UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~May 28, 2022~~June 3, 2023

☐	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 ~~53,162,785~~53,869,657 as of June ~~17, 2022.~~23, 2023.

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H.B. Fuller Company

Quarterly Report on Form 10-Q

Table of Contents

		Page
PART 1. FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS (Unaudited)	4

	Consolidated Statements of Income for the three and six months ended June 3, 2023 and May 28, 2022 ~~and May 29, 2021~~	4

	Consolidated Statements of Comprehensive Income for the three and six months ended June 3, 2023 and May 28, 2022 ~~and May 29, 2021~~	5

	Consolidated Balance Sheets as of ~~May 28,~~June 3, 2023 and December 3, 2022 ~~and November 27, 2021~~	6

	Consolidated Statements of Total Equity for the three and six months ended June 3, 2023 and May 28, 2022 ~~and May 29, 2021~~	7

	Consolidated Statements of Cash Flows for the ~~six~~three months ended June 3, 2023 and May 28, 2022 ~~and May 29, 2021~~	8

	Notes to Consolidated Financial Statements	9

ITEM 2.	MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	2321

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	3429

ITEM 4.	CONTROLS AND PROCEDURES	3429

PART II. OTHER INFORMATION		3430

ITEM 1.	LEGAL PROCEEDINGS	3430

ITEM 1A.	RISK FACTORS	3530

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	3630

ITEM 6.	EXHIBITS	3731

SIGNATURES		3832

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

H.B. FULLER COMPANY AND SUBSIDIARIES

Consolidated Statements of Income

(In thousands, except per share amounts)

(Unaudited)

	*Three Months Ended*						*Six Months Ended*						*Three Months Ended*						*Six Months Ended*
	*May 28,*			*May 29,*			*May 28,*			*May 29,*			*June 3,*			*May 28,*			*June 3,*			*May 28,*
	*2022*			*2021*			*2022*			*2021*			*2023*			*2022*			*2023*			*2022*
Net revenue	$	993,258		$	827,873		$	1,849,739		$	1,553,777		$	898,239		$	993,258		$	1,707,421		$	1,849,739
Cost of sales		(739,737	)		(610,323	)		(1,383,326	)		(1,143,863	)		(641,464	)		(739,737	)		(1,235,838	)		(1,383,326	)
Gross profit		253,521			217,550			466,413			409,914			256,775			253,521			471,583			466,413
Selling, general and administrative expenses		(166,007	)		(148,409	)		(321,898	)		(292,423	)		(166,625	)		(166,007	)		(321,167	)		(321,898	)
Other income, net		0			11,879			6,142			19,748			605			-			3,209			6,142
Interest expense		(19,828	)		(19,942	)		(38,025	)		(40,303	)		(33,131	)		(19,828	)		(66,200	)		(38,025	)
Interest income		2,091			2,530			4,030			5,189			932			2,091			1,599			4,030
Income before income taxes and income from equity method investments		69,777			63,608			116,662			102,125			58,556			69,777			89,024			116,662
Income taxes		(23,616	)		(16,660	)		(33,765	)		(27,267	)		(19,291	)		(23,616	)		(29,024	)		(33,765	)
Income from equity method investments		1,066			2,176			2,649			4,072			1,157			1,066			2,338			2,649
Net income including non-controlling interest		47,227			49,124			85,546			78,930			40,422			47,227			62,338			85,546
Net income attributable to non-controlling interest		(24	)		(22	)		(37	)		(37	)		(21	)		(24	)		(48	)		(37	)
Net income attributable to H.B. Fuller	$	47,203		$	49,102		$	85,509		$	78,893		$	40,401		$	47,203		$	62,290		$	85,509

Earnings per share attributable to H.B. Fuller common stockholders:
Basic	$	0.88		$	0.93		$	1.60		$	1.50		$	0.74		$	0.88		$	1.15		$	1.60
Diluted	$	0.86		$	0.90		$	1.55		$	1.47		$	0.73		$	0.86		$	1.12		$	1.55

Weighted-average common shares outstanding:
Basic		53,497			52,839			53,425			52,666			54,269			53,497			54,222			53,425
Diluted		55,078			54,294			55,237			53,817			55,717			55,078			55,818			55,237

Dividends declared per common share	$	0.190		$	0.168		$	0.358		$	0.330		$	0.205		$	0.190		$	0.395		$	0.358

See accompanying Notes to Unaudited Consolidated Financial Statements.

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H.B. FULLER COMPANY AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)

	*Three Months Ended*						*Six Months Ended*						*Three Months Ended*						*Six Months Ended*
	*May 28,*			*May 29,*			*May 28,*			*May 29,*			*June 3,*			*May 28,*			*June 3,*			*May 28,*
	*2022*			*2021*			*2022*			*2021*			*2023*			*2022*			*2023*			*2022*
Net income including non-controlling interest	$	47,227		$	49,124		$	85,546		$	78,930		$	40,422		$	47,227		$	62,338		$	85,546
Other comprehensive (loss) income
Other comprehensive income (loss)
Foreign currency translation		(84,110	)		55,524			(77,579	)		78,661			26,410			(84,110	)		22,774			(77,579	)
Defined benefit pension plans adjustment, net of tax		2,803			1,371			3,292			2,746			858			2,803			1,709			3,292
Interest rate swaps, net of tax		3,347			3,564			9,578			7,744			(9,488	)		3,347			(1,153	)		9,578
Cross-currency swaps, net of tax		(1,210	)		(1,241	)		(3,293	)		(2,287	)		-			(1,210	)		-			(3,293	)
Other comprehensive (loss) income		(79,170	)		59,218			(68,002	)		86,864
Comprehensive (loss) income		(31,943	)		108,342			17,544			165,794
Net investment hedges, net of tax														(5,384	)		-			(5,683	)		-
Other comprehensive income (loss)														12,396			(79,170	)		17,647			(68,002	)
Comprehensive income (loss)														52,818			(31,943	)		79,985			17,544
Less: Comprehensive income attributable to non-controlling interest		12			34			16			39			6			12			43			16
Comprehensive (loss) income attributable to H.B. Fuller	$	(31,955	)	$	108,308		$	17,528		$	165,755
Comprehensive income (loss) attributable to H.B. Fuller													$	52,812		$	(31,955	)	$	79,942		$	17,528

See accompanying Notes to Unaudited Consolidated Financial Statements.

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H.B. FULLER COMPANY AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(Unaudited)

	*May 28,*			*November 27,*			*June 3,*			*December 3,*
	*2022*			*2021*			*2023*			*2022*
Assets
Current assets:
Cash and cash equivalents	$	68,149		$	61,786		$	103,183		$	79,910
Trade receivables (net of allowances of $12,701 and $9,935, as of May 28, 2022 and November 27, 2021, respectively)		644,544			614,645
Trade receivables (net of allowances of $11,512 and $10,939, as of June 3, 2023 and December 3, 2022, respectively)								586,609			607,365
Inventories		543,126			448,404			499,275			491,781
Other current assets		153,187			96,335			128,885			120,319
Total current assets		1,409,006			1,221,170			1,317,952			1,299,375

Property, plant and equipment		1,527,711			1,500,989			1,673,871			1,579,738
Accumulated depreciation		(825,256	)		(805,622	)		(886,459	)		(846,071	)
Property, plant and equipment, net		702,455			695,367			787,412			733,667

Goodwill		1,406,369			1,298,845			1,441,414			1,392,627
Other intangibles, net		737,551			687,075			721,564			702,092
Other assets		365,098			372,073			349,705			335,868
Total assets	$	4,620,479		$	4,274,530		$	4,618,047		$	4,463,629

Liabilities, non-controlling interest and total equity
Current liabilities:
Current liabilities
Notes payable	$	31,867		$	24,983		$	30,307		$	28,860
Trade payables		507,103			500,321			436,376			460,669
Accrued compensation		67,991			109,542			66,749			108,328
Income taxes payable		28,180			15,943			28,229			18,530
Other accrued expenses		86,842			86,061			99,171			89,345
Total current liabilities		721,983			736,850			660,832			705,732

Long-term debt		1,903,977			1,591,479			1,852,036			1,736,256
Accrued pension liabilities		69,820			71,651			53,546			52,561
Other liabilities		309,945			277,190			368,476			358,286
Total liabilities		3,005,725			2,677,170		$	2,934,890		$	2,852,835

Commitments and contingencies (Note 12)
Commitments and contingencies (Note 13)

Equity:
Equity
H.B. Fuller stockholders' equity:
Preferred stock (no shares outstanding) shares authorized – 10,045,900		0			0			-			-
Common stock, par value $1.00 per share, shares authorized – 160,000,000, shares outstanding – 53,153,056 and 52,777,753 as of May 28, 2022 and November 27, 2021, respectively		53,153			52,778
Common stock, par value $1.00 per share, shares authorized – 160,000,000, shares outstanding – 53,859,908 and 53,676,576 as of June 3, 2023 and December 3, 2022, respectively							$	53,860		$	53,677
Additional paid-in capital		232,253			213,637			280,120			266,491
Retained earnings		1,666,969			1,600,601			1,782,215			1,741,359
Accumulated other comprehensive loss		(338,228	)		(270,247	)		(433,705	)		(451,357	)
Total H.B. Fuller stockholders' equity		1,614,147			1,596,769			1,682,490			1,610,170
Non-controlling interest		607			591			667			624
Total equity		1,614,754			1,597,360			1,683,157			1,610,794
Total liabilities, non-controlling interest and total equity	$	4,620,479		$	4,274,530		$	4,618,047		$	4,463,629

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*																	*H.B. Fuller Company Shareholders*
										*Accumulated*																	*Accumulated*
				*Additional*						*Other*											*Additional*						*Other*
	*Common*			*Paid-in*			*Retained*			*Comprehensive*			*Non-Controlling*					*Common*			*Paid-in*			*Retained*			*Comprehensive*			*Non-Controlling*
	*Stock*			*Capital*			*Earnings*			*Income (Loss)*			*Interest*		*Total*			*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
Balance at December 3, 2022																		$	53,677		$	266,491		$	1,741,359		$	(451,357	)	$	624	$	1,610,794
Comprehensive income		0			0			38,306			11,177			4		49,487			-			-			21,889			5,241			37		27,167
Dividends		0			0			(8,964	)		0			0		(8,964	)		-			-			(10,305	)		-			-		(10,305	)
Stock option exercises		126			5,628			0			0			0		5,754			76			3,520			-			-			-		3,596
Share-based compensation plans and other, net		187			5,601			0			0			0		5,788			102			5,221			-			-			-		5,323
Repurchases of common stock		(49	)		(3,528	)		0			0			0		(3,577	)		(36	)		(2,412	)		-			-			-		(2,448	)
Balance at February 26, 2022	$	53,042		$	221,338		$	1,629,943		$	(259,070	)	$	595	$	1,645,848
Comprehensive income (loss)		0			0			47,203			(79,158	)		12		(31,943	)
Balance at March 4, 2023																		$	53,819		$	272,820		$	1,752,943		$	(446,116	)	$	661	$	1,634,127
Comprehensive income																			-			-			40,401			12,411			6		52,818
Dividends		0			0			(10,177	)		0			0		(10,177	)		-			-			(11,129	)		-			-		(11,129	)
Stock option exercises		47			2,036			0			0			0		2,083			13			584			-			-			-		597
Share-based compensation plans other, net		65			8,910			0			0			0		8,975			30			6,818			-			-			-		6,848
Repurchases of common stock		(1	)		(31	)		0			0			0		(32	)		(2	)		(102	)		-			-			-		(104	)
Balance at May 28, 2022	$	53,153		$	232,253		$	1,666,969		$	(338,228	)	$	607		1,614,754
Balance at June 3, 2023																		$	53,860		$	280,120		$	1,782,215		$	(433,705	)	$	667		1,683,157

	*H.B. Fuller Company Shareholders*																	*H.B. Fuller Company Shareholders*
										*Accumulated*																	*Accumulated*
				*Additional*						*Other*											*Additional*						*Other*
	*Common*			*Paid-in*			*Retained*			*Comprehensive*			*Non-Controlling*					*Common*			*Paid-in*			*Retained*			*Comprehensive*			*Non-Controlling*
	*Stock*			*Capital*			*Earnings*			*Income (Loss)*			*Interest*		*Total*			*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
Balance at November 27, 2021																		$	52,778		$	213,637		$	1,600,601		$	(270,247	)	$	591	$	1,597,360
Comprehensive income		0			0			29,791			27,656			5		57,452			-			-			38,306			11,177			4		49,487
Dividends		0			0			(8,542	)		0			0		(8,542	)		-			-			(8,964	)		-			-		(8,964	)
Stock option exercises		147			6,251			0			0			0		6,398			126			5,628			-			-			-		5,754
Share-based compensation plans and other, net		150			7,423			0			0			0		7,573			187			5,601			-			-			-		5,788
Repurchases of common stock		(49	)		(2,531	)		0			0			0		(2,580	)		(49	)		(3,528	)		-			-			-		(3,577	)
Balance at February 27, 2021	$	52,155		$	169,010		$	1,495,655		$	(275,203	)	$	546	$	1,442,163
Comprehensive income		0			0			49,102			59,206			34		108,342
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		0			0			(8,870	)		0			0		(8,870	)		-			-			(10,177	)		-			-		(10,177	)
Stock option exercises		318			13,887			0			0			0		14,205			47			2,036			-			-			-		2,083
Share-based compensation plans other, net		27			7,393			0			0			0		7,420			65			8,910			-			-			-		8,975
Repurchases of common stock		(1	)		(47	)		0			0			0		(48	)		(1	)		(31	)		-			-			-		(32	)
Balance at May 29, 2021	$	52,499		$	190,243		$	1,535,887		$	(215,997	)	$	580	$	1,563,212
Balance at May 28, 2022																		$	53,153		$	232,253		$	1,666,969		$	(338,228	)	$	607	$	1,614,754

See accompanying Notes to Unaudited Consolidated Financial Statements.

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H.B. FULLER COMPANY AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	*Six Months Ended*						*Six Months Ended*
	*May 28, 2022*			*May 29, 2021*			*June 3, 2023*			*May 28, 2022*
Cash flows from operating activities:
Net income including non-controlling interest	$	85,546		$	78,930		$	62,338		$	85,546
Adjustments to reconcile net income including non-controlling interest to net cash (used in) provided by operating activities:
Adjustments to reconcile net income including non-controlling interest to net cash provided by (used in) operating activities:
Depreciation		36,333			35,976			39,163			36,333
Amortization		36,412			35,649			37,813			36,412
Deferred income taxes		(4,961	)		(1,167	)		(16,831	)		(4,961	)
Income from equity method investments, net of dividends received		(2,649	)		(4,072	)		(2,338	)		(2,649	)
Loss on sale or disposal of assets		(1,087	)		0
Debt issuance costs write-off								2,689			-
Gain on mark to market adjustment on contingent consideration liability								(220	)		-
Gain on sale or disposal of assets								(42	)		(1,087	)
Share-based compensation		13,625			12,486			10,953			13,625
Pension and other post-retirement benefit plan activity		(9,720	)		(15,927	)		(6,226	)		(9,720	)
Change in assets and liabilities, net of effects of acquisitions:
Trade receivables, net		(35,491	)		(43,191	)		66,896			(35,491	)
Inventories		(95,413	)		(100,358	)		8,285			(95,413	)
Other assets		(21,908	)		(21,709	)		(36,951	)		(21,908	)
Trade payables		27,237			115,488			(20,301	)		27,237
Accrued compensation		(40,448	)		(8,760	)		(42,190	)		(40,448	)
Other accrued expenses		4,402			1,925			(9,988	)		4,402
Income taxes payable		(5,864	)		(1,513	)		10,025			(5,864	)
Other liabilities		(23,597	)		(28,980	)		18,819			(23,597	)
Other		28,452			25,055			(13,497	)		28,452
Net cash (used in) provided by operating activities		(9,131	)		79,832
Net cash provided by (used in) operating activities								108,397			(9,131	)

Cash flows from investing activities:
Purchased property, plant and equipment		(69,055	)		(50,726	)		(82,578	)		(69,055	)
Purchased businesses, net of cash acquired		(229,314	)		(5,445	)		(103,744	)		(229,314	)
Proceeds from sale of property, plant and equipment		1,269			1,237			2,623			1,269
Cash received from government grant		3,928			0			-			3,928
Cash payments related to government grant		0			(1,526	)
Net cash used in investing activities		(293,172	)		(56,460	)		(183,699	)		(293,172	)

Cash flows from financing activities:
Proceeds from debt		335,000			0
Proceeds from issuance of long-term debt								1,300,000			335,000
Repayment of long-term debt		0			(68,000	)		(1,176,650	)		-
Payment of debt issuance costs		(600	)		0			(10,214	)		(600	)
Net proceeds of notes payable		3,565			9,335
Net payment of notes payable								(239	)		3,565
Dividends paid		(18,965	)		(17,244	)		(21,258	)		(18,965	)
Contingent consideration payment		(5,000	)		0			-			(5,000	)
Proceeds from stock options exercised		7,837			20,621			4,193			7,837
Repurchases of common stock		(3,609	)		(2,628	)		(2,552	)		(3,609	)
Net cash provided by (used in) financing activities		318,228			(57,916	)
Net cash provided by financing activities								93,280			318,228

Effect of exchange rate changes on cash and cash equivalents		(9,562	)		3,607			5,295			(9,562	)
Net change in cash and cash equivalents		6,363			(30,937	)		23,273			6,363
Cash and cash equivalents at beginning of period		61,786			100,534			79,910			61,786
Cash and cash equivalents at end of period	$	68,149		$	69,597		$	103,183		$	68,149

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~~December 3, 2022 as filed with the Securities and Exchange Commission.

New Accounting Pronouncements

In ~~November 2021,~~September 2022, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued ASU No. ~~2021~~2022-~~10,~~04, ~~Government Assistance (Topic~~Liabilities - Supplier Finance Programs (Subtopic ~~832~~405-50): ~~Disclosures by Business Entities about Government Assistance~~Disclosure of Supplier Finance Program Obligations.. This ASU requires ~~business entities~~that a buyer in a supplier finance program disclose sufficient information about the program to ~~make annual disclosures~~allow a user of the financial statements to understand the program's nature, activity during the period, changes from period to period, and potential magnitude. To achieve that objective, the buyer should disclose qualitative and quantitative information about ~~transactions with a government they account for by analogizing to a grant or contribution accounting model under ASC~~ ~~958~~-~~605.~~its supplier finance programs. Our effective date ~~for adoption~~ of this ASU is our fiscal year ~~beginning~~ending December ~~4, 2022~~1, 2024. ~~with early adoption permitted.~~ We ~~have evaluated~~are evaluating the effect that this guidance will have on our Consolidated Financial ~~Statements and determined it will~~Statements.

Recently issued accounting standards or pronouncements not disclosed above have ~~a material impact.~~been excluded as they are not relevant to the company.

Note 2: Acquisitions

Beardow Adams Holdings Ltd.

On May 1, 2023, we acquired Beardow Adams Holdings Ltd. (“Beardow Adams”) for a total purchase price of 79,570 British pound sterling, or approximately $99,426, which was funded through borrowings on our credit facility. This includes a holdback amount of 8,000 British pound sterling that will be paid on the 18-month anniversary of the closing date. Beardow Adams, based in the United Kingdom, develops and manufactures adhesives, sealants, coatings and primers, principally in the fields of packaging, labeling, bookbinding, hygiene, wood and product assembly. The acquisition of Beardow Adams is expected to accelerate profitable growth in many of our core end markets and generate business synergies through production optimization, an expanded distribution platform, and difference-making innovation. The acquisition fair value measurement was preliminary as of June 3, 2023 and includes intangible assets of $40,485, goodwill of $42,585 and other net assets of $16,356. Beardow Adams is included in our Hygiene, Health and Consumable Adhesives operating segment.

Aspen Research Corporation

On January 31, 2023, we acquired the assets of Aspen Research Corporation (“Aspen”) for a total purchase price of $9,850, which was funded through existing cash. This includes a holdback amount of $500 that will be paid on the 18-month anniversary of the closing date. Aspen, located in Maple Grove, Minnesota, is a contract research organization that develops and manufactures innovative solutions for some of the adhesives used in our insulating glass market. Aspen is known for their superior understanding of materials science, engineering and analytical testing and specializes in custom materials manufacturing for chemicals and adhesives products. The acquisition of Aspen is expected to expand our Engineering Adhesives footprint in North America and strengthen our capabilities in the insulating glass market, in addition to bringing additive continuous flow, process manufacturing capabilities that we plan to leverage. The acquisition fair value measurement was preliminary as of June 3, 2023 and includes intangible assets of $7,777 and other net assets of $2,073. Aspen is included in our Engineering Adhesives operating segment.

Lemtapes Oy

On December 15, 2022, we acquired Lemtapes Oy (“Lemtapes”) for a total purchase price of 8,048 Euro, or approximately $8,552 which was funded through existing cash. This includes a holdback amount of 850 Euro that will be paid on the 18-month anniversary of the closing date. Lemtapes, located in Valkeakoski, Finland, is a solutions provider of ecological, innovative tapes and adhesives for the packaging and plywood industries. The acquisition of Lemtapes is expected to reinforce our strategic position in Europe, especially for our Adhesives Coated Solutions products. This acquisition will also accelerate our growth strategy of fast-growing, high margin businesses while adding technology capabilities and strong customer relationships. The acquisition fair value measurement was preliminary as of June 3, 2023 and includes intangible assets of $6,535 and other net assets of $2,017. Lemtapes is included in our Hygiene, Health and Consumable Adhesives operating segment.

GSSI Sealants

On October 24, 2022, we acquired GSSI Sealants, Inc. ("GSSI") for a total purchase price of $7,701, which was funded through existing cash. This includes a holdback amount of $1,050 that will be paid on the 12-month anniversary of the closing date. GSSI, headquartered in Houston, Texas, is a manufacturer of premier elastomeric butyl rubber sealant tapes. The acquisition of GSSI is expected to support our strategy to expand our Construction Adhesives business selectively via high margin applications and expand our reach to new regions. The acquisition fair value measurement was preliminary as of June 3, 2023 and includes intangible assets of $4,523 and other net assets of $3,178. GSSI is included in our Construction Adhesives operating segment.

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ZKLT Polymer Co.

On August 16, 2022, we acquired ZKLT Polymer Co., Ltd. ("ZKLT") for a base purchase price of 102,812 Chinese renminbi, or approximately $15,183, which was funded through existing cash. We are also required to pay 27,000 Chinese renminbi, or approximately $3,987, with half to be paid on each of the 12-month and 18-month anniversaries of the closing date, as well as contingent consideration up to 30,000 Chinese renminbi, or approximately $4,430, following the completion of certain performance goals and conditions. ZKLT, headquartered in Chongquin City, China, is a manufacturer of liquid adhesives primarily for the automotive market. The acquisition of ZKLT is expected to add unique technology, strong customer relationships and a strategic manufacturing location to further strengthen our presence in central China. The acquisition fair value measurement was preliminary as of June 3,2023 and includes intangible assets of $5,183, goodwill of $3,902 and other net assets of $10,085. Goodwill is not deductible for tax purposes. See Note 2:12 ~~Acquisitions~~for further discussion of the fair value of the contingent consideration. ZKLT is included in our Engineering Adhesives operating segment.

Apollo

On January 26, 2022, we acquired Apollo Chemicals Limited, Apollo Roofing Solutions Limited and Apollo Construction Solutions Limited (collectively, "Apollo") for a ~~base~~total purchase price of ~~GBP 151,214,~~152,714 British pound sterling, or approximately ~~$203,573,~~$205,592, which was funded through borrowings on our credit facility. ~~The agreement requires us to pay an additional GBP 1,500, or approximately $2,019, following the completion of certain environmental studies.~~ Apollo, headquartered in Tamworth, UK, is a manufacturer of liquid adhesives, coatings and primers for the roofing, industrial and construction markets. Apollo is expected to enhance our position in key high-value, high-margin markets in the UK and throughout Europe. The acquisition fair value measurement was ~~preliminary~~final as of ~~May 28, 2022.~~December 3, 2022 and includes intangible assets of $76,198, goodwill of $119,358 and other net assets of $10,036. Goodwill is not deductible for tax purposes. The acquisition ~~will be~~is included in our Construction Adhesives operating segment.

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

February 26, 2022

Adjustments

May 28, 2022

Cash
$ 12,165 - $ 12,165
Current assets
18,873 - 18,873
Property, plant and equipment
7,877 - 7,877
Goodwill
104,885 13,359 118,244
Other intangibles

Customer relationships
82,256 (14,809 ) 67,447
Trademarks/trade names
2,154 135 2,289
Technology
9,558 (3,096 ) 6,462
Current liabilities
(8,293 ) (41 ) (8,334 )
Other liabilities
(23,883 ) 4,452 (19,431 )
Total
$ 205,592 $ - $ 205,592

~~The expected useful lives of the acquired intangible assets are 12 years for customer relationships and technology and 10 years for trademarks/trade names.~~

Based on the fair value measurement of the assets acquired and liabilities assumed, we allocated $118,244 to goodwill for the expected synergies from combining Apollo with our existing business. Such goodwill is ~~not~~ ~~deductible for tax purposes. The goodwill was assigned to our Construction Adhesives operating segment. The Apollo acquisition does~~ ~~not~~ ~~represent a material business combination, and therefore pro forma financial information is~~ ~~not~~ ~~provided.~~

Fourny NV

On January 11, 2022, we acquired Fourny NV ("Fourny") for a base purchase price of ~~EUR~~ 12,867 Euro, or approximately $14,627, which was funded through existing cash. The agreement requires us to pay an additional ~~EUR~~ 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~~.adhesives. Fourny is expected to enhance our position in key high-value, high-margin markets in Europe. The acquisition fair value measurement was ~~preliminary~~final as of ~~May 28,~~December 3, 2022 and includes intangible assets of $10,117, goodwill of ~~$6,593, cash of $75~~$6,455 and other net assets of ~~$1,366.~~$1,391. Goodwill is not ~~deductible~~deductible for tax purposes. Fourny is ~~recorded~~included in our Construction Adhesives operating segment. ~~The Fourny acquisition does~~

All acquisitions, individually and in the aggregate, are 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. T~~he acquisition fair value measurement was preliminary as of~~ ~~May 28, 2022~~ ~~and includes intangible assets of $11,160, goodwill of $13,765 and other net assets of $217.~~ ~~Goodwill~~ ~~is deductible for tax purposes. See Note~~ 11 for further discussion of the fair value of the contingent consideration liability. TissueSeal is recorded in our Hygiene, Health and Consumable Adhesives operating segment. The TissueSeal acquisition does ~~not~~ ~~represent a material business combination, and therefore pro forma financial information is~~ ~~not~~ ~~provided.~~

~~STR Holdings, Inc.~~

On ~~January 13, 2021,~~ ~~we acquired certain assets of STR Holding, Inc. ("STR") for a base purchase price of $5,445 which was funded through existing cash. The agreement required us to pay an additional $800 on the~~ ~~first~~ anniversary of the acquisition and contingent consideration of up to $1,700 based on certain agreement provisions. STR, headquartered in Enfield, Connecticut, is a manufacturer of encapsulant products used in the solar industry. The acquisition fair value measurement, which includes intangible assets of $6,700 and other net assets of $1,245, was final as of ~~November 27, 2021.~~ ~~The agreement provisions for the contingent consideration were met, and as a result, $1,700 was paid as of~~ ~~November 27, 2021.~~ ~~NaN 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~~During fiscal year 2023, the Company ~~has~~ approved restructuring plans ~~consisting of consolidation plans,~~related to organizational changes and other actions ~~related to the reorganization of our business into 3 segments, the integration of the operations of Royal Adhesives with the operations of the Company and other actions~~ to optimize ~~operations.~~ operations and are currently expected to be completed during fiscal year 2025.

The following table summarizes the pre-tax ~~charges under these~~distribution of restructuring ~~plans~~charges by income statement classification:

	*Three Months Ended*					*Six Months Ended*					*Three Months Ended*				*Six Months Ended*
	*May 28, 2022*		*May 29, 2021*			*May 28, 2022*			*May 29, 2021*		*June 3, 2023*		*May 28, 2022*		*June 3, 2023*		*May 28, 2022*
Cost of sales	$	0	$	23		$	(152	)	$	293	$	2,784	$	-	$	5,085	$	(152	)
Selling, general and administrative		14		(201	)		(75	)		1,346		2,618		14		3,243		(75	)
	$	14	$	(178	)	$	(227	)	$	1,639	$	5,402	$	14	$	8,328	$	(227	)

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

A summary of the restructuring liability is presented below:

	*Employee-Related*			*Other*			*Total*			*Employee-Related*
Balance at November 28, 2020	$	5,834		$	248		$	6,082
Expenses incurred		(807	)		1,594			787
Non-cash charges		0			(135	)		(135	)
Cash payments		(3,917	)		(1,707	)		(5,624	)
Foreign currency translation		(15	)		0			(15	)
Balance at November 27, 2021		1,095			0			1,095		$	1,095
Expenses incurred		(227	)		0			(227	)		(449	)
Cash payments		(530	)		0			(530	)		(529	)
Foreign currency translation		(40	)		0			(40	)		(60	)
Balance at May 28, 2022	$	298		$	0		$	298
Balance at December 3, 2022										$	57
Expenses incurred											8,328
Cash payments											(2,083	)
Foreign currency translation											(610	)
Balance at June 3, 2023										$	5,692

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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 inon the Consolidated Balance Sheets.

Note 4: Inventories

The composition of inventories is as follows:

	*May 28,*		*November 27,*		*June 3,*		*December 3,*
	*2022*		*2021*		*2023*		*2022*
Raw materials	$	274,704	$	226,723	$	229,341	$	237,071
Finished goods		268,422		221,681		269,934		254,710
Total inventories	$	543,126	$	448,404	$	499,275	$	491,781

Note 5: Goodwill and Other Intangible Assets

The goodwill activity by reportable segment for the six months ended ~~May 28, 2022~~June 3, 2023 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 0 0 13,765
Fourny acquisition
0 0 6,222 6,222
Apollo acquisition
0 0 110,815 110,815
Foreign currency translation effect
(6,250 ) (17,067 ) 39 (23,278 )
Balance at May 28, 2022
$ 332,985 $ 644,954 $ 428,430 $ 1,406,369

	*Hygiene, Health*
	*and Consumable*		*Engineering*		*Construction*
	*Adhesives*		*Adhesives*		*Adhesives*		*Total*
Balance at December 3, 2022	$	328,962	$	637,910	$	425,755	$	1,392,627
Acquisitions	$	42,585	$	-	$	-		42,585
Foreign currency translation effect	$	2,222	$	2,434	$	1,546		6,202
Balance at June 3, 2023	$	373,769	$	640,344	$	427,301	$	1,441,414

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

	*May 28, 2022*															*June 3, 2023*
	*Purchased*															*Purchased*
	*Technology*			*Customer*												*Technology*			*Customer*
Amortizable Intangible Assets	*and Patents*			*Relationships*			*Trade Names*			*Other*			*Total*			*and Patents*			*Relationships*			*Trade Names*			*Other*			*Total*
Original cost	$	120,094		$	1,008,089		$	49,929		$	11,048		$	1,189,160		$	105,868		$	1,048,314		$	52,802		$	10,959		$	1,217,943
Accumulated amortization		(64,174	)		(362,491	)		(19,614	)		(5,798	)		(452,077	)		(53,809	)		(415,783	)		(20,710	)		(6,544	)		(496,846	)
Net identifiable intangibles	$	55,920		$	645,598		$	30,315		$	5,250		$	737,083		$	52,059		$	632,531		$	32,092		$	4,415		$	721,097

	*November 27, 2021*															*December 3, 2022*
	*Purchased*															*Purchased*
	*Technology*			*Customer*												*Technology*			*Customer*
Amortizable Intangible Assets	*and Patents*			*Relationships*			*Trade Names*			*Other*			*Total*			*and Patents*			*Relationships*			*Trade Names*			*Other*			*Total*
Original cost	$	115,980		$	932,644		$	63,543		$	11,343		$	1,123,510		$	118,727		$	1,004,008		$	50,324		$	11,053		$	1,184,112
Accumulated amortization		(62,364	)		(335,143	)		(33,786	)		(5,635	)		(436,928	)		(66,433	)		(388,394	)		(21,401	)		(6,251	)		(482,479	)
Net identifiable intangibles	$	53,616		$	597,501		$	29,757		$	5,708		$	686,582		$	52,294		$	615,614		$	28,923		$	4,802		$	701,633

Amortization expense with respect to amortizable intangible assets was ~~$18,620~~$19,130 and ~~$17,753~~$18,620 for the three months ended ~~May 28, 2022~~June 3, 2023 and May ~~29, 2021~~28, 2022, respectively, and ~~$36,412~~$37,813 and ~~$35,649~~$36,412 for the six months ended ~~May 28, 2022~~June 3, 2023 and May ~~29, 2021~~28, 2022, 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*												*Remainder*
Fiscal Year	*2022*		*2023*		*2024*		*2025*		*2026*		*Thereafter*		*2023*		*2024*		*2025*		*2026*		*2027*		*Thereafter*
Amortization expense	$	50,012	$	69,293	$	65,104	$	62,851	$	56,546	$	433,277	$	68,435	$	69,181	$	67,465	$	61,828	$	59,086	$	395,102

Non-amortizable intangible assets as of ~~May 28, 2022~~June 3, 2023 and ~~November 27, 2021~~December 3, 2022 ~~are $468~~were $467 and ~~$493,~~$459, respectively, and ~~are related~~relate to trademarks and trade names. The change in non-amortizable assets as of ~~May 28, 2022~~June 3, 2023 compared to ~~November 27, 2021~~December 3, 2022 was due to changes in foreign currency exchange rates.

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Note 6: Long-Term Debt

On February 15, 2023, we entered into a credit agreement with a consortium of financial institutions (“Second Amended and Restated Credit Agreement”) which replaces our existing revolving credit agreement under the amended and restated revolving credit agreement dated October 20, 2020 and also replaces our secured term loan credit agreement dated October 20, 2017. The Second Amended and Restated Credit Agreement provides for a new senior secured term loan A facility in an aggregate principal amount of $500,000 (“Term Loan A”), a new senior secured term loan B facility in an aggregate principal amount of $800,000 (“Term Loan B”) and amendments to and extension of our existing senior secured revolving credit facility with an aggregate commitment in the amount of $700,000 (“Revolving Credit Facility”). A portion of the proceeds of the combined facilities, (the “Credit Facilities”) was used to pay off the existing term loan and revolver. The Credit Facilities will generally be used to finance working capital needs and acquisitions, and for general corporate purposes. All of our obligations under the Credit Facilities will be secured by a first-lien security interest in substantially all personal property and material real property of the Company and its material U.S. subsidiaries, and will be guaranteed by all of the Company’s material U.S. subsidiaries.

Term Loans

Interest on Term Loan A is payable at the Secured Overnight Financing Rate ("SOFR") plus an adjustment of 0.10 percent and an interest rate spread of 1.75 percent (6.99 percent at June 3, 2023). The interest rate spread is based on a secured leverage grid. Term Loan A matures on February 15, 2028. Interest on Term Loan B is payable at SOFR plus an interest rate spread of 2.50 percent with a SOFR floor of 0.50 percent (7.64 percent at June 3, 2023). Term Loan B matures on February 15, 2030.

On January 12, 2023, we entered into an interest rate swap agreement to convert $400,000 of our variable rate 1-month LIBOR rate debt to a fixed rate of 3.6895 percent. On February 28, 2023, after entering into the Second Amended and Restated Credit Agreement, we amended the interest rate swap agreement to 1-month SOFR and a fixed rate of 3.7260 in accordance with the practical expedients included in ASC 848,Reference Rate Reform. See Note 11 for further discussion of this interest rate swap.

On March 16, 2023, we entered into interest rate swap agreements to convert $300,000 of our 1-month SOFR rate debt to a fixed rate of 3.7210 percent and to convert $100,000 of our 1-month SOFR rate debt to a fixed rate of 3.8990 percent. See Note 11 for further discussion of these interest rate swaps.

Revolving Credit Facility

Interest on the Revolving Credit Facility is payable at SOFR plus an adjustment of 0.10 percent and an interest rate spread of 1.75 percent (6.99 percent at June 3, 2023). A facility fee of 25 basis points of the unused commitment under the Revolving Credit Facility is payable quarterly. The interest rate spread and the facility fee are based on a secured leverage grid. At June 3, 2023, there was no balance outstanding on the Revolving Credit Facility. The Revolving Credit Facility matures on February 15, 2028.

The Revolving Credit Facility can be drawn upon for general corporate purposes up to a maximum of $700,000, less issued letters of credit. At June 3, 2023, letters of credit reduced the available amount under the Revolving Credit Facility by $9,968.

Covenants and Other

Under the Second Amended and Restated Credit Agreement, the Revolving Credit Facility and Term Loan A are subject to certain covenants and restrictions. For these facilities, we are required to maintain a secured leverage ratio, as defined in the agreement, no greater than 4.75 to 1.00 for our fiscal quarters ending on or prior to June 1, 2024 and then 4.50 to 1.00 thereafter. We are also required to maintain an interest coverage ratio of not less than 2.00 to 1.00.

Restrictive covenants include, but are not limited to, limitations on secured and unsecured borrowings, interest coverage, intercompany transfers and investments, third party investments, dispositions of assets, leases, liens, dividends and distributions, and contains a maximum total debt to trailing twelve months EBITDA requirement. Certain covenants become less restrictive after meeting leverage or other financial ratios. In addition, we cannot be a member of any consolidated group as defined for income tax purposes other than with our subsidiaries.

We are subject to mandatory prepayments in the first quarter of each fiscal year equal to 50 percent of Excess Cash Flow, as defined in the Second Amended and Restated Credit Agreement, of the prior fiscal year less any voluntary prepayments made during that fiscal year. The Excess Cash Flow Percentage shall be reduced to 25 percent when our Secured Leverage Ratio is below 4.25:1.00 and to 0 percent when our Secured Leverage Ratio is below 3.75:1.00.

The principal balance of the Term Loan B loans will be repayable in equal quarterly installments in an aggregate annual amount equal to 1 percent of the original principal amount thereof, with the balance due at maturity on February 15, 2030. The principal balance of the Term Loan A loans will be repayable in quarterly installments as follows: (i) with respect to the firsteight fiscal quarters ended after the effective date of the Second Amended and Restated Credit Agreement, 1.25 percent of the aggregate principal amount of the original principal of the Term Loan A loans, (ii) with respect to the eight fiscal quarters ended after the end of the period set forth in the preceding clause (i), 1.875 percent of the aggregate principal amount of the original principal amount of the Term Loan A loans, and (iii) thereafter, 2.5 percent of the original principal amount of the Term Loan A loans, with the balance due at maturity on February 15, 2028.

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Note 7: Components of Net Periodic Benefit related to Pension and Other Postretirement Benefit Plans

	*Three Months Ended May 28, 2022 and May 29, 2021*																		*Three Months Ended June 3, 2023 and May 28, 2022*
													*Other*																		*Other*
	*Pension Benefits*												*Postretirement*						*Pension Benefits*												*Postretirement*
	*U.S. Plans*						*Non-U.S. Plans*						*Benefits*						*U.S. Plans*						*Non-U.S. Plans*						*Benefits*
Net periodic cost (benefit):	*2022*			*2021*			*2022*			*2021*			*2022*			*2021*
Net periodic (benefit) cost:																			*2023*			*2022*			*2023*			*2022*			*2023*			*2022*
Service cost	$	0		$	0		$	700		$	821		$	0		$	5		$	-		$	-		$	413		$	700		$	-		$	-
Interest cost		2,368			2,325			736			739			184			206			3,475			2,368			1,410			736			301			184
Expected return on assets		(7,117	)		(7,781	)		(1,644	)		(3,104	)		(2,719	)		(2,236	)		(7,205	)		(7,117	)		(1,730	)		(1,644	)		(2,465	)		(2,719	)
Amortization:
Prior service cost (benefit)		(1	)		(1	)		16			17			0			0
Actuarial loss		1,013			799			611			1,016			(845	)		18
Prior service (benefit) cost																				-			(1	)		15			16			-			-
Actuarial loss (gain)																				635			1,013			491			611			-			(845	)
Settlement charge		0			0			3,329			0			0			0			-			-			-			3,329			-			-
Net periodic benefit	$	(3,737	)	$	(4,658	)	$	3,748		$	(511	)	$	(3,380	)	$	(2,007	)
Net periodic (benefit) cost																			$	(3,095	)	$	(3,737	)	$	599		$	3,748		$	(2,164	)	$	(3,380	)

	*Six Months Ended May 28, 2022 and May 29, 2021*																		*Six Months Ended June 3, 2023 and May 28, 2022*
													*Other*																		*Other*
	*Pension Benefits*												*Postretirement*						*Pension Benefits*												*Postretirement*
	*U.S. Plans*						*Non-U.S. Plans*						*Benefits*						*U.S. Plans*						*Non-U.S. Plans*						*Benefits*
Net periodic cost (benefit):	*2022*			*2021*			*2022*			*2021*			*2022*			*2021*
Net periodic (benefit) cost:																			*2023*			*2022*			*2023*			*2022*			*2023*			*2022*
Service cost	$	0		$	0		$	1,420		$	1,654		$	0		$	11		$	-		$	-		$	833		$	1,420		$	-		$	-
Interest cost		4,735			4,650			1,525			1,472			367			411			6,951			4,735			2,846			1,525			602			367
Expected return on assets		(14,235	)		(15,561	)		(3,391	)		(6,181	)		(5,437	)		(4,472	)		(14,412	)		(14,235	)		(3,492	)		(3,391	)		(4,929	)		(5,437	)
Amortization:
Prior service cost (benefit)		(2	)		(2	)		32			34			0			0
Actuarial loss		2,027			1,599			1,260			2,038			(1,690	)		36
Prior service (benefit) cost																				-			(2	)		30			32			-			-
Actuarial loss (gain)																				1,271			2,027			990			1,260			-			(1,690	)
Settlement charge		0			0			3,329			0			0			0			-			-			-			3,329			-			-
Net periodic benefit	$	(7,475	)	$	(9,314	)	$	4,175		$	(983	)	$	(6,760	)	$	(4,014	)
Net periodic (benefit) cost																			$	(6,190	)	$	(7,475	)	$	1,207		$	4,175		$	(4,327	)	$	(6,760	)

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~~Statement of Income.

1213

Table of Contents

Note 7:8: Accumulated Other Comprehensive Income (Loss)

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

	*Three Months Ended May 28, 2022*												*Three Months Ended May 29, 2021*											*Three Months Ended June 3, 2023*												*Three Months Ended May 28, 2022*
										*Non-*												*Non-*											*Non-*												*Non-*
										*controlling*												*controlling*											*controlling*												*controlling*
	*H.B. Fuller Stockholders*									*Interest*			*H.B. Fuller Stockholders*									*Interest*		*H.B. Fuller Stockholders*									*Interest*			*H.B. Fuller Stockholders*									*Interest*
	*Pre-tax*			*Tax*			*Net*			*Net*			*Pre-tax*			*Tax*			*Net*			*Net*		*Pre-tax*			*Tax*			*Net*			*Net*			*Pre-tax*			*Tax*			*Net*			*Net*
Net income attributable to H.B. Fuller and non-controlling interest							$	47,203		$	24								$	49,102		$	22							$	40,401		$	21								$	47,203		$	24
Foreign currency translation adjustment¹	$	(84,098	)	$	0			(84,098	)		(12	)	$	55,512		$	0			55,512			12
Foreign currency translation¹																								$	26,425		$	-			26,425			(15	)	$	(84,098	)	$	-			(84,098	)		(12	)
Defined benefit pension plans adjustment²		3,872			(1,069	)		2,803			-			1,851			(480	)		1,371			-		1,151			(293	)		858			-			3,872			(1,069	)		2,803			-
Interest rate swap³		4,435			(1,088	)		3,347			-			4,721			(1,157	)		3,564			-
Cross currency swaps³		(1,228	)		18			(1,210	)		-			(1,258	)		17			(1,241	)		-
Interest rate swaps³																									(12,584	)		3,096			(9,488	)		-			4,435			(1,088	)		3,347			-
Cross-currency swaps³																									-			-			-			-			(1,228	)		18			(1,210	)		-
Net investment hedges³																									(7,141	)		1,757			(5,384	)		-			-			-			-			-
Other comprehensive income (loss)	$	(77,019	)	$	(2,139	)	$	(79,158	)	$	(12	)	$	60,826		$	(1,620	)	$	59,206		$	12	$	7,851		$	4,560		$	12,411		$	(15	)	$	(77,019	)	$	(2,139	)	$	(79,158	)	$	(12	)
Comprehensive income (loss)							$	(31,955	)	$	12								$	108,308		$	34							$	52,812		$	6								$	(31,955	)	$	12

	*Six Months Ended May 28, 2022*												*Six Months Ended May 29, 2021*											*Six Months Ended June 3, 2023*												*Six Months Ended May 28, 2022*
										*Non-*												*Non-*											*Non-*												*Non-*
										*controlling*												*controlling*											*controlling*												*controlling*
	*H.B. Fuller Stockholders*									*Interest*			*H.B. Fuller Stockholders*									*Interest*		*H.B. Fuller Stockholders*									*Interest*			*H.B. Fuller Stockholders*									*Interest*
	*Pretax*			*Tax*			*Net*			*Net*			*Pretax*			*Tax*			*Net*			*Net*		*Pretax*			*Tax*			*Net*			*Net*			*Pretax*			*Tax*			*Net*			*Net*
Net income attributable to H.B. Fuller and non-controlling interest							$	85,509		$	37								$	78,893		$	37							$	62,290		$	48								$	85,509		$	37
Foreign currency translation adjustment¹	$	(77,558	)	$	0			(77,558	)		(21	)	$	78,659		$	0			78,659			2	$	22,779		$	-			22,779			(5	)	$	(77,558	)	$	-			(77,558	)		(21	)
Defined benefit pension plans adjustment²		4,705			(1,413	)		3,292			-			3,706			(960	)		2,746			-		2,292			(583	)		1,709			-			4,705			(1,413	)		3,292			-
Interest rate swap³		12,690			(3,112	)		9,578			-			10,258			(2,514	)		7,744			-		(1,529	)		376			(1,153	)		-			12,690			(3,112	)		9,578			-
Cross currency swaps³		(3,343	)		50			(3,293	)		-			(2,320	)		33			(2,287	)		-
Cross-currency swaps³																									-			-			-			-			(3,343	)		50			(3,293	)		-
Net investment hedges³																									(7,538	)		1,855			(5,683	)		-			-			-			-			-
Other comprehensive income (loss)	$	(63,506	)	$	(4,475	)	$	(67,981	)		(21	)	$	90,303		$	(3,441	)		86,862			2	$	16,004		$	1,648		$	17,652			(5	)	$	(63,506	)	$	(4,475	)		(67,981	)		(21	)
Comprehensive income							$	17,528		$	16								$	165,755		$	39							$	79,942		$	43								$	17,528		$	16

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.

~~Table of Contents~~

The components of accumulated other comprehensive loss are as follows:

	*May 28, 2022*									*June 3, 2023*
							*Non-*									*Non-*
				*H.B. Fuller*			*controlling*						*H.B. Fuller*			*controlling*
	*Total*			*Stockholders*			*Interest*			*Total*			*Stockholders*			*Interest*
Foreign currency translation adjustment	$	(209,916	)	$	(209,825	)	$	(91	)	$	(241,270	)	$	(241,233	)	$	(37	)
Interest rate swap, net of taxes of $112		(346	)		(346	)		0
Cash flow hedges, net of taxes of ($3)		190			190			0
Defined benefit pension plans adjustment, net of taxes of $42,292		(109,906	)		(109,906	)		0
Interest rate swap, net of taxes of $376											(1,153	)		(1,153	)		-
Net investment hedges, net of taxes of $15,152											(46,426	)		(46,426	)		-
Defined benefit pension plans adjustment, net of taxes of $67,161											(126,552	)		(126,552	)		-
Reclassification of AOCI tax effects		(18,341	)		(18,341	)		0			(18,341	)		(18,341	)		-
Accumulated other comprehensive loss	$	(338,319	)	$	(338,228	)	$	(91	)	$	(433,742	)	$	(433,705	)	$	(37	)

	*November 27, 2021*									*December 3, 2022*
							*Non-*									*Non-*
				*H.B. Fuller*			*controlling*						*H.B. Fuller*			*controlling*
	*Total*			*Stockholders*			*Interest*			*Total*			*Stockholders*			*Interest*
Foreign currency translation adjustment	$	(132,370	)	$	(132,267	)	$	(103	)	$	(264,054	)	$	(264,012	)	$	(42	)
Interest rate swap, net of taxes of $3,224		(9,924	)		(9,924	)		0
Cash flow hedges, net of taxes of ($53)		3,483			3,483			0
Defined benefit pension plans adjustment, net of taxes of $63,925		(113,198	)		(113,198	)		0
Net investment hedges, net of taxes of $13,297											(40,743	)		(40,743	)		-
Defined benefit pension plans adjustment, net of taxes of $67,744											(128,261	)		(128,261	)		-
Reclassification of AOCI tax effects		(18,341	)		(18,341	)		0			(18,341	)		(18,341	)		-
Accumulated other comprehensive loss	$	(270,350	)	$	(270,247	)	$	(103	)	$	(451,399	)	$	(451,357	)	$	(42	)

Table of Contents

Note 8:9: Income Taxes

Income tax expense for the three and six months ended June 3, 2023 includes $2,042 and $2,888 of discrete tax expense, respectively, relating to various foreign tax matters offset by an excess tax benefit related to U.S. stock compensation. Excluding the discrete tax expense, the overall effective tax rate was 29.5 percent and 29.4 percent for the three and six months ended June 3, 2023, respectively.

Income tax expense for the three and six months ended May 28, 2022 includes $4,149 and $1,248 of discrete tax expense, respectively, relating to the revaluation of cross-currency swap agreements due to depreciation of the Euro versus the U.S. Dollar, as well as various foreign tax matters offset by the tax effect of legal entity mergers. Excluding the discrete tax expense, the overall effective tax rate was 27.9 percent for both the three and six months ended May 28, 2022.

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

As of ~~May 28, 2022~~June 3, 2023, we had a liability of ~~$15,414~~$16,434 recorded for gross unrecognized tax benefits (excluding interest) compared to ~~$13,281~~$17,582 as of ~~November 27, 2021~~December 3, 2022. As of ~~May 28, 2022~~June 3, 2023 and ~~November 27, 2021~~December 3, 2022, we had accrued ~~$3,215~~$5,933 and ~~$2,448~~$5,680 of gross interest relating to unrecognized tax benefits, respectively.

~~Table of Contents~~

Note 9:10: Earnings Per Share

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

	*Three Months Ended*				*Six Months Ended*				*Three Months Ended*				*Six Months Ended*
	*May 28,*		*May 29,*		*May 28,*		*May 29,*		*June 3,*		*May 28,*		*June 3,*		*May 28,*
(Shares in thousands)	*2022*		*2021*		*2022*		*2021*		*2023*		*2022*		*2023*		*2022*
Weighted-average common shares - basic		53,497		52,839		53,425		52,666		54,269		53,497		54,222		53,425
Equivalent shares from share-based compensations plans		1,581		1,455		1,812		1,151		1,448		1,581		1,596		1,812
Weighted-average common and common equivalent shares diluted		55,078		54,294		55,237		53,817		55,717		55,078		55,818		55,237

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 ~~658,511~~1,026,155 and ~~208,888~~658,511 shares for the three months ended ~~May 28, 2022~~June 3, 2023 and May ~~29, 2021~~28, 2022, respectively, and ~~744,479~~1,156,557 and ~~2,107,062~~744,479 shares for the six months ended ~~May 28, 2022~~June 3, 2023 and May ~~29, 2021~~28, 2022, respectively, were excluded from diluted earnings per share calculations because they were antidilutive.

Table of Contents

Note ~~10:~~11: Financial Instruments

Overview

As a result of being a global enterprise, foreign currency exchange rates and fluctuations in those rates may affect the Company's net investment in foreign subsidiaries, and our earnings, cash flows and financial position are exposed to foreign currency risk from foreign currency denominated receivables and payables.

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

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

~~Table of Contents~~

Cash Flow Hedges

~~As of~~ ~~May 28, 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~~ ~~May 28, 2022~~~~, the combined fair value of the swaps was an asset of $24,932~~ 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 differ~~ences between the cumulative change in the fair value of the actual swaps and the cumulative change in the fair value of hypothetical swaps are recorded as other income, net in the Consolidated Statements of Income. In a perfectly effective hedge relationship, the ~~two~~ fair value calculations would exactly offset each other. Any difference in the calculation represents hedge ineffectiveness. The amount in accumulated other comprehensive income (loss) related to cross-currency swaps was a gain of~~$190~~ ~~as of~~ ~~May 28, 2022~~~~. The estimated net amount of the existing gain that is reported in accumulated other comprehensive income (loss) as of~~ ~~May 28, 2022~~ ~~that is expected to be reclassified into earnings within the next~~ ~~twelve~~ ~~months is $190.~~ ~~As of~~ ~~May 28, 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~~ ~~May 28, 2022~~:

Fiscal Year of

Notional

Expiration

Interest Rate

Value

Fair Value

Pay EUR
2022
3.00% $ 267,860 $ 24,932
Receive USD
5.1803%

On ~~February 27, 2018,~~January 12, 2023, we entered into an interest rate swap agreement to convert ~~$200,000~~$400,000 of our ~~$2,150,000 Term Loan B~~variable rate 1-month LIBOR rate debt to a fixed rate of 3.6895 percent. On February 28, 2023, after refinancing our debt, we amended the interest rate swap agreement to our 1-month SOFR rate debt to a fixed rate of ~~4.589 percent. During~~3.7260 in accordance with the practical expedients included in ASC ~~second~~848, ~~quarter of~~ ~~2021,~~ ~~we settled a portion of this interest rate swap as the debt underlying this swap was less than the swap~~Reference Rate Reform. The combined fair value ~~due to debt paydown. We settled the ineffective portion~~ of the interest rate swap ~~by making~~was an asset of $322 at June 3, 2023 and was included in other assets in the Consolidated Balance Sheets. The swap was designated for hedge accounting treatment as a cash ~~payment~~flow hedge. We are applying the hypothetical derivative method to assess hedge effectiveness for this interest rate swap. Changes in the fair value of ~~$378 and recorded~~a hypothetically perfect swap with terms that ~~payment to interest expense~~match the critical terms of our variable rate debt are compared with the change in ~~our Consolidated Statements~~the fair value of ~~Income during~~ the ~~second~~ ~~quarter of~~ ~~2021.~~swap.

On ~~October 20, 2017,~~March 16, 2023, we entered into an interest rate swap ~~agreements~~agreement to convert ~~$1,050,000, which was amortized down to $800,000 on~~ ~~October 20, 2021,~~ $300,000 of our ~~$2,150,000 Term Loan B~~1-month SOFR rate debt to a fixed ~~interest~~ rate of ~~4.0275~~3.7210 percent. The combined fair value of the interest rate ~~swaps was~~swap was a ~~liability~~liability of ~~$460~~ $1,354 aatt ~~May 28, 2022~~June 3, 2023 and was included in other liabilities in the Consolidated Balance Sheets. The ~~swaps were~~swap was designated for hedge accounting treatment as a cash flow ~~hedges.~~hedge. We are applying the hypothetical derivative method to assess hedge effectiveness for this interest rate swap. Changes in the fair value of a hypothetically perfect swap with terms that match the critical terms of our variable rate debt are compared with the change in the fair value of the swaps.

On March 16, 2023, we entered into an interest rate swap agreement to convert $100,000 of our 1-month SOFR rate debt to a fixed rate of 3.8990 percent. The combined fair value of the interest rate swap was a liability of $709 at June 3, 2023 and was included in other liabilities in the Consolidated Balance Sheets. The swap was designated for hedge accounting treatment as a cash flow hedge. We are applying the hypothetical derivative method to assess hedge effectiveness for these interest rate swaps. Changes in the fair value of a hypothetically perfect swap with terms that match the critical terms of our ~~$1,125,000~~ variable rate ~~Term Loan B~~debt are compared with the change in the fair value of the swaps.

~~Table of Contents~~

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

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

	*Three Months Ended*						*Six Months Ended*						*Three Months Ended*						*Six Months Ended*
	*May 28, 2022*			*May 29, 2021*			*May 28, 2022*			*May 29, 2021*			*June 3, 2023*			*May 28, 2022*			*June 3, 2023*			*May 28, 2022*
Cross-currency swap contracts	$	(1,228	)	$	(1,258	)	$	(3,343	)	$	(2,320	)	$	-		$	(1,228	)	$	-		$	(3,343	)
Interest rate swap contracts		4,435			4,721			12,690			10,258			(12,584	)		4,435			(1,529	)		12,690

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~~liability of ~~$33,901~~ $42,831 a att ~~May 28, 2022~~June 3, 2023, and was included in other liabilities in the Consolidated Balance Sheets. The swaps were designated for hedge accounting treatment as fair value hedges. We apply the short cut method and assume hedge effectiveness. Changes in the fair value of a hypothetically perfect swap with terms that match the critical terms of our $300,000 fixed rate Public Notes are compared with the change in the fair value of the swaps.

Net Investment Hedges

On October 17, 2022, we entered into a float-to-float cross-currency interest rate swap agreement with a notional amount of €307,173 maturing in October 2028. On October 20, 2022, we entered into fixed-to-fixed cross-currency interest rate swap agreements for a total notional amount of €300,000 with tranches maturing in August 2025, August 2026 and February 2027. As of June 3, 2023, the combined fair value of the swaps was a liability of $61,584 and was included in other liabilities in the Consolidated Balance Sheets. The cross-currency interest rate swaps hedge a portion of the Company’s investment in Euro denominated foreign subsidiaries.

The swaps are designated as net investment hedges for accounting treatment. The net gains or losses attributable to changes in spot exchange rates are recorded in the cumulative translation adjustment within other comprehensive income (loss). The gains or losses are reclassified into earnings upon a liquidation event or deconsolidation of the foreign subsidiary. Any ineffective portions of net investment hedges are reclassified from accumulated other comprehensive income (loss) into earnings during the period of change. The amount in accumulated other comprehensive income (loss) related to net investment hedge cross-currency swaps was a loss of $46,426 as of June 3, 2023. The amounts of pretax loss recognized in comprehensive income related to the net investment hedge was $7,538 for the six months ended June 3, 2023. As of June 3, 2023, we did not reclassify any gains or losses into earnings from net investment hedges and we do not expect to reclassify any such gain or loss into earnings within the next twelve months. No amounts related to net investment hedges have been excluded from the assessment of hedge effectiveness.

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Derivatives Not Designated Asas Hedging Instruments

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

As of ~~May 28, 2022~~June 3, 2023, we had forward foreign currency contracts maturing between ~~May 31, 2022~~June 5, 2023 and ~~December~~May 13, ~~2022.~~ 2024. The mark-to-market effect associated with these contracts was largely offset by the underlying transaction gains and losses resulting from the foreign currency exposures for which these contracts relate.

The amounts of pretax gains (losses) recognized in other income, net related to derivative instruments not designated as hedging instruments for the six months ended ~~May 28, 2022~~June 3, 2023 and May ~~29, 2021~~28, 2022 were ~~$5,089~~$1,276 and ~~$404,~~$5,089, respectively.

Concentrations of credit risk with respect to trade accounts receivable are limited due to the large number of entities in the customer base and their dispersion across many different industries and countries. As of ~~May 28, 2022~~June 3, 2023, there were no significant concentrations of credit risk.

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Note ~~11:~~12: Fair Value Measurements

Overview

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

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

Balances Measured at Fair Value on a Recurring Basis

The following table presents information about our financial assets and liabilities that are measured at fair value on a recurring basis as of ~~May 28, 2022~~June 3, 2023 and ~~November 27, 2021~~December 3, 2022, and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value.

	*May 28,*		*Fair Value Measurements Using:*						*June 3,*		*Fair Value Measurements Using:*
Description	*2022*		*Level 1*		*Level 2*		*Level 3*		*2023*		*Level 1*		*Level 2*		*Level 3*
Assets:
Marketable securities	$	3,247	$	3,247	$	-	$	-	$	2,447	$	2,447	$	-	$	-
Foreign exchange contract assets		9,143		-		9,143		-		3,231		-		3,231		-
Cross-currency cash flow hedge assets		24,932		-		24,932		-
Interest rate swaps, cash flow hedge assets										322		-		322		-

Liabilities:
Foreign exchange contract liabilities	$	4,053	$	-	$	4,053	$	-	$	1,956	$	-		1,956	$	-
Interest rate swaps, cash flow hedge liabilities		460		-		460		-		2,063				2,063
Interest rate swaps, fair value hedge liabilities		33,901		-		33,901		-		42,831				42,831
Contingent consideration liability		500		-		-		500
Net investment hedge liabilities										61,584		-		61,584		-
Contingent consideration liabilities										1,595		-		-		1,595

	*November 27,*		*Fair Value Measurements Using:*						*December 3,*		*Fair Value Measurements Using:*
Description	*2021*		*Level 1*		*Level 2*		*Level 3*		*2022*		*Level 1*		*Level 2*		*Level 3*
Assets:
Marketable securities	$	2,079	$	2,079	$	-	$	-	$	4,013	$	4,013	$	-	$	-
Foreign exchange contract assets		5,725		-		5,725		-		10,282		-		10,282		-
Cross-currency cash flow hedge assets		14,496		-		14,496		-

Liabilities:
Foreign exchange contract liabilities	$	6,082	$	-	$	6,082	$	-	$	4,570	$	-	$	4,570	$	-
Interest rate swaps, cash flow hedge liabilities		12,366		-		12,366
Interest rate swaps, fair value hedge liabilities		10,539		-		10,539		-		42,542		-		42,542
Contingent consideration liability		8,100		-		-		8,100
Net investment hedge liabilities										54,046		-		54,046		-
Contingent consideration liabilities										1,977		-		-		1,977

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The valuation of our contingent consideration liability related to the acquisitions of ZKLT and TissueSeal was $1,095 and $500, respectively, as of June 3, 2023. Adjustments to the fair value of contingent consideration are recorded to selling, general and administrative expenses in the Statement of Income.

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~~The valuation of our contingent consideration liability related to the acquisition of TissueSeal resulted in a fair value of $500 as of~~ ~~May 28, 2022~~~~. As of~~ ~~November 27, 2021,~~ ~~the agreement provisions for the D.H.M contingent consideration were met, and as a result, $8,100 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
Acquisition
500
Payment of contingent consideration
(8,122 )
Mark to market adjustment
22
Balance at May 28, 2022
$ 500

	*Amounts*
Balance at December 3, 2022	$	1,977
Mark to market adjustment		(220	)
Foreign currency translation adjustment		(162	)
Balance at June 3, 2023	$	1,595

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 ~~$1,819,598~~$1,662,706 and ~~$1,618,291~~$1,713,257 as of ~~May 28, 2022~~June 3, 2023 and ~~November 27, 2021~~December 3, 2022, respectively. The fair value of long-term debt is based on quoted market prices for the same or similar issues or on the current rates offered for debt of similar maturities. The estimated fair value of these long-term obligations is not necessarily indicative of the amount that would be realized in a current market exchange.

Note ~~12:~~13: Commitments and Contingencies

Environmental Matters

~~From time~~We are involved in environmental investigations, clean-up activities and administrative proceedings related to ~~time, we become aware of~~environmental compliance matters ~~relating to, or receive notices from, federal, state or local entities regarding possible or alleged violations of environmental, health or safety laws~~at former and ~~regulations.~~current operating facilities. 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 arehave also been identified as a potentially responsible party (“PRP”) under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) and/or similar state laws that impose liability for costs relating to the ~~clean up~~clean-up of contamination resulting from past spills, disposal or other release of hazardous ~~substances.~~substances associated with landfills and/or hazardous waste sites. As a PRP, we may be required to pay a share of the costs of investigation and clean-up of these sites. We are ~~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 ~~$6,378~~$5,530 and ~~$6,603~~$5,754 as of ~~May 28, 2022~~June 3, 2023 and ~~November 27, 2021~~December 3, 2022, respectively, for probable and reasonably estimable environmental remediation costs. Of the amount reserved, ~~$3,078~~$2,640 and ~~$3,333~~$2,789 as of ~~May 28, 2022~~June 3, 2023 and ~~November 27, 2021~~December 3, 2022, respectively, is attributable to a facility we own in Simpsonville, South Carolina as a result of our Royal Adhesives acquisition that is a designated site under CERCLA.

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.

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

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

A summary of the number of and settlement amounts for asbestos-related lawsuits and claims is as follows:

	*Six Months Ended*				*3 Years Ended*		*Six Months Ended*				*3 Years Ended*
	*May 28, 2022*		*May 29, 2021*		*November 27, 2021*		*June 3, 2023*		*May 28, 2022*		*December 3, 2022*
Lawsuits and claims settled		3		2		14		5		3		13
Settlement amounts	$	206	$	85	$	639	$	3,495	$	206	$	511
Insurance payments received or expected to be received	$	139	$	55	$	434	$	1,944	$	139	$	338

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:~~14: Segments

We are required to report segment information in the same way that we internally organize our business for assessing performance and making decisions regarding allocation of resources. Revenue and operating income of each of our segments are regularly reviewed by our chief operating decision maker to make decisions about resources to be allocated to the segments and assess their performance. Segment operating income is identified as gross profit less SG&A expenses. Corporate expenses, other than those included in Corporate Unallocated, are allocated to each operating segment. Consistent with our internal management reporting, Corporate Unallocated amounts include business acquisition and integration costs, organizational restructuring charges and project costs associated with our implementation of Project ONE. Corporate assets are not allocated to the operating segments. Inter-segment revenues are recorded at cost plus a markup for administrative costs.

We have 3three 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*										*Three Months Ended*
	*May 28, 2022*					*May 29, 2021*					*June 3, 2023*					*May 28, 2022*
	*Net*		*Operating*			*Net*		*Operating*			*Net*		*Operating*			*Net*		*Operating*
	*Revenue*		*Income (Loss)*			*Revenue*		*Income (Loss)*			*Revenue*		*Income (Loss)*			*Revenue*		*Income (Loss)*
Hygiene, Health and Consumable Adhesives	$	437,889	$	43,267		$	364,814	$	38,929		$	404,486	$	51,592		$	437,889	$	43,267
Engineering Adhesives		405,346		42,917			345,373		32,075			364,080		44,400			405,346		42,917
Construction Adhesives		150,023		11,285			117,686		6,338			129,673		5,969			150,023		11,285
Total segment	$	993,258	$	97,469		$	827,873	$	77,342		$	898,239	$	101,961		$	993,258	$	97,469
Corporate Unallocated¹		0		(9,955	)		0		(8,201	)		-		(11,811	)		-		(9,955	)
Total	$	993,258	$	87,514		$	827,873	$	69,141		$	898,239	$	90,150		$	993,258	$	87,514

	*Six Months Ended*										*Six Months Ended*
	*May 28, 2022*					*May 29, 2021*					*June 3, 2023*					*May 28, 2022*
	*Net*		*Operating*			*Net*		*Operating*			*Net*		*Operating*			*Net*		*Operating*
	*Revenue*		*Income (Loss)*			*Revenue*		*Income (Loss)*			*Revenue*		*Income (Loss)*			*Revenue*		*Income (Loss)*
Hygiene, Health and Consumable Adhesives	$	827,427	$	75,480		$	700,482	$	68,840		$	788,014	$	96,738		$	827,427	$	75,480
Engineering Adhesives		759,323		75,489			658,037		62,493			697,147		76,875			759,323		75,489
Construction Adhesives		262,989		15,641			195,258		1,635			222,260		(3,664	)		262,989		15,641
Total segment	$	1,849,739	$	166,610		$	1,553,777	$	132,968		$	1,707,421	$	169,949		$	1,849,739	$	166,610
Corporate Unallocated		0		(22,095	)		0		(15,477	)		-		(19,533	)		-		(22,095	)
Total	$	1,849,739	$	144,515		$	1,553,777	$	117,491		$	1,707,421	$	150,416		$	1,849,739	$	144,515

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.

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

	*Three Months Ended*						*Six Months Ended*						*Three Months Ended*						*Six Months Ended*
	*May 28,*			*May 29,*			*May 28,*			*May 29,*			*June 3,*			*May 28,*			*June 3,*			*May 28,*
	*2022*			*2021*			*2022*			*2021*			*2023*			*2022*			*2023*			*2022*
Operating income	$	87,514		$	69,141		$	144,515		$	117,491		$	90,150		$	87,514		$	150,416		$	144,515
Other income, net		0			11,879			6,142			19,748			605			-			3,209			6,142
Interest expense		(19,828	)		(19,942	)		(38,025	)		(40,303	)		(33,131	)		(19,828	)		(66,200	)		(38,025	)
Interest income		2,091			2,530			4,030			5,189			932			2,091			1,599			4,030
Income before income taxes and income from equity method investments	$	69,777		$	63,608		$	116,662		$	102,125		$	58,556		$	69,777		$	89,024		$	116,662

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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 June 3, 2023*

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

Americas	$	237,325	$	149,239	$	101,642	$	488,206
EIMEA		114,723		119,199		19,917		253,839
Asia Pacific		52,438		95,642		8,114		156,194
Total	$	404,486	$	364,080	$	129,673	$	898,239

	*Three Months Ended May 28, 2022*

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

Americas	$	255,243	$	166,559	$	119,420	$	541,222
EIMEA		123,145		133,932		23,713		280,790
Asia Pacific		59,501		104,855		6,890		171,246
Total	$	437,889	$	405,346	$	150,023	$	993,258

	*Three Months Ended May 29, 2021*
									*Six Months Ended June 3, 2023*
	*Hygiene, Health*								*Hygiene, Health*
	*and Consumable*		*Engineering*		*Construction*				*and Consumable*		*Engineering*		*Construction*
	*Adhesives*		*Adhesives*		*Adhesives*		*Total*		*Adhesives*		*Adhesives*		*Adhesives*		*Total*

Americas	$	201,458	$	126,450	$	103,996	$	431,904	$	460,944	$	282,709	$	172,606	$	916,259
EIMEA		108,310		121,585		6,506		236,401		221,794		232,559		34,495		488,848
Asia Pacific		55,046		97,338		7,184		159,568		105,276		181,879		15,159		302,314
Total	$	364,814	$	345,373	$	117,686	$	827,873	$	788,014	$	697,147	$	222,260	$	1,707,421

	*Six Months Ended May 28, 2022*
	*Hygiene, Health*
	*and Consumable*		*Engineering*		*Construction*
	*Adhesives*		*Adhesives*		*Adhesives*		*Total*

Americas	$	475,938	$	299,886	$	214,998	$	990,822
EIMEA		237,797		249,752		34,930		522,479
Asia Pacific		113,692		209,685		13,061		336,438
Total	$	827,427	$	759,323	$	262,989	$	1,849,739

Six Months Ended May 29, 2021

Hygiene, Health

and Consumable

Engineering

Construction

Adhesives

Adhesives

Adhesives

Total

Americas
$ 383,479 $ 239,577 $ 171,028 $ 794,084
EIMEA
204,283 223,344 11,233 438,860
Asia Pacific
112,720 195,116 12,997 320,833
Total
$ 700,482 $ 658,037 $ 195,258 $ 1,553,777

Note 15: Subsequent Events

Acquisitions

On June 12, 2023, we completed the acquisition of XChem International LLC ("XChem") for a base purchase price of approximately $12,347. XChem, headquartered in Ras Al-Khaimah United Arab Emirates, is a manufacturer of adhesives, coatings and sealants for flooring, waterproofing, HVAC, and other construction-related applications. The acquisition will be included in our Construction Adhesives operating segment.

On June 23, 2023, we completed the acquisition of Adhezion Biomedical LLC (“Adhezion”) for a base purchase price of approximately $80,038 as well as contingent consideration up to $15,000 following the completion of certain performance goals and conditions. Adhezion, headquartered in Wyomissing, Pennsylvania, is a manufacturer of cyanoacrylate-based medical adhesives and infection prevention products. The acquisition will be included in our Hygiene, Health and Consumable Adhesives operating segment.

2220

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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~~December 3, 2022 for important background information related to our business.

Net revenue in the second quarter of ~~2022 increased 20.0~~2023 decreased 9.6 percent from the second quarter of ~~2021.~~2022. Net revenue ~~increased 18.5 percent due to price, 3.4~~decreased 14.2 percent due to sales volume and ~~2.0~~3.4 percent due to ~~the acquisition of Fourny and Apollo. Negative~~negative currency effects, ~~of 3.9~~offset by a 5.9 percent increase in pricing and a 2.1 percent increase due to acquisitions compared to the second quarter of ~~2021~~2022. The negative currency effects were primarily driven by a weaker ~~Euro,~~Chinese renminbi, Egyptian pound, Argentinian peso and Turkish lira ~~and Argentinian peso, partially offset by a stronger Brazilian real and Chinese renminbi~~ compared to the U.S. dollar. Gross profit margin ~~decreased~~increased 80310 basis points ~~primarily~~ due to ~~higher raw material costs and higher net revenue.~~an increase in product pricing.

Net revenue in the first six months of ~~2022 increased 19.1~~2023 decreased 7.7 percent from the first six months of ~~2021.~~2022. Net revenue ~~increased 16.8 percent due to price, 4.6~~decreased 12.6 percent due to sales volume and ~~1.5~~4.1 percent due to ~~the acquisition of Fourny and Apollo. Negative~~negative currency effects, ~~of 3.8~~offset by a 7.0 percent increase in pricing and a 2.0 percent increase due to acquisitions compared to the first six months of ~~2021~~2022. The negative currency effects were primarily driven by a weaker ~~Euro,~~Chinese renminbi, Egyptian pound, Argentinian peso, Turkish lira and ~~Argentinian peso, partially offset by a stronger Chinese renminbi and Brazilian real~~ Euro compared to the U.S. dollar. Gross profit margin ~~decreased 120~~increased 240 basis points ~~primarily~~ due to ~~higher raw material costs and higher net revenue~~an increase in product pricing..

Net income attributable to H.B. Fuller in the second quarter of ~~2022~~2023 was ~~$47.2~~$40.4 million compared to ~~$49.1~~$47.2 million in the second quarter of ~~2021.~~2022. On a diluted earnings per share basis, the second quarter of ~~2022~~2023 was ~~$0.86~~$0.73 per share compared to ~~$0.90~~$0.86 per share for the second quarter of ~~2021.~~2022.

Net income attributable to H.B. Fuller in the first six months of ~~2022~~2023 was ~~$85.5~~$62.3 million compared to ~~$78.9~~$85.5 million in the first six months of ~~2021.~~2022. On a diluted earnings per share basis, the first six months of ~~2022~~2023 was ~~$1.55~~$1.12 per share compared to ~~$1.47~~$1.55 per share for the first six months of ~~2021.~~

~~Market Conditions~~

On March 11, 2020, the World Health Organization declared the outbreak of the novel coronavirus ("COVID-19") a pandemic. Throughout fiscal year 2021, the COVID-19 pandemic had a significant disruptive 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.2022.

Restructuring Plan

~~During~~On March 27, 2023, the ~~fourth quarter of 2019, we~~Company approved a restructuring plan (the “Plan”) related to organizational changes and other actions to optimize ~~operations in connection with~~operations. In implementing the ~~realignment of~~Plan, the Company ~~into three global business units (“2020 Restructuring Plan”). We have incurred~~currently expects to incur costs of ~~$19.7~~ approximately $15.0 million ~~under this plan as of May 28, 2022. We expect~~ to ~~incur total costs of approximately~~ $20.0 million ($~~15.8~~12.4 million to $16.4 million after-tax), which includes (i) cash expenditures of approximately $13.8 million to $15.0 million ($11.1 million to $12.1 million after tax) for severance and related employee costs globally and (ii) other restructuring costs related to the streamlining of processes and ~~other restructuring-related costs.~~the payment of anticipated income taxes in certain jurisdictions related to the Plan. We have incurred costs of $8.5 million under this plan as of June 3, 2023. The ~~2020 Restructuring~~ Plan was implemented in the ~~fourth~~second quarter of ~~2019~~fiscal year 2023 and is currently expected to be completed during fiscal year 2025. The restructuring costs will be spread across the next several fiscal quarters as the measures are implemented with the majority of the charges recognized and cash payments occurring in fiscal ~~2022.~~2023 and 2024.

~~Table of Contents~~

Results of Operations

Net revenue:

	Three Months Ended							Six Months Ended							Three Months Ended							Six Months Ended
	May 28,		May 29,		2022 vs			May 28,		May 29,		2022 vs			June 3,		May 28,		2023 vs			June 3,		May 28,		2023 vs
($ in millions)	2022		2021		2021			2022		2021		2021			2023		2022		2022			2023		2022		2022
Net revenue	$	993.3	$	827.9		20.0	%	$	1,849.7	$	1,553.8		19.1	%	$	898.2	$	993.3		(9.6	)%	$	1,707.4	$	1,849.7		(7.7	)%

We review variances in net revenue in terms of changes related to sales volume, product pricing, business acquisitions and divestitures (“M&A”) and changes in foreign currency exchange rates. The following table shows the net revenue variance analysis for the second quarter and first six months of ~~2022~~2023 compared to the ~~same periods in 2021:~~second quarter and first six months of 2022:

	Three Months Ended			Six Months Ended			Three Months Ended			Six Months Ended
	May 28, 2022 vs. May 29, 2021			May 28, 2022 vs. May 29, 2021			June 3, 2023 vs. May 28, 2022			June 3, 2023 vs. May 28, 2022
Organic growth		21.9	%		21.4	%		(8.3	)%		(5.6	)%
M&A		2.0	%	1.5		%		2.1	%		2.0	%
Currency		(3.9	)%	(3.8		)%		(3.4	)%		(4.1	)%
Total		20.0	%	19.1		%		(9.6	)%		(7.7	)%

Organic growth was ~~21.9~~a negative 8.3 percent in the second quarter of ~~2022~~2023 compared to the second quarter of ~~2021 driven by~~2022 and consisted of a ~~24.5~~5.5 percent ~~increase~~decrease in Hygiene, Health and Consumable Adhesives, a ~~21.8~~9.0 percent ~~increase~~decrease in Engineering Adhesives and a ~~14.3~~14.2 percent ~~increase~~decrease in Construction ~~Adhesives .~~Adhesives. The ~~increase~~decrease is ~~predominately~~ driven by a decrease in volume partially offset by an increase in product ~~pricing~~pricing. The 2.1 percent increase from M&A is due to our acquisitions that occurred in the first six months of 2023. The negative 3.4 percent foreign currency impact was primarily driven by a weaker Chinese renminbi, Egyptian pound, Argentinian peso and ~~sales volume.~~Turkish lira compared to the U.S. dollar.

Organic growth was a negative 5.6 percent in the first six months of 2023 compared to the first six months of 2022 and consisted of a 0.8 percent decrease in Hygiene, Health and Consumable Adhesives, a 6.1 percent decrease in Engineering Adhesives and a 19.2 percent decrease in Construction Adhesives. The decrease is driven by a decrease in volume partially offset by an increase in product pricing. The 2.0 percent increase from M&A is due to our acquisitions that occurred in the ~~acquisition~~first six months of ~~Fourny and Apollo.~~2023. The negative ~~3.9~~4.1 percent foreign currency impact was primarily driven by a weaker ~~Euro,~~Chinese renminbi, Egyptian pound, Argentinian peso, Turkish lira and ~~Argentinian peso, partially offset by a stronger Brazilian real and Chinese renminbi~~Euro compared to the U.S. ~~dollar.~~

Organic growth was 21.4 percent in the first six months of 2022 compared to the first six months of 2021 driven by a 23.8 percent increase in Construction Adhesives, a 22.7 percent increase in Hygiene, Health and Consumable Adhesives and a 19.3 percent increase in Engineering Adhesives. The increase is predominately driven dollar~~by an increase in product pricing and sales volume. The~~ ~~1.5 percent increase from M&A is due to the acquisition of Fourny and Apollo. The negative 3.8 percent currency impact was primarily driven by a~~ ~~weaker Euro, Turkish lira and Argentinian peso, partially offset by a stronger Chinese renminbi and Brazilian real compared to the U.S. dollar.~~

~~Cost of sales:~~

Three Months Ended

Six Months Ended

May 28,

May 29,

2022 vs

May 28,

May 29,

2022 vs

($ in millions)

2022

2021

2021

2022

2021

2021

Raw materials
$ 575.4 $ 454.9 26.5 % $ 1,066.4 $ 839.9 27.0 %
Other manufacturing costs
164.3 155.4 5.7 % 316.9 304.0 4.2 %
Cost of sales
$ 739.7 $ 610.3 21.2 % $ 1,383.3 $ 1,143.9 20.9 %
Percent of net revenue
74.5 % 73.7 % 74.8 % 73.6 %

Cost of sales in the second quarter of 2022 compared to the second quarter of 2021 increased 80 basis points as a percentage of net revenue. Raw material cost as a percentage of net revenue increased 300 basis points in the second quarter of 2022 compared to the second quarter of 2021 due t~~o higher raw material costs~~. ~~Other manufacturing costs as a percentage of revenue decreased 220 basis points in the second quarter of 2022 compared to the second quarter of 2021 due~~ ~~to higher net revenue.~~

Cost of sales in the first six months of 2022 compared to the first six months of 2021 increased 120 basis points as a percentage of net revenue. Raw material cost as a percentage of net revenue increased 360 basis points in the first six months of 2022 compared to the first six months of 2021 due ~~to higher raw material costs. Other manufacturing costs as a percentage of revenue decreased 240 basis points in the first six months of 2022 compared to the first six months of 2021 due~~ ~~to higher net revenue.~~

2421

Table of Contents

~~Gross profit:~~Cost of sales:

	Three Months Ended									Six Months Ended									Three Months Ended									Six Months Ended
	May 28,			May 29,			2022 vs			May 28,			May 29,			2022 vs			June 3,			May 28,			2023 vs			June 3,			May 28,			2023 vs
($ in millions)	2022			2021			2021			2022			2021			2021			2023			2022			2022			2023			2022			2022
Gross profit	$	253.5		$	217.6			16.5	%	$	466.4		$	409.9			13.8	%
Cost of sales																			$	641.5		$	739.7			(13.3	)%	$	1,235.8		$	1,383.3			(10.7	)%
Percent of net revenue		25.5	%		26.3	%					25.2	%		26.4	%					71.4	%		74.5	%					72.4	%		74.8	%

Cost of sales in the second quarter of 2023 compared to the second quarter of 2022 decreased 310 basis points as a percentage of net revenue. Higher product pricing partially offset by slightly higher raw material costs and the impact of lower sales volume led to the decrease.

Cost of sales in the first six months of 2023 compared to the first six months of 2022 decreased 240 basis points as a percentage of net revenue. Higher product pricing partially offset by higher raw material costs and the impact of lower sales volume led to the decrease.

Gross profit:

	Three Months Ended									Six Months Ended
	June 3,			May 28,			2023 vs			June 3,			May 28,			2023 vs
($ in millions)	2023			2022			2022			2023			2022			2022
Gross profit	$	256.8		$	253.5			1.3	%	$	471.6		$	466.4			1.1	%
Percent of net revenue		28.6	%		25.5	%					27.6	%		25.2	%

Gross profit in the second quarter of ~~2022~~2023 increased ~~16.5~~1.3 percent and gross profit margin ~~decreased 80~~increased 310 basis points compared to the second quarter of ~~2021.~~2022. The ~~decrease in gross profit margin was primarily due to higher raw material costs and higher net revenue.~~

~~Gross profit in the first~~ ~~six~~ ~~months of~~ ~~2022~~ ~~increased~~ ~~13.8~~ ~~percent and gross profit margin decreased~~ ~~120~~ ~~basis points compared to the first~~ ~~six~~ ~~months of~~ ~~2021. The decrease~~increase in gross profit margin was primarily due to higher product pricing partially offset by slightly higher raw material costs and the impact of lower sales volume.

Gross profit in the first six months of 2023 increased 1.1 percent and gross profit margin increased 240 basis points compared to the first six months of 2022. The increase in gross profit margin was primarily due to higher ~~net revenue.~~product pricing partially offset by higher raw material costs and the impact of lower sales volume.

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

	Three Months Ended									Six Months Ended									Three Months Ended									Six Months Ended
	May 28,			May 29,			2022 vs			May 28,			May 29,			2022 vs			June 3,			May 28,			2023 vs			June 3,			May 28,			2023 vs
($ in millions)	2022			2021			2021			2022			2021			2021			2023			2022			2022			2023			2022			2022
SG&A	$	166.0		$	148.4			11.9	%	$	321.9		$	292.4			10.1	%	$	166.6		$	166.0			0.4	%	$	321.2		$	321.9			(0.2	)%
Percent of net revenue		16.7	%		17.9	%					17.4	%		18.8	%					18.5	%		16.7	%					18.8	%		17.4	%

SG&A expenses for the second quarter of ~~2022 increased $17.6 million, or 11.9 percent,~~2023 compared to the second quarter of ~~2021.~~2022 increased 180 basis points as a percentage of net revenue. The increase is ~~primarily~~ due to lower net revenue and higher compensation ~~and acquisition project~~ costs, ~~and~~partially offset by the favorable impact of foreign currency exchange rates on spending outside the ~~Fourny and Apollo acquisitions.~~U.S.

SG&A expenses for the first six months of ~~2022 increased $29.5 million, or 10.1 percent,~~2023 compared to the first six months of ~~2021.~~2022 increased 140 basis points as a percentage of net revenue. The ~~increase~~increase is ~~primarily~~ due to lower net revenue and higher compensation ~~and acquisition project~~ costs, ~~and~~partially offset by the favorable impact of foreign currency exchange rates on spending outside the ~~Fourny and Apollo acquisitions.~~U.S.

Other income, net:

	Three Months Ended							Six Months Ended							Three Months Ended						Six Months Ended
	May 28,		May 29,		2022 vs			May 28,		May 29,		2022 vs			June 3,		May 28,		2023 vs		June 3,		May 28,		2023 vs
($ in millions)	2022		2021		2021			2022		2021		2021			2023		2022		2022		2023		2022		2022
Other income, net	$	0.0	$	11.9		(100.0	)%	$	6.1	$	19.7		(69.0	)%	$	0.6	$	0.0		NMP	$	3.2	$	6.1		(47.5	)%

NMP = Non-meaningful percentage

Other income, net in the second quarter of 2023 included $3.6 million of net defined benefit pension benefits and $0.4 million of other income, partially offset by $3.4 million of currency transaction losses. Other income, net in the second quarter of 2022 included $4.1 million of net defined benefit pension benefits and $1.4 million of other income, partially offset by $5.5 million of currency transaction losses. The $4.1 million of net defined benefit pension benefits in the second quarter of 2022 included a $3.3 million settlement loss related to the termination of our Canadian defined benefit pension plan.

Other income, net in the ~~second quarter~~first six months of ~~2021~~2023 included ~~$8.0~~$10.1 million of net defined benefit pension benefits and ~~$5.2~~$0.7 million of other income, partially offset by ~~$1.3~~$7.6 million of currency transaction losses. ~~Other income in the second quarter of 2021 includes gains related to a legal entity merger and a transactional tax legal settlement in Brazil.~~

Other income, net in the first six months of 2022 included $11.5 million of net defined benefit pension benefits and $1.6 million of other income, partially offset by $7.0 million of currency transaction losses. The $11.5 million of net defined benefit pension benefits in the second quarter of 2022 included a $3.3 million settlement loss related to the termination of our Canadian defined benefit pension plan. Other income, net in the first six months of 2021 included $15.9 million of net defined benefit pension benefits and $6.9 million of other income, offset by $3.1 million of currency transaction losses.

~~Interest expense:~~

Three Months Ended

Six Months Ended

May 28,

May 29,

2022 vs

May 28,

May 29,

2022 vs

($ in millions)

2022

2021

2021

2022

2021

2021

Interest expense
$ 19.8 $ 19.9 (0.5 )% $ 38.0 $ 40.3 (5.7 )%

2522

Table of Contents

Interest expense:

	Three Months Ended							Six Months Ended
	June 3,		May 28,		2023 vs			June 3,		May 28,		2023 vs
($ in millions)	2023		2022		2022			2023		2022		2022
Interest expense	$	33.1	$	19.8		67.2	%	$	66.2	$	38.0		74.2	%

Interest expense in the second quarter of ~~2022~~2023 was $~~19.8~~33.1 million compared to $~~19.9~~19.8 million in the second quarter of ~~2021. Interest expense in the~~ ~~second~~ ~~quarter of~~ 2022 ~~compared to the~~ ~~second~~ ~~quarter of~~ ~~2021~~and was ~~lower~~higher primarily due to ~~lower interest rates partially offset by~~ higher debt ~~balances.~~balances and higher interest rates.

Interest expense in the first six months of 2023 was $66.2 million compared to $38.0 million in the first six months of 2022 and was ~~$38.0~~ ~~million compared to~~ ~~$40.3~~ ~~million in the first~~ ~~six~~ ~~months of~~ ~~2021. Interest expense in the first~~ ~~six~~ ~~months of~~ ~~2022~~ ~~compared to the first~~ ~~six~~ ~~months of~~ ~~2021~~ ~~was lower~~higher primarily due to ~~lower interest rates partially offset by~~ higher debt ~~balances.~~balances and higher interest rates.

Interest income:

	Three Months Ended							Six Months Ended							Three Months Ended							Six Months Ended
	May 28,		May 29,		2022 vs			May 28,		May 29,		2022 vs			June 3,		May 28,		2023 vs			June 3,		May 28,		2023 vs
($ in millions)	2022		2021		2021			2022		2021		2021			2023		2022		2022			2023		2022		2022
Interest income	$	2.1	$	2.5		(16.0	)%	$	4.0	$	5.2		(23.1	)%	$	0.9	$	2.1		(57.1	)%	$	1.6	$	4.0		(60.0	)%

Interest income in the second quarter of 2023 and 2022 ~~and 2021~~ was ~~$2.1~~$0.9 million and ~~$2.5~~$2.1 million, respectively, consisting primarily of interest on cross-currency swap activity and other miscellaneous interest income.

Interest income in the first six months of 2023 and 2022 ~~and 2021~~ was ~~$4.0~~$1.6 million and ~~$5.2~~$4.0 million, respectively, consisting primarily of interest on cross-currency swap activity and other miscellaneous interest income.

Income taxes:

	Three Months Ended									Six Months Ended									Three Months Ended									Six Months Ended
	May 28,			May 29,			2022 vs			May 28,			May 29,			2022 vs			June 3,			May 28,			2023 vs			June 3,			May 28,			2023 vs
($ in millions)	2022			2021			2021			2022			2021			2021			2023			2022			2022			2023			2022			2022
Income taxes	$	23.6		$	16.7			41.3	%	$	33.8		$	27.3			23.8	%	$	19.3		$	23.6			(18.2	)%	$	29.0		$	33.8			(14.2	)%
Effective tax rate		33.9	%		26.2	%					29.0	%		26.7	%					33.0	%		33.9	%					32.6	%		29.0	%

Income tax expense of $19.3 million in the second quarter of 2023 includes $2.0 million of discrete tax expense. Excluding the discrete tax expense, the overall effective tax rate was 29.5 percent. The discrete tax expense relates to various foreign tax matters. Income tax expense of $23.6 million in the second quarter of 2022 includes $4.1 million of discrete tax expense. Excluding the discrete tax expense, the overall effective tax rate was 27.9 percent. The discrete tax expense relates to impacts of the revaluation of cross-currency swap agreements due to depreciation of the Euro versus the U.S. ~~Dollar~~dollar and other various foreign tax matters.

Income tax expense of ~~$16.7~~$29.0 million in the ~~second quarter~~first six months of ~~2021~~2023 includes ~~$0.6~~$2.9 million of discrete tax ~~benefit.~~expense. Excluding the discrete tax ~~benefit,~~expense, the overall effective tax rate was ~~27.1~~29.4 percent. The discrete tax ~~benefit~~expense relates to various ~~U.S. and~~ foreign tax ~~matters.~~

matters offset by an excess tax benefit related to U.S. stock compensation. Income tax expense of $33.8 million in the first six months of 2022 includes $1.2 million of discrete tax expense. Excluding the discrete tax expense, the overall effective tax rate was 27.9 percent. The discrete tax expense relates to the revaluation of cross-currency swap agreements due to depreciation of the Euro versus the U.S. ~~Dollar,~~dollar, as well as various foreign tax matters offset by the tax effect of legal entity mergers. ~~Income tax expense of~~ ~~$27.3~~ ~~million in the first~~ ~~six~~ ~~months of~~ ~~2021~~ ~~includes~~ ~~$0.6~~ ~~million of discrete tax benefit. Excluding the discrete tax benefit, the overall effective tax rate was 27.2 percent. The discrete tax benefit relates to various U.S. and foreign tax matters.~~

Income from equity method investments:

	Three Months Ended							Six Months Ended							Three Months Ended							Six Months Ended
	May 28,		May 29,		2022 vs			May 28,		May 29,		2022 vs			June 3,		May 28,		2023 vs			June 3,		May 28,		2023 vs
($ in millions)	2022		2021		2021			2022		2021		2021			2023		2022		2022			2023		2022		2022
Income from equity method investments	$	1.1	$	2.2		(50.0	)%	$	2.6	$	4.1		(36.6	)%	$	1.2	$	1.1		9.1	%	$	2.3	$	2.6		(11.5	)%

The income from equity method investments relates to our 50 percent ownership of the Sekisui-Fuller joint venture in Japan. The lower income for the second quarter and first six months of ~~2022~~2023 compared to the same period of ~~2021 relates~~2022 is due to the unfavorable impact of the weakening of the Japanese yen against the U.S. dollar and lower net income in our joint venture.

Net income attributable to H.B. Fuller:

	Three Months Ended									Six Months Ended									Three Months Ended									Six Months Ended
	May 28,			May 29,			2022 vs			May 28,			May 29,			2022 vs			June 3,			May 28,			2023 vs			June 3,			May 28,			2023 vs
($ in millions)	2022			2021			2021			2022			2021			2021			2023			2022			2022			2023			2022			2022
Net income attributable to H.B. Fuller	$	47.2		$	49.1			(3.9	)%	$	85.5		$	78.9			8.4	%	$	40.4		$	47.2			(14.4	)%	$	62.3		$	85.5			(23.2	)%
Percent of net revenue		4.8	%		5.9	%					4.6	%		5.1	%					4.5	%		4.8	%					3.6	%		4.6	%

2623

Table of Contents

The net income attributable to H.B. Fuller for the second quarter of ~~2022~~2023 was ~~$47.2~~$40.4 million compared to ~~$49.1~~$47.2 million for the second quarter of ~~2021.~~2022. The diluted earnings per share for the second quarter of ~~2022~~2023 was ~~$0.86~~$0.73 per share as compared to ~~$0.90~~$0.86 per share for the second quarter of ~~2021.~~2022.

The net income attributable to H.B. Fuller for the first six months of ~~2022~~2023 was ~~$85.5~~$62.3 million compared to ~~$78.9~~$85.5 million for the first six months of ~~2021.~~2022. The diluted earnings per share for the first six months of ~~2022~~2023 was ~~$1.55~~$1.12 per share as compared to ~~$1.47~~$1.55 per share for the first six months of ~~2021.~~

2022.

Operating Segment Results

We have three reportable segments: Hygiene, Health and Consumable Adhesives, Engineering Adhesives and Construction Adhesives. Operating results of each of these segments are regularly reviewed by our chief operating decision maker to make decisions about resources to be allocated to the segments and assess their performance.

The tables below provide certain information regarding the net revenue and operating income of each of our operating segments.

Corporate Unallocated amounts include business acquisition and integration costs, organizational restructuring charges and project costs associated with our implementation of ~~SAP~~Project ONE.

Net Revenue by Segment:

	Three Months Ended										Six Months Ended										Three Months Ended										Six Months Ended
	May 28, 2022					May 29, 2021					May 28, 2022					May 29, 2021					June 3, 2023					May 28, 2022					June 3, 2023					May 28, 2022
	Net		% of			Net		% of			Net		% of			Net		% of			Net		% of			Net		% of			Net		% of			Net		% of
($ in millions)	Revenue		Total			Revenue		Total			Revenue		Total			Revenue		Total			Revenue		Total			Revenue		Total			Revenue		Total			Revenue		Total
Hygiene, Health and Consumable Adhesives	$	437.9		44	%	$	364.8		44	%	$	827.4		45	%	$	700.5		45	%	$	404.5		45	%	$	437.9		44	%	$	788.0		46	%	$	827.4		45	%
Engineering Adhesives		405.4		41	%		345.4		42	%		759.3		41	%		658.0		42	%		364.1		41	%		405.4		41	%		697.1		41	%		759.3		41	%
Construction Adhesives		150.0		15	%		117.7		14	%		263.0		14	%		195.3		13	%		129.6		14	%		150.0		15	%		222.3		13	%		263.0		14	%
Segment total	$	993.3		100	%	$	827.9		100	%	$	1,849.7		100	%	$	1,553.8		100	%	$	898.2		100	%	$	993.3		100	%	$	1,707.4		100	%	$	1,849.7		100	%
Corporate Unallocated		-		-			-		-			-		-			-		-			-		-			-		-			-		-			-		-
Total	$	993.3		100	%	$	827.9		100	%	$	1,849.7		100	%	$	1,553.8		100	%	$	898.2		100	%	$	993.3		100	%	$	1,707.4		100	%	$	1,849.7		100	%

Segment Operating Income (Loss):

	Three Months Ended												Six Months Ended												Three Months Ended												Six Months Ended
	May 28, 2022						May 29, 2021						May 28, 2022						May 29, 2021						June 3, 2023						May 28, 2022						June 3, 2023						May 28, 2022
	Segment						Segment						Segment						Segment						Segment						Segment						Segment						Segment
	Operating						Operating						Operating						Operating						Operating						Operating						Operating						Operating
	Income			% of			Income			% of			Income			% of			Income			% of			Income			% of			Income			% of			Income			% of			Income			% of
($ in millions)	(Loss)			Total			(Loss)			Total			(Loss)			Total			(Loss)			Total			(Loss)			Total			(Loss)			Total			(Loss)			Total			(Loss)			Total
Hygiene, Health and Consumable Adhesives	$	43.3			49	%	$	38.9			56	%	$	75.5			52	%	$	68.9			59	%	$	51.6			57	%	$	43.3			49	%	$	96.7			64	%	$	75.5			52	%
Engineering Adhesives		42.9			49	%		32.1			47	%		75.5			52	%		62.5			53	%		44.4			49	%		42.9			49	%		76.9			51	%		75.5			52	%
Construction Adhesives		11.3			13	%		6.3			9	%		15.6			11	%		1.6			1	%		6.0			7	%		11.3			13	%		(3.7	)		(2	)%		15.6			11	%
Segment total	$	97.5			111	%	$	77.3			112	%	$	166.6			115	%	$	133.0			113	%	$	102.0			113	%	$	97.5			111	%	$	169.9			113	%	$	166.6			115	%
Corporate Unallocated		(10.0	)		(11	)%		(8.2	)		(12	)%		(22.1	)		(15	)%		(15.5	)		(13	)%		(11.8	)		(13	)%		(10.0	)		(11	)%		(19.5	)		(13	)%		(22.1	)		(15	)%
Total	$	87.5			100	%	$	69.1			100	%	$	144.5			100	%	$	117.5			100	%	$	90.2			100	%	$	87.5			100	%	$	150.4			100	%	$	144.5			100	%

Hygiene, Health and Consumable Adhesives

	Three Months Ended									Six Months Ended
	June 3,			May 28,			2023 vs			June 3,			May 28,			2023 vs
($ in millions)	2023			2022			2022			2023			2022			2022
Net revenue	$	404.5		$	437.9			(7.6	)%	$	788.0		$	827.4			(4.8	)%
Segment operating income	$	51.6		$	43.3			19.2	%	$	96.7		$	75.5			28.2	%
Segment operating margin		12.8	%		9.9	%					12.3	%		9.1	%

2724

Table of Contents

~~Hygiene, Health and Consumable Adhesives~~

Three Months Ended

Six Months Ended

May 28,

May 29,

2022 vs

May 28,

May 29,

2022 vs

($ in millions)

2022

2021

2021

2022

2021

2021

Net revenue
$ 437.9 $ 364.8 20.0 % $ 827.4 $ 700.5 18.1 %
Segment operating income
$ 43.3 $ 38.9 11.3 % $ 75.5 $ 68.9 9.6 %
Segment operating margin
9.9 % 10.7 % 9.1 % 9.8 %

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

	Three Months Ended			Six Months Ended			Three Months Ended			Six Months Ended
	May 28, 2022 vs. May 29, 2021			May 28, 2022 vs. May 29, 2021			June 3, 2023 vs. May 28, 2022			June 3, 2023 vs. May 28, 2022
Organic growth		24.5	%		22.7	%		(5.5	)%		(0.8	)%
M&A								2.7	%		1.5	%
Currency		(4.5	)%		(4.6	)%		(4.8	)%		(5.5	)%
Total		20.0	%		18.1	%		(7.6	)%		(4.8	)%

Net revenue ~~increased 20.0~~decreased 7.6 percent in the second quarter of ~~2022~~2023 compared to the second quarter of ~~2021.~~2022. The ~~increase~~decrease in organic growth was attributable to a decrease in sales volume, partially offset by an increase in product ~~pricing~~pricing. The 2.7 percent increase in net revenue from M&A was due to the acquisitions of Lemtapes in the first quarter of 2023 and ~~sales volume.~~Beardow Adams in the second quarter of 2023. The ~~negative~~negative currency effect was due to a weaker ~~Euro,~~Egyptian pound, Argentinian peso, Turkish lira, ~~and Argentinian~~Chinese renminbi, Colombian peso ~~partially offset by a stronger~~and Brazilian real ~~and Chinese renminbi~~ compared to the U.S. dollar. As a percentage of net revenue, ~~raw material costs~~gross margin increased ~~420 basis points du~~edue to higher product pricing partially offset by higher raw material costs ~~partially offset by higher net revenue.~~ ~~Other manufacturing costs as a percentage~~and the impact of ~~net revenue decreased 230 basis points primarily due to higher net revenue.~~ lower sales volume. SG&A expenses as a percentage of net revenue ~~decreased 110 basis points~~increased due to higher compensation costs and lower net ~~revenue~~. revenue. Segment operating income increased ~~11.3~~19.2 percent and segment operating margin as a percentage of net revenue ~~decreased 80~~increased 290 basis points compared to the second quarter of ~~2021.~~2022.

Net revenue ~~increased 18.1~~decreased 4.8 percent in the first six months of ~~2022~~2023 compared to the first six months of ~~2021.~~2022. The ~~increase~~decrease in organic growth was attributable to a decrease in sales volume, partially offset by an increase in product ~~pricing~~pricing. The 1.5 percent increase in net revenue from M&A was due to the acquisitions of Lemtapes during the first quarter of 2023 and ~~sales volume.~~Beardow Adams in the second quarter of 2023. The n~~egative~~negative currency effect was due to a weaker ~~Euro,~~Egyptian pound, Argentinian peso, Turkish lira, ~~Argentinian peso~~Chinese renminbi and Colombian peso ~~partially offset by a stronger Chinese renminbi and Brazilian real~~ compared to the U.S. dollar. As a percentage of net revenue, ~~raw material costs~~gross margin increased ~~460 basis points~~ due to higher product pricing partially offset by higher raw material costs ~~partially offset by higher net revenue. Other manufacturing costs as a percentage~~and the impact of ~~net revenue decreased 240 basis points primarily due~~ ~~to higher net revenue.~~lower sales volume. SG&A&A expenses as a percentage of net revenue ~~decreased 150 basis points~~increased due to higher compensation costs and lower net revenue. Segment operating income increased ~~9.6~~28.2 percent and ~~segment~~segment operating margin as a percentage of net revenue ~~decreased 70~~increased 320 basis points compared to the first six months of ~~2021.~~2022.

Engineering Adhesives

Three Months Ended

Six Months Ended

May 28,

May 29,

2022 vs

May 28,

May 29,

2022 vs

($ in millions)

2022

2021

2021

2022

2021

2021

Net revenue
$ 405.4 $ 345.4 17.4 % $ 759.3 $ 658.0 15.4 %
Segment operating income
$ 42.9 $ 32.1 33.6 % $ 75.5 $ 62.5 20.8 %
Segment operating margin
10.6 % 9.3 % 9.9 % 9.5 %

~~Table of Contents~~

	Three Months Ended									Six Months Ended
	June 3,			May 28,			2023 vs			June 3,			May 28,			2023 vs
($ in millions)	2023			2022			2022			2023			2022			2022
Net revenue	$	364.1		$	405.4			(10.2	)%	$	697.1		$	759.3			(8.2	)%
Segment operating income	$	44.4		$	42.9			3.5	%	$	76.9		$	75.5			1.8	%
Segment operating margin		12.2	%		10.6	%					11.0	%		9.9	%

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

	Three Months Ended			Six Months Ended			Three Months Ended			Six Months Ended
	May 28, 2022 vs. May 29, 2021			May 28, 2022 vs. May 29, 2021			June 3, 2023 vs. May 28, 2022			June 3, 2023 vs. May 28, 2022
Organic growth		21.8	%		19.3	%		(9.0	)%		(6.1	)%
M&A								1.6	%		1.5	%
Currency		(4.4	)%		(3.9	)%		(2.8	)%		(3.6	)%
Total		17.4	%		15.4	%		(10.2	)%		(8.2	)%

Net revenue ~~increased 17.4~~decreased 10.2 percent in the second quarter of ~~2022~~2023 compared to the second quarter of ~~2021.~~2022. The ~~increase~~decrease in organic growth was attributable ~~primarily due~~ to a decrease in sales volume, partially offset by an increase in product ~~pricing and sales volume.~~pricing. The1.6 percent increase in net revenue from M&A was due to the acquisition of Aspen in the first quarter of 2023. The negative currency effect was due to a weaker ~~Euro~~Chinese renminbi and Turkish lira ~~partially offset by a stronger Chinese renminbi compared~~compared to the U.S. dollar. ~~Raw material costs~~Gross margin as a percentage of net revenue increased ~~240 basis points~~ due to higher product pricing and lower raw material costs partially offset by ~~higher net revenue. Other manufacturing costs as a percentage~~the impact of ~~net revenue decreased 210 basis points due to higher net revenue.~~lower sales volume. SG&A&A expenses as a percentage of net revenue ~~decreased 160 basis points du~~eincreased due to higher compensation costs and lower net revenue. ~~Segment~~Segment operating income increased ~~33.6~~3.5 percent and segment operating margin increased ~~130~~160 basis points compared to the second quarter of ~~2021.~~2022.

Net revenue ~~increased 15.4~~decreased 8.2 percent in the first six months of ~~2022~~2023 compared to the first six months of ~~2021.~~2022. The ~~increase~~decrease in organic growth was attributable ~~primarily du~~e to a decrease in sales volume, partially offset by an increase in product ~~pricing and sales volume.~~pricing. The ~~negative~~1.5 percent increase in net revenue from M&A was due to the acquisition of Aspen in the first quarter of 2023. The negative currency effect was due to a weaker Chinese renminbi, Euro and Turkish lira ~~partially offset by a stronger Chinese renminbi compared~~compared to the U.S. dollar. ~~Raw material costs~~Gross margin as a percentage of net revenue increased ~~330 basis points d~~uedue to higher ~~raw material costs~~product pricing partially offset by ~~higher net revenue. Other manufacturing costs as a percentage~~the impact of ~~net revenue decreased 220 basis~~ ~~points due to higher net revenue.~~lower sales volume. SG&A&A expenses as a percentage of net revenue ~~decreased 150 basis points~~increased due to higher compensation costs and lower net revenue. S~~egment~~Segment operating income increased ~~20.8~~1.8 percent and segment operating margin increased 40110 basis points compared to the first six months of ~~2021.~~2022.

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Construction Adhesives

	Three Months Ended									Six Months Ended									Three Months Ended									Six Months Ended
	May 28,			May 29,			2022 vs			May 28,			May 29,			2022 vs			June 3,			May 28,			2023 vs			June 3,			May 28,			2023 vs
($ in millions)	2022			2021			2021			2022			2021			2021			2023			2022			2022			2023			2022			2022
Net revenue	$	150.0		$	117.7			27.5	%	$	263.0		$	195.3			34.7	%	$	129.6		$	150.0			(13.6	)%	$	222.3		$	263.0			(15.5	)%
Segment operating income	$	11.3		$	6.3			79.4	%	$	15.6		$	1.6			875.0	%
Segment operating income (loss)																			$	6.0		$	11.3			(47.1	)%	$	(3.7	)	$	15.6			(126.4	)%
Segment operating margin		7.5	%		5.4	%					5.9	%		0.8	%					4.6	%		7.5	%					(1.7	)%		5.9	%

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

	Three Months Ended			Six Months Ended			Three Months Ended			Six Months Ended
	May 28, 2022 vs. May 29, 2021			May 28, 2022 vs. May 29, 2021			June 3, 2023 vs. May 28, 2022			June 3, 2023 vs. May 28, 2022
Organic growth		14.3	%		23.8	%		(14.2	)%		(19.2	)%
M&A		14.0	%		11.7	%		1.7	%		5.0	%
Currency		(0.8	)%		(0.8	)%		(1.1	)%		(1.3	)%
Total		27.5	%		34.7	%		(13.6	)%		(15.5	)%

Net revenue ~~increased 27.5~~decreased 13.6 percent in the second quarter of ~~2022~~2023 compared to the second quarter of ~~2021.~~2022. The ~~increase~~decrease in organic growth was attributable ~~primarily~~ to a decrease in sales volume, partially offset by an increase in product ~~pricing partially offset by a decrease in sales volume.~~pricing. The 1.7 percent increase in net revenue from M&A was due to the acquisition ~~of Fourny and Apollo during~~of GSSI in the ~~first~~fourth quarter of 2022. The negative currency effect was due to a weaker ~~Euro~~Australian dollar and ~~Australian dollar~~British pound sterling compared to the U.S. ~~dollar~~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~~Gross margin as a percentage of net revenue decreased ~~170~~ ~~basis points~~primarily due to ~~higher net revenue and~~ the impact of ~~acquisitions.~~lower sales volume partially offset by higher product pricing. SG&A expenses as a percentage of net revenue ~~decreased~~ ~~110~~ ~~basis points~~increased due to ~~higher~~lower net revenue. Segment operating income ~~increased~~decreased ~~79.4~~47.1 percent and segment operating margin ~~increased~~decreased ~~210~~290 basis points compared to the second quarter of ~~2021.~~2022.

Net revenue ~~increased 34.7~~decreased 15.5 percent in the first six months of ~~2022~~2023 compared to the first six months of ~~2021.~~2022. The ~~increase~~decrease in organic growth was attributable ~~primarily~~to ana decrease in sales volume, partially offset by a slight increase in product ~~pricing and sales volume.~~pricing. The ~~The~~5.0 percent increase in net revenue from M&A was due to the ~~acquisition~~acquisitions of Fourny and Apollo ~~during~~in the first quarter of 2022 and GSSI in the fourth quarter of 2022. The negative currency effect was due to a weaker ~~Euro and~~ Australian dollar and British pound sterling compared to the U.S. dollar. ~~Raw material costs as a percentage of net revenue increased 150 basis points~~ ~~due to higher raw material costs partially offset by higher net revenue. Other manufacturing costs~~Gross margin as a percentage of net revenue decreased ~~290~~ ~~basis points~~primarily due to ~~higher net revenue and~~ the impact of ~~acquisitions.~~lower sales volume partially offset by higher product pricing and slightly lower raw material costs. SG&A expenses as a percentage of net revenue ~~decreased~~ ~~370~~ ~~basis points~~increased due to ~~higher~~lower net revenue. Segment ~~operating~~operating income ~~increased 875.0~~decreased 126.4 percent and segment operating margin ~~increased 510~~decreased 760 basis points compared to the first six months of ~~2021.~~2022.

~~Table of Contents~~

Corporate Unallocated

	Three Months Ended									Six Months Ended									Three Months Ended									Six Months Ended
	May 28,			May 29,			2022 vs			May 28,			May 29,			2022 vs			June 3,			May 28,			2023 vs			June 3,			May 28,			2023 vs
($ in millions)	2022			2021			2021			2022			2021			2021			2023			2022			2022			2023			2022			2022
Net revenue	$	-		$	-			0.0	%	$	-		$	-			0.0	%	$	-		$	-			0.0	%	$	-		$	-			0.0	%
Segment operating loss	$	(10.0	)	$	(8.2	)		22.0	%	$	(22.1	)	$	(15.5	)		42.6	%	$	(11.8	)	$	(10.0	)		18.6	%	$	(19.5	)	$	(22.1	)		(11.6	)%
Segment operating margin		NMP			NMP						NMP			NMP					NMP			NMP						NMP			NMP

NMP = Non-meaningful percentage

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

Segment operating loss in the second quarter ~~and first six months~~ of ~~2022~~2023 increased ~~22.0 percent and 42.6~~18.6 percent compared to the second quarter of 2022 due to higher acquisition and restructuring costs for the second quarter of 2023 and decreased 11.6 percent compared to the first six months of ~~2021, respectively, reflecting increased~~2022 as acquisition ~~project costs.~~costs on a year-to-date basis were lower in 2023.

Financial Condition, Liquidity and Capital Resources

Total cash and cash equivalents as of ~~May 28, 2022~~June 3, 2023 were ~~$68.1~~$103.2 million compared to ~~$61.8~~$79.9 million as of ~~November 27, 2021~~December 3, 2022 and ~~$69.6~~$68.1 million as of May ~~29, 2021.~~28, 2022. The majority of the ~~$68.1~~$103.2 million in cash and cash equivalents as of ~~May 28, 2022~~June 3, 2023 was held outside the United States. Total long and short-term debt was $1,882.3 million as of June 3, 2023, $1,765.1 million as of December 3, 2022 and $1,935.8 million as of May 28, ~~2022, $1,616.5 million as of November 27, 2021 and $1,712.4 million as of May 29, 2021.~~2022. The total debt to total capital ratio as measured by ~~Total Debt~~total debt divided by ~~(Total Debt~~total debt plus ~~Total Stockholders’ Equity)~~total stockholders’ equity was 52.8 percent as of June 3, 2023 as compared to 52.3 percent as of December 3, 2022 and 54.5 percent as of May 28, ~~2022 as compared to 50.2 percent as of November 27, 2021 and 52.2 percent as of May 29, 2021.~~2022.

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

Table of Contents

Our credit agreements include restrictive covenants beginning for the quarter ending June 3, 2023 that, if not met, could lead to a renegotiation of our credit lines and a significant increase in our cost of financing. ~~At May 28, 2022, we were in compliance with all~~Those covenants ~~of our contractual obligations~~are as ~~shown in the following table:~~follows:

Covenant		Debt Instrument	Measurement		Result as of ~~May 28, 2022~~June 3, 2023
Secured Total Indebtedness / TTM¹ EBITDA		Revolving Facility and Term Loan ~~B Credit Agreement~~A Facility	Not greater than ~~5.9~~4.75²			~~2.9~~
~~Secured Indebtedness / TTM EBITDA~~2.3	~~Revolving Credit Agreement~~	~~Not greater than 5.9~~		~~2.9~~
TTM¹ EBITDA / Consolidated Interest Expense		Revolving ~~Credit Agreement~~Facility and Term Loan A Facility	Not less than 2.0			~~6.1~~	4.7

	●	¹TTM = Trailing 12 months
	²The Maximum Secured Leverage Ratio prior to June 1, 2024, shall be 4.75 to 1.00 and will step down to 4.50 to 1.0 with respect to quarters ending after June 1, 2024

~~Table of Contents~~

●

EBITDA for ~~Term Loan B~~ covenant purposes is defined as consolidated net income, plus (i) interest expense, (ii) expense for taxes paid or accrued, (iii) depreciation and amortization, (iv) certain non-cash impairment losses, (v) extraordinary non-cash losses incurred other than in the ordinary course of business, (vi) nonrecurring extraordinary non-cash restructuring charges and the non-cash impact of purchase accounting, ~~expenses~~(vii) any non-cash charge for the excess of rent expense over actual cash rent paid due to the use of straight-line rent, non-cash charge pursuant to any management equity plan, stock option plan or any other management or employee benefit, (viii) any non-cash finance charges in respect of any pension liabilities or other provisions and income (loss) attributable to deferred compensation plans, (ix) any non-recurring or unusual cash restructuring charges and operating improvements, (x) cost savings initiative and cost synergies related to 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, andacquisitions within 12 months, (xi) non-capitalized charges relating to the Borrower’s SAP implementation, ~~during fiscal years ending~~(xii) fees, costs, expenses and charges incurred in ~~2017 through 2021~~connection with the financing, (xiii) fees, costs, expenses, make-whole or penalty payments and other similar items arising out of acquisitions, investments and dispositions, the incurrence, issuance, repayment or refinancing of indebtedness and any issuance of equity interests; minus, non-recurring or unusual non-cash gains incurred not ~~exceeding $13 million~~ in the ordinary course of business. Provided that the aggregate amounts that may be added back for any ~~single fiscal year, minus extraordinary non-cash gains.~~period pursuant to clauses (ix), (x) and (xi) shall not exceed 15% of EBITDA for such period (calculated prior to giving effect to all addbacks and adjustments). For ~~the~~Secured Total Indebtedness / TTM EBITDA ratio, TTM EBITDA is adjusted for the pro forma results from Material Acquisitions and Material Divestitures as if the acquisition or divestiture occurred at the beginning of the calculation period. The full definition is set forth in the ~~Term Loan B~~Second Amended and Restated Credit Agreement and can be found in the Company’s ~~Form~~ 8-K filing dated ~~October 20, 2017.~~February 21, 2023.

●

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~~covenant purposes is defined as the interest expense (including without limitation to the portion of capital lease obligations that constitutes imputed interest in accordance with GAAP) of the ~~Company~~Borrower 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.~~GAAP, including net costs (or benefits) under Interest Rate Swap Agreements and commissions, discounts and other fees and charges with respect to letters of credit and the interest component of all Attributable Receivables Indebtedness.

We believe we have the ability to meet all of our contractual obligations and commitments in fiscal ~~2022.~~2023.

Selected Metrics of Liquidity

Key metrics we monitor are net working capital as a percent of annualized net revenue, trade receivable days sales outstanding (“DSO”), inventory days on hand, free cash flow after dividends and debt capitalization ratio.

	May 28,			May 29,			June 3,			May 28,
	2022			2021			2023			2022
Net working capital as a percentage of annualized net revenue¹		17.1	%		16.7	%		18.1	%		17.1	%
Accounts receivable DSO (in days)²		59			61			59			59
Inventory days on hand (in days)³		70			67			74			71
Free cash flow after dividends⁴	$	(97.2	)	$	11.9
Free (negative) cash flow after dividends4							$	4.5		$	(97.2	)
Total debt to total capital ratio⁵		54.5	%		52.2	%		52.8	%		54.5	%

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.

~~Table of Contents~~

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.

Table of Contents

Reconciliation of "Net cash provided by operating activities" to ~~Free~~(Negative) free cash flow after dividends

	Six Months Ended					Six Months Ended
($ in millions)	May 28, 2022			May 29, 2021		June 3, 2023		May 28, 2022
Net cash (used in) provided by operating activities	$	(9.1	)	$	79.8
Net cash provided by operating activities						$	108.4	$	(9.1	)
Less: Purchased property, plant and equipment		69.1			50.7		82.6		69.1
Less: Dividends paid		19.0			17.2		21.3		19.0
Free cash flow after dividends	$	(97.2	)	$	11.9
Free (negative) cash flow after dividends						$	4.5	$	(97.2	)

Summary of Cash Flows

Cash Flows from Operating Activities:

	Six Months Ended					Six Months Ended
	May 28,			May 29,		June 3,		May 28,
($ in millions)	2022			2021		2023		2022
Net cash (used in) provided by operating activities	$	(9.1	)	$	79.8
Net cash provided by (used in) operating activities						$	108.4	$	(9.1	)

Net income including non-controlling interest was $62.3 million in the first six months of 2023 compared to $85.5 million in the first six months of ~~2022 compared to $78.9~~2022. Depreciation and amortization expense totaled $77.0 million in the first six months of ~~2021. Depreciation and amortization expense totaled~~2023 compared to $72.7 million in the first six months of ~~2022 compared to $71.6 million in the first six months of 2021.~~2022. Deferred income taxes was a use of cash of ~~$5.0~~$16.8 million in ~~2022~~2023 compared to ~~$1.2~~$5.0 million in the first six months of ~~2021.~~2022. Accrued compensation was a use of cash of ~~$40.4~~$42.2 million in ~~2022~~2023 compared to ~~$8.8~~$40.4 million last year. Other assets was a use of cash of $37.0 million in the first six months of 2023 compared to $21.9 million in the first six months of ~~2022 compared to $21.7~~2022. Other liabilities was a source of cash of $18.8 million in the first six months of ~~2021. Other liabilities was~~2023 compared to a use of cash of $23.6 million in the first six months of ~~2022 compared to $29.0 million in the first six months of 2021.~~2022.

Changes in net working capital (trade receivables, inventory and trade payables) accounted for a ~~use~~source of cash of ~~$103.7~~$54.9 million compared to a use of cash of ~~$28.1~~$103.7 million last year. The table below provides the cash flow impact due to changes in the components of net working capital:

	Six Months Ended						Six Months Ended
	May 28,			May 29,			June 3,			May 28,
($ in millions)	2022			2021			2023			2022
Trade receivables, net	$	(35.5	)	$	(43.2	)	$	66.9		$	(35.5	)
Inventory		(95.4	)		(100.4	)		8.3			(95.4	)
Trade payables		27.2			115.5			(20.3	)		27.2
Total cash flow impact	$	(103.7	)	$	(28.1	)	$	54.9		$	(103.7	)

●

Trade receivables, net – Trade receivables, net was a source of cash of $66.9 million and a use of cash of $35.5 ~~million and $43.2~~ million in the first six months of ~~2022~~2023 and ~~2021,~~2022, respectively. The ~~lower~~source of cash in 2023 compared to the 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 59 days at both June 3, 2023 and May 28, ~~2022 and 61 days at May 29, 2021.~~2022.

~~Table of Contents~~

●

Inventory – Inventory was a source of cash of $8.3 million and use of cash of $95.4 ~~million and $100.4~~ million in the first six months of ~~2022~~2023 and ~~2021,~~2022, respectively. The ~~lower~~source of cash in 2023 compared to the use of cash in 2022 is due to lower inventory purchases in ~~2022~~2023 compared to ~~2021.~~2022. Inventory days on hand were 7074 days as of June 3, 2023 and 71 days as of May 28, ~~2022 and 67 days as of May 29, 2021.~~2022.

●

Trade payables – Trade payables was a use of cash of $20.3 million and a source of cash of $27.2 ~~million and $115.5~~ million in the first six months of ~~2022~~2023 and ~~2021,~~2022, respectively. The ~~lower~~use of cash in 2023 compared to the 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:

	Six Months Ended						Six Months Ended
	May 28,			May 29,			June 3,			May 28,
($ in millions)	2022			2021			2023			2022
Net cash used in investing activities	$	(293.2	)	$	(56.5	)	$	(183.7	)	$	(293.2	)

Purchases of property, plant and equipment were ~~$69.1~~$82.6 million during the first six months of ~~2022~~2023 compared to ~~$50.7~~$69.1 million for the same period of ~~2021~~2022. This difference reflects the timing of capital projects and expenditures related to growth initiatives.

During the first six months of 2023, we paid cash to acquire Lemtapes for $7.4 million, Aspen for $9.3 million and Beardow Adams for $87.0 million, net of cash acquired. During the first six months of 2022, we paid cash to acquire TissueSeal for $22.2 million, Fourny for $14.5 million, net of cash acquired and Apollo for $192.6 million, net of cash acquired.

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Cash Flows from Financing Activities:

	Six Months Ended					Six Months Ended
	May 28,		May 29,			June 3,		May 28,
($ in millions)	2022		2021			2023		2022
Net cash provided by (used in) financing activities	$	318.2	$	(57.9	)
Net cash provided by financing activities						$	93.3	$	318.2

~~Borrowings on our revolving credit facility~~ ~~were $335.0~~ ~~million in~~In the first six months of ~~2022~~2023, we refinanced our debt and as a result have proceeds from the issuance of long-term debt of $1,300.0million and repayment of long-term debt of $1,176.7 million. These borrowings are to finance acquisitions and for general working capital purposes. ~~We did not make any payments of~~No payment was made for long-term debt ~~in the first~~ ~~six~~ ~~months of~~ ~~2022~~ ~~and payments of long-term debt in the first~~ ~~six~~ ~~months of~~ ~~2021~~ ~~were $68.0 million. Net proceeds of notes payable were $3.6 million~~ in the first six months of 2022 and ~~$9.3~~borrowings on our long-term debt were $335.0 million. Payment of debt issue costs were $10.2 million ~~in the same period of~~ ~~2021. Cash dividends paid were $19.0~~and $0.6 million in the first six months of 2023 and 2022 ~~compared to $17.2 million in the same period~~, respectively. Net payments of ~~2021. Repurchases of common stock~~notes payable were ~~$3.6~~$0.2 million in the first six months of ~~2022~~2023 ~~compared to $2.6~~and net proceeds of notes payable were $3.6 million in the same period of ~~2021~~2022. Cash dividends paid were $21.3 million in the first six months of 2023 compared to $19.0 million in the same period of 2022. Repurchases of common stock were $2.6 million in the first six months of 2023 compared to $3.6 million in the same period of 2022.

Forward-Looking Statements and Risk Factors

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may be identified by the use of words like "plan," "expect," "aim," "believe," "project," "anticipate," "intend," "estimate," "will," "should," "could" (including the negative or variations thereof) and other expressions that indicate future events and trends. These plans and expectations are based upon certain underlying assumptions, including those mentioned with the specific statements. Such assumptions are in turn based upon internal estimates and analyses of current market conditions and trends, our plans and strategies, economic conditions and other factors. These plans and expectations and the assumptions underlying them are necessarily subject to risks and uncertainties inherent in projecting future conditions and results. Actual results could differ materially from expectations expressed in the forward-looking statements if one or more of the underlying assumptions and expectations proves to be inaccurate or is unrealized. In addition to the factors described in this report, Item 1A. Risk Factors identifies some of the important factors that could cause our actual results to differ materially from those in any such forward-looking statements. In order to comply with the terms of the safe harbor, we have identified these important factors which could affect our financial performance and could cause our actual results for future periods to differ materially from the anticipated results or other expectations expressed in the forward-looking statements. These factors should be considered, together with any similar risk factors or other cautionary language that may be made elsewhere in this Quarterly Report on Form 10-Q.

The list of important factors in Item 1A. Risk Factors does not necessarily present the risk factors in order of importance. This disclosure, including that under Forward-Looking Statements and Risk Factors, and other forward-looking statements and related disclosures made by us in this report and elsewhere from time to time, represents our best judgment as of the date the information is given. We do not undertake responsibility for updating any of such information, whether as a result of new information, future events, or otherwise, except as required by law. Investors are advised, however, to consult any further public company disclosures (such as in filings with the SEC or in our press releases) on related subjects.

~~Table of Contents~~

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~~December 3, 2022 for further discussion of these market risks. There have been no material changes in the reported market risk of the Company since ~~November 27, 2021.~~December 3, 2022.

Item 4. Controls and Procedures

Controls and Procedures

We conducted an evaluation, under the supervision and with the participation of our president and chief executive officer and executive vice president, chief financial officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (Exchange Act)) as of ~~May 28, 2022.~~June 3, 2023. Based on this evaluation, our president and chief executive officer and executive vice president, chief financial officer concluded that, as of ~~May 28, 2022,~~June 3, 2023, our disclosure controls and procedures were effective.

For purposes of Rule 13a-15(e), the term disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its president and chief executive officer and executive vice president, chief financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during our most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect our internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Environmental Matters

~~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.

~~Table of Contents~~

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 1213 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.~~December 3, 2022. There have been no material changes in the risk factors disclosed by us under Part I, Item 1A. Risk Factors contained in the Annual Report on Form 10-K for the fiscal year ended ~~November 27, 2021, except for the addition of the following risk factor:~~December 3, 2022.

~~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, 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.

~~Table of Contents~~

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

Information on our purchases of equity securities during the second quarter ended ~~May 28, 2022~~June 3, 2023 is as follows:

(d)

Maximum

Approximate Dollar

(a)

Value of Shares that

Total

(b)

may yet be

Number of

Average

Purchased Under the

Shares

Price Paid

Plan or Program

Period

Purchased¹

per Share

(millions)

February 27, 2022 - April 2, 2022
361 $ 68.07 $ 300,000

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

May 1, 2022 - May 28, 2022
165 $ 66.36 $ 300,000

					(d)
					Maximum
					Approximate Dollar
	(a)				Value of Shares that
	Total		(b)		may yet be
	Number of		Average		Purchased Under the
	Shares		Price Paid		Plan or Program
Period	Purchased¹		per Share		(millions)

March 5, 2023 - April 8, 2023		1,402	$	67.27	$	300,000

April 9, 2023 - May 6, 2023		137	$	70.40	$	300,000

May 7, 2023 - June 3, 2023		-	$	-	$	300,000

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

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

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

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Item 6. Exhibits

	*10.1	Second Amended and Restated H.B. Fuller Company 2020 Master Incentive Plan⁽¹⁾
	*10.2	Form of ~~Restricted~~Non-Qualified Stock ~~Unit Award~~Option Agreement ~~for Non-Employee Directors~~ under the Second Amended and Restated H.B. Fuller Company 2020 Master Incentive Plan for awards made on or after April ~~7, 2022~~6, 2023
	*10.3	Form of Restricted Stock Unit Award Agreement under the Second Amended and Restated H.B. Fuller Company 2020 Master Incentive Plan for awards made on or after April 6, 2023
	*10.4	Form of Performance Share Award Agreement under the Second Amended and Restated H.B. Fuller Company 2020 Master Incentive Plan for awards made on or after April 6, 2023
	*10.5	Form of Restricted Stock Unit Award Agreement for Non-Employee Directors under the Second Amended and Restated H.B. Fuller Company 2020 Master Incentive Plan for awards made on or after April 6, 2023
	31.1	Form of 302 Certification – ~~James J. Owens~~Celeste B. Mastin
	31.2	Form of 302 Certification – John J. Corkrean
	32.1	Form of 906 Certification – ~~James J. Owens~~Celeste B. Mastin
	32.2	Form of 906 Certification – John J. Corkrean
	101	The following materials from the H.B. Fuller Company Quarterly Report on Form 10-Q for the quarter ended ~~May 28, 2022~~June 3, 2023 formatted in Inline Extensible Business Reporting Language (Inline XBRL): (i) the Consolidated Statements of Income, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Total Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements.
	104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

		* Asterisked items are management contracts or compensatory plans or arrangements required to be filed.
		⁽¹⁾ Incorporated by reference to Appendix B to the H.B. Fuller Company Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on February 22, 2023

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	H.B. Fuller Company


Dated: June ~~23, 2022~~29, 2023		/s/ John J. Corkrean
		John J. Corkrean
		Executive Vice President,
		Chief Financial Officer

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Exhibit Index

Exhibits

	*10.1	Second Amended and Restated H.B. Fuller Company 2020 Master Incentive Plan⁽¹⁾
	*10.2	Form of ~~Restricted~~Non-Qualified Stock ~~Unit Award~~Option Agreement ~~for Non-Employee Directors~~ under the Second Amended and Restated H.B. Fuller Company 2020 Master Incentive Plan for awards made on or after April ~~7, 2022~~6, 2023
	*10.3	Form of Restricted Stock Unit Award Agreement under the Second Amended and Restated H.B. Fuller Company 2020 Master Incentive Plan for awards made on or after April 6, 2023
	*10.4	Form of Performance Share Award Agreement under the Second Amended and Restated H.B. Fuller Company 2020 Master Incentive Plan for awards made on or after April 6, 2023
	*10.5	Form of Restricted Stock Unit Award Agreement for Non-Employee Directors under the Second Amended and Restated H.B. Fuller Company 2020 Master Incentive Plan for awards made on or after April 6, 2023
	31.1	Form of 302 Certification – ~~James J. Owens~~Celeste B. Mastin
	31.2	Form of 302 Certification – John J. Corkrean
	32.1	Form of 906 Certification – ~~James J. Owens~~Celeste B. Mastin
	32.2	Form of 906 Certification – John J. Corkrean
	101	The following materials from the H.B. Fuller Company Quarterly Report on Form 10-Q for the quarter ended ~~May 28, 2022~~June 3, 2023 formatted in Inline Extensible Business Reporting Language (Inline XBRL): (i) the Consolidated Statements of Income, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Total Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements.
	104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

		* Asterisked items are management contracts or compensatory plans or arrangements required to be filed.
		⁽¹⁾ Incorporated by reference to Appendix B to the H.B. Fuller Company Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on February 22, 2023

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	February 26, 2022			Adjustments			May 28, 2022
Cash	$	12,165			-		$	12,165
Current assets		18,873			-			18,873
Property, plant and equipment		7,877			-			7,877
Goodwill		104,885			13,359			118,244
Other intangibles
Customer relationships		82,256			(14,809	)		67,447
Trademarks/trade names		2,154			135			2,289
Technology		9,558			(3,096	)		6,462
Current liabilities		(8,293	)		(41	)		(8,334	)
Other liabilities		(23,883	)		4,452			(19,431	)
Total	$	205,592		$	-		$	205,592

	*Fiscal Year of*		*Notional*
	*Expiration*	*Interest Rate*	*Value*		*Fair Value*
Pay EUR	2022	3.00%	$	267,860	$	24,932
Receive USD		5.1803%