facility were $15.0 million in the first nine months of 2022. Payments of long-term debt in the first nine months of 2021 were $118.0 million. Net proceeds of notes payable were $6.7 million in the first nine months of 2022 and $9.8 million in the same period of 2021. Cash dividends paid were $29.1 million in the first nine months of 2022 compared to $26.0 million in the same period of 2021. Repurchases of common stock were $3.9 million in the first nine months of 2022 compared to $2.7 million in the same period of 2021.

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 27, 2021 for further discussion of these market risks. There have been no material changes in the reported market risk of the Company since November 27, 2021.

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 August 27, 2022. Based on this evaluation, our president and chief executive officer and executive vice president, chief financial officer concluded that, as of August 27, 2022, 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.

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.

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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 27, 2021. 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 27, 2021, except for the addition of the following risk factor:

The military conflict between Russia and Ukraine, and the global response to it, could adversely impact our revenues, gross margins and financial results.

The U.S. government and other nations have imposed significant restrictions on most companies’ ability to do business in Russia as a result of the military conflict between Russia and Ukraine. It is not possible to predict the broader or longer-term consequences of this conflict, which could include further sanctions, embargoes, regional instability, energy shortages, geopolitical shifts and adverse effects on macroeconomic conditions, security conditions, currency exchange rates and financial markets. Such geo-political instability and uncertainty could have a negative impact on our ability to sell to, ship products to, collect payments from, and support customers in certain regions based on trade restrictions, embargoes and export control law restrictions, and logistics restrictions including closures of air space, and could increase the costs, risks and adverse impacts from these new challenges. We may also be the subject of increased cyber-attacks. While Russia does not constitute a material portion of our business, a significant escalation or expansion of economic disruption or the conflict's current scope could have a material adverse effect on our results of operations.

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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 third quarter ended August 27, 2022 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)

May 29, 2022 - July 2, 2022		765	$	60.53	$	300,000

July 3, 2022 - July 30, 2022		-	$	-	$	300,000

July 31, 2022 - August 27, 2022		3,563	$	64.26	$	300,000

¹ The total number of shares purchased are shares withheld to satisfy the employees’ withholding taxes upon vesting of restricted stock.

Repurchases of common stock are made to support our stock-based employee compensation plans and for other corporate purposes. Upon vesting of restricted stock awarded to employees, shares are withheld to cover the employees’ minimum withholding taxes.

On April 7, 2022, the Board of Directors authorized a new share repurchase program of up to $300.0 million of our outstanding common shares. Under the program, we are authorized to repurchase shares for cash on the open market, from time to time, in privately negotiated transactions or block transactions, or through an accelerated repurchase agreement. The timing of such repurchases is dependent on price, market conditions and applicable regulatory requirements. Upon repurchase of the shares, we reduce our common stock for the par value of the shares with the excess being applied against additional paid-in capital. This authorization replaces the April 6, 2017 authorization to repurchase shares.

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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 August 27, 2022 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: September 22, 2022		/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 August 27, 2022 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).