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

Fourth Quarter Organic Revenue Growth 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 /PRNewswire/ -- H.B. Fuller Company ( 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 percent 7 , 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 million 2 , or $0.90 2 adjusted EPS, up 27 percent;
  • Gross margin up 240 basis points and adjusted gross margin 5 up 150 basis points versus fourth quarter of 2017;
  • Adjusted EBITDA of $121 million 2 up 30 percent year-over-year, driven by acquisitions, strategic pricing gains and acquisition synergies; up 8 percent on a pro-forma basis for Royal 1 ;
  • Adjusted EBITDA margin of 15.7 percent 2 increased compared with fourth quarter 2017 margin of 13.7 percent 2 , and 14.2 percent, on a pro-forma basis including Royal 1 ;
  • 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

41

(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 percent 7 , 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 percent 5 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 million 6 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 Royal 1 .

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 million 2 , or $0.90 2 adjusted EPS, increased 27 percent compared with $37 million 2 , or $0.71 2 adjusted EPS, versus last year. Adjusted EBITDA was $121 million 2 , 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 Royal 8 .

"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 revenue grew by 3.7 7 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 percent 5 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 million 2 , or $3.00 2 per diluted share, increased 23 percent compared with $127 2 million, or $2.45 2 per diluted share, in fiscal 2017. Adjusted EBITDA of $449 million 2 was up 50 percent compared with the prior year, and increased 7 percent on a proforma basis including Royal 8 .

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 EBITDA above the midpoint of 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 at https://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, through Jan. 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 fiscal 2018 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 at https://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


41,365


5.4%



(6,893)


(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, 2018


Net Revenue


December 2, 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


171,232


5.6%



59,466

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, 2018

December 2, 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



52,017



51,724



51,975



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


$

3,041,002


$

2,306,043

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, depreciation, 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 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)








13 Weeks Ended


13 Weeks Ended


December 1, 2018


December 2, 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

$

768,429


$

678,200







Segment Operating Income:






Americas Adhesives

$

30,430


$

17,579

EIMEA


9,424



68

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


52 Weeks Ended


December 1, 2018


December 2, 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

$

3,041,002


$

2,306,043







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, except per share amounts (unaudited)









13 Weeks Ended


52 Weeks Ended


December 1, 2018

December 2, 2017

December 1, 2018

December 2, 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


3,555



(1,705)



1,496



(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



-



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, except per share amounts (unaudited)














13 Weeks Ended


52 Weeks Ended


December 1, 2018

December 2, 2017

December 1, 2018

December 2, 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

$

58,174


$

45,561


$

197,377


$

164,131

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, 2018

December 2, 2017

December 1, 2018

December 2, 2017













Net revenue

$

768,429


$

678,200


$

3,041,002


$

2,306,043













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)



2,407



(1,900)

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, 2018

December 2, 2017

December 1, 2018

December 2, 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






305




Other


(442)



3,780



5,851



9,508

Adjusted selling, general and administrative expenses 6

$

(130,785)


$

(117,233)

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