Note 16 - Operating Segments

9 Months Ended

Aug. 29, 2020

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

Note 16: Operating Segments

We are required to report segment information in the same way that we internally organize our business for assessing performance and making decisions regarding allocation of resources. For segment evaluation by the chief operating decision maker, segment operating income is identified as gross profit less SG&A expenses. Beginning in the third quarter of 2020, we are also presenting earnings before interest, taxes, depreciation and amortization (EBITDA) adjusted for certain non-recurring items, as this measure is also being used for assessing performance. Corporate assets are not allocated to the operating segments. Operating results of each of our segments are regularly reviewed by our chief operating decision maker to make decisions about resources to be allocated to the segments and assess their performance.

As of November 30, 2019, we had five reportable segments: Americas Adhesives, EIMEA, Asia Pacific, Construction Adhesives and Engineering Adhesives. As of the beginning of fiscal 2020, we realigned our operating segment structure and now have three reportable segments: Hygiene, Health and Consumable Adhesives, Engineering Adhesives and Construction Adhesives. The change in operating segments is based on how we have organized the company to make operating decisions and assess business performance. Prior period segment information has been recast retrospectively to reflect the realignment.

The table below provides certain information regarding net revenue and segment operating income (loss) for each of our operating segments.

	Three Months Ended
	August 29, 2020					August 31, 2019
			Segment					Segment
	Net		Operating			Net		Operating
	Revenue		Income (Loss)			Revenue		Income (Loss)
Hygiene, Health and Consumable Adhesives	$	320,187	$	31,883		$	328,420	$	32,638
Engineering Adhesives		276,083		29,873			286,716		36,847
Construction Adhesives		95,193		4,284			108,406		7,650
Total segment		691,463		66,040			723,542		77,135
Corporate Unallocated		-		(7,309	)		1,834		(10,429	)
Total	$	691,463	$	58,731		$	725,376	$	66,706

	Nine Months Ended
	August 29, 2020					August 31, 2019
			Segment					Segment
	Net		Operating			Net		Operating
	Revenue		Income (Loss)			Revenue		Income (Loss)
Hygiene, Health and Consumable Adhesives	$	977,373	$	89,556		$	986,166	$	85,576
Engineering Adhesives		761,040		65,386			855,010		98,146
Construction Adhesives		274,216		9,436			302,987		14,246
Total segment		2,012,629		164,378			2,144,163		197,968
Corporate Unallocated		-		(19,991	)		13,731		(24,670	)
Total	$	2,012,629	$	144,387		$	2,157,894	$	173,298

Consistent with our internal management reporting, Corporate Unallocated amounts in the tables above include charges that are not allocated to the Company’s reportable segments. For the three and nine months ended August 31, 2019, Corporate Unallocated also includes operating results related to our surfactants and thickeners business, which we divested during the third quarter of 2019.

The table below provides a reconciliation of segment operating income to income before income taxes and income from equity method investments:

	Three Months Ended						Nine Months Ended
	August 29,			August 31,			August 29,			August 31,
	2020			2019			2020			2019
Operating income	$	58,731		$	66,706		$	144,387		$	173,298
Other income, net		3,722			22,762			11,740			29,113
Interest expense		(20,196	)		(25,607	)		(64,597	)		(79,354	)
Interest income		2,945			3,115			8,761			9,191
Income before income taxes and income from equity method investments	$	45,202		$	66,976		$	100,291		$	132,248

The adjusted EBITDA information presented below does not conform to U.S. GAAP and should not be construed as an alternative to the reported results determined in accordance with U.S. GAAP. Adjusted EBITDA is defined as net income before interest, income taxes, depreciation, amortization and certain adjustments. Management has included this non-GAAP information to assist in understanding the operating performance of the company and its operating segments. Adjusted EBITDA is reconciled to net income attributable to H.B. Fuller, the most directly comparable financial measure determined and reported in accordance with U.S. GAAP.

	Three Months Ended						Nine Months Ended
	August 29, 2020			August 31, 2019			August 29, 2020			August 31, 2019
Adjusted EBITDA
Health, Hygiene and Consumable Adhesives	$	43,697			45,146		$	127,914		$	123,700
Engineering Adhesives		46,831			52,152			112,918			144,521
Construction Adhesives		14,394			17,486			39,893			44,185
Corporate Unallocated		785			1,339			3,377			7,761
Total		105,707			116,123			284,102			320,167
Adjusted items:
Adjustments		(1,657	)		(5,491	)		9,771			8,779
Interest expense		20,220			25,607			64,650			79,354
Interest income		(2,945	)		(3,115	)		(8,761	)		(9,191	)
Income taxes		14,050			14,798			32,335			37,219
Depreciation and amortization expense		34,432			34,606			102,992			105,403
Total		64,100			66,405			200,987			221,564
Net income attributable to H.B. Fuller	$	41,607		$	49,718		$	83,115		$	98,603

We view the following disaggregation of net revenue by geographic region as useful to understanding the composition of revenue recognized during the respective reporting periods:

	Three Months Ended August 29, 2020
		Hygiene, Health
		and Consumable		Engineering		Construction		Corporate
		Adhesives		Adhesives		Adhesives		Unallocated		Total
Americas	$	179,209	$	114,358	$	84,379	$	-	$	377,946
EIMEA		91,813		81,783		4,418		-		178,014
Asia Pacific		49,165		79,942		6,396		-		135,503
	$	320,187	$	276,083	$	95,193	$	-	$	691,463

	Three Months Ended August 31, 2019
		Hygiene, Health
		and Consumable		Engineering		Construction		Corporate
		Adhesives		Adhesives		Adhesives		Unallocated		Total
Americas	$	185,356	$	120,519	$	96,463	$	1,834	$	404,172
EIMEA		95,719		90,113		5,940		-		191,772
Asia Pacific		47,345		76,084		6,003		-		129,432
	$	328,420	$	286,716	$	108,406	$	1,834	$	725,376

	Nine Months Ended August 29, 2020
		Hygiene, Health
		and Consumable		Engineering		Construction		Corporate
		Adhesives		Adhesives		Adhesives		Unallocated		Total
Americas	$	543,066	$	309,742	$	242,685	$	-	$	1,095,493
EIMEA		282,418		237,102		15,049		-		534,569
Asia Pacific		151,889		214,196		16,482		-		382,567
	$	977,373	$	761,040	$	274,216	$	-	$	2,012,629

	Nine Months Ended August 31, 2019
		Hygiene, Health
		and Consumable		Engineering		Construction		Corporate
		Adhesives		Adhesives		Adhesives		Unallocated		Total
Americas	$	545,903	$	345,175	$	268,697	$	13,731	$	1,173,506
EIMEA		291,372		284,101		16,627		-		592,100
Asia Pacific		148,891		225,734		17,663		-		392,288
	$	986,166	$	855,010	$	302,987	$	13,731	$	2,157,894