Exhibit 99.1

Worldwide Headquarters 1200 Willow Lake Boulevard St. Paul, Minnesota 55110-5101		Maximillian Marcy  Investor Relations Contact  651-236-5062
NEWS	For Immediate Release	January 23, 2018

 

H.B. Fuller Reports Fourth Quarter and Fiscal Year 2017 Results

 

Fiscal Year 2017 Diluted EPS $1.13, Fiscal Year Adjusted Diluted EPS $2.45^1a;

Excluding Impacts of the Royal Transaction, Fiscal Year Adjusted Diluted EPS $2.50^1b

Fiscal Year 2018 Adjusted Diluted EPS Guidance set at $3.10 to $3.40

 

 

ST. PAUL, Minn. – H.B. Fuller Company (NYSE: FUL) today reported financial results for the fourth quarter and fiscal year that ended December 2, 2017 and initiated guidance for fiscal 2018. In October 2017, the Company acquired Royal Adhesives & Sealants, LLC (“Royal”), which had net revenue of $658 million during the 2017 fiscal year ended December 2, 2017.

 

Items of Note for 2018 Guidance:

■

More than 30 percent revenue growth versus 2017 fiscal year; 6 to 7 percent revenue growth on a pro forma basis2;

■

Adjusted EBITDA3 of approximately $465 million, an increase of about 60 percent versus 2017 and approximately 13 percent growth versus 2017 on a pro forma basis2;

■

Adjusted diluted EPS1a in the range of $3.10 to $3.40, an increase of 24 percent to 36 percent versus 2017;

■

Core tax rate of between 25 and 27 percent, reflecting an estimate based on the recently passed legislation;

■

Cash flow from operating activities of approximately $290 million. Capital expenditures planned at approximately $90 million;

■

Free cash flow4 of approximately $200 million of which approximately $170 million will be used to repay debt.

 

Items of Note for the Fourth Quarter of 2017:

■

Our acquisition of Royal has expanded our position in markets that require highly specified adhesive solutions;

 

 

■

Net revenue growth of 18 percent versus the fourth quarter of 2016. Adjusting for the Royal acquisition and the extra week in the fourth quarter of 2016, constant currency revenue5 growth was 12 percent, with organic revenue growth of 8 percent and organic volume growth of 6 percent;

■

Net loss was $7.6 million in the fourth quarter of 2017; adjusted net income, excluding the impact of the Royal transaction, was $38.9 million, or $0.751 per diluted share;

	■	Adjusted EBITDA3 margin, excluding the impact of the Royal transaction, was up sequentially to 13.1 percent;
	■	Cash flow from operations for the 2017 fiscal year was $136 million. Excluding the impact of Royal, cash flow from operations was $120 million in the fourth quarter and $197 million for the 2017 fiscal year;

■

Adjusting for the extra week in the fourth quarter of 2016, organic volume growth for Engineering Adhesives was 19 percent in the quarter; Asia Pacific grew volume approximately 10 percent versus last year; the Americas and EIMEA had solid mid-single digit volume growth and Construction Products saw improved top-line trends versus prior periods this year;

■

Construction Products adjusted EBITDA3 margin was up 550 basis points versus the prior year’s fourth quarter and back to double digits.

 

Fiscal 2018 Guidance:

We are introducing an adjusted EPS^1a guidance range for 2018 of between $3.10 and $3.40. Adjusted EBITDA³ for fiscal year 2018 is expected to be approximately $465 million. Organic growth on proforma revenue² is expected to be 6 to 7 percent for 2018 versus the 2017 fiscal year which reflects good volume growth, favorable foreign currency translation and further pricing to offset continued raw material inflation. Our core tax rate is expected to be between 25 and 27 percent, which reflects our current estimate of the impact of the recently passed tax legislation. We expect capital expenditures to be around $90 million, which includes approximately $15 million for integration related capital expenditures.

 

“Our 2018 guidance reflects a step change in performance as a result of the continuation of the strong underlying growth and profit improvement in our existing business combined with continued success of the Royal business which we acquired in the fourth quarter,” said Jim Owens, H.B. Fuller President and Chief Executive Officer. “Integration activities are well under way and are going very smoothly and we are excited about the cost synergy and growth opportunities that combining these two great companies will create. The combined businesses will create solid organic growth, sizable margin improvement and significant increases in free cash flow for H.B. Fuller.”

 

This guidance excludes between $15 and $20 million, pre-tax, of expenses required to integrate the Royal business and other businesses acquired in 2017, between $7 and $10 million of expenses, pre-tax, related to Project ONE ERP development costs as well as other items that cannot reasonably be estimated at this time. 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.

 

 

Fourth Quarter 2017 Results:

Net loss for the fourth quarter of 2017 was $7.6 million, or a loss of $0.15 per diluted share, versus net income of $39.1 million, or $0.76 per diluted share, in last year’s fourth quarter. Adjusted diluted earnings per share in the fourth quarter of 2017, excluding the impact of the Royal transaction, were $0.75^1b versus the prior year’s adjusted result of $0.74^1a, which included an extra week. Adjusting for the extra week in 2016, adjusted earnings per share were up 9 percent as strong volume growth was offset by higher year-over-year raw material costs.

 

Net revenue for the fourth quarter of 2017 was $678.2 million, up 18 percent versus the fourth quarter of 2016. Adjusting for the extra week in 2016 and excluding the impact of Royal, revenue was up 12 percent as higher volume, pricing and acquisitions all positively impacted net revenue growth. Organic revenue, defined as constant currency revenue less the impact from acquisitions, was up 8 percent year-over-year.

 

Gross profit margin was 24.7 percent. Adjusted gross profit margin⁶, excluding the impact of the Royal transaction, was 26.5 percent. Margins remained lower year-over-year due to continued increasing raw material costs relative to the timing of additional price increases. Selling, General and Administrative (SG&A) expense was $151.1 million. Adjusted SG&A expense⁷, excluding the impact of the Royal transaction, was $101.5 million, down versus the prior year, due to one fewer operating week as well as good overall expense control.

 

“We had continued strong revenue performance and excellent cash flow performance in the fourth quarter as organic growth was again very strong,” said Mr. Owens. “The pricing actions we implemented early in the year had a positive impact on our margins, however, as a result of Hurricane Harvey and continued environmental controls in China, raw materials continued to increase during the fourth quarter. We have implemented additional pricing actions that will offset inflation in the first half of 2018. Engineering Adhesives, Asia Pacific and Americas all delivered double digit sales growth, with results above our long term targets. Adjusting for the Royal acquisition, we had by far our strongest cash flow quarter of the year. Most importantly, we completed the transformative and complementary acquisition of Royal Adhesives which is accelerating our strategy by combining their strong presence in specified adhesive applications with our global reach and focus.”

 

 

Balance Sheet and Cash Flow:

At the end of the fourth quarter of 2017, cash balances totaled $194 million with total debt of $2,452 million. This compares to third quarter 2017 cash and debt levels of $120 million and $799 million, respectively. Sequentially, net debt was up by approximately $1,579 million dollars, reflecting the purchase price of Royal offset by strong cash flow from operations. Cash flow from operations for the 2017 fiscal year was $136 million. Excluding the impact of Royal, cash flow from operations was $120 million in the fourth quarter and $197 million for the 2017 fiscal year, reflecting strong topline growth and good working capital management, offset by restructuring charges. Capital expenditures were $19 million in the fourth quarter of 2017 and $55 million for the 2017 fiscal year.

 

Year-To-Date Results:

Net income for the 2017 fiscal year was $58.2 million, or $1.13 per diluted share, versus net income of $124.1 million, or $2.42 per diluted share, in the 2016 fiscal year. Adjusted diluted earnings per share in the 2017 fiscal year, excluding the impact of the Royal transaction, were $2.50^1b. Adjusting for the extra week last year, adjusted diluted earnings per share were up 3 percent year-over-year.

 

Net revenue for the 2017 fiscal year was $2,306.0 million, up 10 percent versus the 2016 fiscal year. Adjusting for Royal and the extra week in 2016, constant currency revenue⁵ grew by 10.6 percent year-over-year and organic revenue, defined as constant currency revenue less the impact from acquisitions, was up 7 percent.

 

Conference Call:

The Company will host an investor conference call to discuss fourth quarter results on Wednesday, January 24, 2017, 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 under the Investor Relations section of the Company’s 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 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 Company:

For 130 years, 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 $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, 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 and subscribe to our blog.

 

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 3, 2016, and its SEC 10-Q filing for the quarter ended September 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)

 

		13 Weeks Ended				Percent of				14 Weeks Ended				Percent of
		December 2, 2017				Net Revenue				December 3, 2016				Net Revenue
Net revenue		$	678,200				100.0	%		$	574,907				100.0	%
Cost of sales			(510,464	)			(75.3%	)			(407,086	)			(70.8%	)
Gross profit			167,736				24.7	%			167,821				29.2	%
Selling, general and administrative expenses			(151,126	)			(22.3%	)			(106,495	)			(18.6%	)
Special charges, net			-				0.0	%			(1,856	)			(0.3%	)
Other income (expense), net			(24,401	)			(3.6%	)			54				0.0	%
Interest expense			(19,073	)			(2.8%	)			(7,645	)			(1.3%	)
Income (loss) before income taxes and income from equity method investments			(26,864	)			(4.0%	)			51,879				9.0	%
Income taxes			17,092				2.5	%			(14,873	)			(2.6%	)
Income from equity method investments			2,228				0.3	%			2,221				0.4	%
Net income (loss) including non-controlling interests			(7,544	)			(1.1%	)			39,227				6.8	%
Net income (loss) attributable to non-controlling interests			(14	)			(0.0%	)			(93	)			(0.0%	)
Net income (loss) attributable to H.B. Fuller		$	(7,558	)			(1.1%	)		$	39,134				6.8	%
Basic income (loss) per common share attributable to H.B. Fuller		$	(0.15	)						$	0.78
Diluted income (loss) per common share attributable to H.B. Fuller		$	(0.15	)						$	0.76
Weighted-average common shares outstanding:
Basic			50,356								50,180
Diluted			51,724								51,378
Dividends declared per common share		$	0.15							$	0.14

 

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

 

		December 2, 2017				December 3, 2016				November 28, 2015
Cash & cash equivalents		$	194,398			$	142,245			$	119,168
Trade accounts receivable, net			473,700				351,130				364,704
Inventories			359,505				247,399				248,504
Trade payables			268,467				162,964				177,864
Total assets			4,365,276				2,058,254				2,042,252
Total debt			2,451,910				705,657				722,863

 

 

H.B. FULLER COMPANY AND SUBSIDIARIES

CONSOLIDATED FINANCIAL INFORMATION

In thousands, except per share amounts (unaudited)

 

		52 Weeks Ended				Percent of				53 Weeks Ended				Percent of
		December 2, 2017				Net Revenue				December 3, 2016				Net Revenue
Net revenue		$	2,306,043				100.0	%		$	2,094,605				100.0	%
Cost of sales			(1,702,873	)			(73.8%	)			(1,484,802	)			(70.9%	)
Gross profit			603,170				26.2	%			609,803				29.1	%
Selling, general and administrative expenses			(477,030	)			(20.7%	)			(407,638	)			(19.5%	)
Special charges			-				0.0	%			168				0.0	%
Other income (expense), net			(23,740	)			(1.0%	)			(7,549	)			(0.3%	)
Interest expense			(43,701	)			(1.9%	)			(27,359	)			(1.3%	)
Income from continuing operations before income taxes and income from equity method investments			58,699				2.5	%			167,425				8.0	%
Income taxes			(9,086	)			(0.4%	)			(50,436	)			(2.4%	)
Income from equity method investments			8,677				0.4	%			7,393				0.3	%
Net income including non-controlling interests			58,290				2.5	%			124,382				5.9	%
Net income attributable to non-controlling interests			(48	)			(0.0%	)			(254	)			(0.0%	)
Net income attributable to H.B. Fuller		$	58,242				2.5	%		$	124,128				5.9	%
Basic income per common share attributable to H.B. Fuller		$	1.16							$	2.48
Diluted income per common share attributable to H.B. Fullera		$	1.13							$	2.42
Weighted-average common shares outstanding:
Basic			50,370								50,136
Diluted			51,619								51,270
Dividends declared per common share		$	0.59							$	0.55

 

a Income per share amounts may not add due to rounding

 

 

H.B. FULLER COMPANY AND SUBSIDIARIES

REGULATION G RECONCILIATION – Income Statement

In thousands, except per share amounts (unaudited)

 

														Less				Adjusted
										Adjusted				Adjusted				Excluding Royal				% of
		13 Weeks Ended				Add				13 Weeks Ended				Royal				13 Weeks Ended				Net
		December 2, 2017				Adjustments				December 2, 2017				Results				December 2, 2017				Revenue
Net revenue		$	678,200			$	-			$	678,200			$	77,034			$	601,166				100.0	%
Cost of sales			(510,464	)			12,566				(497,898	)			(55,858	)			(442,040	)			(73.5	%)
Gross profit			167,736				12,566				180,302				21,176				159,126				26.5	%6
Selling, general and administrative expenses			(151,126	)			33,893				(117,233	)			(15,769	)			(101,464	) 7			(16.9	%)
Other income (expense), net			(24,401	)			25,966				1,565				1,087				478				0.1	%
Interest expense			(19,073	)			-				(19,073	)			(10,286	)			(8,787	)			(1.5	%)
Income (loss) before income taxes and income from equity method investments			(26,864	)			72,425				45,561				(3,792	)			49,353				8.2	%
Income taxes			17,092				(28,318	)			(11,226	)			1,437				(12,663	)			(2.1	%)
- Effective tax rate			63.6	%							24.6	%			37.9	%			25.7	%
Income from equity method investments			2,228				-				2,228				-				2,228				0.4	%
Net income (loss) including non-controlling interests			(7,544	)			44,107				36,563				(2,355	)			38,918				6.5	%
Net income attributable to non-controlling interests			(14	)			-				(14	)			-				(14	)			(0.0	%)
Net income (loss) attributable to H.B. Fuller		$	(7,558	)		$	44,107			$	36,549			$	(2,355	)		$	38,904				6.5	%
Basic income (loss) per common share attributable to H.B. Fuller		$	(0.15	)		$	0.88			$	0.73			$	(0.05	)		$	0.77
Diluted income (loss) per common share attributable to H.B. Fuller		$	(0.15	)		$	0.85			0.71		1a		$	(0.05	)		0.75		1b
Weighted-average common shares outstanding:
Basic			50,356				50,356				50,356				50,356				50,356
Diluted			51,724				51,724				51,724				51,724				51,724

 

 

H.B. FULLER COMPANY AND SUBSIDIARIES

REGULATION G RECONCILIATION – Income Statement

In thousands, except per share amounts (unaudited)

 

						% of								Adjusted				% of
		14 Weeks Ended				Net								14 Weeks Ended				Net
		December 3, 2016				Revenue				Adjustments				December 3, 2016				Revenue
Net revenue		$	574,907				100.0	%		$	-			$	574,907				100.0	%
Cost of sales			(407,086	)			(70.8	%)			(543	)			(406,543	)			(70.7	%)
Gross profit			167,821				29.2	%			543				168,364				29.3	%
Selling, general and administrative expenses			(106,495	)			(18.6	%)			2,520				(109,015	)			(19.0	%)
Special charges, net			(1,856	)			(0.3	%)			(1,856	)			-				0.0	%
Other income (expense), net			54				-				-				54				0.0	%
Interest expense			(7,645	)			(1.3	%)			(58	)			(7,587	)			(1.3	%)
Income before income taxes and income from equity method investments			51,879				9.0	%			(63	)			51,816				9.0	%
Income taxes			(14,873	)			(2.6	%)			1,161				(16,034	)			(2.8	%)
- Effective tax rate			28.7	%											30.9	%
Income from equity method investments			2,221				0.4	%			-				2,221				0.4	%
Net income including non-controlling interests			39,227				6.8	%			(1,224	)			38,003				6.6	%
Net income attributable to non-controlling interests			(93	)			-				-				(93	)			(0.0	%)
Net income attributable to H.B. Fuller		$	39,134				6.8	%		$	(1,224	)		$	37,910				6.6	%
Basic income per common share attributable to H.B. Fuller		$	0.78							$	(0.02	)		$	0.76
Diluted income per common share attributable to H.B. Fuller		$	0.76							$	(0.02	)		$	0.74	1
Weighted-average common shares outstanding:
Basic			50,180								50,180				50,180
Diluted			51,378								51,378				51,378

 

 

H.B. FULLER COMPANY AND SUBSIDIARIES

REGULATION G RECONCILIATION – Income Statement

In thousands, except per share amounts (unaudited)

 

														Less				Adjusted
										Adjusted				Adjusted				Excluding Royal				% of
		52 Weeks Ended				Add				52 Weeks Ended				Royal				52 Weeks Ended				Net
		December 2, 2017				Adjustments				December 2, 2017				Results				December 2, 2017				Revenue
Net revenue		$	2,306,043			$	-			$	2,306,043			$	77,034			$	2,229,009				100.0	%
Cost of sales			(1,702,873	)			26,520				(1,676,353	)			55,858				(1,620,495	)			(72.7%	)
Gross profit			603,170				26,520				629,690				(21,176	)			608,514				27.3	%
Selling, general and administrative expenses			(477,030	)			52,734				(424,296	)			15,769				(408,527	)			(18.3%	)
Other income (expense), net			(23,740	)			26,179				2,439				1,087				1,352				0.1	%
Interest expense			(43,701	)			-				(43,701	)			10,286				(33,415	)			(1.5%	)
Income from continuing operations before income taxes and income from equity method investments			58,699				105,433				164,132				(3,792	)			167,924				7.5	%
Income taxes			(9,086	)			(37,114	)			(46,200	)			1,437				(47,637	)			(2.1%	)
-Effective tax rate			15.5	%			35.2	%			28.1	%			37.9	%			28.4	%
Income from equity method investments			8,677				-				8,677				-				8,677				0.4	%
Net income including non-controlling interests			58,290				68,319				126,609				(2,355	)			128,964				5.8	%
Net income attributable to non-controlling interests			(48	)			-				(48	)			-				(48	)			(0.0%	)
Net income attributable to H.B. Fuller		$	58,242			$	68,319			$	126,561			$	(2,355	)		$	128,916				5.8	%
Basic income per common share attributable to H.B. Fullera		$	1.16			$	1.36				2.51			$	(0.05	)		$	2.56
Diluted income per common share attributable to H.B. Fuller		$	1.13			$	1.32				2.45	1a		$	(0.05	)		$	2.50	1b
Weighted-average common shares outstanding:
Basic			50,370				50,370				50,370				50,370				50,370
Diluted			51,619				51,619				51,619				51,619				51,619

 

a Income per share amounts may not add due to rounding

 

 

H.B. FULLER COMPANY AND SUBSIDIARIES

REGULATION G RECONCILIATION – Income Statement

In thousands, except per share amounts (unaudited)

 

						% of								Adjusted				% of
		53 Weeks Ended				Net								53 Weeks Ended				Net
		December 3, 2016				Revenue				Adjustments				December 3, 2016				Revenue
Net revenue		$	2,094,605				100.0	%		$	-			$	2,094,605				100.0	%
Cost of sales			(1,484,802	)			(70.9%	)			(4,442	)			(1,480,360	)			(70.7%	)
Gross profit			609,803				29.1	%			4,442				614,245				29.3	%
Selling, general and administrative expenses			(407,638	)			(19.5%	)			697				(408,335	)			(19.5%	)
Special charges. net			168				0.0	%			168				-				0.0	%
Other income (expense), net			(7,549	)			(0.3%	)			(684	)			(6,865	)			(0.3%	)
Interest expense			(27,359	)			(1.3%	)			(280	)			(27,079	)			(1.3%	)
Income before income taxes and income from equity method investments			167,425				8.0	%			4,541				171,966				8.2	%
Income taxes			(50,436	)			(2.4%	)			1,656				(52,092	)			(2.4%	)
- Effective tax rate			30.1	%							-36.5	%			30.3	%
Income from equity method investments			7,393				0.3	%			-				7,393				0.3	%
Net income including non-controlling interests			124,382				5.9	%			2,885				127,267				6.1	%
Net income attributable to non-controlling interests			(254	)			-				-				(254	)			(0.0%	)
Net income attributable to H.B. Fuller		$	124,128				5.9	%		$	2,885			$	127,013				6.1	%
Basic income per common share attributable to H.B. Fullera		$	2.48							$	0.06			$	2.53
Diluted income per common share attributable to H.B. Fullera		$	2.42							$	0.06			$	2.48
Weighted-average common shares outstanding:
Basic			50,136								50,136				50,136
Diluted			51,270								51,270				51,270

 

a Income per share amounts may not add due to rounding

 

 

H.B. FULLER COMPANY AND SUBSIDIARIES

ADJUSTED EARNING PER SHARE RECONCILIATION

In thousands (unaudited)

 

			13 Weeks ended December 2, 2017												14 Weeks ended December 3, 2016
			Income												Income
			before				Income				Diluteda				before				Income				Diluted
			Income Tax				Taxes				EPS				Income Tax				Taxes				EPS
GAAP Earnings			$	(24,650	)		$	(17,092	)		$	(0.15	)		$	54,007			$	14,873			$	0.76
Acquisition project costs	b			15,298				4,195				0.21				500				141				0.01
Make-whole cost on debt repayment	c			25,535				8,937				0.32				-				-				-
Advisory/financing fees	d			28,499				9,975				0.36				-				-				-
Tonsan call option agreement	e			(1,705	)			-				(0.03	)			(5,173	)			-				(0.10	)
Organizational realignment	f			1,018				230				0.02				3,066				544				0.05
Other	g			3,780				4,981				(0.02	)			1,544				476				0.02
Adjusted Earnings			$	47,775				11,226				0.71			$	53,944			$	16,034			$	0.74
Adjusted Royal results				3,792				1,437				0.05
Adjusted earnings excluding Royal			$	51,567				12,663				0.75

 

			52 Weeks ended December 2, 2017												53 Weeks ended December 3, 2016
			Income												Income
			before				Income				Diluted				before				Income				Diluted
			Income Tax				Taxes				EPS				Income Tax				Taxes				EPSa
GAAP Earnings			$	67,328			$	9,086			$	1.13			$	174,564			$	50,436			$	2.42
Acquisition project costs	b			20,493				5,993				0.28				2,633				640				0.04
Make-whole cost on debt repayment	c			25,535				8,937				0.32				-				-				-
Advisory/financing fees	d			33,879				11,858				0.43				-				-				-
Tonsan call option agreement	e			(3,945	)			-				(0.08	)			(5,370	)			-				(0.10	)
Organizational realignment	f			19,963				4,343				0.30				3,633				57				0.07
Other	g			9,508				5,983				0.08				3,645				959				0.05
Adjusted Earnings			$	172,761				46,200				2.45			$	179,105			$	52,092			$	2.48
Adjusted Royal results				3,792				1,437				0.05
Adjusted earnings excluding Royal			$	176,553				47,637				2.50

 

a Income per share amounts may not add due to rounding

b Costs related to integrating and accounting for acquisitions

c Cash costs related to make whole payments associated with the early repayment of certain debt in conjunction with the Royal Transaction

d Cash costs related to transaction advisory costs and costs for arranging financing in conjunction with the Royal Transaction

e Non-cash costs related to accretion and revaluation of the Tonsan call option agreement

f Costs related to Organizational Realignment to Support 2020 Strategic Plan, Construction Products facility combination, EIMEA restructuring announced November 2015, business integration and Special Charges

g Costs related to Project One development costs, discrete tax items and other corporate costs

 

 

H.B. FULLER COMPANY AND SUBSIDIARIES

SEGMENT FINANCIAL INFORMATION

In thousands (unaudited)

 

		13 Weeks Ended				14 Weeks Ended
		December 2, 2017				December 3, 2016
Net Revenue
Americas Adhesives		$	234,887			$	217,639
EIMEA			151,765				150,328
Asia Pacific			74,107				70,361
Construction Products			58,634				64,235
Engineering Adhesives			81,773				72,344
Royal Adhesives			77,034				-
Total H.B. Fuller		$	678,200			$	574,907
Segment Operating Income 8
Americas Adhesives		$	24,827			$	31,936
EIMEA			10,091				14,502
Asia Pacific			5,898				6,111
Construction Products			461				(2,147	)
Engineering Adhesives			7,974				10,924
Royal Adhesives			(32,641	)			-
Total H.B. Fuller		$	16,610			$	61,326
Depreciation and Amortization Expense
Americas Adhesives		$	5,779			$	5,016
EIMEA			5,304				5,120
Asia Pacific			1,958				1,862
Construction Products			4,277				4,074
Engineering Adhesives			3,733				4,374
Royal Adhesives			6,760				-
Total H.B. Fuller		$	27,811			$	20,446
EBITDA 3
Americas Adhesives		$	30,607			$	36,952
EIMEA			15,395				19,622
Asia Pacific			7,856				7,973
Construction Products			4,738				1,927
Engineering Adhesives			11,707				15,298
Royal Adhesives			(25,881	)			-
Total H.B. Fuller		$	44,422			$	81,772
Segment Operating Margin 8
Americas Adhesives			10.6	%			14.7	%
EIMEA			6.6	%			9.6	%
Asia Pacific			8.0	%			8.7	%
Construction Products			0.8	%			(3.3%	)
Engineering Adhesives			9.8	%			15.1	%
Royal Adhesives			(42.4%	)			-
Total H.B. Fuller			2.4	%			10.7	%
EBITDA Margin 3
Americas Adhesives			13.0	%			17.0	%
EIMEA			10.1	%			13.1	%
Asia Pacific			10.6	%			11.3	%
Construction Products			8.1	%			3.0	%
Engineering Adhesives			14.3	%			21.1	%
Royal Adhesives			(33.6%	)			-
Total H.B. Fuller			6.5	%			14.2	%
Adjusted EBITDA 3
Americas Adhesives		$	35,818			$	37,336
EIMEA			17,524				21,039
Asia Pacific			8,586				8,177
Construction Products			5,938				2,967
Engineering Adhesives			10,848				10,235
Royal Adhesives			12,167				-
Total H.B. Fuller		$	90,881			$	79,754
Adjusted EBITDA Margin 3
Americas Adhesives			15.2	%			17.2	%
EIMEA			11.5	%			14.0	%
Asia Pacific			11.6	%			11.6	%
Construction Products			10.1	%			4.6	%
Engineering Adhesives			13.3	%			14.1	%
Royal Adhesives			15.8	%			-
Total H.B. Fuller			13.4	%			13.9	%

 

 

H.B. FULLER COMPANY AND SUBSIDIARIES

SEGMENT FINANCIAL INFORMATION

In thousands (unaudited)

 

		52 Weeks Ended				53 Weeks Ended
		December 2, 2017				December 3, 2016
Net Revenue
Americas Adhesives		$	888,552			$	806,062
EIMEA			548,439				545,135
Asia Pacific			264,191				241,827
Construction Products			238,513				256,346
Engineering Adhesives			289,314				245,235
Royal Adhesives			77,034				-
Total H.B. Fuller		$	2,306,043			$	2,094,605
Segment Operating Income 8
Americas Adhesives		$	98,979			$	125,979
EIMEA			29,870				40,121
Asia Pacific			15,350				15,410
Construction Products			(1,120	)			3,265
Engineering Adhesives			20,453				17,390
Royal Adhesives			(37,392	)			-
Total H.B. Fuller		$	126,140			$	202,165
Depreciation and Amortization Expense
Americas Adhesives		$	21,171			$	18,979
EIMEA			19,845				21,441
Asia Pacific			8,135				7,484
Construction Products			16,316				14,977
Engineering Adhesives			15,088				14,804
Royal Adhesives			6,760				-
Total H.B. Fuller		$	87,315			$	77,685
EBITDA 3
Americas Adhesives		$	120,150			$	144,958
EIMEA			49,714				61,562
Asia Pacific			23,484				22,894
Construction Products			15,196				18,242
Engineering Adhesives			35,542				32,194
Royal Adhesives			(30,631	)			-
Total H.B. Fuller		$	213,455			$	279,850
Segment Operating Margin 8
Americas Adhesives			11.1	%			15.6	%
EIMEA			5.4	%			7.4	%
Asia Pacific			5.8	%			6.4	%
Construction Products			(0.5%	)			1.3	%
Engineering Adhesives			7.1	%			7.1	%
Royal Adhesives			(48.5%	)			-
Total H.B. Fuller			5.5	%			9.7	%
EBITDA Margin 3
Americas Adhesives			13.5	%			18.0	%
EIMEA			9.1	%			11.3	%
Asia Pacific			8.9	%			9.5	%
Construction Products			6.4	%			7.1	%
Engineering Adhesives			12.3	%			13.1	%
Royal Adhesives			(39.8%	)			-
Total H.B. Fuller			9.3	%			13.4	%
Adjusted EBITDA 3
Americas Adhesives		$	134,249			$	145,890
EIMEA			62,280				63,912
Asia Pacific			26,487				24,061
Construction Products			22,942				19,473
Engineering Adhesives			34,070				27,607
Royal Adhesives			12,167				-
Total H.B. Fuller		$	292,195			$	280,943
Adjusted EBITDA Margin 3
Americas Adhesives			15.1	%			18.1	%
EIMEA			11.4	%			11.7	%
Asia Pacific			10.0	%			9.9	%
Construction Products			9.6	%			7.6	%
Engineering Adhesives			11.8	%			11.3	%
Royal Adhesives			15.8	%			-
Total H.B. Fuller			12.7	%			13.4	%

 

 

H.B. FULLER COMPANY AND SUBSIDIARIES

SEGMENT FINANCIAL INFORMATION

NET REVENUE GROWTH

(unaudited)

 

13 Weeks Ended December 2, 2017

 

		Americas Adhesives				EIMEA				Asia Pacific				Construction Products				Engineering Adhesives				Total HBF
Price			0.9	%			5.4	%			0.5	%			0.1	%			0.5	%			1.9	%
Volume			5.0	%			4.0	%			10.4	%			(1.7%	)			19.3	%			6.5	%
Mix			0.1	%			0.6	%			0.2	%			(0.4%	)			(0.7%	)			0.1	%
Acquisition			8.8	%			-				-				-				-				3.3	%
Constant Currency Growth 5			14.8	%			10.0	%			11.1	%			(2.0%	)			19.1	%			11.8	%
F/X			0.2	%			(1.9%	)			1.3	%			0.4	%			1.1	%			(0.1%	)
Royal Impact			-				-				-				-				-				13.4	%
Extra Week			(7.1%	)			(7.1%	)			(7.1%	)			(7.1%	)			(7.1%	)			(7.1%	)
			7.9	%			1.0	%			5.3	%			(8.7%	)			13.1	%			18.0	%

 

 

 

52 Weeks Ended December 2, 2017

 

		Americas Adhesives				EIMEA				Asia Pacific				Construction Products				Engineering Adhesives				Total HBF
Price			(0.4%	)			4.5	%			(0.6%	)			0.0	%			(1.2%	)			0.8	%
Volume			6.1	%			4.6	%			11.1	%			(4.9%	)			20.3	%			6.1	%
Mix			(0.8%	)			0.1	%			(0.5%	)			(0.3%	)			(0.5%	)			(0.4%	)
Acquisition			7.6	%			-				2.8	%			-				3.2	%			4.1	%
Constant Currency Growth 5			12.5	%			9.2	%			12.8	%			(5.2%	)			21.8	%			10.6	%
F/X			(0.3%	)			(6.6%	)			(1.6%	)			0.2	%			(1.8%	)			(2.2%	)
Royal Impact			-				-				-				-				-				3.7	%
Extra Week			(2.0%	)			(2.0%	)			(2.0%	)			(2.0%	)			(2.0%	)			(2.0%	)
			10.2	%			0.6	%			9.2	%			(7.0%	)			18.0	%			10.1	%

 

 

H.B. FULLER COMPANY AND SUBSIDIARIES

REGULATION G RECONCILIATION - EBITDA

In thousands (unaudited)

 

		13 Weeks Ended				14 Weeks Ended
		December 2, 2017				December 3, 2016
Net income (loss) including non-controlling interests		$	(7,544	)		$	39,227
Income from equity method investments			(2,228	)			(2,221	)
Income taxes			(17,092	)			14,873
Interest expense			19,073				7,645
Other income (expense), net			24,401				(54	)
Special charges			-				1,856
Segment Operating Income8			16,610				61,326
Depreciation expense			14,697				12,460
Amortization expense			13,115				7,986
EBITDA3		$	44,422			$	81,772
Non-recurring costs			46,459				(2,018	)
Adjusted EBITDA3		$	90,881			$	79,754
Less: Adjusted Royal EBITDA		$	(12,167	)
		$	78,714
Adjusted EBITDA margin3 on core HB Fuller			13.1	%			13.9	%

 

 

		52 Weeks Ended				53 Weeks Ended
		December 2, 2017				December 3, 2016
Net income including non-controlling interests		$	58,290			$	124,382
Income from equity method investments			(8,677	)			(7,393	)
Income taxes			9,086				50,436
Interest expense			43,701				27,359
Other income (expense), net			23,740				7,549
Special charges			-				(168	)
Segment Operating Income8			126,140				202,165
Depreciation expense			51,072				49,190
Amortization expense			36,243				28,495
EBITDA3		$	213,455			$	279,850
Non-recurring costs			78,740				1,093
Adjusted EBITDA3		$	292,195			$	280,943
Less: Adjusted Royal EBITDA		$	(12,167	)
		$	280,028
Adjusted EBITDA margin3 on core HB Fuller			12.6	%			13.4	%

 

 

H.B. FULLER COMPANY AND SUBSIDIARIES

PROFORMA FINANCIAL MEASURES

In thousands (unaudited)

 

		Royal				Royal				Royal				H.B. Fuller				Proforma
		12/4/16 -				10/20/17 -				52 weeks ended -				Standalone				Combined2
		10/19/17				12/2/17				December 2017				December 2017				December 2017
Net income (loss)		$	17,565			$	(31,486	)		$	(13,921	)		$	89,777			$	75,856
Income from equity method investments			-				-				-				(8,677	)			(8,677	)
Income taxes			7,735				(16,147	)			(8,412	)			25,232				16,820
Interest expense			39,306				10,286				49,592				33,415				83,007
Other income (expense), net			-				(45	)			(45	)			23,785				23,740
Segment Operating Income8		$	64,606			$	(37,392	)		$	27,214			$	163,532			$	190,746
Depreciation expense		$	9,354			$	1,712				11,066			$	49,360				60,426
Amortization expense			34,175				5,049				39,224				31,194				70,418
EBITDA3		$	108,135			$	(30,631	)		$	77,504			$	244,086			$	321,590
Non-recurring costs		$	12,670			$	42,798				55,468			$	35,942				91,410
Adjusted EBITDA3		$	120,805			$	12,167			$	132,972			$	280,028			$	413,000
Net Revenue		$	580,719			$	77,034			$	657,753			$	2,229,009			$	2,886,762

 

 

H.B. FULLER COMPANY AND SUBSIDIARIES

OPERATING CASH FLOW RECONCILIATION

In thousands (unaudited)

 

		13 Weeks Ended				52 Weeks Ended
		December 2, 2017				December 2, 2017
Cash Flow from Operations		$	65,532			$	136,337
Make-whole cost on debt restructuring			25,535				25,535
Advisory/financing fees			28,499				33,879
Net Royal cash flow impact			752				803
Cash flow from operations, excluding the Royal acquisition		$	120,318			$	196,554

 

 

---

1a

Adjusted diluted earnings per share (EPS) is a non-GAAP financial measure and excludes the following costs included on the adjusted earnings per share reconciliation table above: special charges related to the “business integration”; organizational realignment to support the 2020 strategic plan as announced in December 2016; restructuring in EIMEA related to operational efficiency improvement projects; combining Construction Products facilities in Illinois; Project ONE development costs; the closing of a facility in the Philippines; integrating and accounting for past and present acquisitions and all transaction related costs of the Royal transaction.

1b	Adjusted diluted earnings per share excluding Royal (EPS) is a non-GAAP financial measure and excludes the costs included on the adjusted earnings per share reconciliation table above in addition to the income generated from operating the business for 6 weeks.

2

Proforma financial results represent combined 2017 fiscal year financial results of H.B. Fuller on a standalone basis, the Royal business for the period under prior ownership and the 6 weeks under H.B. Fuller ownership. The proforma results are presented to provide the reader with a baseline to evaluate 2018 financial guidance.

3

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 excludes operating items listed on the adjusted earnings per share reconciliation table above. 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.

4	Free cash flow is a non-GAAP financial measure defined as cash flow from operating activities less capital expenditures.

5	Constant 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.

6

Adjusted 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; restructuring in EIMEA related to operational efficiency improvement projects; combining Construction Products facilities in Illinois; the closing of a facility in the Philippines; integrating and accounting for past and present acquisitions; and all impacts related to the Royal transaction, including the income generated from operating the business for 6 weeks. Adjusted gross profit margin is defined as adjusted gross profit divided by adjusted net revenue.

7

Adjusted 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; restructuring in EIMEA related to operational efficiency improvement projects; combining Construction Products facilities in Illinois; Project ONE development costs; integrating and accounting for past and present acquisitions; and all impacts related to the Royal transaction, including the income generated from operating the business for 6 weeks.

8	Segment operating income is defined as gross profit less SG&A expense. Segment operating margin is defined as segment operating income divided by net revenue.

9	Segment financial information excludes all impacts related to the Royal transaction, including the income generated from operating the business for 6 weeks.

 

19