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H.B. Fuller Reports Third Quarter 2018 Results

September 26, 2018 8:53 PM

Third Quarter Diluted EPS $0.72 and Adjusted Diluted EPS $0.861;Fiscal Year 2018 Adjusted Diluted EPS Guidance Updated to $3.05 to $3.20;Unfavorable Foreign Exchange Rate Movement Impacted Adjusted EPS by approximately $0.10 in the Second Half of 2018

ST. PAUL, Minn., Sept. 26, 2018 (GLOBE NEWSWIRE) -- Fuller Company (NYSE: FUL) today reported financial results for the third quarter that ended Sept. 1, 2018.

Third Quarter 2018 Highlights:

Third Quarter 2018 Key Financial Metrics:
Reported Adjusted/Proforma4
20182017% Change 20182017% Change
Net Revenue$770,107$562,86937% $770,107$741,9934%
Operating Income71,13540,18177% 83,32775,78110%
Net Income37,73025,13850% 44,66633,31834%
Diluted Earnings per Share0.720.4947% 0.860.6532%

Summary of Third Quarter 2018 Results: Net revenue for the third quarter of 2018 was $770.1 million, an increase of 36.8 percent compared with the third quarter of 2017. Organic revenue increased 4.8 percent year-over-year, driven by sales growth in every segment, and double-digit growth in Engineering Adhesives.

Gross profit margin was 28.2 percent. Adjusted gross profit margin3 of 28.7 percent increased 110 basis points compared with the prior year on a proforma basis including Royal2 in 2017, and increased 40 basis points sequentially, reflecting positive pricing contribution and raw material sourcing synergies. Selling, General and Administrative (SG&A) expense was $146.1 million. Adjusted SG&A expense5 of $137.7 million increased compared with the third quarter of 2017, primarily due to the impact of acquisitions.

Net income for the third quarter of 2018 was $37.7 million, or $0.72 per diluted share, compared with net income of $25.1 million, or $0.49 per diluted share, in the third quarter of 2017. Adjusted diluted earnings per share were $0.861, an increase of 32 percent compared with $0.65 in the prior year. Adjusted EBITDA1 was $120 million, up 63 percent compared with the prior year, and up 7 percent2 on a proforma basis including Royal in 2017.

“Our strong third quarter results demonstrated the earnings power of our business as we grew organic revenue by nearly 5 percent and increased profitability in an environment of rising raw materials and currency headwinds,” said Jim Owens, president and chief executive officer. “We continue to grow organically by winning new opportunities in targeted markets and by managing pricing to offset raw materials inflation.

“Foreign currency shifts in the quarter impacted revenues by approximately two percent and also impacted earnings. Strong sales performance combined with managerial discipline generated adjusted EBITDA of $120 million and operating cash flow of $84 million in the quarter. Free cash flow resulted in debt pay down of $41 million, and we are on track to deliver our committed total reduction of $170 million of debt in 2018,” continued Owens.

"While foreign currency exchange rate fluctuations and near-term headwinds are impacting the current year results, our overall commitment to achieve $605 million of EBITDA and $600 million of debt pay down by 2020 remains intact and unchanged.”

EBITDA Calculation Revision: In order to conform to SEC interpretations, we modified our EBITDA calculation for 2017 and 2018 to include joint venture earnings as well as non-operating income and expenses. Using our historical methodology, adjusted EBITDA would have been $119.5 million in the third quarter of 2018. For the full year, this change is expected to impact EBITDA by approximately $6 million. This change has no impact on operating income or earnings per share.

Balance Sheet and Cash Flow:At the end of the third quarter of 2018, the Company had cash on hand of $150 million and total debt equal to $2,364 million, of which approximately 70 percent had a fixed interest rate. This compares to cash and debt levels equal to $129 million and $2,405 million, respectively, in the second quarter of 2018. Cash flow from operations in the third quarter was $84 million compared to $38 million for the same period in 2017, reflecting the increased profitability of the business. Capital expenditures were $13 million in the third quarter of 2018, compared with $8 million in the same period last year.

Fiscal 2018 Guidance: H.B. Fuller is updating its guidance for the 2018 fiscal year. The company is adjusting EPS guidance by $0.10 per share to reflect unfavorable movement in foreign currency exchange rates and narrowing the EPS range to reflect current business conditions. The company now anticipates adjusted EPS of $3.05 to $3.20, compared with the previous range of $3.15 to $3.40; and adjusted EBITDA of $455 to $470 million, compared with previous guidance of approximately $470 million. Revenue growth for the fourth quarter is expected to be approximately 3 percent when compared to 2017 on a proforma basis. The company’s core tax rate, excluding the impact of discrete items, is unchanged and is expected to be between 25 and 27 percent. H.B. Fuller expects to invest a total of approximately $70 million in capital items in 2018.

This guidance excludes approximately $20 to $25 million of pre-tax expenses required to integrate the Royal business and other businesses acquired in 2017, and between $7 and $8 million of pre-tax expenses related to Project ONE ERP development costs. This guidance also excludes the discrete tax benefit of $35.6 million related to Tax Reform that was recorded in the first quarter, as well as any future discrete tax items. A complete reconciliation of the non-GAAP financial information contained in our 2018 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 third quarter results on Thursday, September 27, 2018, at 9:30 a.m. Central U.S. time (10:30 a.m. Eastern U.S. time). The conference call audio and accompanying presentation slides will be available to all interested parties via a simultaneous webcast at H.B. Fuller’s Investor Relations website. The event is scheduled to last one hour. For those unable to listen live, an audio replay of the event along with the accompanying presentation will be archived on the Company’s website.

Regulation G:The information presented in this earnings release regarding segment operating income, adjusted gross profit, adjusted selling, general and administrative expense, adjusted income before taxes, income from equity investments, adjusted income tax and adjusted effective tax rate, adjusted diluted earnings per share, earnings before interest, taxes, depreciation, and amortization (EBITDA) and constant currency revenue 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 2018 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 fiscal 2017 net revenue of over $2.3 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 at 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 result 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 in our debt agreements that limit the discretion of management in operating the business or ability to pay dividends; 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; following the transaction, revenues may be lower than expected, and operating costs, customer loss and business disruption (including, without limitation, difficulties in maintaining relationships with employees, customers, clients or suppliers) may be greater than expected; risks that the transaction disrupts current plans and operations and the potential difficulties in employee retention as a result of the transaction; 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, management’s best estimates 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)
Three Months Ended Percent of Three Months Ended Percent of
September 1, 2018 Net Revenue September 2, 2017 Net Revenue
Net revenue$770,107 100.0% $562,869 100.0%
Cost of sales (552,903) (71.8%) (412,469) (73.3%)
Gross profit 217,204 28.2% 150,400 26.7%
Selling, general and administrative expenses (146,069) (19.0%) (110,219) (19.6%)
Operating income 71,135 9.2% 40,181 7.1%
Other expense (1,375) (0.2%) (602) (0.1%)
Interest expense, net (24,924) (3.2%) (7,348) (1.3%)
Income before income taxes and income from equity method investments 44,836 5.8% 32,231 5.7%
Income taxes (9,300) (1.2%) (9,262) (1.6%)
Income from equity method investments 2,200 0.3% 2,170 0.4%
Net income including non-controlling interests 37,736 4.9% 25,139 4.5%
Net income attributable to non-controlling interests (6) (0.0%) (1) 0.0%
Net income attributable to H.B. Fuller$37,730 4.9% $25,138 4.5%
Basic income per common share attributable to H.B. Fuller$0.75 $0.50
Diluted income per common share attributable to H.B. Fuller$0.72 $0.49
Weighted-average common shares outstanding:
Basic 50,632 50,384
Diluted 52,138 51,605
Dividends declared per common share$0.155 $0.15

Selected Balance Sheet Information (subject to change prior to filing of the Company's Quarterly Report on Form 10-Q)
September 1, 2018 December 2, 2017 September 2, 2017
Cash & cash equivalents$150,084 $194,398 $119,595
Trade accounts receivable, net 465,942 473,700 393,054
Inventories 401,091 359,505 317,968
Trade payables 256,042 268,467 193,345
Total assets 4,289,777 4,360,646 2,288,323
Total debt 2,364,237 2,451,910 798,973

H.B. FULLER COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
In thousands, except per share amounts (unaudited)
Nine Months Ended Percent of Nine Months Ended Percent of
September 1, 2018 Net Revenue September 2, 2017 Net Revenue
Net revenue$2,272,573 100.0% $1,627,843 100.0%
Cost of sales (1,645,279) (72.4%) (1,192,409) (73.3%)
Gross profit 627,294 27.6% 435,434 26.7%
Selling, general and administrative expenses (442,288) (19.5%) (325,904) (20.0%)
Operating Income 185,006 8.1% 109,530 6.7%
Other income (expense) 3,508 0.2% (1,506) (0.1%)
Interest expense, net (74,651) (3.3%) (22,461) (1.4%)
Income before income taxes and income from equity method investments 113,863 5.0% 85,563 5.2%
Income taxes 9,844 0.4% (26,178) (1.6%)
Income from equity method investments 6,160 0.3% 6,449 0.4%
Net income including non-controlling interests 129,867 5.7% 65,834 4.0%
Net income attributable to non-controlling interests (4) (0.0%) (34) (0.0%)
Net income attributable to H.B. Fuller$129,863 5.7% $65,800 4.0%
Basic income per common share attributable to H.B. Fuller$2.57 $1.31
Diluted income per common share attributable to H.B. Fuller$2.50 $1.28
Weighted-average common shares outstanding:
Basic 50,551 50,374
Diluted 51,961 51,584
Dividends declared per common share$0.460 $0.44

H.B. FULLER COMPANY AND SUBSIDIARIES
REGULATION G RECONCILIATION
In thousands, except per share amounts (unaudited)
Three Months Ended Nine Months Ended
September 1, 2018 September 2, 2017 September 1, 2018 September 2, 2017
Net income attributable to H.B. Fuller $37,730 $25,138 $129,863 $65,800
Acquisition project costs 1,544 1,266 2,215 3,363
Tonsan call option agreement 110 1,222 (2,059) (2,241)
Organizational realignment 879 832 2,311 14,831
Royal restructuring and integration 5,164 3,530 14,478 3,530
Tax reform - - (35,555) -
Other (761) 1,330 (1,857) 4,728
Adjusted net income attributable to H.B. Fuller 44,666 33,318 109,396 90,011
Add:
Interest expense, net 24,816 7,276 74,387 22,248
Income taxes 14,664 12,971 35,962 34,974
Depreciation expense 17,007 12,332 50,801 35,862
Amortization expense 19,116 7,899 57,635 23,128
Adjusted EBITDA 120,269 73,796 328,181 206,223
Diluted Shares 52,138 51,605 51,961 51,584
Adjusted diluted income per common share attributable to H.B. Fuller $0.86 $0.65 $2.11 $1.74
Revenue $770,107 $562,869 $2,272,573 $1,627,843
Adjusted EBITDA margin 15.6% 13.1% 14.4% 12.7%
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 excluding 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, depreciation expense and amortization expense, and excluding acquisition project costs, TONSAN call option agreement, organizational realignment Royal restructuring and integration, the impact from tax reform and other costs, primarily consisting of Project ONE ERP development costs. 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 diluted income per common share 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)
Three Months Ended Three Months Ended
September 1, 2018 September 2, 2017
Net Revenue:
Americas Adhesives$282,490 $230,881
EIMEA 182,020 137,408
Asia Pacific 65,944 62,972
Construction Adhesives 121,140 59,080
Engineering Adhesives 118,513 72,528
Total H.B. Fuller$770,107 $562,869
Segment Operating Income:
Americas Adhesives$34,816 $25,434
EIMEA 8,758 8,873
Asia Pacific 3,694 2,793
Construction Adhesives 12,767 (698
Engineering Adhesives 11,100 3,779
Total H.B. Fuller$71,135 $40,181
Adjusted EBITDA1
Americas Adhesives$50,964 $35,361
EIMEA 19,158 16,808
Asia Pacific 6,580 5,648
Construction Adhesives 23,516 4,612
Engineering Adhesives 19,232 9,799
Total H.B. Fuller$119,450 $72,228
Adjusted EBITDA Margin1
Americas Adhesives 18.0% 15.3%
EIMEA 10.5% 12.2%
Asia Pacific 10.0% 9.0%
Construction Adhesives 19.4% 7.8%
Engineering Adhesives 16.2% 13.5%
Total H.B. Fuller 15.5% 12.8%

H.B. FULLER COMPANY AND SUBSIDIARIES
SEGMENT FINANCIAL INFORMATION
In thousands (unaudited)
Nine Months Ended Nine Months Ended
September 1, 2018 September 2, 2017
Net Revenue:
Americas Adhesives$821,813 $653,665
EIMEA 554,031 396,674
Asia Pacific 206,944 190,083
Construction Products 340,179 179,880
Engineering Adhesives 349,606 207,541
Total H.B. Fuller$2,272,573 $1,627,843
Segment Operating Income:
Americas Adhesives$84,934 $72,921
EIMEA 30,636 18,753
Asia Pacific 11,056 9,423
Construction Products 25,705 (3,234
Engineering Adhesives 32,675 11,667
Total H.B. Fuller$185,006 $109,530
Adjusted EBITDA1
Americas Adhesives$127,124 $99,002
EIMEA 62,554 44,965
Asia Pacific 19,833 18,438
Construction Products 59,374 15,947
Engineering Adhesives 54,404 22,962
Total H.B. Fuller$323,289 $201,314
Adjusted EBITDA Margin1
Americas Adhesives 15.5% 15.1%
EIMEA 11.3% 11.3%
Asia Pacific 9.6% 9.7%
Construction Products 17.5% 8.9%
Engineering Adhesives 15.6% 11.1%
Total H.B. Fuller 14.2% 12.4%

H.B. FULLER COMPANY AND SUBSIDIARIES
REGULATION G RECONCILIATION
In thousands, except per share amounts (unaudited)
Three Months Ended Nine Months Ended
September 1, 2018 September 2, 2017 September 1, 2018 September 2, 2017
Income before income taxes and income from equity method investments$44,836 $32,231 $113,863 $85,563
Adjustments:
Acquisition project costs 2,101 1,944 3,108 5,144
Tonsan call option agreement 110 1,222 (2,059) (2,241)
Organizational realignment 1,029 1,492 2,211 18,945
Royal restructuring and integration 6,496 5,431 20,558 5,431
Other 2,564 1,800 1,522 5,728
Adjusted income before income taxes and income from equity method investments$57,136 $44,120 $139,203 $118,570
Adjusted income before income taxes and income from equity investments is a non-GAAP financial measure. The table above provides a reconciliation of adjusted income before income taxes and income from equity investments to income before income taxes and income from equity investments, the most directly comparable financial measure determined and reported in accordance with GAAP. Adjusted income before income taxes and income from equity investments is defined as adjusted income before income taxes and income from equity investments excluding the specific adjustments shown above.
H.B. FULLER COMPANY AND SUBSIDIARIES
REGULATION G RECONCILIATION
In thousands, except per share amounts (unaudited)
Three Months Ended Nine Months Ended
September 1, 2018 September 2, 2017 September 1, 2018 September 2, 2017
Income Taxes$(9,300) $(9,262) $9,844 $(26,178)
Adjustments:
Acquisition project costs (556) (677) (892) (1,780)
Organizational realignment (150) (661) 100 (4,114)
Royal restructuring and integration (1,332) (1,901) (6,081) (1,901)
Tax reform - - (35,555)
Other (3,326) (470) (3,378) (1,001)
Adjusted income taxes$(14,664) $(12,971) $(35,962) $(34,974)
Adjusted income before income taxes and income from equity method investments$57,136 $44,120 $139,203 $118,570
Adjusted effective income tax rate 25.7% 29.4% 25.8% 29.5%
Adjusted income taxes and adjusted effective income tax rate are non-GAAP financial measures. 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. Adjusted income taxes is defined as income taxes excluding the specific adjustments shown above. Adjusted effective income tax rate is defined as adjusted income taxes divided by adjusted income before income taxes and income from equity method investments.

H.B. FULLER COMPANY AND SUBSIDIARIES
REGULATION G RECONCILIATION
In thousands (unaudited)
Three Months Ended Nine Months Ended
September 1, 2018 September 2, 2017 September 1, 2018 September 2, 2017
Net revenue 770,107 562,869 2,272,573 1,627,843
Gross profit$217,204 $150,400 $627,294 $435,434
Gross profit margin 28.2% 26.7% 27.6% 26.7%
Adjustments:
Acquisition project costs 1,822 1,400 1,995 2,942
Organizational realignment 615 622 1,212 11,011
Royal restructuring and integration 1,395 2,303
Tax reform
Other
Adjusted gross profit$221,036 $152,422 $632,804 $449,387
Adjusted gross profit margin 28.7% 27.1% 27.8% 27.6%
Adjusted gross profit and gross profit margin is a non-GAAP financial measures. The table above provides a reconciliation of adjusted gross profit and gross profit margin to gross profit and gross profit margin, the most directly comparable financial measure determined and reported in accordance with GAAP. Adjusted gross profit and gross profit margin is defined as adjusted gross profit and gross profit margin excluding the specific adjustments shown above.
H.B. FULLER COMPANY AND SUBSIDIARIES
REGULATION G RECONCILIATION
In thousands (unaudited)
Three Months Ended Nine Months Ended
September 1, 2018 September 2, 2017 September 1, 2018 September 2, 2017
Selling, general and administrative expenses$(146,069) $(110,219) $(442,288) $(325,904)
Adjustments:
Acquisition project costs 279 544 1,113 2,201
Tonsan call option agreement 2 1,150 (2,323) (2,453)
Organizational realignment 413 870 998 7,934
Royal restructuring and integration 5,101 5,431 18,256 5,431
Other 2,565 1,800 6,293 5,728
Adjusted selling, general and administrative expenses$(137,709) $(100,424) $(417,951) $(307,063)
Adjusted selling, general and administrative expenses is a non-GAAP financial measure. 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. Adjusted selling, general and administrative expenses is defined as adjusted selling, general and administrative expenses excluding the specific adjustments shown above.

H.B. FULLER COMPANY AND SUBSIDIARIES
REGULATION G RECONCILIATION
In thousands (unaudited)
Americas Asia ConstructionEngineering Corporate H.B. Fuller
Adhesives EIMEA Pacific Adhesives Adhesives Total Unallocated Consolidated
Three Months Ended September 1, 2018 $34,816 $8,758 $3,694 $12,767 $11,100 $71,135 $(33,405) $37,730
Net income attributable to H.B. Fuller
Adjustments:
Acquisition project costs 2,036 26 12 13 13 2,100 (556) 1,544
Tonsan call option agreement - - - - 2 2 108 110
Organizational realignment 7 623 3 393 3 1,029 (150) 879
Royal restructuring and integration 2,123 1,286 429 1,902 756 6,496 (1,332) 5,164
Other 972 642 306 323 322 2,565 (3,326) (761)
Adjusted net income attributable to H.B. Fuller 39,954 11,335 4,444 15,398 12,196 83,327 (38,661) 44,666
Add:
Interest expense, net - - - - - - 24,816 24,816
Income taxes - - - - - - 14,664 14,664
Depreciation expense 4,510 5,492 1,649 2,887 2,469 17,007 - 17,007
Amortization expense 6,500 2,331 487 5,231 4,567 19,116 - 19,116
Adjusted EBITDA1$ 50,964 $19,158 $6,580 $23,516 $19,232 $119,450 $819 $120,269
Americas Asia ConstructionEngineering Corporate H.B. Fuller
Adhesives EIMEA Pacific Adhesives Adhesives Total Unallocated Consolidated
Nine Months Ended September 1, 2018 $84,934 $30,636 $11,056 $25,705 $32,675 $185,006$(55,143) $129,863
Net income attributable to H.B. Fuller
Adjustments:
Acquisition project costs 2,878 73 35 37 84 3,107 (892) 2,215
Tonsan call option agreement - - - - (2,323) (2,323) 264 (2,059)
Organizational realignment 187 1,340 5 673 6 2,211 100 2,311
Royal restructuring and integration 7,140 4,596 1,524 4,518 2,781 20,559 (6,081) 14,478
Tax reform - - - - - - (35,555) (35,555)
Other 2,398 1,570 748 787 790 6,293 (8,150) (1,857)
Adjusted net income attributable to H.B. Fuller 97,537 38,215 13,368 31,720 34,013 214,853 (105,457) 109,396
Add:
Interest expense - - - - - - 74,387 74,387
Income taxes - - - - - - 35,962 35,962
Depreciation expense 13,123 16,688 4,975 8,562 7,453 50,801 - 50,801
Amortization expense 16,464 7,651 1,490 19,092 12,938 57,635 - 57,635
Adjusted EBITDA1$ 127,124 $62,554 $19,833 $59,374 $54,404 $323,289 $4,892 $328,181

H.B. FULLER COMPANY AND SUBSIDIARIES
REGULATION G RECONCILIATION
In thousands (unaudited)
Americas Asia ConstructionEngineering H.B. Fuller
Adhesives EIMEA Pacific Adhesives Adhesives Total Unallocated Consolidated
Three Months Ended September 2, 2017 $25,434 $8,873 $2,793 $(698) $3,779 $40,181 $(15,043) $25,138
Net income attributable to H.B. Fuller
Adjustments:
Acquisition project costs 1,703 108 43 45 45 1,944 (678) 1,266
Tonsan call option agreement - - - - 1,149 1,149 73 1,222
Organizational realignment 283 926 44 164 75 1,492 (660) 832
Royal Restructuring 2,059 1,359 647 682 684 5,431 (1,901) 3,530
Other 683 450 214 226 227 1,800 (470) 1,330
Adjusted net income attributable to H.B. Fuller 30,162 11,716 3,741 419 5,959 51,997 (18,679) 33,318
Add:
Interest expense - - - - - - 7,276 7,276
Income taxes - - - - - - 12,971 12,971
Depreciation expense 3,401 3,955 1,492 1,892 1,592 12,332 - 12,332
Amortization expense 1,798 1,137 415 2,301 2,248 7,899 - 7,899
Adjusted EBITDA1 $35,361 $16,808 $5,648 $4,612 $9,799 $72,228 $1,568 $73,796
Americas Asia ConstructionEngineering H.B. Fuller
Adhesives EIMEA Pacific Adhesives Adhesives Total Unallocated Consolidated
Nine Months Ended September 2, 2017 $72,921 $18,753 $9,423 $(3,234) $11,667 $109,530 $(43,730) $65,800
Net income attributable to H.B. Fuller
Adjustments:
Acquisition project costs 4,143 430 185 192 193 5,143 (1,780) 3,363
Tonsan call option agreement - - - - (2,453) (2,453) 212 (2,241)
Organizational realignment 2,314 8,459 1,755 5,622 795 18,945 (4,114) 14,831
Royal Restructuring 2,059 1,359 647 682 684 5,431 (1,901) 3,530
Other 2,172 1,433 683 719 721 5,728 (1,000) 4,728
Adjusted net income attributable to H.B. Fuller 83,609 30,434 12,693 3,981 11,607 142,324 (52,313) 90,011
Add:
Interest expense, net - - - - - - 22,248 22,248
Income taxes - - - - - - 34,974 34,974
Depreciation expense 10,434 11,260 4,452 5,054 4,662 35,862 - 35,862
Amortization expense 4,959 3,271 1,293 6,912 6,693 23,128 - 23,128
Adjusted EBITDA1 $99,002 $44,965 $18,438 $15,947 $22,962 $201,314 $4,909 $206,223

H.B. FULLER COMPANY AND SUBSIDIARIES
SEGMENT FINANCIAL INFORMATION
NET REVENUE GROWTH
(unaudited)
Three Months Ended September 1, 2018
Americas Adhesives EIMEA Asia Pacific ConstructionAdhesives Engineering Adhesives Total HBF
Price5.5% 5.1% 1.7% 0.5% 7.0% 4.6%
Volume(5.0%) 0.4% 1.1% 5.2% 6.1% (0.5%)
Mix1.2% 0.7% (0.1%) (1.0%) 1.3% 0.7%
Acquisition24.4% 29.3% 1.9% 100.5% 48.4% 34.2%
Constant Currency Growth626.1% 35.5% 4.6% 105.2% 62.8% 39.0%
F/X(3.8%) (3.0%) 0.0% (0.1%) 0.6% (2.2%)
22.3% 32.5% 4.6% 105.1% 63.4% 36.8%
Nine Months Ended September 1, 2018
Americas Adhesives EIMEA Asia Pacific Construction Adhesives Engineering Adhesives Total HBF
Price3.3% 4.4% 1.1% (0.1%) 6.1% 3.3%
Volume(3.1%) (0.1%) 2.4% 0.3% 6.5% (0.2%)
Mix1.0% 0.4% (0.4%) (0.4%) 1.5% 0.6%
Acquisition26.1% 29.5% 1.7% 88.8% 49.3% 34.0%
Constant Currency Growth627.3% 34.2% 4.8% 88.6% 63.4% 37.7%
F/X(1.6%) 5.5% 4.0% 0.6% 5.1% 1.9%
25.7% 39.7% 8.8% 89.2% 68.5% 39.6%

__________________________________

1 Adjusted net income and adjusted diluted earnings per share (EPS) are non-GAAP financial measures and exclude the following costs: Tax reform impacts; organizational realignment to support the 2020 strategic plan as announced in December 2016; acquisition project costs for integrating and accounting for past and present acquisitions; Royal restructuring and integration activities; and other costs, primarily consisting of Project ONE ERP development costs. Other than items referenced in the press release, we have not included a full reconciliation of adjusted EPS to EPS as part of our guidance because all potential adjustments are not known at this time. EBITDA is a non-GAAP financial measure defined on a consolidated basis as gross profit, less SG&A expense, plus depreciation expense, plus amortization expense. Adjusted EBITDA is defined as net income before interest, income taxes, depreciation expense and amortization expense, and excluding acquisition project costs, TONSAN call option agreement, organizational realignment Royal restructuring and integration, the impact from tax reform and other costs, primarily consisting of Project ONE ERP development costs. On a segment basis it is defined as operating income, plus depreciation expense, plus amortization expense. Adjusted EBITDA margin is defined as adjusted EBITDA divided by net revenue. Other than items referenced in the press release, we have not included a full reconciliation of adjusted EBITDA to EBITDA or net income as part of our guidance because all of the potential adjustments are not known at this time.
2Proforma financial results are provided to reflect the historical combination of H.B. Fuller and Royal as of the comparable prior periods before the acquisition was completed. The proforma results and reconciliations to GAAP outcomes were filed on form 8-K dated March 28, 2018.
3Adjusted gross profit and adjusted gross profit margin are non-GAAP financial measures. Adjusted gross profit excludes costs associated with: organizational realignment to support the 2020 strategic plan as announced in December 2016; integrating and accounting for past and present acquisitions; and Royal integration activities. Adjusted gross profit margin is defined as adjusted gross profit divided by adjusted net revenue.
4Revenue and Operating Income in FY 2017 are presented on a Proforma basis and reconciled in the 8-K filed March 28, 2018. Net Income and diluted EPS are adjusted as they were presented during FY 2017 and do not include the impact of Royal in 2017.
5Adjusted SG&A expense is a non-GAAP financial measure which excludes costs associated with: organizational realignment to support the 2020 strategic plan as announced in December 2016; Project ONE development costs; integrating and accounting for past and present acquisitions; and Royal integration activities.
6Constant currency revenue 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. The schedule above reconciles each component of net revenue growth.

Barbara DoyleInvestor Relations contact 651-236-5023

H.B. Fuller Company

Source: H.B. Fuller Company

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