FinanceLooker

Excrept from filing document 2024-11-30

H B Fuller Company was founded in 1887 and incorporated as a Minnesota corporation in 1915 Our stock is traded on the New York Stock Exchange NYSE under the ticker symbol FUL As used herein H B Fuller we us our management or company includes H B Fuller and its subsidiaries unless otherwise indicated Where we refer to 2024 2023 and 2022 herein the reference is to our fiscal years ended November 30 2024 December 2 2023 and December 3 2022 respectively
We are a leading worldwide formulator manufacturer and marketer of adhesives sealants and other specialty chemical products Sales operations span 35 countries in North America Europe Latin America Asia Pacific India the Middle East and Africa Industrial adhesives represent our core product offering which help improve the performance of our customers products or improve their manufacturing processes Customers use our adhesives products in manufacturing common consumer and industrial goods including food and beverage containers disposable diapers medical products windows doors appliances sportswear footwear multi wall bags water filtration products insulation textiles automobiles recreational vehicles buses trucks and trailers marine products solar energy systems electronics and products for the aerospace and defense industries In addition we have established a variety of product offerings for residential commercial and industrial construction markets including sealing and waterproofing solutions for airports roads highways bridges and utilities pressure sensitive adhesives tapes and sealants for the commercial roofing industry and level setting products ready to use grouts mortars and pressure sensitive adhesives that enable contractors and do it yourself consumers to quickly install flooring and tiling applications more reliably and efficiently We also provide our customers with technical support and unique solutions designed to address their specific needs
We have three reportable segments Hygiene Health and Consumable Adhesives Engineering Adhesives and Construction Adhesives See Management s Discussion and Analysis of Financial Condition and Results of Operations the MD A in Item 7 of this Annual Report for a description of our segment operating results
The principal markets products and methods of distribution outside the United States vary with each of our regional operations generally maintaining integrated business units that contain dedicated supplier networks manufacturing logistics and sales organizations The vast majority of the products sold within any region are produced within the region and the respective regions do not import significant amounts of product from other regions As of November 30 2024 we had sales offices and manufacturing plants in 25 countries outside the United States and satellite sales offices in another 9 countries
We have a Code of Business Conduct and detailed Core Policies that we apply across all of our operations around the world These policies represent a set of common values that apply to all employees and all of our business dealings We have adopted policies and processes and conduct employee training intended to ensure compliance with various economic sanctions and export controls including the regulations of the U S Treasury Department s Office of Foreign Assets Control OFAC We do not conduct any business in the following countries that are subject to U S economic sanctions Cuba Iran North Korea Syria and the Crimea region of the Ukraine
Many of our markets are highly competitive However we compete effectively due to the quality and breadth of our adhesives sealants and specialty chemical portfolio and the experience and expertise of our commercial organizations Within the adhesives and other specialty chemical markets we believe few suppliers have comparable global reach and corresponding ability to deliver quality and consistency to multinational customers Our competition is made up generally of two types of companies 1 similar multinational suppliers and 2 regional or specialty suppliers that typically compete in only one region or within a narrow geographic area within a region The multinational competitors typically maintain a broad product offering and range of technology while regional or specialty companies tend to have limited or more focused product ranges and technology
We have cultivated strong integrated relationships with a diverse set of customers worldwide Our customers are among the technology and market leaders in consumer goods construction and industrial markets We pride ourselves on long term collaborative customer relationships and a diverse portfolio of customers in which no single customer accounted for more than 10 percent of consolidated net revenue
Our leading customers include manufacturers of food and beverages hygiene products clothing major appliances electronics automobiles aerospace and defense products solar energy systems filters construction materials wood flooring furniture cabinetry windows doors tissue and towel corrugation tube winding packaging and tapes and labels
As of November 30 2024 we have approximately 7 500 employees in 45 countries including approximately 2 800 employees based in the U S Approximately 450 U S employees are subject to collective bargaining agreements with various unions Approximately 750 employees in foreign countries are subject to collective bargaining agreements Overall we consider our employee relations to be good
The health and safety of our employees and anyone who enters our workplace is important and we believe that nothing we do is worth getting hurt for We have a strong environmental health and safety program that focuses on implementing policies and training programs as well as performing self audits to enhance workplace safety
Our primary compensation strategy is Pay for Performance which supports a culture of accountability and performance Our compensation guiding principles are to structure compensation that is simple aligned and balanced We believe that these principles are strongly aligned with the strategic priorities of our business and our objective to deliver value for our shareholders
Quality affordable health care is the foundation of the comprehensive benefits package we offer our employees It is one of the tools we use to recruit and retain and it is seen as the preferred benefit by most employees Employees in the United States earning below 56 000 each year have 100 of their individual medical premiums covered by the Company in the form of a medical premium reimbursement
Our purpose is connecting what matters for all stakeholders and we go about this by winning the right way through our core values We expect employees to act with integrity and hold each other accountable for our actions We value our global team s diverse perspectives backgrounds and experiences We make daily conscious choices to excel by always bringing passion and creativity to our work and by striving for innovation ethically and fairly Our worldwide network of culture champions supports our focus on being At Our Best Our communication on goals targets and performance is frequent and transparent We continue to leverage flexible work options available to employees who don t need our facilities to perform their jobs and this continues to enhance connections across the Company as well as with customers and external partners This supports our desire to be first and fastest in finding solutions for customers and improving our overall effectiveness Finally we continue to take great pride in our focus on giving back to the communities in which we operate through the giving efforts of the H B Fuller Foundation and the thousands of employee volunteer hours each year
We place strong value on collaboration and we believe that working together leads to better outcomes for our customers This extends to the way we treat each other as team members We strive to create an environment where innovative ideas can flourish by demonstrating respect for each other and valuing the diverse opinions background and viewpoints of employees We believe that diversity in our teams leads to new ideas helps us solve problems and allows us to better connect with our global customer base
We are taking specific actions to foster inclusion and diversity into our culture Learning resources have been implemented to support greater awareness and understanding of the behaviors expected from employees We have introduced employee resource groups a structured mentoring program and focused development programs with the goal of creating meaningful opportunities for employees We have adjusted our recruiting practices to ensure we are getting the right level of exposure to diverse candidates
We recognize how important it is for our colleagues to develop and progress in their careers We provide a variety of resources to help our colleagues grow in their current roles and build new skills including online development resources focused on specific business imperatives with access to hundreds of online courses in our learning management system We utilize an innovative method to deliver leadership training to drive experiential learning and to increase access to leaders around the world We have built and launched two advanced leadership academies focused on business leadership and manufacturing leadership to ensure people in these roles have the right skills to be effective Individual development planning is a part of our annual goal setting process and people managers are expected to have regular discussions with employees to measure progress and make needed adjustments We focus on getting employees into roles with greater responsibility and opportunities for advancement that are also aligned with their career path to facilitate development and maximize potential Finally we provide ambitious employees with short term opportunities in unique assignments in addition to their current roles These assignments support the employees development while also supporting company initiatives that are required to be resourced with talented employees
The majority of our raw materials are petroleum natural gas based derivatives therefore the cost of crude oil and natural gas can impact the cost of our raw materials Under normal conditions raw materials are available on the open market Prices and availability are subject to supply and demand market mechanisms Raw material costs including costs for unique or specialty chemicals used in the manufacturing of our products are primarily determined by the balance of supply against the aggregate demand from the adhesives industry and other industries that use the same raw material streams
Much of the technology we use in our products and manufacturing processes is available in the public domain For technology not available in the public domain we rely on trade secrets and patents when appropriate to protect our competitive position We also license some patented technology from other sources Our business is not materially dependent upon licenses or similar rights or on any single patent or group of related patents
We own numerous trademarks and service marks in various countries Trademarks such as H B Fuller Swift Advantra Clarity Earthic Sesame Foster Rakoll Rapidex Full Care Thermonex Silaprene Eternabond Cilbond HydroArmor Ködispace Weld Mount TONSAN SecurePortIV Sugriseal and Vibra Tite are important in marketing products Many of our trademarks and service marks are registered U S trademark registrations are for a term of ten years and are renewable every ten years as long as the trademarks are used in the regular course of trade
Our investment in research and development creates new and innovative adhesive technology platforms enhances product performance ensures a competitive cost structure and leverages available raw materials New product development is a key research and development outcome providing higher value solutions to existing customers or meeting new customers needs Projects are developed in local laboratories in each region where we understand our customer base the best Platform developments are coordinated globally through our network of laboratories
Through designing and developing new polymers and new formulations we expect to continue to grow in our current markets We also develop new applications for existing products and technologies and improve manufacturing processes to enhance productivity and product quality Research and development efforts are closely aligned to customer needs We foster open innovation seek supplier driven new technology and use relationships with academic and other institutions to enhance our capabilities
As climate change and other sustainability concerns become more prevalent governmental and non governmental organizations customers and investors are increasingly focusing on these issues We continue to monitor our markets to ensure we are developing the adhesives and sealants to support our customers responses to changing consumer demand new product designs and upcoming regulatory and sustainability efforts We invest significantly in innovation research and expertise which are crucial for the continuous extraction of value from our business strategy This also facilitates the creation of new high performance solutions that enable customers to improve their products and processes to better achieve their sustainability programs
The Company is subject to various federal state local and foreign laws and regulations relating to environmental protection and workers safety including those required by the U S Environmental Protection Agency the EPA and the European Union s EU Registration Evaluation Authorization and Restriction of Chemicals REACH regulation We maintain programs intended to ensure compliance with these regulations including regular review of and upgrades to environmental health and safety policies practices and procedures as well as improved production methods to minimize our facilities outgoing waste based on evolving societal standards and increased environmental understanding Expenditures to comply with environmental regulations over the next two years are estimated to be approximately 20 9 million including approximately 0 3 million of capital expenditures See additional disclosure under Item 3 Legal Proceedings
Various legislation regulations and international accords pertaining to climate change have been implemented or are being considered for implementation particularly as they relate to the reduction of greenhouse gas emissions such as the EU s Corporate Sustainability Reporting Directive CSRD California s Climate Corporate Data Accountability Act and Climate Related Financial Risk Act the Securities and Exchange Commission s SEC Enhancement and Standardization of Climate Related Disclosures for Investors and other new and proposed regulatory frameworks These laws may directly impact the Company however we have not determined the extent of potential disclosures or other reporting requirements We continue to monitor the development and implementation of such legislation and regulations We also continue to regularly report our sustainability efforts and metrics under the Global Reporting Initiative GRI framework and report our goals and progress in our annual Sustainability Report
The Foreign Corrupt Practices Act the FCPA and other anti bribery and anti corruption laws and regulations prohibit bribery of government officials to benefit business interests The FCPA also requires the Company to make and keep accurate books and records that accurately and fairly reflect our transactions and to devise and maintain an adequate system of internal accounting controls The Company maintains an international compliance program including policies and procedures training and internal controls designed to ensure compliance with these laws and regulations However we operate and sell our products in countries that are rated as high risk for corruption creating the risk of unauthorized conduct by our employees customs brokers distributors or other third party intermediaries that could be in violation of the FCPA or similar local regulations
We are also subject to increasingly complex privacy and data protection laws and regulations in the United States and other jurisdictions This includes the EU s General Data Protection Regulation GDPR which enforces rules relating to the protection of processing and movement of personal data The interpretation and enforcement of such regulations are continuously evolving and there may be uncertainty with respect to how to comply with them Noncompliance with GDPR and other data protection laws could result in damage to our reputation and payment of monetary penalties
We file annual quarterly and current reports proxy statements and other information with the SEC via EDGAR Our SEC filings are available free of charge to the public on the SEC website at www sec gov and on our website as soon as reasonably practicable after they have been filed with or furnished to the SEC
In 2024 raw material costs made up approximately 75 percent of our cost of sales Based on 2024 financial results a hypothetical one percent change in our raw material costs would have resulted in a change in net income of approximately 12 0 million or 0 21 per diluted share Accordingly changes in the cost of raw materials due to scarcity supplier disruptions inflation and for other reasons can significantly impact our earnings Raw materials needed to manufacture products are obtained from a number of suppliers and many of the raw materials are petroleum and natural gas based derivatives Under normal market conditions these raw materials are generally available on the open market from a variety of producers While alternate supplies of most key raw materials are available supplier production outages may lead to strained supply demand situations for certain raw materials The substitution of key raw materials requires us to identify new supply sources reformulate and re test and may require seeking re approval from our customers using those products From time to time the prices and availability of these raw materials may fluctuate which could impair our ability to procure necessary materials or increase the cost of manufacturing products If the prices of raw materials increase in a short period of time we may be unable to pass these increases on to our customers in a timely manner and could experience reductions to our profit margins
Increasingly companies are subject to a wide variety of attacks on their networks on an ongoing basis In addition to traditional computer hackers malicious code such as viruses and worms phishing attempts ransomware employee theft or misuse and denial of service attacks sophisticated nation state and nation state supported actors engage in intrusions and attacks including advanced persistent threat intrusions and add to the risks to internal networks cloud deployed enterprise and customer facing environments and the information they store and process Despite significant efforts to create security barriers to such threats it is virtually impossible for us to entirely mitigate these risks We and our third party software and service providers have experienced and will continue to experience security threats and attacks from a variety of sources
As part of our business we store our data including intellectual property and certain data about our employees customers and vendors in our information technology systems Our security measures may be breached as a result of third party action including intentional misconduct by computer hackers employee error malfeasance or otherwise Third parties may attempt to fraudulently induce employees or customers into disclosing sensitive information such as usernames passwords or other information to gain access to our customers data or our data including our intellectual property and other confidential business information or our information technology systems In addition given their size and complexity our information systems could be vulnerable to service interruptions or to security breaches from inadvertent or intentional actions by our employees third party vendors and or business partners or from cyber attacks by malicious third parties attempting to gain unauthorized access to our products systems or confidential information
We are subject to increasingly complex and evolving laws regulations and customer imposed controls that govern privacy and cybersecurity These laws and regulations have been adopted by multiple agencies at the federal and state level as well as in foreign jurisdictions and the regimes have not been harmonized Our failure to comply with these regulatory regimes may result in significant liabilities or penalties
Security breaches resulting in unauthorized access to our data including any data regarding our employees customers or vendors expose us to risks Such unauthorized access and a failure to effectively recover from breaches could compromise confidential information disrupt our business harm our reputation result in the loss of customer confidence business and assets including trade secrets and other intellectual property result in regulatory proceedings and legal claims and have a negative impact on our financial results
Our wide variety of products are sold in numerous markets each of which is highly competitive Our competitive position in markets is in part subject to external factors For example supply and demand for certain of our products is driven by end use markets and worldwide capacities which in turn impact demand for and pricing of our products Many of our direct competitors are part of large multinational companies and may have more resources than we do Any increase in competition may result in lost market share or reduced prices which could result in reduced profit margins This may impair our ability to grow or even to maintain current levels of revenues and earnings While we have an extensive customer base loss of certain top customers could adversely affect our financial condition and results of operations until such business is replaced and no assurances can be made that we would be able to regain or replace any lost customers
Ongoing innovation and product development are important factors in our competitiveness as is acquisition of new technologies Failure to create and or acquire new products and generate new ideas could negatively impact our ability to grow and deliver strong financial results We may face difficulties marketing products produced using new technologies including but not limited to sustainable adhesives which may adversely impact our sales and financial results Failure of our products to work as predicted could lead to liability and damage to our reputation
We continually apply for and obtain U S and foreign patents to protect the results of our research for use in our operations and licensing We are party to a number of patent licenses and other technology agreements We rely on patents confidentiality agreements and internal security measures to protect our intellectual property Failure to protect this intellectual property could negatively affect our future performance and growth
Notwithstanding our emphasis on the safety of our employees and contractors and the precautions we take related to health and safety we may be unable to avoid safety incidents relating to our operations that result in injuries or deaths Certain safety incidents may result in legal or regulatory action that could result in increased expenses or reputational damage We maintain workers compensation insurance to address the risk of incurring material liabilities for injuries or deaths but there can be no assurance that the insurance coverage will be adequate or will continue to be available on terms acceptable to us or at all which could result in material liabilities to us for any injuries or deaths Changes to federal state and local employee health and safety regulations and legislative regulatory or societal responses to safety incidents may result in heightened regulations or public scrutiny that may increase our compliance costs or result in reputational damage
We rely on information technology to record and process transactions manage our business and maintain the financial accuracy of our records Our computer systems are subject to damage or interruption from various sources including power outages computer and telecommunications failures computer viruses security breaches vandalism catastrophic events and human error Interruptions of our computer systems could disrupt our business for example by leading to plant downtime and or power outages and could result in the loss of business and cause us to incur additional expense
We are in the process of implementing a global Enterprise Resource Planning ERP system including the upgrade to SAP S 4HANA at the beginning of fiscal 2025 that we refer to as Project ONE which will upgrade and standardize our information system Implementation of Project ONE began in our North America adhesives business in 2014 and through 2024 we completed implementation of this system in various parts of our business including Latin America except Brazil Australia and various other businesses in North America and Europe India Middle East and Africa EIMEA During 2025 and beyond we will continue implementation in North America Europe India the Middle East and Africa EIMEA Brazil and Asia Pacific
Any delays or other failure to achieve our implementation goals may adversely impact our financial results In addition the failure to either deliver the application on time or anticipate the necessary readiness and training needs could lead to business disruption and loss of business Failure or abandonment of any part of the ERP system could result in a write off of part or all of the costs that have been capitalized on the project
As part of our growth strategy we have made and will likely continue to make acquisitions of complementary businesses or products and divestitures of businesses or products that do not align with our portfolio optimization strategy The ability to grow through acquisitions and optimize our portfolio through divestitures depends upon our ability to identify negotiate and complete suitable acquisitions and divestitures If we fail to successfully integrate acquisitions into our existing business our results of operations and our cash flows could be adversely affected Our acquisition strategy also involves other risks and uncertainties including distraction of management from current operations greater than expected liabilities and expenses inadequate return on capital unidentified issues not discovered in our investigations and evaluations of those strategies and acquisitions and difficulties implementing and maintaining consistent standards controls procedures policies and systems Future acquisitions could result in additional debt and other liabilities and increased interest expense restructuring charges and amortization expense related to intangible assets Divestiture activity poses similar risks including distraction of management from current operations disruption of operations in adjacent or related businesses greater than expected time and expenses reductions to profit margins if we are unable to reduce fixed costs loss of customer supplier or other business relationships and employee retention challenges The inability to successfully manage the risks associated with our divestiture activity may result in higher production costs lost sales or otherwise negatively affect earnings and financial results
Our growth strategy depends in part on our ability to further penetrate markets outside the United States where there is the potential for significant economic and political disruptions Our operations in these markets may be subject to greater risks than those faced by our operations in the United States including political and economic instability project delay or abandonment due to unanticipated government actions inadequate investment in infrastructure undeveloped property rights and legal systems unfamiliar regulatory environments relationships with local partners language and cultural differences and increased difficulty recruiting training and retaining qualified employees
In addition our profitability is dependent on our ability to drive sustainable productivity improvements such as cost savings through organizational restructuring Delays or unexpected costs may prevent us from realizing the full operational and financial benefits of such restructuring initiatives and may potentially disrupt our operations
Epidemics pandemics outbreaks of novel diseases and other adverse public health developments in countries and states where we operate may arise at any time Such developments including the COVID 19 pandemic have had and in the future may have an adverse effect on our business financial condition and results of operations These effects include a potentially negative impact on the availability of our key personnel labor shortages and increased turnover temporary closures of our facilities or facilities of our business partners customers suppliers third party service providers or other vendors and interruption of domestic and global supply chains distribution channels and liquidity and capital or financial markets In particular restrictions on or disruptions of transportation port closures or increased border controls or closures or other impacts on domestic and global supply chains or distribution channels could increase our costs for raw materials and commodity costs increase demand for raw materials and commodities from competing purchasers limit our ability to meet customer demand or otherwise have a material adverse effect on our business financial condition and results of operations or cash flows Precautionary measures that we may take in the future intended to limit the impact of any epidemic pandemic disease outbreak or other public health development may result in additional costs In addition such epidemics pandemics disease outbreaks or other public health developments may adversely affect economies and financial markets throughout the world such as the effect that COVID 19 has had on world economies and financial markets which may affect our ability to obtain additional financing for our businesses and demand for our products and services The extent to which major public health issues impact our business and our financial results in the future will depend on future developments which are highly uncertain and cannot be predicted As a result it is not possible to predict the overall future impact of major public health issues on our business liquidity capital resources and financial results
Approximately 55 percent or 1 9 billion of our net revenue was generated outside the United States in 2024 International operations could be adversely affected by changes in economic political regulatory and social conditions especially in Brazil Russia China the Middle East including Turkey and Egypt and other developing or emerging markets where we do business An economic downturn in the businesses or geographic areas in which we sell our products could reduce demand for these products and result in a decrease in sales volume that could have a negative impact on our results of operations Product demand often depends on end use markets Economic conditions that reduce consumer confidence or discretionary spending may reduce product demand Challenging economic conditions may also impair the ability of our customers to pay for products they have purchased and as a result our reserves for doubtful accounts and write offs of accounts receivable may increase In addition tariffs and other trade protection measures anti bribery and anti corruption regulations restrictions on repatriation of earnings and cash currency controls implemented by foreign governments differing intellectual property rights and changes in legal and regulatory requirements that restrict the sales of products or increase costs could adversely affect our results of operations
In addition anti bribery and anti corruption regulations restrictions on repatriation of earnings and cash currency controls implemented by the U S and foreign governments differing intellectual property rights and changes in legal and regulatory requirements that restrict the sales of products or increase costs could adversely affect our results of operations Import tariffs taxes customs duties and other trading regulations imposed by the U S government on foreign countries or by foreign countries on the U S could significantly increase the prices we pay for raw materials that are critical to our ability to manufacture our products In addition we may be unable to find a domestic supplier to provide the necessary raw materials on an economical basis in the amounts we require Tariffs may decrease the competitiveness of our products in foreign markets or foreclose our sales entirely into those markets We could experience a negative impact on our operating results profitability customer relationships and future cash flows
Fluctuations and volatility in exchange rates between the U S dollar and other currencies could potentially result in increases or decreases in net revenue cost of raw materials and earnings and may adversely affect the value of our assets outside the United States In 2024 the change in foreign currencies negatively impacted our net revenue by approximately 34 9 million In 2024 we spent approximately 1 8 billion for raw materials worldwide of which approximately 1 0 billion was purchased outside the United States Based on 2024 financial results a hypothetical one percent change in our cost of sales due to foreign currency rate changes would have resulted in a change in net income of approximately 8 4 million or 0 15 per diluted share Although we utilize risk management tools including hedging as appropriate to mitigate market fluctuations in foreign currencies any changes in strategy in regard to risk management tools can also affect revenue expenses and results of operations and there can be no assurance that such measures will result in cost savings or that all market fluctuation exposure will be eliminated
Adverse equity market conditions and volatility in the credit markets could have a negative impact on the value of our pension trust assets our future estimated pension liabilities and other postretirement benefit plans In addition we could be required to provide increased pension plan funding As a result our financial results could be negatively impacted
In a rising interest rate environment more costly debt and reduced access to capital markets may affect our ability to invest in strategic growth initiatives such as acquisitions In addition the reduced credit availability could limit our customers ability to invest in their businesses refinance maturing debt obligations or meet their ongoing working capital needs If these customers do not have sufficient access to the financial markets demand for our products may decline
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 Increases in energy demand and supply disruptions caused by the Russia and Ukraine conflict have resulted in significantly higher energy prices particularly in Europe It is not possible to predict the broader or longer term consequences of that conflict or the ongoing conflict in the Middle East which could include further sanctions embargoes regional instability energy shortages geopolitical shifts and adverse effects on macroeconomic conditions security conditions currency exchange rates and financial markets Such geopolitical 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 the countries involved in these conflicts do not constitute a material portion of our business a significant escalation or expansion of economic disruption or the conflicts current scope could have a material adverse effect on our results of operations
Unexpected events including global pandemics natural disasters and severe weather events fires or explosions at our facilities or those of our suppliers acts of war or terrorism supply disruptions or breaches of security of our information technology systems could increase the cost of doing business or otherwise harm our operations our customers and our suppliers Such events could reduce demand for our products or make it difficult or impossible for us to receive raw materials from suppliers and deliver products to our customers
New laws or regulations or changes in existing laws or regulations or the manner of their interpretation or enforcement could increase our cost of doing business and restrict our ability to operate our business or execute our strategies In addition compliance with laws and regulations is complicated by our substantial global footprint which will require significant and additional resources to ensure compliance with applicable laws and regulations in the various countries where we conduct business
Our global operations expose us to trade and economic sanctions and other restrictions imposed by the U S the EU and other governments and organizations The U S Departments of Justice Commerce State Homeland Security and Treasury and other federal agencies and authorities have a broad range of civil and criminal penalties they may seek to impose against corporations and individuals for violations of economic sanctions laws export control laws the FCPA and other federal statutes and regulations including those established by the OFAC Under these laws and regulations as well as other anti corruption laws anti money laundering laws export control laws customs laws sanctions laws and other laws governing our operations various government agencies may require export licenses may seek to impose modifications to business practices including cessation of business activities in sanctioned countries or with sanctioned persons or entities and modifications to compliance programs including import restrictions which may increase compliance costs and may subject us to fines penalties and other sanctions A violation of these laws regulations policies or procedures could adversely impact our business results of operations and financial condition
Although we have implemented policies and procedures in these areas we cannot assure that our policies and procedures are sufficient or that directors officers employees representatives manufacturers suppliers and agents have not engaged and will not engage in conduct in violation of such policies and procedures
We are subject to numerous environmental laws and regulations that impose various environmental controls on us or otherwise relate to environmental protection the sale and export of certain chemicals or hazardous materials and various health and safety matters The costs of complying with these laws and regulations can be significant and may increase as applicable requirements and their enforcement become more stringent and new rules are implemented Adverse developments and or periodic settlements could negatively impact our results of operations and cash flows See Item 3 Legal Proceedings for a discussion of current environmental matters
Climate change resulting from increased concentrations of carbon dioxide and other greenhouse gases in the atmosphere could present risks to our future operations from natural disasters and extreme weather conditions such as hurricanes tornadoes earthquakes wildfires or flooding Such extreme weather conditions could pose physical risks to our facilities and disrupt operation of our supply chain and may increase operational costs The impacts of climate change on global water resources may result in water scarcity which could in the future impact our ability to access sufficient quantities of water in certain locations and result in increased costs Concern over climate change continues to result in new legal or regulatory requirements designed to mitigate the effects of climate change on the environment such as the EU s CSRD California s Climate Corporate Data Accountability Act and Climate Related Financial Risk Act the SEC s Enhancement and Standardization of Climate Related Disclosures for Investors and other new and proposed regulatory frameworks We are experiencing increased compliance burdens and costs to meet the regulatory obligations and these regulatory obligations may adversely affect raw material sourcing manufacturing operations and the distribution of our products
The development manufacture and sale of adhesives sealants and other specialty chemical products by us including products produced for the medical device automotive food and beverage aerospace and defense construction and hygiene products end markets involves a risk of exposure to product liability warranty and tort claims product recalls product seizures and related adverse publicity A product liability warranty or tort claim or judgment against us could also result in substantial and unexpected expenditures affect customer confidence in our products and divert management s attention from other responsibilities Although we maintain product liability insurance there can be no assurance that the level of coverage is adequate that coverage will apply or that we will be able to continue to maintain our existing insurance or obtain comparable insurance at a reasonable cost if at all We also have contracting policies and controls in place to limit our exposure to third party claims though we might not always be able to limit our exposure to those claims
In addition to tort claims our industry is also facing new compliance obligations and potential enforcement activity related to recent federal and state initiatives to regulate additional per and polyfluoroalkyl substances PFAS in an expanding set of products Such initiatives include proposals and rules from the U S EPA to regulate certain types and uses of PFAS under the Toxic Substances Control Act TSCA the Toxics Release Inventory TRI and the Comprehensive Environmental Response Compensation and Liability Act CERCLA as well as statutes proposed and enacted by various states These emerging regulations and laws create obligations regarding assessment reporting and in some cases elimination of certain PFAS in products they also could create increased obligations around environmental discharges waste handling and possible remediation We continue to monitor the development and implementation of these and other PFAS regulatory initiatives analyze their potential impact on our operations products and supply chains and assess adaptations that may become necessary to comply
Our operations from time to time are parties to or targets of lawsuits claims investigations and proceedings including product liability personal injury asbestos patent and intellectual property commercial contract environmental antitrust health and safety and employment matters which are handled and defended in the ordinary course of business The results of any future litigation or settlement of such lawsuits and claims are inherently unpredictable but such outcomes could be adverse and material in amount See Item 3 Legal Proceedings for a discussion of current litigation
A change in tax laws is one of many factors that impact the Company s effective tax rate The U S Congress and other government agencies in jurisdictions where the Company does business have had an extended focus on issues related to the taxation of multinational corporations As a result the tax laws in the U S and other countries in which the Company does business could change and any such changes could adversely impact our effective tax rate financial condition and results of operations
The Organization for Economic Co operation and Development OECD an international association of 38 countries including the United States finalized and adopted numerous changes to long standing tax principles Certain of these changes become effective for the Company in 2025 and will likely increase tax uncertainty and may adversely affect our provision for income taxes
We are subject to income tax laws and regulations in the United States and various foreign jurisdictions Significant judgment is required in evaluating and estimating our provision and accruals for these taxes Our income tax liabilities are dependent upon the location of earnings among these different jurisdictions Our income tax provision and income tax liabilities could be adversely affected by the jurisdictional mix of earnings changes in valuation of deferred tax assets and liabilities and changes in tax laws and regulations In the ordinary course of our business we are also subject to continuous examinations of our income tax returns by tax authorities Although we believe our tax estimates are reasonable the final results of any tax examination or related litigation could be materially different from our related historical income tax provisions and accruals Adverse developments in an audit examination or litigation related to previously filed tax returns or in the relevant jurisdiction s tax laws regulations administrative practices principles and interpretations could have a material effect on our results of operations and cash flows in the period or periods for which that development occurs as well as for prior and subsequent periods The decision to repatriate foreign earnings could result in higher withholding taxes
Weak demand may cause underutilization of our manufacturing capacity or elimination of product lines contract terminations or customer shutdowns may force sale or abandonment of facilities and equipment or other events associated with weak economic conditions or specific product or customer events may require us to record an impairment on tangible assets such as facilities and equipment as well as intangible assets such as intellectual property or goodwill which would have a negative impact on our financial results
expose us to interest rate risk since a portion of our debt obligations are at variable rates This could negatively impact our earnings cash flows and our ability to grow For example a one percentage point increase in the average interest rate on our floating rate debt at November 30 2024 would increase future interest expense by approximately 6 0 million per year
In addition the restrictive covenants require us to maintain specified financial ratios and satisfy other financial condition tests Our ability to meet those financial ratios and tests will depend on our ongoing financial and operating performance which in turn will be subject to economic conditions and to financial market and competitive factors many of which are beyond our control A breach of any of these covenants could result in a default under the instruments governing our indebtedness
Cybersecurity protection and data privacy are important to maintaining our proprietary information and the trust of our customers suppliers and employees and we recognize the importance of working to secure our data and information systems from potential cybersecurity and data privacy incidents We are a large global manufacturer with sites around the world and we identify and assess our cybersecurity risk through that lens Securing the execution and control of our manufacturing operations to the extent implemented through digital technology is a primary area of focus We also face risks encountered by substantially all large global companies such as the risks of intellectual property and information being compromised fraud and violation of privacy or security laws
Our cybersecurity risk is managed as part of our broader enterprise risk management program Specifically a risk management workstream focused on our information technology function including cybersecurity is designed to assess identify and manage cybersecurity related risks and mitigation measures Our cybersecurity risk program also includes a documented incident response plan to be used in the event of a cybersecurity incident The incident response plan provides for certain responses based on various factors of a cybersecurity incident
We periodically assess and test our policies standards processes and practices that are designed to address cybersecurity threats and incidents including those from third party service providers who have access to our systems data or are critical to our continued business operations These efforts include a wide range of activities including audits assessments tabletop exercises threat modeling vulnerability testing and other exercises focused on evaluating the effectiveness of our cybersecurity measures and planning We regularly engage third parties to perform assessments on our cybersecurity measures including information security maturity assessments audits and independent reviews of our information security control environment and operating effectiveness The results of such assessments audits and reviews are reported to senior management and if warranted to our audit committee and we adjust our cybersecurity policies standards processes and practices as necessary based on the information provided by these assessments audits and reviews
While some of our third party service providers have experienced cybersecurity incidents and have experienced threats to their data and systems as of the date of this report we are not aware of any cybersecurity threats or incidents that have materially affected our business strategy results of operations or financial condition This does not guarantee that future incidents or threats will not have a material impact by interrupting operations causing reputational harm increasing operating costs or exposing the Company to litigation For additional commentary on cybersecurity risks see Part 1 Item 1A Risk Factors
Our Board of Directors views the identification and effective management of cybersecurity threats as a critical component of overall risk management and oversight responsibilities and has delegated responsibility for oversight of this risk to the audit committee The audit committee oversees the management of risks arising from cybersecurity threats and regularly reports to the Board of Directors regarding cybersecurity Our audit committee oversees our enterprise risk management ERM process and cybersecurity represents an important component of our overall approach to ERM Our cybersecurity policies standards processes and practices are informed by the National Institute of Standards and Technology NIST Cybersecurity Framework and applicable industry standards In general we seek to address cybersecurity risks through a comprehensive cross functional program that is focused on identifying assessing preventing and mitigating cybersecurity threats and effectively responding to cybersecurity incidents when they occur
To manage our cybersecurity program management has established a cybersecurity steering committee and cybersecurity incident response team both led by our chief information officer Our cybersecurity steering committee and cybersecurity incident response team include multidisciplinary groups of corporate and operational leaders external cyber specialist resources and technical experts in cybersecurity risk management incident response and security operations Many members of our cybersecurity team have extensive experience in the operations of networks network security and infrastructure management Our chief information officer has over 20 years of information technology experience including leadership roles at large global publicly traded companies and is informed about and monitors prevention detection mitigation and remediation efforts through regular communication and reporting from professionals on the cybersecurity steering committee and cybersecurity incident response team and through the use of technological tools and software Our chief information officer is also responsible for updating the audit committee on cybersecurity on a quarterly basis and where appropriate escalating certain cybersecurity incidents to the full Board of Directors
Principal executive offices and central research facilities are located in the St Paul Minnesota area These facilities are company owned Manufacturing operations are carried out at 40 plants located throughout the United States and at 40 plants located in 25 other countries In addition numerous sales and service offices are located throughout the world We believe that the properties owned or leased are suitable and adequate for our business Operating capacity varies by product line but additional production capacity is available for most product lines by increasing the number of shifts worked The following is a list of our manufacturing plants as of November 30 2024 each of the listed properties are owned by us unless otherwise specified
From time to time we become aware of compliance matters relating to or receive notices from federal state or local entities regarding possible or alleged violations of environmental health or safety laws and regulations Also from time to time we are identified as a potentially responsible party PRP under the Comprehensive Environmental Response Compensation and Liability Act CERCLA and or similar state laws that impose liability for costs relating to the clean up of contamination resulting from past spills disposal or other release of hazardous substances We are also subject to similar laws in some of the countries where current and former facilities are located Our environmental health and safety department monitors compliance with applicable laws on a global basis
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
We are also engaged in environmental remediation and monitoring efforts at a number of current and former operating facilities To the extent we can reasonably estimate the amount of our probable liabilities for environmental matters we establish a financial provision It is reasonably possible that we may have additional liabilities related to these known environmental matters However the full extent of our future liability for environmental matters is difficult to predict because of uncertainty as to the cost of investigation and clean up of the sites our responsibility for such hazardous substances and the number of and financial condition of other potentially responsible parties
While uncertainties exist with respect to the amounts and timing of the ultimate environmental liabilities based on currently available information we have concluded that these matters individually or in the aggregate will not have a material adverse effect on our results of operations financial condition or cash flow However adverse developments and or periodic settlements could negatively impact the results of operations or cash flows in one or more future periods
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 asbestos 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 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
On April 7 2022 the Board of Directors authorized a share repurchase program of up to 300 0 million of our outstanding common shares for a period of up to five years Under the program we are authorized to repurchase shares for cash on the open market from time to time in privately negotiated transactions or block transactions or through an accelerated repurchase agreement The timing of such repurchases is dependent on price market conditions and applicable regulatory requirements Upon repurchase of the shares we reduce our common stock for the par value of the shares with the excess being applied against additional paid in capital This authorization replaced the April 6 2017 authorization to repurchase shares
The line graph below compares the cumulative total shareholder return on our common stock for the last five fiscal years with cumulative total return on the S P Small Cap 600 Index and Dow Jones U S Specialty Chemicals Index This graph assumes a 100 investment in each of H B Fuller the S P Small Cap 600 Index and the Dow Jones U S Specialty Chemicals Index at the close of trading on November 30 2019 and also assumes the reinvestment of all dividends
The Hygiene Health and Consumable Adhesives operating segment manufactures and supplies adhesives products in the assembly packaging converting nonwoven and hygiene health and beauty flexible packaging graphic arts and envelope markets The Engineering Adhesives operating segment provides high performance adhesives to the transportation electronics clean energy aerospace and defense performance wood insulating glass textile appliance and heavy machinery markets The Construction Adhesives operating segment manufactures and provides specialty adhesives sealants tapes mortars grouts and application devices for commercial building roofing systems heavy infrastructure projects road highway airport transportation applications telecom 5G utilities industrial LNG plants building envelope applications HVAC insulation systems and for both residential and commercial flooring underlayment solutions
We purchase thousands of raw materials the majority of which are petroleum natural gas derivatives The price of these derivatives impacts the cost of our raw materials However the supply of and demand for key raw materials has a greater impact on our costs As demand increases in high growth areas the supply of key raw materials may tighten resulting in certain materials being put on allocation Natural disasters such as hurricanes also can have an impact as key raw material producers are shut down for extended periods of time We continually monitor capacity utilization figures market supply and demand conditions feedstock costs and inventory levels as well as derivative and intermediate prices which affect our raw materials With approximately 75 percent of our cost of sales accounted for by raw materials our financial results are extremely sensitive to changing costs in this area
The pace of economic growth directly impacts certain industries to which we supply products For example adhesives related revenues from durable goods customers in areas such as appliances furniture and other woodworking applications tend to fluctuate with the overall economic activity In our Construction Adhesives operating segment and business components such as insulating glass in Engineering Adhesives revenues tend to move with more specific economic indicators such as housing starts and other construction related activity
The movement of foreign currency exchange rates as compared to the U S dollar impacts the translation of the foreign entities financial statements into U S dollars As foreign currencies weaken against the U S dollar our revenues and costs decrease as the foreign currency denominated financial statements translate into fewer U S dollars The fluctuations of the Euro Chinese renminbi British pound sterling Egyptian pound Turkish lira Brazilian real Chilean peso and Colombian peso against the U S dollar have the largest impact on our financial results as compared to all other currencies In 2024 currency fluctuations had a negative impact on net revenue of approximately 34 9 million as compared to 2023
In 2024 our diluted earnings per share was 2 30 compared to 2 59 in 2023 The lower earnings per share in 2024 compared to 2023 was primarily due to other expense net that includes a 47 3 million loss on the impairment of assets associated with our North American flooring business that is held for sale and higher operating costs partially offset by higher net revenue lower interest expense and lower income tax expense
In December 2012 our Board of Directors approved a multi year project to replace and enhance our existing core information technology platforms The scope for this project includes most of the basic transaction processing for the Company including customer orders procurement manufacturing and financial reporting The project envisions harmonized business processes for each of our operating segments supported with one standard software configuration The execution of this project which we refer to as Project ONE is being supported by internal resources and consulting services Implementation of Project ONE began in our North America adhesives business in 2014 and through 2024 we completed implementation of this system in various parts of our business including Latin America except Brazil Australia and various other businesses in North America and EIMEA During 2025 and beyond we will continue implementation in North America EIMEA Brazil and Asia Pacific
Total expenditures for Project ONE are estimated to be 270 to 290 million of which 60 65 is expected to be capital expenditures Our total project to date expenditures are approximately 230 million of which approximately 140 million are capital expenditures Given the complexity of the implementation the total investment to complete the project may exceed our estimate
During the second and third quarters of 2023 the Company approved restructuring plans the Plans related to organizational changes and other actions to optimize operations and integrate acquired businesses In implementing the Plans the Company currently expects to incur costs of approximately 60 0 million to 65 0 million 46 6 million to 50 7 million after tax which include i cash expenditures of approximately 28 4 million to 29 6 million 22 0 million to 23 0 million after tax for severance and related employee costs globally and ii other restructuring costs related to the streamlining of processes and the payment of anticipated income taxes in certain jurisdictions related to the Plans We have incurred costs of 55 5 million under the Plans as of November 30 2024 The Plans were implemented in the second quarter of fiscal year 2023 and are currently expected to be completed during fiscal year 2026 The restructuring costs will be spread across the next several fiscal quarters as the measures are implemented with the majority of the charges recognized and cash payments occurring in fiscal 2023 and 2024
Management s discussion and analysis of our results of operations and financial condition are based upon the Consolidated Financial Statements which have been prepared in accordance with accounting principles generally accepted in the United States of America The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets liabilities revenues and expenses and related disclosure of contingent assets and liabilities We believe the critical accounting policies and areas that require the most significant judgments and estimates to be used in the preparation of the Consolidated Financial Statements relate to goodwill impairment pension and other postretirement assumptions long lived assets recoverability valuation of product environmental and other litigation liabilities valuation of deferred tax assets and accuracy of tax contingencies and valuation of acquired assets and liabilities
Goodwill is the excess of cost of an acquired entity over the amounts assigned to assets acquired and liabilities assumed in a purchase business combination Goodwill is allocated to our reporting units which are our operating segments or one level below our operating segments the component level Reporting units are determined by the discrete financial information available for the component and whether it is regularly reviewed by segment management Components are aggregated into a single reporting unit if they share similar economic characteristics Our reporting units are as follows Hygiene Health and Consumable Adhesives Engineering Adhesives and Construction Adhesives
We evaluate our goodwill for impairment annually at the beginning of the fourth quarter or earlier upon the occurrence of substantive unfavorable changes in economic conditions industry trends costs cash flows or ongoing declines in market capitalization The quantitative impairment test requires judgment including the identification of reporting units the assignment of assets liabilities and goodwill to reporting units and the determination of fair value of each reporting unit The impairment test requires the comparison of the fair value of each reporting unit with its carrying amount including goodwill In performing the impairment test we determined the fair value of our reporting units through the income approach by using discounted cash flow DCF analyses Determining fair value requires the Company to make judgments about appropriate forecasted revenue and related revenue growth rate the earnings before interest taxes depreciation and amortization EBITDA margins rate and the weighted average cost of capital The cash flows employed in the DCF analysis for each reporting unit are based on the reporting unit s budget long term business plan and recent operating performance Discount rate assumptions are based on an assessment of the risk inherent in the future cash flows of the respective reporting unit and market conditions Given the inherent uncertainty in determining the assumptions underlying a DCF analysis actual results may differ from those used in our valuations In assessing the reasonableness of the determined fair values we also reconciled the aggregate determined fair value of the Company to the Company s market capitalization which at the date of our 2024 impairment test included a 16 percent control premium
We sponsor defined benefit pension plans in both the U S and non U S entities Also in the U S we sponsor other postretirement plans for health care and life insurance benefits Expenses and liabilities for the pension plans and other postretirement plans are actuarially calculated These calculations are based on our assumptions related to the discount rate expected return on assets projected salary increases and health care cost trend rates Note 10 to the Consolidated Financial Statements includes disclosure of assumptions employed in these measurements for both the non U S and U S plans
The discount rate assumption is determined using an actuarial yield curve approach which results in a discount rate that reflects the characteristics of the plan The approach identifies a broad population of corporate bonds that meet the quality and size criteria for the particular plan We use this approach rather than a specific index that has a certain set of bonds that may or may not be representative of the characteristics of our particular plan A higher discount rate reduces the present value of the pension obligations The discount rate for the U S pension plan was 5 23 percent at November 30 2024 5 66 percent at December 2 2023 and 5 36 percent at December 3 2022 Net periodic pension cost for a given fiscal year is based on assumptions developed at the end of the previous fiscal year A discount rate change of 0 5 percentage points at November 30 2024 would impact U S pension and other postretirement plan income expense by 0 1 million pre tax in fiscal 2025 Discount rates for non U S plans are determined in a manner consistent with the U S plans
The expected long term rate of return on plan assets assumption for the U S pension plan was 7 75 percent in 2024 7 75 percent in 2023 and 7 00 percent in 2022 Our expected long term rate of return on U S plan assets was based on our target asset allocation assumption of 55 percent equities and 45 percent fixed income Management in conjunction with our external financial advisors determines the expected long term rate of return on plan assets by considering the expected future returns and volatility levels for each asset class that are based on historical returns and forward looking observations For 2024 the expected long term rate of return on the target equities allocation was 8 50 percent and the expected long term rate of return on the target fixed income allocation was 5 62 percent The total plan rate of return assumption included an estimate of the effect of diversification and the plan expense A change of 0 5 percentage points for the expected return on assets assumption would impact U S net pension and other postretirement plan expense by approximately 2 6 million pre tax
Management in conjunction with our external financial advisors uses the actual historical rates of return of the asset categories to assess the reasonableness of the expected long term rate of return on plan assets The most recent 10 year and 20 year historical equity returns are shown in the table below Our expected rate of return on our total portfolio is consistent with the historical patterns observed over longer time frames
The expected long term rate of return on plan assets assumption for non U S pension plans was a weighted average of 5 01 percent in 2024 compared to 5 02 percent in 2023 and 3 49 percent in 2022 The expected long term rate of return on plan assets assumption used in each non U S plan is determined on a plan by plan basis for each local jurisdiction and is based on expected future returns for the investment mix of assets currently in the portfolio for that plan Management in conjunction with our external financial advisors develops expected rates of return for each plan considers expected long term returns for each asset category in the plan reviews expectations for inflation for each local jurisdiction and estimates the effect of active management of the plan s assets Our largest non U S pension plans are in the United Kingdom and Germany The expected long term rate of return on plan assets for the United Kingdom was 4 50 percent and the expected long term rate of return on plan assets for Germany was 5 50 percent Management in conjunction with our external financial advisors uses actual historical returns of the asset portfolio to assess the reasonableness of the expected rate of return for each plan
The projected salary increase assumption is based on historic trends and comparisons to the external market Higher rates of increase result in higher pension expenses As this rate is also a long term expected rate it is less likely to change on an annual basis Under the U S pension plan the compensation amount was locked in as of May 31 2011 and thus the benefit no longer includes compensation increases Projected salary increase assumptions for non U S plans are determined in a manner consistent with the U S plans
The assessment of the recoverability of long lived assets reflects our assumptions and estimates Factors that we must estimate when performing impairment tests include sales volume prices inflation currency exchange rates tax rates and capital spending Significant judgment is involved in estimating these factors and they include inherent uncertainties The measurement of the recoverability of these assets is dependent upon the accuracy of the assumptions used in making these estimates and how the estimates compare to the eventual future operating performance of the specific businesses to which the assets are attributed
Judgments made by us include the expected useful lives of long lived assets The ability to realize undiscounted cash flows in excess of the carrying amounts of such assets is affected by factors such as the ongoing maintenance and improvement of the assets changes in economic conditions and changes in operating performance
As disclosed in Item 3 Legal Proceedings and in Note 1 and Note 14 to the Consolidated Financial Statements we are subject to various claims lawsuits and other legal proceedings Reserves for loss contingencies associated with these matters are established when it is determined that a liability is probable and the amount can be reasonably estimated The assessment of the probable liabilities is based on the facts and circumstances known at the time that the financial statements are being prepared For cases in which it is determined that a liability is probable but only a range for the potential loss exists the minimum amount of the range is recorded and subsequently adjusted as better information becomes available
For cases in which insurance coverage is available the gross amount of the estimated liabilities is accrued and a receivable is recorded for any probable estimated insurance recoveries A discussion of environmental product and other litigation liabilities is disclosed in Item 3 Legal Proceedings and Note 14 to the Consolidated Financial Statements
Based upon currently available facts we do not believe that the ultimate resolution of any pending legal proceeding individually or in the aggregate will have a material adverse effect on our long term financial condition However adverse developments and or periodic settlements could negatively affect our results of operations or cash flows in one or more future quarters
As part of the process of preparing the Consolidated Financial Statements we are required to estimate income taxes in each of the jurisdictions in which we operate The process involves estimating actual current tax expense along with assessing temporary differences resulting from differing treatment of items for book and tax purposes These temporary differences result in deferred tax assets and liabilities which are included in the Consolidated Balance Sheets We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized We have considered future taxable income and ongoing tax planning strategies in assessing the need for the valuation allowance Increases in the valuation allowance result in additional expense to be reflected within the tax provision in the Consolidated Statements of Income The valuation allowance to reduce deferred tax assets totaled 11 7 million as of November 30 2024 and 15 6 million as of December 2 2023
We recognize tax benefits for tax positions for which it is more likely than not that the tax position will be sustained by the applicable tax authority at the largest amount of tax benefit that is greater than fifty percent likely of being realized upon ultimate settlement We do not recognize a financial statement benefit for a tax position that does not meet the more likely than not threshold We believe that our liabilities for income taxes reflect the most likely outcome It is difficult to predict the final outcome or the timing of the resolution of any particular tax position Future changes in judgment related to the resolution of tax positions will impact earnings in the quarter of such change We adjust our income tax liabilities related to tax positions in light of changing facts and circumstances Settlement with respect to a tax position would usually require cash Based upon our analysis of tax positions taken on prior year returns and expected tax positions to be taken for the current year tax returns we have identified gross uncertain tax positions of 15 6 million as of November 30 2024 and 14 3 million as of December 2 2023
We have not recorded U S deferred income taxes for certain of our non U S subsidiaries undistributed earnings as such amounts are intended to be indefinitely reinvested outside of the U S Should we change our business strategies related to these non U S subsidiaries additional U S tax liabilities could be incurred It is not practical to estimate the amount of these additional tax liabilities See Note 11 to the Consolidated Financial Statements for further information on income tax accounting
We complete valuation procedures and record the resulting fair value of the acquired assets and assumed liabilities based upon the valuation of the business enterprise and the tangible and intangible assets acquired Enterprise value allocation methodology requires management to make assumptions and apply judgment to estimate the fair value of assets acquired and liabilities assumed If estimates or assumptions used to complete the enterprise valuation and estimates of the fair value of the acquired assets and assumed liabilities significantly differed from assumptions made the resulting difference could materially affect the fair value of net assets
The calculation of the fair value of the tangible assets including property plant and equipment utilizes the cost approach which computes the cost to replace the asset less accrued depreciation resulting from physical deterioration functional obsolescence and external obsolescence The calculation of the fair value of the identified intangible assets are determined using cash flow models following the income approach or a discounted market based methodology approach Significant inputs include estimated revenue growth rates gross margins operating expenses and estimated attrition royalty and discount rates Goodwill is recorded as the difference in the fair value of the acquired assets and assumed liabilities and the purchase price
We review variances in net revenue in terms of changes related to sales volume and product pricing referred to as organic revenue growth business acquisitions and divestitures M A and changes in foreign currency exchange rates The following table shows the net revenue variance analysis for fiscal 2024 compared to fiscal 2023
Organic revenue in 2024 compared to 2023 decreased 1 0 percent and consisted of a 9 5 percent increase in Construction Adhesives a 4 0 percent decrease in Hygiene Health and Consumable Adhesives and a 1 0 percent decrease in Engineering Adhesives The decrease was driven by a 2 6 percent decrease in product pricing partially offset by a 1 6 percent increase in sales volume The 3 6 percent increase from M A was due to our acquisitions that occurred during the last year The negative 1 0 percent currency impact was primarily driven by a weaker Egyptian pound Turkish lira Brazilian real Chinese renminbi and Chilean peso offset by a stronger Euro British pound sterling and Colombian peso compared to the U S dollar
Cost of sales in 2024 compared to 2023 decreased 110 basis points as a percentage of net revenue Raw material cost as a percentage of net revenue decreased 210 basis points in 2024 compared to 2023 due to lower raw material costs Other manufacturing costs as a percentage of net revenue increased 100 basis points in 2024 compared to 2023 primarily due to a decrease in product pricing partially offset by higher sales volume
Other expense income net in 2024 included a 47 3 million loss on the impairment of assets associated with our North American flooring business that is held for sale 2 5 million of currency transaction losses a 2 0 million loss on an equity investment and 1 6 million of other expense partially offset by 15 9 million of net defined benefit pension benefits and a 0 4 million gain on disposal of assets Other expense income net in 2023 included 20 3 million of net defined benefit pension benefits and 1 2 of other income partially offset by 11 6 million of currency transaction losses and a 0 1 million loss on disposal of assets
Income tax expense of 56 4 million in 2024 includes 5 5 million of discrete tax benefit primarily related to various foreign tax matters as well as an excess tax benefit related to U S stock compensation Excluding the discrete tax benefit of 5 5 million the overall effective tax rate was 33 9 percent
Income tax expense of 93 5 million in 2023 includes 26 1 million of discrete tax expense primarily related to the impact of withholding tax recorded on earnings that are no longer permanently reinvested as well as other various U S and foreign tax matters Excluding the discrete tax expense of 26 1 million the overall effective tax rate was 28 8 percent
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 For segment evaluation by the chief operating decision maker segment operating income is defined as gross profit less SG A expenses Inter segment revenues are recorded at cost plus a markup for administrative costs Corporate expenses other than those included in Corporate Unallocated are allocated to each operating segment
We have three reportable segments Hygiene Health and Consumable Adhesives Engineering Adhesives and Construction Adhesives The tables below provide certain information regarding the net revenue and operating income of each of our operating segments Corporate Unallocated includes business acquisition and integration costs organizational restructuring charges and project costs related to the implementation of Project ONE
Net revenue decreased 3 4 percent in 2024 compared to 2023 The 4 0 decrease in organic revenue growth was attributable to a decrease in product pricing and sales volume The 2 3 percent increase in net revenue from M A was due to acquisitions of Beardow Adams in the second quarter of 2023 and Adhezion in the third quarter of 2023 The 1 7 percent negative currency effect was due to a weaker Egyptian pound Turkish lira Brazilian real and Chilean peso offset by a stronger Euro Colombian peso and British pound sterling compared to the U S dollar As a percentage of net revenue raw material costs decreased 120 basis points due to lower raw material costs Other manufacturing costs as a percentage of net revenue increased 100 basis points due to lower product pricing and the impact of acquisitions SG A expenses as a percentage of net revenue increased 150 basis points due to the impact of acquisitions lower net revenue and higher compensation costs Segment operating income decreased 12 9 percent and segment operating margin as a percentage of net revenue decreased 130 basis points in 2024 as compared to 2023
Net revenue increased 2 1 percent in 2024 compared to 2023 The 1 0 percent decrease in organic revenue growth was attributable to a decrease in product pricing partially offset by an increase in sales volume The 3 7 percent increase in net revenue from M A was due to the acquisition of ND Industries in the second quarter of 2024 The 0 6 percent negative currency effect was due to a weaker Turkish lira Chinese renminbi and Brazilian real offset by a stronger Euro and British pound sterling compared to the U S dollar As a percentage of net revenue raw material costs decreased 310 basis points due to lower raw material costs Other manufacturing costs as a percentage of net revenue increased 140 basis points due to the impact of lower product pricing and the impact of acquisitions partially offset by increased sales volume SG A expenses as a percentage of net revenue increased 160 basis points primarily due to the acquisition of ND Industries and higher compensation costs Segment operating income increased 3 0 percent and segment operating margin increased 10 basis points in 2024 as compared to 2023
Net revenue increased 17 2 percent in 2024 compared to 2023 The 9 5 percent increase in organic revenue growth was attributable to an increase in sales volume partially offset by a decrease in product pricing The 7 5 percent increase in net revenue from M A was due to the acquisitions of XChem in the third quarter of 2023 Sanglier in the fourth quarter of 2023 and HS Butyl in the third quarter of 2024 The 0 2 percent positive currency effect was due to a stronger British pound sterling compared to the U S dollar As a percentage of net revenue raw material costs decreased 80 basis points due to lower raw material costs Other manufacturing costs as a percentage of net revenue decreased 60 basis points due to higher sales volume partially offset by lower product pricing SG A expenses as a percentage of net revenue decreased 190 basis points due to increased net revenue partially offset by the impact of acquisitions and higher compensation costs Segment operating income increased 321 7 percent and segment operating margin as a percentage of net revenue increased 330 basis points in 2024 as compared to 2023
We believe that cash flows from operating activities will be adequate to meet our short term and long term liquidity and capital expenditure needs In addition we believe we have the ability to obtain both short term and long term debt to meet our financing needs for the foreseeable future Cash available in the United States has historically been sufficient and we expect it will continue to be sufficient to fund U S operations U S capital spending and U S pension and other postretirement benefit contributions in addition to funding U S acquisitions dividend payments debt service and share repurchases as needed For those international earnings considered to be reinvested indefinitely we currently have no intention to and plans do not indicate a need to repatriate these funds for U S operations
Our credit agreements include restrictive covenants that if not met could lead to a renegotiation of our credit lines and a significant increase in our cost of financing At November 30 2024 we were in compliance with all covenants of our contractual obligations for outstanding indebtedness as shown in the following table
EBITDA for covenant purposes is defined as consolidated net income plus i interest expense ii expense for taxes paid or accrued iii depreciation and amortization iv certain non cash impairment losses v extraordinary non cash losses incurred other than in the ordinary course of business vi nonrecurring extraordinary non cash restructuring charges and the non cash impact of purchase accounting vii any non cash charge for the excess of rent expense over actual cash rent paid due to the use of straight line rent non cash charge pursuant to any management equity plan stock option plan or any other management or employee benefit viii any non cash finance charges in respect of any pension liabilities or other provisions and income loss attributable to deferred compensation plans ix any non recurring or unusual cash restructuring charges and operating improvements x cost savings initiative and cost synergies related to acquisitions within 12 months xi non capitalized charges relating to the Company s SAP implementation xii fees costs expenses and charges incurred in connection with the financing xiii fees costs expenses make whole or penalty payments and other similar items arising out of acquisitions investments and dispositions the incurrence issuance repayment or refinancing of indebtedness and any issuance of equity interests minus non recurring or unusual non cash gains incurred not in the ordinary course of business Provided that the aggregate amounts that may be added back for any period pursuant to clauses ix x and xi shall not exceed 15 of EBITDA for such period calculated prior to giving effect to all addbacks and adjustments For Secured Total Indebtedness TTM EBITDA ratio TTM EBITDA is adjusted for the pro forma results from Material Acquisitions and Material Divestitures both as defined in the Second Amended and Restated Credit Agreement as if the acquisition or divestiture occurred at the beginning of the calculation period The full definition is set forth in the Second Amended and Restated Credit Agreement the Company filed as an exhibit to its 8 K filing dated February 21 2023
Consolidated Interest Expense for covenant purposes is defined as the interest expense including without limitation to the portion of capital lease obligations that constitutes imputed interest in accordance with GAAP of the Company and its subsidiaries calculated on a consolidated basis for such period with respect to all outstanding indebtedness allocable to such period in accordance with GAAP including net costs or benefits under Interest Rate Swap Agreements and commissions discounts and other fees and charges with respect to letters of credit and the interest component of all Attributable Receivables Indebtedness
Of the 169 4 million in cash and cash equivalents as of November 30 2024 166 4 million was held outside the U S Of the 166 4 million of cash held outside the U S earnings of 152 5 million are indefinitely reinvested outside of the U S It is not practical for us to determine the U S tax implications of the repatriation of these funds
There are no contractual or regulatory restrictions on the ability of consolidated and unconsolidated subsidiaries to transfer funds in the form of cash dividends loans or advances to us Our credit facilities have the following restrictions related to investments and general limitations 1 a credit facility limitation restricting investments loans advances or capital contributions from Loan Parties to non Loan Parties in excess of 150 0 million 2 a credit facility limitation that provides total investments loans advances or guarantees not otherwise permitted in the credit agreement for all subsidiaries shall not exceed 150 0 million in the aggregate 3 a credit facility limitation that provides total investments dividends and distributions shall not exceed the Available Amount defined in these agreements all three of which do not apply when our secured leverage ratio is below 4 0x and 4 typical statutory restrictions which prohibit distributions in excess of net capital or similar tests Additionally we have taken the income tax position that the majority of our cash in non U S locations is indefinitely reinvested
Notes payable were 0 6 million at November 30 2024 and 1 8 million at December 2 2023 These amounts primarily represented various foreign subsidiaries short term borrowings that were not part of committed lines The current weighted average interest rates on these short term borrowings were approximately 6 17 percent in 2024 and 10 75 percent in 2023
Long term debt consists of a senior secured term loan Term Loan A with an aggregate principal amount of 500 0 million and a senior secured term loan Term Loan B with an aggregate principal amount of 994 0 million issued pursuant to a Second Amended and Restated Credit Agreement dated as of February 15 2023 as amended 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 50 percent 6 17 percent at November 30 2024 The interest rate spread is based on a secured leverage grid Term Loan A matures on February 15 2028 At November 30 2024 a balance of 462 5 million was outstanding on Term Loan A Interest on Term Loan B is payable at SOFR plus an interest rate spread of 2 00 percent with a SOFR floor of 0 50 percent 6 57 percent at November 30 2024 Term Loan B matures on February 15 2030 At November 30 2024 a balance of 989 0 million was outstanding on Term Loan B On January 12 2023 we entered into an interest rate swap agreement amended on February 28 2023 to convert 400 000 of our variable rate 1 month SOFR to a fixed rate of 3 7260 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
Long term debt also consists of 10 year unsecured public notes 10 year Public Notes with an aggregate principal amount of 300 0 million due February 15 2027 with a fixed coupon of 4 00 percent and 8 year unsecured public notes 8 year Public Notes with an aggregate principal amount of 300 0 million due October 15 2028 with a fixed coupon of 4 25 percent We currently have no intention to prepay the Public Notes On February 12 2021 we entered into an interest rate swap agreement to convert our 8 year Public Notes to a variable interest rate of 1 month LIBOR plus 3 28 percent See Note 12 to the Consolidated Financial Statements for further discussion of this interest rate swap
We have a revolving credit agreement with a consortium of financial institutions at November 30 2024 This revolving credit agreement creates a secured multi currency revolving credit facility that we can draw upon to repay existing indebtedness finance working capital needs finance acquisitions and for general corporate purposes up to a maximum of 700 0 million Interest on the revolving credit facility is payable at SOFR plus an adjustment of 0 10 percent and an interest rate spread of 1 50 percent 6 17 percent at November 30 2024 A facility fee of 20 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 November 30 2024 there was no balance outstanding on the Revolving Credit Facility The Revolving Credit Facility matures on February 15 2028
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 our debt 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
Free cash flow a non GAAP financial measure is defined as net cash provided by operating activities less purchased property plant and equipment Free cash flow 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 is determined and provides a reconciliation of free cash flow to net cash provided by operating activities the most directly comparable financial measure calculated and reported in accordance with U S GAAP
Net income including non controlling interest was 130 4 million in 2024 and 145 0 million in 2023 Depreciation and amortization expense totaled 174 7 million in 2024 compared to 159 8 million in 2023 The higher depreciation and amortization expense in 2024 is related to the assets acquired in our business acquisitions
Trade Receivables net Changes in trade receivables resulted in a 10 7 million and 68 7 million source of cash in 2024 and 2023 respectively The lower source of cash in 2024 compared to 2023 was related to lower collections in the current year compared to the prior year The DSO was 55 days at November 30 2024 and 58 days at December 2 2023
Inventory Changes in inventory resulted in a 30 1 million use of cash in 2024 compared to a 72 6 million source of cash in 2023 The use of cash in 2024 compared to the source of cash in 2023 is due to higher inventory purchases at higher prices in 2024 compared to the prior year Inventory days on hand were 67 days at November 30 2024 and December 2 2023
Trade Payables Changes in trade payables resulted in a 47 9 million source of cash in 2024 compared to a 57 8 million use of cash in 2023 The source of cash in 2024 compared to the use of cash in 2023 reflects lower payments on trade payables in the current year compared to the prior year The DPO was 68 days at November 30 2024 and 64 days at December 2 2023
Contributions to our pension and other postretirement benefit plans were 2 9 million and 4 3 million in 2024 and 2023 respectively Income taxes payable resulted in a 23 1 million use of cash and a 41 2 million source of cash in 2024 and 2023 respectively Other assets resulted in a 17 5 million and a 7 9 million use of cash in 2024 and 2023 respectively The higher use of cash in 2024 compared to 2023 is primarily driven by a higher increase in pension and post retirement assets related to the year end pension valuation compared to the prior year Accrued compensation was a 12 7 million source of cash and a 13 8 million use of cash in 2024 and 2023 respectively relating to higher accruals for our employee incentive plans in 2024 Other liabilities resulted in a 31 3 million use of cash and a 22 9 million source of cash in 2024 and 2023 respectively The use of cash in 2024 compared to source of cash in 2023 was due to a decrease in hedging liabilities from interest rate swap activity in 2024 compared to an increase the prior year In 2024 we also recorded a 47 3 million loss on the impairment of assets held for sale Non cash foreign currency remeasurement was a positive 9 7 million in 2024 compared to a negative 28 0 million in 2023
Purchases of property plant and equipment were 139 2 million in 2024 compared to 119 1 million in 2023 The higher purchases in 2024 reflect the timing of capital projects and expenditures related to growth initiatives Proceeds from the sale of property plant and equipment were 1 2 million in 2024 compared to 5 0 million in 2023 We paid cash net of cash acquired of 273 9 million and 205 1 million for purchased businesses in 2024 and 2023 respectively We received cash of 4 9 million in proceeds from insurance recoveries related to property plant and equipment
In 2024 we received 1 932 9 million in proceeds and repaid 1 764 9 million of long term debt including borrowings and repayments on our revolving credit facility and in 2023 we received 2 233 3 million in proceeds and repaid 2 126 5 million of long term debt See Note 7 to the Consolidated Financial Statements for further discussion of debt borrowings and repayments Debt issuance costs of 3 5 million were paid in 2024 compared to 10 2 million paid in 2023 Cash paid for dividends were 47 6 million and 43 4 million in 2024 and 2023 respectively Cash generated from the exercise of stock options was 35 9 million and 14 6 million in 2024 and 2023 respectively Indirect repurchases of common stock through a net settlement feature related to statutory minimum tax withholding upon vesting of restricted stock were 7 8 million in 2024 compared to 2 6 million in 2023 We had 31 8 of repurchases of stock from our share repurchase program in 2024 and there were no repurchases from our share repurchase program in 2023
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward looking statements This Annual Report on Form 10 K 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 Annual Report on Form 10 K
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
Our financial performance may be negatively affected by unfavorable economic conditions Recessionary economic conditions may have an adverse impact on our sales volumes pricing levels and profitability As domestic and international economic conditions change trends in discretionary consumer spending also become unpredictable and subject to reductions due to uncertainties about the future A general reduction in consumer discretionary spending due to a recession in the domestic and international economies or uncertainties regarding future economic prospects could have a material adverse effect on our results of operations
Exposure to changes in interest rates results primarily from borrowing activities used to fund operations Committed floating rate credit facilities are used to fund a portion of operations We believe that probable near term changes in interest rates would not materially affect our financial condition results of operations or cash flows The annual impact on interest expense of a one percentage point interest rate change on the outstanding balance of our variable rate debt net of interest rate swap derivatives as of November 30 2024 would have resulted in a change in net income of approximately 6 0 million or 0 11 per diluted share
As a result of being a global enterprise there is exposure to market risks from changes in foreign currency exchange rates Our operating results financial condition and net investment in foreign subsidiaries are subject to both currency translation and currency transaction risk Approximately 55 percent of net revenue was generated outside of the United States in 2024 Principal foreign currency exposures relate to the Euro Chinese renminbi British pound sterling Egyptian pound Turkish lira Brazilian real Canadian dollar Australian dollar and Mexican peso
We enter into cross border transactions through importing and exporting goods to and from different countries and locations These transactions generate foreign exchange risk as they create assets liabilities and cash flows in currencies other than their functional currency This also applies to services provided and other cross border agreements among subsidiaries Our objective is to balance where possible non functional currency denominated assets to non functional currency denominated liabilities to have a natural hedge and minimize foreign exchange impacts
In the event a natural hedge is not available we take steps to minimize risks from foreign currency exchange rate fluctuations through normal operating and financing activities and when deemed appropriate through the use of derivative instruments We do not enter into any speculative positions with regard to derivative instruments
Based on 2024 financial results a hypothetical one percent change in our cost of sales due to foreign currency rate changes would have resulted in a change in net income attributable to H B Fuller of approximately 8 4 million or 0 15 per diluted share Based on 2024 financial results and foreign currency balance sheet positions as of November 30 2024 a hypothetical overall 10 percent change in the U S dollar would have resulted in a change in net income of approximately 15 7 million or 0 28 per diluted share
The principal raw materials used to manufacture products include resins polymers synthetic rubbers vinyl acetate monomer and plasticizers We generally avoid sole source supplier arrangements for raw materials While alternate supplies of most key raw materials are available unplanned supplier production outages may lead to strained supply demand situations for several key raw materials such as ethylene and propylene several polymers and other petroleum derivatives such as waxes
The purchase of raw materials is our largest expenditure Our objective is to purchase raw materials that meet both our quality standards and production needs at the lowest total cost Most raw materials are purchased on the open market or under contracts that limit the frequency but not the magnitude of price increases In some cases however the risk of raw material price changes is managed by strategic sourcing agreements which limit price increases to increases in supplier feedstock costs while requiring decreases as feedstock costs decline The leverage of having substitute raw materials approved for use wherever possible is used to minimize the impact of possible price increases Based on 2024 financial results a hypothetical one percent change in our raw material costs would have resulted in a change in net income of approximately 12 0 million or 0 21 per diluted share
We have audited the accompanying consolidated balance sheets of H B Fuller Company and subsidiaries the Company as of November 30 2024 and December 2 2023 the related consolidated statements of income comprehensive income loss total equity and cash flows for each of the three years in the period ended November 30 2024 and the related notes collectively referred to as the consolidated financial statements In our opinion the consolidated financial statements present fairly in all material respects the financial position of the Company at November 30 2024 and December 2 2023 and the results of its operations and its cash flows for each of the three years in the period ended November 30 2024 in conformity with U S generally accepted accounting principles
We also have audited in accordance with the standards of the Public Company Accounting Oversight Board United States PCAOB the Company s internal control over financial reporting as of November 30 2024 based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013 framework and our report dated January 23 2025 expressed an unqualified opinion thereon
These financial statements are the responsibility of the Company s management Our responsibility is to express an opinion on the Company s financial statements based on our audits We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audits in accordance with the standards of the PCAOB Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement whether due to error or fraud Our audits included performing procedures to assess the risks of material misstatement of the financial statements whether due to error or fraud and performing procedures that respond to those risks Such procedures included examining on a test basis evidence regarding the amounts and disclosures in the financial statements Our audits also included evaluating the accounting principles used and significant estimates made by management as well as evaluating the overall presentation of the financial statements We believe that our audits provide a reasonable basis for our opinion
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that 1 relates to accounts or disclosures that are material to the financial statements and 2 involved our especially challenging subjective or complex judgments The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements taken as a whole and we are not by communicating the critical audit matter below providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates
At November 30 2024 the Company had goodwill of approximately 406 million related to the Construction Adhesive reporting unit As discussed in the notes to the consolidated financial statements the Company performs goodwill impairment testing on an annual basis as of the beginning of the fourth quarter and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount
Auditing management s goodwill impairment test for the Construction Adhesives reporting unit was complex and judgmental due to the significant estimation required in determining the fair value of the reporting unit In particular the Company estimates fair value using the income approach which is sensitive to certain assumptions such as forecasted revenue and related revenue growth rate the earnings before interest taxes depreciation and amortization EBITDA margins rate and the weighted average cost of capital which are affected by management s business plans and expectations about future market or economic conditions
We have audited H B Fuller Company and subsidiaries internal control over financial reporting as of November 30 2024 based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013 framework the COSO criteria In our opinion H B Fuller Company and subsidiaries the Company maintained in all material respects effective internal control over financial reporting as of November 30 2024 based on the COSO criteria
We also have audited in accordance with the standards of the Public Company Accounting Oversight Board United States PCAOB the consolidated balance sheets of the Company as of November 30 2024 and December 2 2023 the related consolidated statements of income comprehensive income loss total equity and cash flows for each of the three years in the period ended November 30 2024 and the related notes and our report dated January 23 2025 expressed an unqualified opinion thereon
The Company s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management s Report on Internal Control over Financial Reporting Our responsibility is to express an opinion on the Company s internal control over financial reporting based on our audit We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
Our audit included obtaining an understanding of internal control over financial reporting assessing the risk that a material weakness exists testing and evaluating the design and operating effectiveness of internal control based on the assessed risk and performing such other procedures as we considered necessary in the circumstances We believe that our audit provides a reasonable basis for our opinion
A company s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles A company s internal control over financial reporting includes those policies and procedures that 1 pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company 2 provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company and 3 provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition use or disposition of the company s assets that could have a material effect on the financial statements
Because of its inherent limitations internal control over financial reporting may not prevent or detect misstatements Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate
H B Fuller Company and our subsidiaries formulate manufacture and market specialty adhesives sealants coatings polymers tapes encapsulants additives and other specialty chemical products globally with sales operations in 35 countries in North America Europe Latin America Asia Pacific India the Middle East and Africa
We have three reportable segments Hygiene Health and Consumable Adhesives Engineering Adhesives and Construction Adhesives In 2024 as a percentage of total net revenue by operating segment Hygiene Health and Consumable Adhesives accounted for 43 percent Engineering Adhesives 41 percent and Construction Adhesives 16 percent
Our Hygiene Health and Consumable Adhesives operating segment produces and supplies a full range of specialty industrial adhesives such as thermoplastic thermoset reactive water based and solvent based products for applications in various markets including packaging food and beverage containers flexible packaging consumer goods package integrity and re enforcement and non durable goods converting corrugation folding carton tape and label paper converting envelopes books multi wall bags sacks and tissue and towel nonwoven and hygiene disposable diapers feminine care and medical garments and health and beauty
Our Engineering Adhesives operating segment produces and supplies high performance industrial adhesives such as reactive light cure two part liquids polyurethane silicone film and fast cure products to the durable assembly appliances and filters performance wood windows doors and wood flooring and textile footwear and sportswear transportation electronics clean energy aerospace and defense appliance heavy machinery and insulating glass markets
Our Construction Adhesives operating segment includes products used for tile setting adhesives grouts mortars sealers and levelers the commercial roofing industry pressure sensitive adhesives tapes and sealants and heating ventilation and air conditioning and insulation applications duct sealants weather barriers and fungicidal coatings and block fillers This operating segment also includes caulks and sealants for the consumer market and professional trade sold through retailers primarily in Australia
The Consolidated Financial Statements include the accounts of H B Fuller Company and its wholly owned and majority owned subsidiaries All significant intercompany transactions and accounts have been eliminated Investments in affiliated companies in which we exercise significant influence but which we do not control are accounted for in the Consolidated Financial Statements under the equity method of accounting As such consolidated net income includes our equity portion in current earnings of such companies after elimination of intercompany profits Investments in which we do not exercise significant influence generally less than a 20 percent ownership interest are accounted for using the measurement alternative
Our 50 percent ownership in Sekisui Fuller Company Ltd our Japan joint venture is accounted for under the equity method of accounting as we do not exercise control over the investee In fiscal years 2024 2023 and 2022 this equity method investment was not significant as defined in Regulation S X under the Securities Exchange Act of 1934 As such financial information as of November 30 2024 December 2 2023 and December 3 2022 for Sekisui Fuller Company Ltd is not required
Preparation of the Consolidated Financial Statements in conformity with U S generally accepted accounting principles U S GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes Actual results could differ from those estimates
We recognize revenue at the amount of consideration to which we expect to be entitled in exchange for transferring the promised goods to the customer The transaction price includes an estimation of any variable amounts of consideration to which we will be entitled The most common forms of variable consideration within our arrangements are customer rebates which are recorded as a reduction to revenue at the time of the initial sale using the expected value method The expected value method is the sum of probability weighted amounts in a range of possible consideration amounts and is based on a consideration of historical current and forecast information Changes in estimates are updated each reporting period There are no material instances where variable consideration is constrained and not recorded at the initial time of sale Product returns are recorded as a reduction to revenue based on historical experience and anticipated sales returns that occur in the normal course of business We primarily have assurance type warranties that do not result in separate performance obligations We have elected to present revenue net of sales and other similar taxes
We recognize revenue when control of goods is transferred to the customer For the vast majority of our arrangements control transfers at a point in time either upon shipment or upon delivery of the goods to the customer The timing of transfer of control is determined considering the timing of the transfer of legal title physical possession and risks and rewards of goods to the customer
We record shipping and handling revenue in net revenue and outbound shipping and handling costs in cost of goods sold The majority of our shipping and handling activities are performed prior to transfer of control of the goods to the customer For those arrangements where we provide shipping and handling services after control of the goods has transferred to the customer we have elected the practical expedient allowed under Financial Accounting Standards Board FASB Accounting Standard Codification ASC Topic 606 to account for these activities as a fulfillment cost rather than as a separate performance obligation
Provisions for sales returns are estimated based on historical experience and are adjusted for known returns if material Customer incentive programs primarily volume purchase rebates and arrangements such as cooperative advertising slotting fees and buy downs are recorded as a reduction of net revenue in accordance with ASC 606 Customer incentives recorded in the Consolidated Statements of Income as a reduction of net revenue were 43 548 35 896 and 50 146 in 2024 2023 and 2022 respectively
The income tax provision is computed based on income before income from equity method investments included in the Consolidated Statement of Income The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities Enacted statutory tax rates applicable to future years are applied to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date Valuation allowances reduce deferred tax assets when it is not more likely than not that a tax benefit will be realized See Note 11 for further information
We complete valuation procedures and record the resulting fair value of the acquired assets and assumed liabilities based upon the valuation of the business enterprise and the tangible and intangible assets acquired Enterprise value allocation methodology requires management to make assumptions and apply judgment to estimate the fair value of assets acquired and liabilities assumed If estimates or assumptions used to complete the enterprise valuation and estimates of the fair value of the acquired assets and assumed liabilities significantly differed from assumptions made the resulting difference could materially affect the fair value of net assets
The calculation of the fair value of the tangible assets including property plant and equipment utilizes the cost approach which computes the cost to replace the asset less accrued depreciation resulting from physical deterioration functional obsolescence and external obsolescence The calculation of the fair value of the identified intangible assets is determined using cash flow models following the income approach or a discounted market based methodology approach Significant inputs include estimated revenue growth rates gross margins operating expenses and estimated attrition royalty and discount rates Goodwill is recorded as the difference in the fair value of the acquired assets and assumed liabilities and the purchase price
Cash equivalents are highly liquid instruments with an original maturity of three months or less We review cash and cash equivalent balances on a bank by bank basis to identify book overdrafts Book overdrafts occur when the amount of outstanding checks exceed the cash deposited at a given bank Book overdrafts if any are included in trade payables in our Consolidated Balance Sheets and in operating activities in our Consolidated Statements of Cash Flows
There were no restrictions on cash as of November 30 2024 or December 2 2023 There are no contractual or regulatory restrictions on the ability of consolidated and unconsolidated subsidiaries to transfer funds to us except for typical statutory restrictions which prohibit distributions in excess of net capital or similar tests The majority of our cash in non U S locations is considered indefinitely reinvested
Trade receivables are recorded at the invoiced amount and do not bear interest Allowances are maintained for doubtful accounts credits related to pricing or quantities shipped and early payment discounts The allowance for doubtful accounts includes an estimate of future uncollectible receivables based on the aging of the receivable balance and our collection experience The allowance also includes specific customer accounts when it is probable that the full amount of the receivable will not be collected Current expectations of future credit losses using market and industry data are considered in the specific customer accounts See Note 4 for further information
Investments with a value of 9 814 and 9 334 represent the cash surrender value of life insurance contracts as of November 30 2024 and December 2 2023 respectively These assets are held to primarily support supplemental pension plans and are recorded in other assets in the Consolidated Balance Sheets The corresponding gain or loss associated with these contracts is reported in earnings each period as a component of selling general and administrative expenses
Investments in an entity where we own less than 20 of the voting stock of the entity and do not exercise significant influence over operating and financial policies of the entity are accounted for using the measurement alternative at cost less impairment plus or minus observable price changes in orderly transactions We have a policy in place to review our investments at least annually to evaluate the accounting method and identify observable price changes that could indicate impairment If we believe that an impairment exists it is our policy to calculate the fair value of the investment and recognize as impairment any amount by which the carrying value exceeds the fair value of the investment We recognized impairment of 339 and 303 for the years ended November 30 2024 and December 3 2022 respectively and did not have any impairment of our equity investments for the year ended December 2 2023 The book value of the equity investments was 1 023 and 1 362 as of November 30 2024 and December 2 2023 respectively and are presented in Other assets in the Consolidated Balance Sheets
Property plant and equipment are carried at cost and depreciated over the useful lives of the assets using the straight line method Estimated useful lives range from 20 to 40 years for buildings and improvements 3 to 20 years for machinery and equipment and the shorter of the lease or expected life for leasehold improvements Fully depreciated assets are retained in property and accumulated depreciation accounts until removed from service Upon disposal assets and related accumulated depreciation are removed Upon sale of an asset the difference between the proceeds and remaining net book value is charged or credited to other expense income net on the Consolidated Statements of Income Expenditures that add value or extend the life of the respective assets are capitalized while expenditures that are typical recurring repairs and maintenance are expensed as incurred Interest costs associated with construction and implementation of property plant and equipment of 1 859 1 769 and 1 518 were capitalized in 2024 2023 and 2022 respectively
We evaluate our goodwill for impairment annually at the beginning of the fourth quarter or earlier upon the occurrence of substantive unfavorable changes in economic conditions industry trends costs cash flows or ongoing declines in market capitalization The quantitative impairment test requires judgment including the identification of reporting units the assignment of assets liabilities and goodwill to reporting units and the determination of fair value of each reporting unit The impairment test requires the comparison of the fair value of each reporting unit with its carrying amount including goodwill In performing the impairment test we determined the fair value of our reporting units through the income approach by using discounted cash flow DCF analyses Determining fair value requires the Company to make judgments about appropriate discount rates perpetual growth rates and the amount and timing of expected future cash flows The cash flows employed in the DCF analysis for each reporting unit are based on the reporting unit s budget long term business plan and recent operating performance Discount rate assumptions are based on an assessment of the risk inherent in the future cash flows of the respective reporting unit and market conditions If the estimated fair value of a reporting unit exceeds its carrying value goodwill is considered to not be impaired If the carrying value exceeds estimated fair value an impairment charge is recorded for any excess of the carrying value over the estimated fair value Based on the analysis performed for our fiscal 2024 annual impairment test there were no indications of impairment for any of our reporting units See Note 5 for further information
Intangible assets include patents customer lists technology trademarks and other intangible assets acquired from independent parties and are amortized on a straight line basis with estimated useful lives ranging from 2 to 20 years The straight line method of amortization of these assets reflects an appropriate allocation of the costs of the intangible assets to earnings in proportion to the amount of economic benefits obtained in each reporting period
Our long lived assets are tested for impairment whenever events or circumstances indicate that a carrying amount of an asset asset group may not be recoverable An impairment loss would be measured and recognized when the carrying amount of an asset asset group exceeds the estimated undiscounted future cash flows expected to result from the use of the asset asset group and its eventual disposition The impairment loss to be recorded would be the excess of the asset s carrying value over its fair value Fair value is generally determined using a DCF analysis or other valuation technique Costs related to internally developed intangible assets are expensed as incurred
Assets and liabilities of non U S functional currency entities are translated to U S dollars at period end exchange rates and the resulting gains and losses arising from the translation of those net assets are recorded as a cumulative translation adjustment a component of accumulated other comprehensive income loss in stockholders equity Revenues and expenses are translated using average exchange rates during the year Foreign currency transaction gains and losses are included in other expense income net in the Consolidated Statements of Income
We consider a subsidiary s sales price drivers currency denomination of sales transactions and inventory purchases to be the primary indicators in determining a foreign subsidiary s functional currency Our subsidiaries in certain European countries have a functional currency different than their local currency All other foreign subsidiaries which are located in North America Latin America Europe India the Middle East and Africa EIMEA and Asia Pacific have the same local and functional currency
We sponsor defined benefit pension plans in both the U S and non U S entities Also in the U S we sponsor other postretirement plans for health care and life insurance benefits Expenses and liabilities for the pension plans and other postretirement plans are actuarially calculated These calculations are based on our assumptions related to the discount rate expected return on assets projected salary increases health care cost trend rates and mortality rates The discount rate assumption is determined using an actuarial yield curve approach which results in a discount rate that reflects the characteristics of the plan The approach identifies a broad population of corporate bonds that meet the quality and size criteria for the particular plan We use this approach rather than a specific index that has a certain set of bonds that may or may not be representative of the characteristics of our particular plan Our expected long term rate of return on U S plan assets was based on our target asset allocation assumption of 55 percent equities and 45 percent fixed income Management in conjunction with our external financial advisors determines the expected long term rate of return on plan assets by considering the expected future returns and volatility levels for each asset class that are based on historical returns and forward looking observations The expected long term rate of return on plan assets assumption used in each non U S plan is determined on a plan by plan basis for each local jurisdiction and is based on expected future returns for the investment mix of assets currently in the portfolio for that plan Management in conjunction with our external financial advisors develops expected rates of return for each plan considers expected long term returns for each asset category in the plan reviews expectations for inflation for each local jurisdiction and estimates the impact of active management of the plan s assets Note 10 includes disclosure of assumptions employed in these measurements for both the non U S and U S plans
We recognize asset retirement obligations ARO in the period in which we have an existing legal obligation associated with the retirement of a tangible long lived asset and the amount can be reasonably estimated The ARO is recognized at fair value when the liability is incurred Upon initial recognition of a liability that cost is capitalized as part of the related long lived asset and depreciated on a straight line basis over the remaining estimated useful life of the related asset We have recognized a liability related to special handling of asbestos related materials in certain facilities for which we have plans or expectation of plans to undertake a major renovation or demolition project that would require the removal of asbestos or have plans or expectation of plans to exit a facility In addition we have determined that we have facilities with some level of asbestos that will require abatement action in the future Once the probability and timeframe of an action are determined we apply certain assumptions to determine the related liability and asset These assumptions include the use of inflation rates the use of credit adjusted risk free discount rates and the estimation of costs to handle asbestos related materials The recorded liability is required to be adjusted for changes resulting from the passage of time and or revisions to the timing or the amount of the original estimate The asset retirement obligation liability was 3 321 and 3 147 at November 30 2024 and December 2 2023 respectively
Environmental expenditures that relate to current operations are expensed or capitalized as appropriate Expenditures that relate to an existing condition caused by past operations and which do not contribute to current or future revenue generation are expensed Liabilities are recorded when environmental assessments are made or remedial efforts are probable and the costs can be reasonably estimated The timing of these accruals is generally no later than the completion of feasibility studies
Concurrent with business acquisitions we enter into agreements that require us to pay the sellers a certain amount based upon a formula related to the entity s financial results The change in fair value of the contingent consideration liability is recorded in SG A expenses in the Consolidated Statements of Income
We have various share based compensation programs which provide for equity awards including non qualified stock options incentive stock options restricted stock units performance awards and deferred compensation We use the straight line attribution method to recognize compensation expense associated with share based awards based on the fair value on the date of grant net of the estimated forfeiture rate Expense is recognized over the requisite service period related to each award which is the period between the grant date and the earlier of the award s stated vesting term or the date the employee is eligible for early retirement based on the terms of the plan The fair value of stock options is estimated using the Black Scholes option pricing model All of our stock compensation expense is recorded in SG A expenses in the Consolidated Statements of Income See Note 9 for additional information
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 awards 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 The computations for basic and diluted earnings per share are as follows
Our objective is to balance where possible non functional currency denominated assets to non functional currency denominated liabilities to have a natural hedge and minimize foreign exchange impacts We minimize risks from foreign currency exchange rate fluctuations through normal operating and financing activities and when deemed appropriate through the use of derivative instruments Derivatives consisted primarily of forward currency contracts used to manage foreign currency denominated assets and liabilities For derivative instruments outstanding that were not designated as hedges for accounting purposes the gains and losses related to mark to market adjustments were recognized as other income or expense in the income statement during the periods the derivative instruments were outstanding To manage exposure to currency rate movements on expected cash flows the Company may enter into cross currency swap agreements
Changes in the fair values of derivatives are recorded in net earnings or other comprehensive income based on the type of derivative and whether the instrument is designated and effective as a hedge transaction Gains or losses on derivative instruments reported in accumulated other comprehensive income loss are reclassified to earnings in the period the hedged item affects earnings Any ineffectiveness is recognized in earnings in the current period We maintain master netting arrangements that allow us to net settle contracts with the same counterparties we do not elect to offset amounts in our Consolidated Balance Sheet These arrangements generally do not call for collateral We do not enter into any speculative positions with regard to derivative instruments See Note 12 for further information regarding our financial instruments
Under the Minnesota Business Corporation Act repurchased stock is included in authorized shares but is not included in shares outstanding The excess of the repurchase cost over par value is charged to additional paid in capital When additional paid in capital is exhausted the excess reduces retained earnings We indirectly repurchased 93 102 113 868 and 49 869 shares of common stock in 2024 2023 and 2022 respectively through a net settlement feature in connection with the statutory minimum tax withholding related to vesting of restricted stock We repurchased 407 400 shares of common stock from our share repurchase program in 2024 No shares were repurchased from our share repurchase program in 2023 and 2022
We have agreements with third parties to provide supplier finance programs which facilitate participating suppliers ability to finance payment obligations of the Company with designated third party financial institutions Participating suppliers may at their sole discretion elect to finance one or more payment obligations of the Company prior to their scheduled due dates at a discounted price to participating financial institutions The Company has no economic interest in the sale of these suppliers receivables and no direct financial relationship with the financial institutions concerning these services The Company s obligations to its suppliers including amounts due and scheduled payment dates are not impacted by suppliers decisions to finance amounts under these arrangements The outstanding payment obligations that were confirmed as valid and remained outstanding as of November 30 2024 were approximately 5 233 These obligations under the Company s supplier finance programs are included in Accounts Payable in the Consolidated Balance Sheets and the associated payments are reflected in the cash flows from operating activities section of the Consolidated Statements of Cash Flows
The company made insurance claims to recover lost margin and additional costs incurred in connection with a fire at our Tucker production facility in June 2022 and unprecedented freezing weather that impacted our Texas facilities in February 2021 During the year ended November 30 2024 the Company received business interruption insurance recovery payments of 2 393 which have been recorded in selling general and administrative expenses The insurance claims were fully settled in September 2024
In November 2024 the FASB issued Accounting Standards Update ASU No 2024 03 Income Statement Reporting Comprehensive Income Expense Disaggregation Disclosures Subtopic 220 40 Disaggregation of Income Statement Expenses which requires additional disclosure of the nature of expenses included in our Consolidated Financial Statements Our effective date of this ASU is our fiscal year ending December 2 2028 We are evaluating the effect this guidance will have on our Consolidated Finance Statements
In December 2023 the FASB issued ASU No 2023 09 Income Taxes Topic 740 Improvements to Income Tax Disclosures This ASU requires entities to provide additional information in the rate reconciliation and additional disclosures about income taxes paid This guidance requires public entities to disclose in their rate reconciliation table additional categories of information about federal state and foreign income taxes and to provide more details about the reconciling items in some categories if the items meet a quantitative threshold Our effective date of this ASU is our fiscal year ending November 28 2026 We are evaluating the effect that this guidance will have on our Consolidated Financial Statements
In November 2023 the FASB issued ASU No 2023 07 Segment Reporting Topic 280 Improvements to Reportable Segment Disclosures This ASU requires enhanced disclosures regarding significant segment expenses and other segment items The guidance requires public entities to provide in interim periods all disclosures about a reportable segment s profit or loss and assets that are currently required annually Our effective date of this ASU is our fiscal year ending November 29 2025 We are evaluating the effect that this guidance will have on our Consolidated Financial Statements
In September 2022 the FASB issued ASU No 2022 04 Liabilities Supplier Finance Programs Subtopic 405 50 Disclosure of Supplier Finance Program Obligations This ASU requires that a buyer in a supplier finance program disclose sufficient information about the program to allow a user of the financial statements to understand the program s nature activity during the period changes from period to period and potential magnitude To achieve that objective the buyer should disclose qualitative and quantitative information about its supplier finance programs ASU 2022 04 is effective for fiscal years beginning after December 15 2022 including interim periods within those fiscal years except for the requirement on roll forward information which is an annual requirement During the first quarter of our fiscal year ending November 30 2024 we adopted ASU 2022 04 See Supplier Finance Program for further information
On August 5 2024 we acquired HS Butyl Limited HS Butyl for a purchase price of 18 148 British pound sterling or approximately 23 180 which was funded through existing cash This includes a holdback amount of 2 700 British pound sterling that will be paid on the 18 month anniversary of the closing date HS Butyl headquartered in Lymington England is the United Kingdom s largest manufacturer and distributor of high quality butyl tapes which provide strong permanent watertight seals for a wide variety of applications within the construction infrastructure automotive and renewable energy industries The acquisition of HS Butyl establishes our presence in the European waterproofing tape market expanding our position as a solution provider to existing customers It also expands our relevance to more markets and creates opportunities to deliver new in demand solutions for our customers given the technology s relevance to multiple high value applications The acquisition fair value measurement was preliminary as of November 30 2024 and includes other intangible assets of 6 412 goodwill of 3 233 and other net assets of 13 535 Goodwill represents expected synergies from combining HS Butyl with our existing business Goodwill is not deductible for tax purposes HS Butyl is included in our Construction Adhesives operating segment
On May 20 2024 we acquired the assets of ND Industries Inc ND Industries for a base purchase price of 254 037 which was funded through borrowings on our credit facility and existing cash ND Industries headquartered in Clawson Michigan is a leading provider of specialty adhesives and fastener locking and sealing solutions serving customers in the automotive electronics aerospace and other industries The acquisition of ND Industries is expected to accelerate the realization of our top growth priorities consistent with our strategy to proactively drive capital allocation to the highest margin highest growth market segments within the functional coatings adhesives sealants and elastomer industry The acquisition fair value measurement was preliminary as of November 30 2024 ND Industries is included in our Engineering Adhesives operating segment
During the three months ended November 30 2024 intangible assets decreased 2 200 goodwill decreased 2 591 and other net assets increased 3 094 in the fair value measurement of ND Industries The following table summarizes the fair value measurement of the assets acquired and liabilities assumed as of the date of acquisition
The expected useful lives of the acquired intangible assets are 15 years for technology 13 years for customer relationships and ten years for trademarks and tradenames Based on the fair value measurement of the assets acquired and liabilities assumed we allocated 81 268 to goodwill for the expected synergies from combining ND Industries with our existing business Such goodwill is deductible for tax purposes
On September 8 2023 we acquired the assets of Sanglier Ltd Sanglier for a base purchase price of 13 361 British pound sterling or approximately 16 660 which was funded through existing cash This includes a holdback amount of 2 100 British pound sterling that will be paid on the 18 month anniversary of the closing date Sanglier headquartered in Mansfield United Kingdom is a manufacturer and filler of sprayable aerosol and cannister industrial adhesives The acquisition of Sanglier expands our innovation capabilities and product portfolio across the United Kingdom and Europe Sanglier transforms adhesives applications to enable sprayable delivery providing end users with an opportunity to greatly improve labor efficiency The acquisition fair value measurement was final as of August 31 2024 and includes other intangible assets of 7 354 goodwill of 3 038 and other net assets of 6 261 Goodwill represents expected synergies from combining Sanglier with our existing business Goodwill is deductible for tax purposes Sanglier is included in our Construction Adhesives operating segment
On June 23 2023 we acquired Adhezion Biomedical LLC Adhezion for a base purchase price of 80 802 which was funded through borrowings on our credit facility This includes a holdback amount of 780 that was paid on the 12 month anniversary of the closing date The agreement includes a payment of contingent consideration up to 15 000 following the completion of certain performance goals and conditions Adhezion headquartered in Hudson North Carolina is a manufacturer of cyanoacrylate based healthcare adhesives and infection prevention products The acquisition of Adhezion positions us for expansion in the healthcare adhesives industry and creates a solid unique platform from which to scale and innovate in the healthcare adhesives industry The acquisition fair value measurement was final as of June 1 2024 and includes other intangible assets of 38 500 goodwill of 37 589 and other net assets of 4 713 Goodwill represents expected synergies from combining Adhezion with our existing business The amount of goodwill that is deductible for tax purposes is 25 717 Adhezion is included in our Hygiene Health and Consumable Adhesives operating segment
On June 12 2023 we acquired XChem International LLC XChem for a base purchase price of approximately 14 496 which was funded through borrowings on our credit facility This includes a holdback amount of 1 650 half of which was paid on the 12 month anniversary of the closing date and half to be paid on the 18 month anniversary of the closing date XChem headquartered in Ras Al Khaimah United Arab Emirates is a manufacturer of adhesives and sealants for construction related applications The acquisition of XChem provides our Construction Adhesives global business with additional manufacturing presence for certain brands outside the U S and broadens our Construction Adhesives portfolio of highly specified applications and diversifies it toward both non U S and infrastructure oriented markets The acquisition fair value measurement was final as of June 1 2024 and includes other intangible assets of 4 600 goodwill of 4 318 and other net assets of 5 578 Goodwill represents expected synergies from combining XChem with our existing business Goodwill is not deductible for tax purposes XChem is included in our Construction Adhesives operating segment
On May 1 2023 we acquired Beardow Adams Holdings Ltd Beardow Adams for a total purchase price of 80 738 British pound sterling or approximately 100 885 which was funded through borrowings on our credit facility This includes a holdback amount of 8 000 British pound sterling that was paid on the 18 month anniversary of the closing date Beardow Adams based in the United Kingdom develops and manufactures adhesives sealants and coatings principally in the fields of packaging and related applications The acquisition of Beardow Adams is expected to accelerate profitable growth in many of our core end markets and generate business synergies through better raw material pricing production optimization and an expanded distribution platform The acquisition fair value measurement was final as of June 1 2024 and includes other intangible assets of 35 425 goodwill of 28 148 and other net assets of 37 312 Goodwill represents expected synergies from combining Beardow Adams with our existing business The amount of goodwill that is deductible for tax purposes is 3 561 The remaining goodwill is not deductible for tax purposes Beardow Adams is included in our Hygiene Health and Consumable Adhesives operating segment
On January 31 2023 we acquired the assets of Aspen Research Corporation Aspen for a total purchase price of 9 761 which was funded through existing cash This includes a holdback amount of 500 that was 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 and process manufacturing capabilities that we plan to leverage The acquisition fair value measurement was final as of December 2 2023 and includes other intangible assets of 4 900 goodwill of 3 832 and other net assets of 1 029 Goodwill represents expected synergies from combining Aspen with our existing business Goodwill is deductible for tax purposes Aspen is included in our Engineering Adhesives operating segment
On December 15 2022 we acquired Lemtapes Oy Lemtapes for a total purchase price of 8 922 Euro or approximately 9 482 which was funded through existing cash This includes a holdback amount of 850 Euro that was 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 final as of December 2 2023 and includes other intangible assets of 5 526 goodwill of 3 028 and other net assets of 928 Goodwill represents expected synergies from combining Lemtapes with our existing business Goodwill is not deductible for tax purposes Lemtapes is included in our Hygiene Health and Consumable Adhesives operating segment
During fiscal year 2023 the Company approved restructuring plans the Plans related to organizational changes and other actions to optimize operations and integrate acquired businesses The Plans began to be implemented in the second quarter of fiscal year 2023 and are currently expected to be completed during fiscal year 2026 with the majority of the charges recognized and cash payments occurring in fiscal 2023 and 2024 In implementing the Plans the Company currently expects to incur pre tax costs of approximately 60 000 to 65 000 for severance and related employee costs globally other restructuring costs related to the streamlining of processes and the payment of anticipated income taxes in certain jurisdictions related to the Plans
Non cash charges include accelerated depreciation resulting from the cessation of use of certain long lived assets write offs of certain long lived assets the recording of an inventory provision related to the discontinuance of certain products inventory disposals and lease termination payments Restructuring liabilities have been classified as a component of other accrued expenses on the Consolidated Balance Sheets
We evaluate our goodwill for impairment annually at the beginning of the fourth quarter or earlier upon the occurrence of substantive unfavorable changes in economic conditions industry trends costs cash flows or ongoing declines in market capitalization The quantitative impairment test requires judgment including the identification of reporting units the assignment of assets liabilities and goodwill to reporting units and the determination of fair value of each reporting unit The impairment test requires the comparison of the fair value of each reporting unit with its carrying amount including goodwill In performing the impairment test we determined the fair value of our reporting units through the income approach by using DCF analyses Determining fair value requires the Company to make judgments about appropriate discount rates perpetual growth rates and the amount and timing of expected future cash flows The cash flows employed in the DCF analysis for each reporting unit are based on the reporting unit s budget long term business plan and recent operating performance Discount rate assumptions are based on an assessment of the risk inherent in the future cash flows of the respective reporting unit and market conditions Based on the analysis performed during the fourth quarter of 2024 there were no indications of impairment for any of our reporting units
As a lessee the Company leases office manufacturing and warehouse space and equipment Certain lease agreements include rental payments adjusted annually based on changes in an inflation index Our leases do not contain material residual value guarantees or material restrictive covenants Lease expense is recognized on a straight line basis over the lease term We determine if an arrangement is a lease upon inception A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration The right to control the use of an asset includes the right to obtain substantially all of the economic benefits of the underlying asset and the right to direct how and for what purpose the asset is used
Operating lease and finance lease right of use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term The discount rate used to calculate present value is the Company s incremental borrowing rate We determine the incremental borrowing rate for each lease based primarily on its lease term and the economic environment of the applicable country or region
Certain leases include one or more options to renew with terms that can extend the lease term up to five years We include options to renew the lease as part of the right of use lease asset and liability when it is reasonably certain we will exercise the option In addition certain leases contain termination options with an associated penalty In general the Company is not reasonably certain to exercise such options
For the measurement and classification of lease agreements we group lease and non lease components into a single lease component for all underlying asset classes Variable lease payments primarily include payments for non lease components such as maintenance costs payments for leased assets used beyond their non cancelable lease term as adjusted for contractual options to terminate or renew and payments for non components such as sales tax Certain leases contain immaterial variable lease payments based on usage
As of November 30 2024 the weighted average remaining lease term is 7 6 years and the weighted average discount rate is 4 8 for the Company s operating lease agreements The weighted average remaining lease term is 6 6 years and the weighted average discount rate is 4 0 for the Company s finance lease agreements
Notes payable were 587 and 1 841 at November 30 2024 and December 2 2023 respectively This amount primarily represents various foreign subsidiaries other short term borrowings that were not part of committed lines The weighted average interest rate on short term borrowings outstanding at November 30 2024 was approximately 1 35 percent and was 10 75 percent and 16 2 percent in 2023 and 2022 respectively Fair values of these short term obligations approximate their carrying values due to their short maturity There were no funds drawn from the short term committed lines at November 30 2024
On February 15 2023 we entered into a credit agreement with a consortium of financial institutions Second Amended and Restated Credit Agreement which replaced our existing revolving credit agreement under the amended and restated revolving credit agreement dated October 20 2020 and also replaced our secured term loan credit agreement dated October 20 2017 The Second Amended and Restated Credit Agreement provides for a senior secured term loan A facility in an aggregate principal amount of 500 000 Term Loan A a 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 Additionally we wrote off 2 689 of debt issuance costs related to this payoff which was recorded in interest expense for the year ended December 2 2023 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 are 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 are guaranteed by all of the Company s material U S subsidiaries
Interest on Term Loan A is payable at a rate of SOFR plus an adjustment of 0 10 percent and an interest rate spread of 1 50 percent 6 17 percent at November 30 2024 The interest rate spread is based on a secured leverage grid Term Loan A matures on February 15 2028 At November 30 2024 a balance of 462 500 was outstanding on the Term Loan A Interest on Term Loan B borrowings is payable at SOFR plus an interest rate spread of 2 00 percent with a SOFR floor of 50 basis points 6 57 percent at November 30 2024 Term Loan B matures on February 15 2030 At November 30 2024 a balance of 989 030 was outstanding on the Term Loan B
On February 14 2017 we issued 300 000 aggregate principal of 10 year unsecured public notes 10 year Public Notes due February 15 2027 with a fixed coupon of 4 00 percent Proceeds from this debt issuance were used to repay 138 000 outstanding under the revolving credit facility at that time and prepay 158 750 of our Term Loan A under the credit agreement at that time
On October 20 2020 we issued 300 000 aggregate principal of 8 year unsecured public notes 8 year Public Notes due October 15 2028 with a fixed coupon of 4 25 percent Proceeds from this debt issuance were used to prepay 300 000 of our Term Loan B at that time On February 12 2021 we entered into interest rate swap agreements to convert our 8 year Public Notes to a variable interest rate of 1 month LIBOR plus 3 28 percent On June 30 2023 1 month LIBOR ceased to exist and the IBOR Fallbacks Protocol published by the International Swaps and Derivatives Association ISDA took effect as outlined in the interest rate swap agreement As a result the interest rate swap agreement was converted to Overnight SOFR plus 3 28 percent See Note 12 for further discussion of these interest rate swaps
Long term debt had an estimated fair value of 2 015 468 and 1 785 199 as of November 30 2024 and December 2 2023 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
Interest on the Revolving Credit Facility is payable at SOFR plus an adjustment of 0 10 percent and an interest rate spread of 1 50 percent 6 17 percent at November 30 2024 A facility fee of 20 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 November 30 2024 there was no balance outstanding on the Revolving Credit Facility The Revolving Credit Facility matures on February 15 2028
Under the Refinancing and Incremental Amendment 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 the Refinancing and Incremental Amendment of the prior fiscal year less any voluntary prepayments made during that fiscal year The Excess Cash Flow Percentage shall be reduced to 25 percent when our Secured Leverage Ratio is below 4 25 1 00 and to 0 percent when our Secured Leverage Ratio is below 3 75 1 00
The principal balance of the Term Loan B loans will be repayable in equal quarterly installments in an aggregate annual amount equal to 1 percent of the original principal amount thereof with the balance due at maturity on February 15 2030 The principal balance of the Term Loan A loans will be repayable in quarterly installments as follows i with respect to the first eight fiscal quarters ended after the effective date of the Second Amended and Restated Credit Agreement 1 25 percent of the aggregate principal amount of the original principal of the Term Loan A loans ii with respect to the eight fiscal quarters ended after the end of the period set forth in the preceding clause i 1 875 percent of the aggregate principal amount of the original principal amount of the Term Loan A loans and iii thereafter 2 5 percent of the original principal amount of the Term Loan A loans with the balance due at maturity on February 15 2028
The Indenture under which the Public Notes have been issued contains covenants imposing certain limitations on the ability of the Company to incur liens or enter into sales and leaseback transactions It also provides for customary events of default subject in certain cases to customary grace and cure periods which include among other things nonpayment breach of covenants in the Indenture and certain events of bankruptcy and insolvency If an event of default occurs and is continuing with respect to the Public Notes the Trustee or holders of at least 25 in principal amount outstanding of the Public Notes may declare the principal and the accrued and unpaid interest if any on all of the outstanding Public Notes to be due and payable These covenants and events of default are subject to a number of important qualifications limitations and exceptions that are described in the Indenture
On April 22 2022 the Board of Directors authorized a share repurchase program of up to 300 000 of our outstanding common shares for a period of up to five years Under the program we are authorized to repurchase shares for cash on the open market from time to time in privately negotiated transactions or block transactions or through an accelerated repurchase agreement The timing of such repurchases is dependent on price market conditions and applicable regulatory requirements Upon repurchase of the shares we reduce our common stock for the par value of the shares with the excess being applied against additional paid in capital We repurchased shares under this program with an aggregate value of 31 811 during 2024 We did not repurchase any shares during 2023 and 2022 under our share repurchase program Up to 268 000 of our outstanding common shares may still be repurchased under the current share repurchase program
Stock options are granted to officers and key employees at prices not less than the fair market value at the date of grant Non qualified stock options are generally exercisable beginning one year from the date of grant in cumulative yearly amounts of 33 3 percent Incentive stock options are based on certain performance based criteria and are generally exercisable at a stated date when the performance criteria is measured Stock options generally have a contractual term of 10 years Options exercised represent newly issued shares
Restricted stock awards are nonvested stock based awards that include grants of restricted stock units Restricted stock awards are independent of option grants and are subject to forfeiture if employment terminates prior to the release of the restrictions Time based restricted stock awards generally vest beginning one year from the date of grant or 33 3 percent per year for three years depending on the grant Performance based restricted stock awards vest three years from the date of grant During the vesting period ownership of the shares cannot be transferred
Restricted stock units have dividend equivalent rights equal to the cash dividend paid on restricted stock shares However restricted stock units do not have voting rights of common stock and are not considered issued and outstanding upon grant Restricted stock units become newly issued shares when vested The dividend equivalent rights for restricted stock units are forfeitable
We are required to recognize compensation expense when an employee is eligible to retire We consider employees eligible to retire at age 55 and after 10 years of service Awards granted to retirement eligible employees are forfeited if the retirement eligible employees retire prior to 180 days after the grant Accordingly the related compensation expense is recognized during the 180 day period for awards granted to retirement eligible employees or over the period from the grant date to the date retirement eligibility is achieved if less than the stated vesting period
This plan allows for granting of awards to any employee officer non employee director consultant independent contractor or advisor providing services to us or any of our affiliates or any person to whom an offer of employment or engagement with us or any of our affiliates has been made The plan permits granting of a stock options b stock appreciation rights c restricted stock and restricted stock units d performance awards e dividend equivalents f other awards based on our common stock including shares for amounts employees or non employee directors deferred under the deferred compensation plans There were 2 854 679 common shares available for grant as of November 30 2024
This plan allows for granting of awards to employees The plan permits granting of a stock options b stock appreciation rights c restricted stock and restricted stock units d performance awards e dividend equivalents f other awards based on our common stock including shares for amounts employees deferred under the Key Employee Deferred Compensation Plan
This plan allows for granting of awards to employees The plan permits granting of a stock options b stock appreciation rights c restricted stock awards d performance awards e dividend equivalents and f other awards based on our common stock including shares for amounts employees deferred under the Key Employee Deferred Compensation Plan
This plan allows non employee directors to defer all or a portion of their retainer and meeting fees in a number of investment choices including units representing shares of our common stock We provide a 10 percent match on deferred compensation invested in these units These units are required to be paid out in our common stock
Expected life We use historical employee exercise and option expiration data to estimate the expected life assumption for the Black Scholes grant date valuation We believe that this historical data is currently the best estimate of the expected term of a new option We use a weighted average expected life for all awards
We use the straight line attribution method to recognize share based compensation expense for option awards and restricted stock units with graded and cliff vesting Incentive stock options and performance awards are based on certain performance based metrics and the expense is adjusted quarterly based on our projections of the achievement of those metrics The amount of share based compensation expense recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest The expense is recognized over the requisite service period which for us is the period between the grant date and the earlier of the award s stated vesting term or the date the employee is eligible for early vesting based on the terms of the plans
As of November 30 2024 9 499 of unrecognized compensation costs related to unvested stock option awards is expected to be recognized over a weighted average period of 1 1 years Unrecognized compensation costs related to unvested restricted stock units was 9 944 which is expected to be recognized over a weighted average period of 0 9 years
The fair value of options granted during 2024 2023 and 2022 was 13 214 10 577 and 5 400 respectively Total intrinsic value of options exercised during 2024 2023 and 2022 was 25 258 8 015 and 16 877 respectively For options outstanding at November 30 2024 the weighted average remaining contractual life was 5 3 years and the aggregate intrinsic value was 99 352 There were 3 756 728 options exercisable at November 30 2024 with a weighted average remaining contractual life of 4 6 years and an aggregate intrinsic value of 96 416 Intrinsic value is the difference between our closing stock price on the respective trading day and the exercise price multiplied by the number of options exercised Proceeds received from option exercises during the year ended November 30 2024 December 2 2023 and December 3 2022 were 35 927 14 619 and 30 122 respectively The Company s actual tax benefits realized for the tax deductions related to the exercise of stock options for 2024 2023 and 2022 was 6 114 1 885 and 3 687 respectively
We indirectly repurchased 100 560 37 715 and 55 081 shares during 2024 2023 and 2022 respectively through a net settlement feature in connection with the statutory minimum tax withholding related to vesting of restricted stock The Company s actual tax benefits realized for the tax deductions related to the restricted stock vested for 2024 2023 and 2022 was 4 237 1 396 and 2 569 respectively
The fair value of non employee directors company matches for 2024 2023 and 2022 was 182 172 and 172 respectively The fair value of the non employee directors discretionary award was 1 200 1 200 and 1 080 for 2024 2023 and 2022 respectively The fair value of employee company matches was 78 79 and 86 for 2024 2023 and 2022 respectively
All U S employees have the option of contributing up to 75 percent of their pre tax earnings to a 401 k plan subject to IRS limitations We match up to the first 4 percent of each employee s pre tax earnings based on the employee s contributions All U S employees are eligible for a separate annual non discretionary retirement contribution to the 401 k plan of 1 percent of pay that is invested based on the election of the individual participant The 1 percent contribution is in addition to our 4 percent matching contribution described above and is in lieu of participation in our defined benefit pension plan The total contribution to the 401 k plan for 2024 was 15 590 which included the cost of the 4 percent company match of 10 070 and the additional 1 percent contribution of 5 520 The total contributions to the 401 k plan were 14 221 and 12 113 in 2023 and 2022 respectively
All U S employees are eligible to receive an annual discretionary non elective contribution to the 401 k plan of up to 3 percent based on achieving the Company s earnings per share target This discretionary contribution is in addition to the contributions described above There was no discretionary non elective contribution for 2024 and 2023
Noncontributory defined benefit pension plans cover all U S employees employed prior to January 1 2007 Benefits for these plans are based primarily on each employee s years of service and average compensation During 2011 we made significant changes to our U S pension plan The changes included benefits under the plan were locked in using service and salary as of May 31 2011 participants no longer earn benefits for future service and salary as they had in the past affected participants receive a three percent increase to the locked in benefit for every year they continue to work for us and we are making a retirement contribution of three percent of eligible compensation to the 401 k Plan for those participants The funding policy is consistent with the funding requirements of federal law and regulations Plan assets consist principally of listed equity securities and bonds Other U S postretirement benefits are funded through a Voluntary Employees Beneficiaries Association Trust
Certain non U S subsidiaries provide pension benefits for their employees consistent with local practices and regulations These plans are primarily defined benefit plans covering substantially all employees upon completion of a specified period of service Benefits for these plans are generally based on years of service and annual compensation
The discount rate assumption is determined using an actuarial yield curve approach which results in a discount rate that reflects the characteristics of the plan The approach identifies a broad population of corporate bonds that meet the quality and size criteria for the particular plan We use this approach rather than a specific index that has a certain set of bonds that may or may not be representative of the characteristics of our particular plan A higher discount rate reduces the present value of the pension obligations The discount rate for the U S pension plan was 5 23 percent at November 30 2024 5 66 percent at December 2 2023 and 5 36 percent at December 3 2022 Net periodic pension cost for a given fiscal year is based on assumptions developed at the end of the previous fiscal year A discount rate change of 0 5 percentage points at November 30 2024 would impact U S pension and other postretirement plan income expense by approximately 144 pre tax in fiscal 2025 Discount rates for non U S plans are determined in a manner consistent with the U S plans
The expected long term rate of return on plan assets assumption for the U S pension plan was 7 75 percent in 2024 7 75 percent in 2023 and 7 00 percent in 2022 Our expected long term rate of return on U S plan assets was based on our target asset allocation assumption of 55 percent equities and 45 percent fixed income Management in conjunction with our external financial advisors determines the expected long term rate of return on plan assets by considering the expected future returns and volatility levels for each asset class that are based on historical returns and forward looking observations For 2024 the expected long term rate of return on the target equities allocation was 8 50 percent and the expected long term rate of return on the target fixed income allocation was 5 60 percent The total plan rate of return assumption included an estimate of the effect of diversification and the plan expense A change of 0 5 percentage points for the expected return on assets assumption would impact U S net pension and other postretirement plan expense by approximately 2 622 pre tax
The expected long term rate of return on plan assets assumption for non U S pension plans was a weighted average of 5 01 percent in 2024 compared to 5 02 percent in 2023 and 3 49 percent in 2022 The expected long term rate of return on plan assets assumption used in each non U S plan is determined on a plan by plan basis for each local jurisdiction and is based on expected future returns for the investment mix of assets currently in the portfolio for that plan Management in conjunction with our external financial advisors develops expected rates of return for each plan considers expected long term returns for each asset category in the plan reviews expectations for inflation for each local jurisdiction and estimates the effect of active management of the plan s assets Our largest non U S pension plans are in the United Kingdom and Germany The expected long term rate of return on plan assets for the United Kingdom was 4 50 percent and the expected long term rate of return on plan assets for Germany was 5 50 percent Management in conjunction with our external financial advisors uses actual historical returns of the asset portfolio to assess the reasonableness of the expected rate of return for each plan
Plan assets are held in trust and invested in mutual funds separately managed accounts and other commingled investment vehicles holding U S and non U S equity securities fixed income securities and other investment classes We employ a total return approach whereby a mix of equities and fixed income investments are used to maximize the long term return of plan assets for a prudent level of risk Futures and options may also be used to enhance risk adjusted long term returns while improving portfolio diversification and duration Risk management is accomplished through diversification across asset classes utilization of multiple investment managers and general plan specific investment policies Risk tolerance is established through careful consideration of the plan liabilities plan funded status and our assessment of our overall liquidity position This asset allocation policy mix is reviewed annually and actual versus target allocations are monitored regularly and rebalanced on an as needed basis Plan assets are invested using a combination of active and passive investment strategies Passive or indexed strategies attempt to mimic rather than exceed the investment performance of a market benchmark The plans active investment strategies employ multiple investment management firms which in aggregate cover a range of investment styles and approaches Performance is monitored and compared to relevant benchmarks on a regular basis
During 2024 we maintained our assets within the allowed ranges of the target asset allocation mix of 55 percent equities and 45 percent fixed income plus or minus 5 percent and continued our focus to reduce volatility of plan assets in future periods and to more closely match the duration of the assets with the duration of the liabilities of the plan
The non U S pension plans consist of all the pension plans administered outside the U S principally consisting of plans in Germany and the United Kingdom During 2024 we maintained our assets for the non U S pension plans at the specific target asset allocation mix determined for each plan plus or minus the allowed rate and continued our focus to reduce volatility of plan assets in future periods and to more closely match the duration of the assets with the duration of the liabilities of the individual plans We plan to maintain the portfolios at their respective target asset allocations in 2024
Other postretirement benefits plans consist of two U S plans a retiree medical health care plan and a group term life insurance plan There were no assets in the group term life insurance plan for 2024 and 2023 Consequently all of the data disclosed in the asset allocation table for other postretirement plans pertain to our retiree medical health care plan Our investment strategy for other postretirement benefit plans is to own insurance policies that maintain an asset allocation nearly completely in equities These equities are invested in a passive portfolio indexed to the S P 500
1 In accordance with ASC Topic 820 10 Fair Value Measurement certain investments that are measured at NAV Net Asset Value per share or its equivalent practical expedient have not been classified in the fair value hierarchy The fair value amounts represented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position
Equities Primarily publicly traded common stock for purposes of total return and to maintain equity exposure consistent with policy allocations Investments include i U S and non U S equity securities and mutual funds valued at closing prices from national exchanges and ii commingled funds valued at unit values or net asset values provided by the investment managers which are based on the fair value of the underlying investments Funds valued at net asset value have various investment strategies including seeking maximum total returns consistent with prudent investment management seeking current income consistent with preservation of capital and daily liquidity and seeking to approximate the risk and return characterized by a specific index fund There are no restrictions for redeeming holdings out of these funds and the funds have no unfunded commitments
Fixed income Primarily corporate and government debt securities for purposes of total return and managing fixed income exposure to policy allocations Investments include i mutual funds valued at closing prices from national exchanges ii corporate and government debt securities valued at closing prices from national exchanges iii commingled funds valued at unit values or net asset value provided by the investment managers which are based on the fair value of the underlying investments and iv an annuity contract the value of which is determined by the provider and represents the amount the plan would receive if the contract were cashed out at year end
The difference between the change in the deferred tax liability on the balance sheet and the deferred tax provision is primarily related to the defined benefit pension plan adjustment and hedges recorded in accumulated other comprehensive income loss offset by liabilities established in purchase accounting
Valuation allowances primarily relate to foreign net operating loss carryforwards and branch foreign tax credit carryforwards where the future potential benefits do not meet the more likely than not realization test The decrease in the valuation allowance is primarily related to a decrease in foreign net operating losses for which the Company does not expect to receive a full tax benefit
Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those deferred tax assets and liabilities are expected to be realized or settled We record a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized We believe it is more likely than not that reversal of deferred tax liabilities and forecasted income will be sufficient to fully recover the net deferred tax assets not already offset by a valuation allowance In the event that all or part of the gross deferred tax assets are determined not to be realizable in the future an adjustment to the valuation allowance would be charged to earnings in the period such determination is made
U S income taxes have not been provided on approximately 1 197 517 of undistributed earnings of non U S subsidiaries We intend to indefinitely reinvest these undistributed earnings Cash available in the United States has historically been sufficient and we expect it will continue to be sufficient to fund U S cash flow requirements In the event these earnings are later distributed to the U S such distributions would likely result in additional U S tax
While non U S operations have been profitable overall there are cumulative tax losses of 68 380 in various countries These tax losses can be carried forward to offset the income tax liabilities on future income in these countries Cumulative tax losses of 45 177 can be carried forward indefinitely while the remaining 23 203 of tax losses must be utilized during 2025 to 2042
We report accrued interest and penalties related to unrecognized tax benefits in income tax expense For the year ended November 30 2024 we recognized a net benefit for interest and penalties of 658 relating to unrecognized tax benefits and had net accumulated accrued interest and penalties of 4 840 as of November 30 2024 For the year ended December 2 2023 we recognized a net benefit for interest and penalties of 824 relating to unrecognized tax benefits and had net accumulated accrued interest and penalties of 6 708 as of December 2 2023
We are subject to U S federal income tax as well as income tax in numerous state and foreign jurisdictions We are no longer subject to U S federal tax examination for years prior to 2021 or Swiss income tax examination for years prior to 2022 During the fourth quarter of 2024 H B Fuller China Adhesives Ltd settled its transfer pricing audit covering the calendar years 2005 through 2014 We are in various stages of examination and appeal in other foreign jurisdictions Although the final outcomes of these examinations cannot currently be determined we believe that we have recorded adequate liabilities with respect to these examinations
As a result of being a global enterprise foreign currency exchange rates and fluctuations in those rates may affect the Company s net investment in foreign subsidiaries and our earnings cash flows and financial position are exposed to foreign currency risk from foreign currency denominated receivables and payables
We use foreign currency forward contracts cross currency swaps interest rate swaps and net investment hedges to manage risks associated with foreign currency exchange rates and interest rates We do not hold derivative financial instruments of a speculative nature or for trading purposes We record derivatives as assets and liabilities on the balance sheet at fair value Changes in fair value are recognized immediately in earnings unless the derivative qualifies and is designated as a hedge Cash flows from derivatives are classified in the Consolidated Statement of Cash Flows in the same category as the cash flows from the items subject to designated hedge or undesignated economic hedge relationships We evaluate hedge effectiveness at inception and on an ongoing basis If a derivative is no longer expected to be effective hedge accounting is discontinued Hedge ineffectiveness if any is recorded in earnings
We are exposed to credit risk in the event of nonperformance of counterparties for foreign currency forward exchange contracts and interest rate swap agreements We select investment grade multinational banks and financial institutions as counterparties for derivative transactions and monitor the credit quality of each of these banks on a periodic basis as warranted We do not anticipate nonperformance by any of these counterparties and valuation allowances if any are de minimis
On January 12 2023 we entered into an interest rate swap agreement to convert 400 000 of our variable rate 1 month LIBOR debt to a fixed rate of 3 6895 percent that matures on January 12 2028 On February 28 2023 after refinancing our debt we amended the interest rate swap agreement to our 1 month SOFR debt to a fixed rate of 3 7260 in accordance with the practical expedients included in ASC 848 Reference Rate Reform The combined fair value of the interest rate swap was an asset of 1 120 at November 30 2024 and was included in other assets in the Consolidated Balance Sheets The swap was designated for hedge accounting treatment as a cash flow hedge We are applying the hypothetical derivative method to assess hedge effectiveness for this interest rate swap Changes in the fair value of a hypothetically perfect swap with terms that match the critical terms of our variable rate debt are compared with the change in the fair value of the swap
On March 16 2023 we entered into an interest rate swap agreement to convert 300 000 of our 1 month SOFR debt to a fixed rate of 3 7210 percent that matures on February 15 2028 The combined fair value of the interest rate swap was an asset of 661 at November 30 2024 and was included in other assets in the Consolidated Balance Sheets The swap was designated for hedge accounting treatment as a cash flow hedge We are applying the hypothetical derivative method to assess hedge effectiveness for this interest rate swap Changes in the fair value of a hypothetically perfect swap with terms that match the critical terms of our variable rate debt are compared with the change in the fair value of the swaps
On March 16 2023 we entered into an interest rate swap agreement to convert 100 000 of our 1 month SOFR debt to a fixed rate of 3 8990 percent that matures on February 15 2028 The combined fair value of the interest rate swap was a liability of 265 at November 30 2024 and was included in other liabilities in the Consolidated Balance Sheets The swap was designated for hedge accounting treatment as a cash flow hedge We are applying the hypothetical derivative method to assess hedge effectiveness for these interest rate swaps Changes in the fair value of a hypothetically perfect swap with terms that match the critical terms of our variable rate debt are compared with the change in the fair value of the swaps
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 On June 30 2023 1 month LIBOR rates ceased to exist and the IBOR Fallbacks Protocol published by the International Swaps and Derivatives Association ISDA took effect as outlined in the interest rate swap agreement As a result the 1 month LIBOR leg of the float to float agreement was converted to Overnight SOFR plus 3 28 percent On July 17 2023 we amended the 1 month EURIBOR leg of the float to float agreement to Overnight ESTR plus 3 2195 percent We applied the practical expedients included in ASC 848 Reference Rate Reform As of November 30 2024 the combined fair value of the swaps was a liability of 51 871 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 37 481 as of November 30 2024 As of November 30 2024 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
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 On June 30 2023 1 month LIBOR ceased to exist and the IBOR Fallbacks Protocol published by the International Swaps and Derivatives Association ISDA took effect as outlined in the interest rate swap agreement As a result the interest rate swap agreement was converted to Overnight SOFR plus 3 28 percent We applied the practical expedients included in ASC 848 Reference Rate Reform See Note 7 for further discussion on the issuance of our Public Notes These interest rate swap agreements mature on October 15 2028 The combined fair value of the interest rate swaps was a liability of 32 775 at November 30 2024 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
On February 14 2017 we entered into an interest rate swap agreement to convert 150 000 of our 300 000 Public Notes that were issued on February 14 2017 to a variable interest rate of 1 month LIBOR plus 1 86 percent The swap was designated for hedge accounting treatment as a fair value hedge We applied 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 150 000 fixed rate Public Notes are compared with the change in the fair value of the swap On May 1 2020 we terminated the swap agreement Upon termination we received 15 808 in cash The remaining swap liability will be accounted for as a discount on long term debt and will be amortized to interest expense over the remaining life of the Public Notes of seven years
The Company uses foreign currency forward contracts to offset its 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 13 for fair value amounts of these derivative instruments
As of November 30 2024 we had forward foreign currency contracts maturing between December 2 2024 and February 4 2025 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
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
The valuation of our contingent consideration liability related to the acquisitions of GSSI and TissueSeal was 870 and 500 respectively as of December 2 2023 Contingent consideration of 870 related to the acquisition of GSSI was paid during 2024 following the completion of certain performance goals and conditions and contingent consideration of 500 related to the acquisition of TissueSeal was reversed during 2024 as conditions for payment were not met Adjustments to the fair value of contingent consideration are recorded to selling general and administrative expenses in the Statement of Income See Note 2 for further discussion regarding our acquisitions
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
From time to time we become aware of compliance matters relating to or receive notices from federal state or local entities regarding possible or alleged violations of environmental health or safety laws and regulations We review the circumstances of each individual site considering the number of parties involved the level of potential liability or our contribution relative to the other parties the nature and magnitude of the hazardous substances involved the method and extent of remediation the estimated legal and consulting expense with respect to each site and the time period over which any costs would likely be incurred Also from time to time we are identified as a potentially responsible party PRP under the Comprehensive Environmental Response Compensation and Liability Act CERCLA and or similar state laws that impose liability for costs relating to the clean up of contamination resulting from past spills disposal or other release of hazardous substances We are also subject to similar laws in some of the countries where current and former facilities are located Our environmental health and safety department monitors compliance with applicable laws on a global basis To the extent we can reasonably estimate the amount of our probable liabilities for environmental matters we establish an undiscounted financial provision We recorded liabilities of 3 445 and 5 034 as of November 30 2024 and December 2 2023 respectively for probable and reasonably estimable environmental remediation costs Of the amount reserved 1 055 and 2 301 as of November 30 2024 and December 2 2023 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
From time to time and in the ordinary course of business we are a party to or a target of lawsuits claims investigations and proceedings including product liability personal injury contract patent and intellectual property environmental health and safety tax and employment matters While we are unable to predict the outcome of these matters we have concluded based upon currently available information that the ultimate resolution of any pending matter individually or in the aggregate including the asbestos litigation described in the following paragraphs will not have a material adverse effect on our results of operations financial condition or cash flow
We have been named as a defendant in lawsuits in which plaintiffs have alleged injury due to products containing asbestos manufactured more than 35 years ago The plaintiffs generally bring these lawsuits against multiple defendants and seek damages both actual and punitive in very large amounts In many cases plaintiffs are unable to demonstrate that they have suffered any compensable injuries or that the injuries suffered were the result of exposure to products manufactured by us We are typically dismissed as a defendant in such cases without payment If the plaintiff presents evidence indicating that compensable injury occurred as a result of exposure to our products the case is generally settled for an amount that reflects the seriousness of the injury the length intensity and character of exposure to products containing asbestos the number and solvency of other defendants in the case and the jurisdiction in which the case has been brought
A significant portion of the defense costs and settlements in asbestos related litigation is paid by third parties including indemnification pursuant to the provisions of a 1976 agreement under which we acquired a business from a third party Currently this third party is defending and paying settlement amounts under a reservation of rights in most of the asbestos cases tendered to the third party
In addition to the indemnification arrangements with third parties we have insurance policies that generally provide coverage for asbestos liabilities including defense costs Historically insurers have paid a significant portion of our defense costs and settlements in asbestos related litigation However certain of our insurers are insolvent We have entered into cost sharing agreements with our insurers that provide for the allocation of defense costs and settlements and judgments in asbestos related lawsuits These agreements require among other things that we fund a share of settlements and judgments allocable to years in which the responsible insurer is insolvent
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
We are required to report segment information in the same way that we internally organize our business for assessing performance and making decisions regarding allocation of resources Revenue and operating income of each of our segments are regularly reviewed by our chief operating decision maker to make decisions about resources to be allocated to the segments and assess their performance Segment operating income is identified as gross profit less SG A expenses Corporate expenses other than those included in Corporate Unallocated are allocated to each operating segment Consistent with our internal management reporting Corporate Unallocated amounts include business acquisition and integration costs organizational restructuring charges and project costs associated with our implementation of Project ONE Corporate assets are not allocated to the operating segments Inter segment revenues are recorded at cost plus a markup for administrative costs
We have three reportable segments Hygiene Health and Consumable Adhesives Engineering Adhesives and Construction Adhesives The business components within each operating segment are managed to maximize the results of the overall operating segment rather than the results of any individual business component of the operating segment Results of individual components of each operating segment are subject to numerous allocations of segment wide costs that may or may not have been focused on that particular component for a particular reporting period The costs for these allocated resources are not tracked on a where used basis as financial performance is assessed at the total operating segment level
On December 2 2024 we completed the acquisition of Medifill Limited Medifill for a purchase price of 49 919 Euros or approximately 51 252 Headquartered in Dublin Ireland Medifill produces medical grade cyanoacrylate adhesives tailored to the wound closure market The acquisition establishes European production capabilities for our medical adhesives offerings The fair value measurement for this acquisition has not been completed The acquisition will be included in our Hygiene Health and Consumable Adhesives operating segment
On January 15 2025 we completed the acquisition of GEM S r l GEM for a purchase price of 144 041 Euros or approximately 147 886 Headquartered in Viareggio Italy GEM develops produces and sells medical adhesives for wound closure in both surgical and topical applications The acquisition establishes a European headquarters for our Medical Adhesives Technologies business and expands the Company s medical adhesive offerings further shifting our portfolio toward highly profitable higher growth markets The fair value measurement for this acquisition has not been completed The acquisition will be included in our Hygiene Health and Consumable Adhesives operating segment
As of the end of the period covered by this report management 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 Based on its evaluation our management concluded that as of November 30 2024 our disclosure controls and procedures were effective 1 to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded processed summarized and reported within the time periods specified in the SEC s rules and forms and 2 to ensure that information require to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to us including our principal executive and principal financial officers as appropriate to allow timely decisions regarding required disclosure
Our management is responsible for establishing and maintaining adequate internal control over financial reporting Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States Because of its inherent limitations internal control over financial reporting may not prevent or detect misstatements Therefore even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives
Our management assessed the effectiveness of our internal control over financial reporting as of November 30 2024 In making this assessment we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission COSO in Internal Control Integrated Framework 2013 Framework Based on its assessment management concluded that as of November 30 2024 the Company s internal control over financial reporting was effective Ernst and Young LLP an independent registered public accounting firm has issued an attestation report on our internal control over financial reporting as of November 30 2024 which is included elsewhere in this Form 10 K
The information under the headings Proposal 1 Election of Directors Delinquent Section 16 a Reports and Corporate Governance Audit Committee contained in the Company s Proxy Statement for the Annual Meeting of Shareholders to be held on April 15 2025 the 2025 Proxy Statement is incorporated herein by reference
The Company has a code of business conduct applicable to all of its directors and employees including its principal executive officer principal financial officer principal accounting officer controller and other employees performing similar functions A copy of the code of business conduct is available under the Investor Relations section of the Company s website at www hbfuller com The Company intends to disclose on its website information with respect to any amendment to or waiver from a provision of its code of business conduct that applies to its principal executive officer principal financial officer principal accounting officer controller and other employees performing similar functions within four business days following the date of such amendment or waiver
The following materials from the H B Fuller Company Annual Report on Form 10 K for the fiscal year ended November 30 2024 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

Company Name	FULLER H B CO Vist SEC web-site
Category	ADHESIVES & SEALANTS
Trading Symbol	FUL