H.B. Fuller Reports Fourth Quarter and Fiscal Year 2018 Results

Author: H.B. Fuller Company / 2023-07-23 20:37 / Source: H.B. Fuller Company

H.B. Fuller Reports Fourth Quarter and Fiscal Year 2018 Results

Fourth Quarter Organic RevenueGrowth of 4 percent[7]

Fourth Quarter Reported Diluted EPS of $0.79

Adjusted Diluted EPS of $0.90[2]increased 27 percent versus Q4'17

Debt pay down of $204 million in 2018 exceeded target

Fiscal Year 2019 Adjusted Diluted EPS Guidance is $3.15 to $3.45

ST. PAUL,Minnesota,Jan. 17,2019 --H.B. Fuller Company (NYSE: FUL) today reported financial results for the fourth quarter and fiscal year ended Dec. 1,2018.

Items of Note for Fourth Quarter 2018:

Cash flow from operations of $146 million up versus $70 million in the fourth quarter of 2017; debt pay down of $204 million in fiscal 2018,exceeding the company's target of $170 million;

Net revenue of $768 million,up 13 percent versus fourth quarter of 2017. Organic revenue up 4 percent7,driven by pricing and double-digit growth in Engineering Adhesives;

Net income of $41 million or $0.79 of earnings per diluted share (EPS),compared with a net loss in the fourth quarter of 2017; adjusted net income of $47 million2,or $0.902 adjusted EPS,up 27 percent;

Gross margin up 240 basis points and adjusted gross margin5 up 150 basis points versus fourth quarter of 2017;

Adjusted EBITDA of $121 million2 up 30 percent year-over-year,driven by acquisitions,strategic pricing gains and acquisition synergies; up 8 percent on a pro-forma basis for Royal1;

Adjusted EBITDA margin of 15.7 percent2 increased compared with fourth quarter 2017 margin of 13.7 percent2,and 14.2 percent,on a pro-forma basis including Royal1;

Integration of Royal Adhesives on target with $5 million of incremental cost synergies in the fourth quarter and $15 million of cost synergies in fiscal 2018.

Items of Note for 2019 Guidance:

Assumes challenging macroeconomic conditions continue in China and around the globe,the U.S. dollar remains strong and raw materials prices will be generally flat to 2018;

Organic revenue growth of 3 to 5 percent,or net revenue growth of 1 to 2 percent reflecting unfavorable foreign currency impact estimated to be 2 to 3 percent;

Adjusted diluted EPS of $3.15 to $3.45; up approximately 10 percent at the midpoint;

Adjusted EBITDA of $465 to $485 million; up approximately 6 percent at the midpoint;

Core tax rate of between 26 and 29 percent;

Approximately $100 million of capital expenditures;

Debt repayment of $200 million,on-track to the company's deleveraging targets.

Fourth Quarter 2018 Key Financials:

($ in Millions)

Reported

Adjusted/Proforma

2018

2017

% Change

2018

2017

% Change

Net Revenue

768

678

+13%

768

7711

-0.3%

Gross Profit Margin

27.3%

24.9%

+240bps

28.1%5

26.6%5

+150bps

Net Income

(7)

N/A

472

372

+27%

Diluted EPS

$0.79

($0.13)

N/A

$0.902

$0.712

+27%

Summary of Fourth Quarter 2018 Results:

Net revenue for the fourth quarter of 2018 of $768 million increased 13 percent compared with the fourth quarter of 2017. Organic revenue grew 3.8 percent7,driven by pricing improvements and double-digit growth in Engineering Adhesives.

Gross profit margin was 27.3 percent,compared with 24.9 percent in the same period in 2017 and adjusted gross profit margin of 28.1 percent5 increased 150 basis points versus last year,driven by strategic pricing gains,raw material sourcing synergies and lower manufacturing costs. Selling,General and Administrative (SG&A) expense was $140 million compared with $151 million last year. Adjusted SG&A expense of $131 million6 increased compared with $117 million in the fourth quarter of 2017,primarily due to the impact of acquisitions. Adjusted SG&A expense declined by $2 million,on a pro-forma basis for Royal1.

Net income for the fourth quarter of 2018 was $41 million,or $0.79 per diluted share,compared with a net loss of $7 million,or ($0.13) per share in the same period last year,and adjusted net income of $47 million2,increased 27 percent compared with $37 million2,or $0.712 adjusted EPS,versus last year. Adjusted EBITDA was $121 million2,up 30 percent compared with the prior year,with increases in all five operating segments. Adjusted EBITDA was up 8 percent on a proforma basis including Royal8.

"Our strategy to gain share in Engineering Adhesives,manage margins through effective pricing and leverage acquisition synergies continues to drive success at H.B. Fuller," said Jim Owens,president and chief executive officer. "We achieved solid organic revenue growth in the quarter driven by pricing gains and double-digit growth in Engineering Adhesives. Foreign currency exchange rates and slower growth in China impacted our results more than we anticipated in our financial guidance for the fourth quarter. Despite these challenging macroeconomic factors,we increased adjusted EBITDA by 8 percent,doubled cash flow from operations compared with the fourth quarter of last year and paid down $204 million of debt in 2018,exceeding our $170 million target."

Full Year 2018 Summary:

Net revenue for the 2018 fiscal year of$3,041 million increased 32 percent compared with fiscal 2017. Organic revenuegrew by 3.77 percent year-over-year,driven by pricing gains and double-digit growth in Engineering Adhesives.

Gross profit margin of 27.5 percent increased 130 basis points compared with fiscal 2017 and adjusted gross profit margin of 27.9 percent5 increased 60 basis points versus last year. Net income for fiscal 2018 was $171 million,or $3.29 per diluted share,compared with net income of $59 million,or $1.15 per diluted share in fiscal 2017,and adjusted net income of $156 million2,or $3.002 per diluted share,increased 23 percent compared with $1272 million,or $2.452 per diluted share,in fiscal 2017. Adjusted EBITDA of $449 million2 was up 50 percent compared with the prior year,and increased 7 percent on a proforma basis including Royal8.

Balance Sheet and Cash Flow:

At the end of the fourth quarter of 2018,the Company had cash on hand of $151 million and total debt equal to $2,248 million,of which approximately 70 percent had a fixed interest rate. This compares to cash and debt levels equal to $150 million and $2,364 million,respectively,in the third quarter of 2018. Cash flow from operations in the fourth quarter was $146 million compared to $70 million for the same period in 2017,reflecting the increased profitability of the business and improved working capital management. Capital expenditures were $22 million in the fourth quarter of 2018,compared with $19 million in the same period last year.

Financial Guidance:

For fiscal year 2019,the company anticipates adjusted EPS of $3.15 to $3.45 and adjusted EBITDA of $465 to $485 million. Full year organic revenue growth is expected to be 3 to 5 percent compared with 2018,with net revenue growth of approximately 1 to 2 percent including an estimated unfavorable impact from foreign currency exchange rates of 2 to 3 percent. The company's core tax rate,excluding the impact of discrete items,is expected to be between 26 and 29 percent. H.B. Fuller expects to invest approximately $100 million in capital items in 2019.

"In 2019 we will focus on driving solid organic revenue growth and margin improvement,achieving our committed cost and revenue synergies,and delivering $200 million of debt repayment. Engineering Adhesives will continue to grow into a larger and more profitable part of our business in 2019 and going forward," Owens said. "In terms of guidance sensitivity,we are projecting a continued strong US dollar and China weakness along with relatively neutral raw material prices outside of China in 2019. Raw material demand and prices are currently declining in China and that trend may expand to the rest of the world if tariff and trade disputes persist. If raw material demand and prices start to decline in the rest of the world,our second half 2019 margins could be favorably impacted,resulting in EPS and EBITDAabove the midpointof our guidance range.

Owens continued,"We estimate that currency fluctuations and China impacted our 2019 guidance by approximately $40 million versus our original long-term forecast. Adjusting for these factors,our underlying EBITDA growth rates in 2018 and 2019 are in line with our original forecast of about 10 to 12 percent,and we anticipate annual EBITDA growth in this range through 2020. These factors impact the time to achieve our $600 million EBITDA target by about a year. We remain on track to meet or exceed our commitment of $600 million in debt paydown by the end of 2020 as a result of strong profit performance,high cash flow conversion rates and our focused capital management programs."

This guidance excludes approximately $15 to $20 million of pre-tax expenses required to integrate the Royal business and other businesses acquired in 2017,and between $6 and $8 million of pre-tax expenses related to ERP development costs. The company's guidance could be impacted by further rule making relative to US Tax Reform. A complete reconciliation of the non-GAAP financial information contained in our 2019 guidance is not being provided in accordance with the "unreasonable efforts" exception of Item 10(e)(1)(i)(B) of Regulation S-K of the Securities and Exchange Commission.

Conference Call:

The Company will host an investor conference call to discuss fourth quarter results on Thursday,January 17,2019,at 10:30 a.m. Eastern U.S. time. The conference call audio and accompanying presentation slides will be available to interested parties via a simultaneous webcast,and may be accessed from the company's website athttps://investors.hbfuller.com/calendar. Participants should access the webcast 15 minutes prior to the start of the call to register for the event and install and test any necessary software. The webcast and presentation will be archived on the Company's website. A telephone replay of the conference call will be available approximately 1 hour after the conclusion of the call,throughJan. 31,2019. To access the telephone replay dial 1-877-344-7529 or 1-412-317-0088 and enter passcode 10127319.

Certain amounts presented in this release and the accompanying financial statements and data are preliminary and are subject to change in the company's Annual Report on Form 10-K for the year ended December 1,2018 when it is filed with the Securities and Exchange Commission.

Regulation G:

The information presented in this earnings release regarding segment operating income,adjusted gross profit,adjusted gross profit margin,adjusted selling,general and administrative expense,adjusted income before income taxes and income from equity investments,adjusted income taxes,adjusted effective tax rate,adjusted net income,adjusted diluted earnings per share and adjusted earnings before interest,taxes,depreciation,and amortization (EBITDA) does not conform to generally accepted accounting principles (GAAP) and should not be construed as an alternative to the reported results determined in accordance with GAAP. Management has included this non-GAAP information to assist in understanding the operating performance of the Company and its operating segments as well as the comparability of results. The non-GAAP information provided may not be consistent with the methodologies used by other companies. All non-GAAP information is reconciled with reported GAAP results in the tables below with the exception of our forward-looking non-GAAP measures contained in our fiscal 2019 outlook,which are unknown or have not yet occurred.

About H.B. Fuller:

Since 1887,H.B. Fuller has been a leading global adhesives provider focusing on perfecting adhesives,sealants and other specialty chemical products to improve products and lives. With fiscal2018 net revenue of over $3 billion,H.B. Fuller's commitment to innovation brings together people,products and processes that answer and solve some of the world's biggest challenges. Our reliable,responsive service creates lasting,rewarding connections with customers in electronics,disposable hygiene,medical,transportation,aerospace,clean energy,packaging,construction,woodworking,general industries and other consumer businesses. And,our promise to our people connects them with opportunities to innovate and thrive. For more information,visit us athttps://www.hbfuller.com/.

Safe Harbor for Forward-Looking Statements:

Certain statements in this document may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to various risks and uncertainties,including but not limited to the following: the Royal transaction may involve unexpected costs or liabilities; our business or stock price may suffer as a results of uncertainty surrounding the transaction; the substantial amount of debt we have incurred to finance our acquisition of Royal,our ability to repay or refinance it or incur additional debt in the future,our need for a significant amount of cash to service and repay the debt and to pay dividends on our common stock,and the effect of restrictions contained on our debt agreements that limit the discretion of management in operating the business or ability to pay dividend; various risks to stockholders of not receiving dividends and risks to our ability to pursue growth opportunities if we continue to pay dividends according to the current dividend policy; we may be unable to achieve expected synergies and operating efficiencies from the transaction within the expected time frames or at all; we may be unable to successfully integrate Royal's operations into our own,or such integration may be more difficult,time consuming or costly than expected; the ability to effectively implement Project ONE; political and economic conditions; product demand; competitive products and pricing; costs of and savings from restructuring initiatives; geographic and product mix; availability and price of raw materials; the Company's relationships with its major customers and suppliers; changes in tax laws and tariffs; devaluations and other foreign exchange rate fluctuations; the impact of litigation and environmental matters; the effect of new accounting pronouncements and accounting charges and credits; and similar matters. Further information about the various risks and uncertainties can be found in the Company's SEC 10-K filing for the fiscal year ended December 2,2017. All forward-looking information represents management's best judgment as of this date based on information currently available that in the future may prove to have been inaccurate. Additionally,the variety of products sold by the Company and the regions where the Company does business make it difficult to determine with certainty the increases or decreases in net revenue resulting from changes in the volume of products sold,currency impact,changes in product mix,and selling prices. However,managements' best estimate of these changes as well as changes in other factors have been included.

H.B. FULLER COMPANY AND SUBSIDIARIES

CONSOLIDATED FINANCIAL INFORMATION

In thousands,except per share amounts (unaudited)

13 Weeks Ended

Percent of

13 Weeks Ended

Percent of

December 1,2018

Net Revenue

December 2,2017

Net Revenue

Net revenue

768,429

100.0%

678,200

100.0%

Cost of sales

(558,829)

(72.7%)

(509,412)

(75.1%)

Gross profit

209,600

27.3%

168,788

24.9%

Selling,general and administrative expenses

(139,844)

(18.2%)

(151,126)

(22.3%)

Other expense,net

(2,324)

(0.3%)

(26,163)

(3.9%)

Interest expense

(27,574)

(3.6%)

(19,073)

(2.8%)

Interest income

3,005

0.4%

1,762

0.3%

Income (loss) before income taxes and income from equity method investments

42,863

5.6%

(25,812)

(3.8%)

Income (taxes) benefit

(3,488)

(0.5%)

16,691

2.5%

Income from equity method investments

1,990

0.3%

2,228

0.3%

Income (loss) from continuing operations

41,365

5.4%

(6,893)

(1.0%)

Net income (loss) including non-controlling interests

41,893)

(1.0%)

Net income attributable to non-controlling interests

(20)

(0.0%)

(14)

(0.0%)

Net income (loss) attributable to H.B. Fuller

41,345

5.4%

(6,907)

(1.0%)

Basic income (loss) per common share attributable to H.B. Fuller

Income from continuing operations

0.82

(0.14)

Basic income (loss) per common share attributable to H.B. Fuller

0.82

(0.14)

Diluted income (loss) per common share attributable to H.B. Fuller

Income from continuing operations

0.79

(0.13)

Diluted income (loss) per common share attributable to H.B. Fuller

0.79

(0.13)

Weighted-average common shares outstanding:

Basic

50,712

50,356

Diluted

52,017

51,724

Selected Balance Sheet Information (subject to change prior to filing of the Company's Annual Report on Form 10-K)

December 1,2018

December 2,2017

December 3,2016

Cash & cash equivalents

150,793

194,398

142,245

Trade accounts receivable,net

485,719

473,700

351,130

Inventories

355,563

372,102

258,096

Trade payables

273,378

268,467

162,964

Total assets

4,175,271

4,373,243

2,066,565

Total debt

2,247,527

2,451,910

703,271

H.B. FULLER COMPANY AND SUBSIDIARIES

CONSOLIDATED FINANCIAL INFORMATION

In thousands,except per share amounts (unaudited)

52 Weeks Ended

Percent of

52 Weeks Ended

Percent of

December 1,2017

Net Revenue

Net revenue

3,041,002

100.0%

2,306,043

100.0%

Cost of sales

(2,204,108)

(72.5%)

(1,700,973)

(73.8%)

Gross profit

836,894

27.5%

605,070

26.2%

Selling,general and administrative expenses

(582,132)

(19.1%)

(477,030)

(20.7%)

Other income (expense),net

1,184

0.0%

(27,667)

(1.2%)

Interest expense

(110,994)

(3.6%)

(43,701)

(1.9%)

Interest income

11,774

0.4%

3,927

0.2%

Income from continuing operations before income taxes and income from equity method investments

156,726

5.2%

60,599

2.6%

Income benefit (taxes)

6,356

0.2%

(9,810)

(0.4%)

Income from equity method investments

8,150

0.3%

8,677

0.4%

Income from continuing operations

171,232

5.6%

59,466

2.6%

Net income including non-controlling interests

171,466

2.6%

Net income attributable to non-controlling interests

(24)

(0.0%)

(48)

(0.0%)

Net income attributable to H.B. Fuller

171,208

5.6%

59,418

2.6%

Basic income per common share attributable to H.B. Fuller

Income from continuing operations

3.38

1.18

Basic income per common share attributable to H.B. Fuller

3.38

1.18

Diluted income per common share attributable to H.B. Fullera

Income from continuing operations

3.29

1.15

Diluted income per common share attributable to H.B. Fullera

3.29

1.15

Weighted-average common shares outstanding:

Basic

50,591

50,370

Diluted

51,975

51,619

Dividends declared per common share

0.615

0.590

a Income per share amounts may not add due to rounding

H.B. FULLER COMPANY AND SUBSIDIARIES

REGULATION G RECONCILIATION

In thousands,except per share amounts (unaudited)

13 Weeks Ended

52 Weeks Ended

December 1,2018

December 2,2017

December 1,2017

Net income attributable to H.B. Fuller

41,345

(6,907)

171,208

59,418

Acquisition project costs

616

1,894

2,833

5,258

Tonsan call option agreement

3,555

(1,705)

1,496

(3,946)

Organizational realignment

469

789

2,836

15,620

Royal restructuring and integration

5,930

43,893

20,351

47,423

Tax reform

(7,138)

(43,276)

Other

1,787

(1,415)

514

2,787

Adjusted net income attributable to H.B. Fuller 2

46,564

36,549

155,962

126,560

Add:

Interest expense

27,468

17,949

110,624

42,365

Interest income

(3,005)

(720)

(11,774)

(2,886)

Income taxes

13,580

11,226

49,541

46,200

Depreciation expense

17,109

14,697

67,910

50,559

Amortization expense

18,855

13,114

76,490

36,243

Adjusted EBITDA 2

120,571

92,815

448,753

299,041

Diluted Shares

52,724

51,619

Adjusted diluted income per common share attributable to H.B. Fuller 2

0.90

0.71

3.00

2.45

Revenue

768,429

678,200

3,002

2,043

Adjusted EBITDA margin 2

15.7%

13.7%

14.8%

13.0%

2 Adjusted net income attributable to H.B. Fuller,adjusted diluted income per common share attributable to H.B. Fuller,adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures. Adjusted net income attributable to H.B. Fuller is defined as net income before the specific adjustments shown above. Adjusted diluted income per common share is defined as adjusted net income attributable to H.B. Fuller divided by the number of diluted common shares. Adjusted EBITDA is defined as net income before interest,income taxes,amortization and the specific adjustments shown above. Adjusted EBITDA margin is defined as adjusted EBITDA divided by net revenue. The table above provides a reconciliation of adjusted net income attributable to H.B. Fuller,adjusted EBITDA and adjusted EBITDA margin to net income attributable to H.B. Fuller,the most directly comparable financial measure determined and reported in accordance with GAAP.

H.B. FULLER COMPANY AND SUBSIDIARIES

SEGMENT FINANCIAL INFORMATION

In thousands (unaudited)

13 Weeks Ended

December 1,2017

Net Revenue:

Americas Adhesives

278,105

254,100

EIMEA

184,522

171,984

Asia Pacific

71,135

74,609

Construction Adhesives

105,922

80,450

Engineering Adhesives

128,745

97,057

Total H.B. Fuller

768,200

Segment Operating Income:

Americas Adhesives

30,430

17,579

EIMEA

9,424

Asia Pacific

6,939

5,402

Construction Adhesives

7,212

(9,891)

Engineering Adhesives

15,751

4,504

Total H.B. Fuller

69,756

17,662

Adjusted EBITDA 2

Americas Adhesives

44,988

39,151

EIMEA

20,937

18,011

Asia Pacific

9,312

8,461

Construction Adhesives

18,460

9,389

Engineering Adhesives

27,059

15,869

Total H.B. Fuller

120,756

90,881

Adjusted EBITDA Margin 2

Americas Adhesives

16.2%

15.4%

EIMEA

11.3%

10.5%

Asia Pacific

13.1%

11.3%

Construction Adhesives

17.4%

11.7%

Engineering Adhesives

21.0%

16.4%

Total H.B. Fuller

15.7%

13.4%

H.B. FULLER COMPANY AND SUBSIDIARIES

SEGMENT FINANCIAL INFORMATION

In thousands (unaudited)

52 Weeks Ended

December 1,2017

Net Revenue:

Americas Adhesives

1,099,918

907,765

EIMEA

738,553

568,658

Asia Pacific

278,079

264,692

Construction Adhesives

446,101

260,330

Engineering Adhesives

478,351

304,598

Total H.B. Fuller

3,043

Segment Operating Income:

Americas Adhesives

115,363

91,198

EIMEA

40,060

18,821

Asia Pacific

17,995

14,826

Construction Adhesives

32,917

(12,975)

Engineering Adhesives

48,427

16,170

Total H.B. Fuller

254,762

128,040

Adjusted EBITDA 2

Americas Adhesives

172,112

137,583

EIMEA

83,491

62,767

Asia Pacific

29,145

26,362

Construction Adhesives

77,834

26,393

Engineering Adhesives

81,463

39,090

Total H.B. Fuller

444,045

292,195

Adjusted EBITDA Margin 2

Americas Adhesives

15.6%

15.2%

EIMEA

11.3%

11.0%

Asia Pacific

10.5%

10.0%

Construction Adhesives

17.4%

10.1%

Engineering Adhesives

17.0%

12.8%

Total H.B. Fuller

14.6%

12.7%

H.B. FULLER COMPANY AND SUBSIDIARIES

REGULATION G RECONCILIATION

In thousands,2017

Income before income taxes and income from equity method investments

42,863

(25,812)

156,726

60,599

Adjustments:

Acquisition project costs

848

2,846

3,957

7,990

Tonsan call option agreement

3,946)

Organizational realignment

544

1,018

2,840

19,963

Royal restructuring and integration

8,094

66,486

28,566

71,917

Tax reform

305

Other

1,965

2,728

3,487

7,608

Adjusted income before income taxes and income from equity method investments 3

58,174

45,561

197,377

164,131

3 Adjusted income before income taxes and income from equity investments is a non-GAAP financial measure. Adjusted income before income taxes and income from equity investments is defined as income before income taxes and income from equity investments before the specific adjustments shown above. The table above provides a reconciliation of adjusted income before income taxes and income from equity investments to income before income taxes and income from equity investments,the most directly comparable financial measure determined and reported in accordance with GAAP.

H.B. FULLER COMPANY AND SUBSIDIARIES

REGULATION G RECONCILIATION

In thousands,2017

Income Taxes

(3,488)

16,691

6,356

(9,810)

Adjustments:

Acquisition project costs

(232)

(952)

(1,124)

(2,732)

Organizational realignment

(75)

(230)

(4)

(4,343)

Royal restructuring and integration

(2,164)

(22,592)

(8,215)

(24,494)

Tax reform

(7,444)

(43,582)

Other

(177)

(4,143)

(2,972)

(4,821)

Adjusted income taxes 4

(13,580)

(11,226)

(49,541)

(46,200)

Adjusted income before income taxes and income from equity method investments

58,131

Adjusted effective income tax rate 4

23.3%

24.6%

25.1%

28.1%

4 Adjusted income taxes and adjusted effective income tax rate are non-GAAP financial measures. Adjusted income taxes is defined as income taxes before the specific adjustments shown above. Adjusted effective income tax rate is defined as income taxes divided by adjusted income before income taxes and income from equity method investments. The table above provides a reconciliation of adjusted income taxes and adjusted effective income tax rate to income taxes,the most directly comparable financial measure determined and reported in accordance with GAAP.

H.B. FULLER COMPANY AND SUBSIDIARIES

REGULATION G RECONCILIATION

In thousands (unaudited)

13 Weeks Ended

52 Weeks Ended

December 1,2017

Net revenue

768,043

Gross profit

209,600

168,788

836,894

605,070

Gross profit margin

27.3%

24.9%

27.5%

26.2%

Adjustments:

Acquisition project costs

526

1,344

2,521

4,287

Organizational realignment

235

442

1,533

11,452

Royal restructuring and integration

2,810

10,781

5,027

10,781

Other

2,407

(1,052)

2,900)

Adjusted gross profit 5

215,578

180,303

848,382

629,690

Adjusted gross profit margin 5

28.1%

26.6%

27.9%

27.3%

5 Adjusted gross profit and adjusted gross profit margin are non-GAAP financial measures. Adjusted gross profit and adjusted gross profit margin is defined as gross profit and gross profit margin excluding the specific adjustments shown above. The table above provides a reconciliation of adjusted gross profit and gross profit margin to gross profit and gross profit margin,the most directly comparable financial measure determined and reported in accordance with GAAP.

H.B. FULLER COMPANY AND SUBSIDIARIES

REGULATION G RECONCILIATION

In thousands (unaudited)

13 Weeks Ended

52 Weeks Ended

December 1,2017

Selling,general and administrative expenses

(139,844)

(151,126)

(582,132)

(477,030)

Adjustments:

Acquisition project costs

323

1,359

1,436

3,561

Tonsan call option agreement

3,450

(1,780)

1,126

(4,233)

Organizational realignment

309

577

1,308

8,511

Royal restructuring and integration

5,114

29,957

23,370

35,387

Tax reform

305

Other

(442)

3,780

5,851

9,508

Adjusted selling,general and administrative expenses 6

(130,785)

(117,233)

(548,736)

(424,296)

6 Adjusted selling,general and administrative expenses is a non-GAAP financial measure. Adjusted selling,general and administrative expenses is defined as selling,general and administrative expenses excluding the specific adjustments shown above. The table above provides a reconciliation of adjusted selling,general and administrative expenses to selling,general and administrative expenses,the most directly comparable financial measure determined and reported in accordance with GAAP.

H.B. FULLER COMPANY AND SUBSIDIARIES

REGULATION G RECONCILIATION

In thousands (unaudited)

Americas

Asia

Construction

Engineering

Corporate

H.B. Fuller

Adhesives

EIMEA

Pacific

Adhesives

Total

Unallocated

Consolidated

13 Weeks Ended

December 1,2018

30,430

9,424

6,939

7,212

15,751

69,756

(28,411)

41,345

Net income attributable to H.B. Fuller

Adjustments:

Acquisition project costs

794

848

(232)

616

Tonsan call option agreement

3,449

106

3,555

Organizational realignment

361

163

544

(75)

469

Royal restructuring and integration

1,641

3,067

401

1,532

1,284

7,925

(1,995)

5,930

Tax reform

116

305

(7,443)

(7,138)

Other

2,024

142

(97)

(2)

(102)

1,965

(178)

1,787

Adjusted net income attributable to H.B. Fuller 2

35,017

13,093

7,293

8,955

20,434

84,792

(38,228)

46,564

Add:

Interest expense

27,468

Interest income

(3,005)

Income taxes

13,580

Depreciation expense

4,504

5,400

1,599

3,091

2,515

17,109

Amortization expense

5,467

2,444

420

6,414

4,110

18,855

Adjusted EBITDA 2

44,988

20,937

9,312

18,460

27,059

120,756

(185)

120,571

Americas

Asia

Construction

Engineering

Corporate

H.B. Fuller

Adhesives

EIMEA

Pacific

Adhesives

Total

Unallocated

Consolidated

52 Weeks Ended

December 1,2018

115,363

40,060

17,995

32,917

48,427

254,762

(83,554)

171,208

Net income attributable to H.B. Fuller

Adjustments:

Acquisition project costs

3,674

3,957

(1,124)

2,833

Tonsan call option agreement

1,126

370

1,496

Organizational realignment

199

1,701

922

2,840

(4)

2,836

Royal restructuring and integration

8,781

7,663

1,925

5,963

4,065

28,397

(8,046)

20,351

Tax reform

116

305

(43,581)

(43,276)

Other

4,422

1,712

651

786

687

8,258

(7,744)

514

Adjusted net income attributable to H.B. Fuller 2

132,555

51,308

20,661

40,674

54,447

299,645

(143,683)

155,962

Add:

Interest expense

110,624

Interest income

(11,774)

Income taxes

49,541

Depreciation expense

17,626

22,088

6,574

11,653

9,969

67,910

Amortization expense

21,931

10,095

1,910

25,507

17,047

76,490

Adjusted EBITDA 2

172,112

83,491

29,145

77,834

81,463

444,045

4,708

448,753

Note: Adjusted EBITDA is a non-GAAP financial measure. The tables above provide a reconciliation of adjusted EBITDA for each segment to net income attributable to H.B. Fuller for each segment,the most directly comparable financial measure determined and reported in accordance with U.S. GAAP.

H.B. FULLER COMPANY AND SUBSIDIARIES

REGULATION G RECONCILIATION

In thousands (unaudited)

Americas

Asia

Construction

Engineering

H.B. Fuller

Adhesives

EIMEA

Pacific

Adhesives

Total

Unallocated

Consolidated

13 Weeks Ended

December 2,2017

17,579

5,402

(9,891)

4,504

17,662

(24,569)

(6,907)

Net income attributable to H.B. Fuller

Adjustments:

Acquisition project costs

2,760

(71)

(34)

(35)

2,703

(809)

1,894

Tonsan call option agreement

(1,780)

(1,705)

Organizational realignment

130

514

274

1,019

(230)

789

Royal Restructuring

10,362

10,024

621

12,283

7,448

40,738

3,155

43,893

Other

713

946

451

142

476

2,728

(4,143)

(1,415)

Adjusted net income attributable to H.B. Fuller 2

31,544

11,481

6,475

2,773

10,797

63,070

(26,521)

36,549

Add:

Interest expense

17,949

Interest income

(720)

Income taxes

11,226

Depreciation expense

4,056

4,656

1,525

2,378

2,082

14,697

Amortization expense

3,551

1,874

461

4,238

2,990

13,114

Adjusted EBITDA 2

39,151

18,011

8,461

9,389

15,869

90,881

1,934

92,815

Americas

Asia

Construction

Engineering

H.B. Fuller

Adhesives

EIMEA

Pacific

Adhesives

Total

Unallocated

Consolidated

52 Weeks Ended

December 2,2017

91,198

18,821

14,826

(12,975)

16,170

128,040

(68,622)

59,418

Net income attributable to H.B. Fuller

Adjustments:

Acquisition project costs

6,904

312

151

157

323

7,847

(2,589)

5,258

Tonsan call option agreement

(4,233)

287

(3,946)

Organizational realignment

2,444

8,973

1,790

5,895

861

19,963

(4,343)

15,620

Royal Restructuring

11,850

11,220

731

14,022

8,345

46,168

1,255

47,423

Other

2,188

2,379

1,133

711

1,197

7,608

(4,821)

2,787

Adjusted net income attributable to H.B. Fuller 2

114,584

41,705

18,631

7,810

22,663

205,393

(78,833)

126,560

Add:

Interest expense

42,365

Interest income

(2,886)

Income taxes

46,200

Depreciation expense

14,491

15,917

5,976

7,432

6,743

50,559

Amortization expense

8,508

5,145

1,755

11,151

9,684

36,243

Adjusted EBITDA 2

137,583

62,767

26,362

26,393

39,090

292,195

6,846

299,041

H.B. FULLER COMPANY AND SUBSIDIARIES

SEGMENT FINANCIAL INFORMATION

NET REVENUE GROWTH

(unaudited)

13 Weeks Ended December 1,2018

Americas

Adhesives

EIMEA

Asia Pacific

Construction

Adhesives

Engineering

Adhesives

Total HBF

Price

5.0%

4.3%

2.4%

0.2%

2.1%

3.5%

Volume

(4.0%)

(1.5%)

(3.1%)

(1.0%)

15.8%

(0.1%)

Mix

2.4%

0.3%

(1.1%)

(2.5%)

(1.1%)

0.4%

Acquisition

11.8%

12.1%

1.1%

35.9%

19.8%

14.7%

Constant Currency Growth 7

15.2%

(0.7%)

32.6%

36.6%

18.5%

F/X

(5.8%)

(7.9%)

(4.0%)

(1.0%)

(4.0%)

(5.2%)

9.4%

7.3%

(4.7%)

31.6%

32.6%

13.3%

Organic Revenue Growth 7

3.4%

3.1%

(1.8%)

(3.3%)

16.8%

3.8%

52 Weeks Ended December 1,2018

Americas

Adhesives

EIMEA

Asia Pacific

Construction

Adhesives

Engineering

Adhesives

Total HBF

Price

3.8%

4.4%

1.4%

0.0%

4.8%

3.4%

Volume

(3.4%)

(0.9%)

0.9%

(0.2%)

9.2%

(0.3%)

Mix

1.4%

0.4%

(0.5%)

(1.0%)

0.7%

0.6%

Acquisition

22.1%

24.3%

1.5%

72.4%

39.9%

28.3%

Constant Currency Growth 7

23.9%

28.2%

3.3%

71.2%

54.6%

32.0%

F/X

(2.7%)

1.7%

1.8%

0.2%

2.5%

(0.1%)

21.2%

29.9%

5.1%

71.4%

57.1%

31.9%

Organic Revenue Growth 7

1.8%

3.9%

1.8%

(1.2%)

14.7%

3.7%

7 Constant currency revenue growth is a non-GAAP financial measure defined as changes in revenue due to price,volume,mix and acquisitions and excludes revenue changes driven by foreign currency translation. Organic revenue growth is a non-GAAP financial measure defined as constant currency revenue growth less growth from acquisitions.

Proforma results were provided to reflect the historical combination of H.B. Fuller and Royal as of the comparable prior periods before the acquisition was completed in October of 2017. The proforma results and reconciliations to GAAP outcomes were filed on a Form 8-K dated March 28,2018.

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