- --------------------------------------------------------------------------------
Management's Analysis of Results of Operations and Financial Condition
- --------------------------------------------------------------------------------
(Dollars in thousands)
The following discussion includes comments and data relating to the Company's
financial condition and results of operations for the three fiscal years ended
November 30, 1996. This section should be read in conjunction with the
Consolidated Financial Statements and related notes as they contain important
information for evaluation of the Company's comparative financial condition and
operating results.
Results of Operations:
1996 Compared to 1995
Effective December 1, 1995, in the first quarter of the Company's 1996 fiscal
year, the Company's non-U.S. subsidiaries that previously reported on a fiscal
year ending September 30 changed their reporting period to a Company-wide 52-
week fiscal year ending on the Saturday closest to November 30. This change was
made to reflect the results of operations and financial position of these
subsidiaries on a more timely basis and to increase operating and planning
efficiency. The pro forma 1995 column in the income statement reflects the
impact of this change on 1995 earnings. (See Notes 1 and 15 to the Consolidated
Financial Statements.) All comparisons of 1996 results to 1995 results will be
made to the pro forma 1995 results.
Worldwide sales for 1996 were a record $1,275,716, an increase of $26,904 or 2.2
percent over 1995 sales of $1,248,812. Net earnings for 1996 were $45,430, an
increase of $19,767 or 77.0 percent from 1995 earnings of $25,663. 1995 net
earnings were adversely affected by an accounting change charge of $2,532
relating to the Company's adoption of the Financial Accounting Standards Board
Statement No. 112, "Employers' Accounting for Postemployment Benefits."
Sales changes by geographic area were as follows:
Area Increase/(Decrease)
- -----------------------------------------------
North America $ 40,775 6%
Latin America 385 -
Europe (13,792) (5%)
Asia/Pacific (464) (1%)
----------
Total $ 26,904 2%
In North America, the 6 percent increase in sales is composed of a 5 percentage
point increase due to volume and change in product mix and one percentage point
related to acquisitions and divestitures. North American operating earnings
increased 36.3 percent compared to 1995.
Within North America, the Adhesives, Sealants and Coatings (ASC) Group produced
a 7 percent sales increase over 1995 with 3 percentage points of the increase a
result of expanded sales within core industrial markets and strong sales by the
ASC structural group, especially in the engineered systems and window markets.
Sales to the automotive markets, as a result of labor strikes at General Motors
in 1996, approximated 1995 sales. Sales to the nonwoven market were down
slightly from 1995. ASC Group operating earnings had a substantial increase
over 1995 supported by relatively stable raw material costs and lower operating
expenses resulting from continuing cost containment programs.
The North American Specialty Group, adjusted for the sale of the Monarch
Division in the Third Quarter of 1996, experienced an 8 percent sales increase
and strong operating earnings increase in 1996 compared to 1995. Foster Products
Corporation, TEC Incorporated and Linear Products Incorporated had strong sales
increases and Industrial Coatings Division had a moderate increase in sales.
Sales by the Company's Latin American operations approximated the sales of the
prior year with a 3 percentage point increase resulting from pricing, a 2
percentage point decrease in volume and product mix and a one percentage point
decrease from closing the Acrylicos Division in Costa Rica. The decrease in
volume was primarily the result of economic slowdowns in Ecuador, El Salvador,
Guatemala, Panama and Venezuela. Operating earnings for Latin America decreased
13.6 percent compared to 1995 due to increasing raw material costs, competitive
pressures, and the impact of reduced volumes in 1996.
Exhibit 13 Page 17
SALES TO UNAFFILIATED CUSTOMERS
58% North America
21% Europe
14% Latin America
7% Asia/Pacific
Exhibit 13 Page 17
OPERATING EARNINGS
71% North America
16% Latin America
15% Europe
-2% Asia/Pacific
Exhibit 13 Page 17
TRADE SALES BY CLASS OF PRODUCT
88% Adhesives, Sealants and Coatings
7% Paints
5% Other
17
1996 H.B. FULLER ANNUAL REPORT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Sales in Europe decreased 5 percent in 1996 compared to 1995, with the
strengthening of the U.S. dollar negatively affecting the sales by one
percentage point. The 4 percentage point decrease in local currency sales was
primarily from a decreased volume and change in product mix. In spite of a
continuing weak German economy, which was the primary cause for the volume
declines, stringent cost control measures and stable raw material costs produced
operating earnings which increased 18.2 percent in 1996 compared to the prior
year.
Sales in Asia/Pacific decreased one percent in 1996 from 1995. The strengthening
of the U.S. dollar accounted for a decrease of 5 percentage points. The 4
percentage point increase in local currency sales included 7 percentage points
from increased volume and change in product mix which was partially offset by 3
percentage points of negative pricing. Operating losses in the region
approximated the losses of 1995.
The Company continues to develop its organization and implement strategies to
effectively serve large global customers, recognizing that, along with
significant opportunities for sales growth, such an approach also carries the
usual risks of increasing dependence on fewer large customers. In 1996, no
single customer accounted for over 5 percent of Company-wide sales. Increasing
globalization of corporate functions such as information technology, purchasing,
research and development, manufacturing, engineering and quality programs should
result in improved productivity and customer service.
Consolidated gross margin for the Company, as a percent of sales, increased to
31.7 percent in 1996 from 31.3 percent in 1995. During 1996, the Company overall
experienced relatively stable raw material costs and expects the same in 1997.
Gross margins, as a percent of sales, in North America and Europe improved from
1995 levels.
Consolidated selling, administrative and other expenses for the Company were
down $1,701 or 0.5 percent from 1995, and as a percent of sales, decreased from
26.0 percent in 1995 to 25.4 percent in 1996. This was primarily the result of
employee headcount control, cost control efforts and globalization of the
Company. The year-end 1996 employee headcount was 8 percent less than the 6,400
employees at year-end 1995. Divestiture of the Monarch Division caused 2 percent
of the reduction.
Interest expense was $18,881 in 1996, up $749 or 4.1 percent from prior year.
Total Company borrowing at year-end 1996 was above that at year-end 1995,
primarily as a result of borrowing to fund capital expenditures. Capitalized
interest costs associated with major property and equipment projects decreased
from $2,634 in 1995 to $2,518 in 1996.
Other income/expense, net, changed from $3,161 expense in 1995 to $1,995 expense
in 1996, primarily as a result of decreased currency losses and a gain on the
sale of equity investments in 1996 which was partially offset by an expense of
$1,188 for an environmental clean up reserve. (See Notes 1 and 2 to the
Consolidated Financial Statements.)
Gain on sale of assets increased from $1,764 of $0.08 per share in 1995 to
$16,673 or $0.71 per share in 1996. (See Note 4 to the Consolidated Financial
Statements.)
Income taxes totaled $31,233 in 1996, a 72.6 percent increase from $18,094 in
1995. The effective tax rate increased from 39.2 percent in 1995 to 40.8 percent
in 1996. The increase is primarily due to reduced losses or turnarounds in
earnings of non-U.S. loss operations in 1995 which reduced the 1995 effective
tax rate.
Exhibit 13 Page 18
RETURN ON NET SALES
1996 3.6%
1995 * 2.3%
1994 2.8%
1993 * 2.2%
1992 3.8%
1991 3.2%
1990 2.7%
1989 2.1%
1988 3.1%
1987 4.3%
* Excludes cumulative effect of charge in accounting principles.
1995 is pro forma 1995.
Exhibit 13 Page 18
RETURN ON AVERAGE EQUITY
1996 14.3%
1995 * 9.8%
1994 11.5%
1993 * 8.4%
1992 15.0%
1991 13.3%
1990 11.0%
1989 8.6%
1988 12.4%
1987 17.4%
* Excludes cumulative effect of change in accounting principles.
1995 is pro forma 1995.
18
1996 H.B. FULLER ANNUAL REPORT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Results of Operations:
1995 Compared to 1994
Worldwide sales for 1995 were $1,243,818, an increase of $146,451 or 13.3
percent over 1994 sales of $1,097,367. Net earnings for 1995 were $28,663, a
decrease of $2,200 or 7.1 percent from 1994 earnings of $30,863. 1995 net
earnings were adversely affected by an accounting change charge of $2,532
relating to the Company's adoption of the Financial Accounting Standards Board
Statement No. 112.
Sales changes by geographic area were as follows:
Area Increase
- ----------------------------------------------
North America $ 54,467 9%
Latin America 23,393 15%
Europe 52,455 23%
Asia/Pacific 16,136 23%
---------
Total $146,451 13%
In North America, the 9 percent increase in sales is composed of a 5 percentage
point increase due to pricing and 4 percentage points related to an acquisition
in the United States in 1994. North American operating earnings increased 11.5
percent compared to 1994.
Within North America, the Adhesives, Sealants and Coatings (ASC) Group produced
an 11 percent sales increase over 1994 with 5 percentage points of the increase
a result of expanded sales within core industrial markets and strong sales by
the ASC structural group, especially in the engineered systems and window
markets. Sales to the automotive markets were down significantly from 1994
sales, excluding the impact of the 1994 automotive acquisition which accounted
for the remaining 6 percentage points of ASC sales growth. ASC Group operating
earnings had a strong increase over 1994 supported by price increases to cover
raw material increases and lower operating expenses resulting from continuing
cost containment programs.
The North American Specialty Group, as a whole, experienced a 3 percent sales
increase and slight operating earnings decrease due primarily to low volume
increases in 1995. The Industrial Coatings Division completed construction of a
new plant in early 1995. TEC Incorporated, Industrial Coatings Division and
Monarch Division all had slight increases in sales when compared to 1994 due to
a reduced demand in 1995 in some of the industries they sell to. Foster Products
Corporation had strong sales and Linear Products Incorporated a moderate
increase in sales when compared to 1994.
Sales by the Company's Latin American operations increased 15 percent in 1995
compared to the prior year with the increase equally generated by pricing and by
volume and product mix changes. The sales growth particularly occurred in 1995
in Argentina, Brazil, Bolivia, Chile, Colombia, Ecuador, Peru and Venezuela. The
paint divisions in Costa Rica, El Salvador, Guatemala and Nicaragua also
contributed significant sales growth. The restructuring of the paint divisions
announced in late 1993 was completed in 1995. Paint manufacture in Costa Rica
was consolidated into one plant in late 1994. In 1995, paint manufacture in
Panama was also consolidated into one plant. The paint plant in El Salvador was
closed, with plans to service sales to this country from a plant in Honduras.
Operating earnings for Latin America decreased 6.3 percent compared to 1994 due
to increasing raw material costs and competitive pressure.
Sales in Europe increased 23 percent in 1995 compared to 1994, with the
weakening of the U.S. dollar positively affecting the increase by 13 percentage
points. The 10 percentage point increase in local currency sales included 3
percentage points from increased volume and change in product mix, 2 percentage
points from an acquisition in the United Kingdom (in 1994) and 5 percentage
points from increased pricing. Operating earnings increased 20.1 percent in 1995
compared to the prior year. All of the improvement in operating earnings
occurred in the first three quarters of the year. In the fourth quarter, a
weakening German economy caused volume declines and an unfavorable impact on
operating earnings compared to 1994.
Exhibit 13 Page 19
RETURN ON AVERAGE ASSETS
1996 5.4%
1995 * 3.6%
1994 4.7%
1993 * 3.9%
1992 6.7%
1991 5.5%
1990 4.5%
1989 3.5%
1988 5.5%
1987 8.3%
* Excludes cumulative effect of change in accounting principles.
1995 is pro forma 1995.
Exhibit 13 Page 19
RETURN ON INVESTED CAPITAL (a)
1996 10.3%
1995 * 7.8%
1994 9.4%
1993 * 8.0%
1992 13.3%
1991 11.6%
1990 9.6%
1989 7.7%
1988 10.4%
1987 14.8%
(a) Average invested capital is a two-point average of long-term and short-term
debt, minority interest and stockholders' equity. After tax interest expense
and minority interest are added back to net earnings.
* Excludes cumulative effect of change in accounting principles.
1995 is pro forma 1995.
19
1996 H.B. FULLER ANNUAL REPORT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Sales in Asia/Pacific increased 23 percent in 1995 over 1994, with an
acquisition in New Zealand (in 1994) producing 4 percentage points of the gain.
The weakening of the U.S. dollar accounted for 10 percentage points of the sales
increase. A weak Japanese economy and expenditures to support the ongoing
expansion of operations in this region contributed to a $1,497 decline in
operating earnings compared to last year.
Consolidated gross margin for the Company, as a percent of sales, decreased to
31.6 percent in 1995 from 32.2 percent in 1994. Pricing pressures in a weak
European economy (particularly Germany), initial gross margins on 1994
acquisitions which were lower than the Company's overall gross margins, and a
low volume increase, contributed to the gross margin percentage reduction.
During most of 1995, the Company experienced rapidly increasing material costs.
In North America, the Company was able to offset these material cost increases,
for the most part, with price increases to maintain gross margin, as a percent
of sales. Pricing efforts to offset raw material increases were less successful
in other geographic areas, particularly Europe.
Consolidated selling, administrative and other expenses for the Company were up
12.2 percent from 1994, and as a percent of sales, decreased from 26.2 percent
in 1994 to 25.9 percent in 1995.
Interest expense was $18,132 in 1995, up $6,385 or 54.4 percent from prior year.
Total Company borrowing at year-end 1995 was above that at year-end 1994,
primarily as a result of borrowing to fund 1994 acquisitions and to fund
increased capital expenditures. Capitalized interest costs associated with major
property and equipment projects increased from $1,179 in 1994 to $2,634 in 1995.
Other income/expense, net, decreased from $3,188 expense in 1994 to $2,967
expense in 1995, primarily as a result of decreased currency losses offset by
increased goodwill. (See Notes 1 and 3 to the Consolidated Financial
Statements.)
Income taxes totaled $19,148 in 1995, a 3.2 percent decrease from $19,782 in
1994. The effective tax rate decreased from 38.8 percent in 1994 to 38.0 percent
in 1995. The reduction is primarily due to reduced losses or turnarounds in
earnings of non-U.S. loss operations.
Liquidity and Capital Resources
The Company generated $81,261 in funds from operations in 1996 compared to
$78,813 in 1995 and $50,789 in 1994. The increase in 1996 resulted primarily
from increased depreciation and amortization and an increase in earnings
partially offset by an increase in accounts receivable balances. The Company
also generated funds from the sale of assets. (See Note 4 to the Consolidated
Financial Statements.) Major other uses of cash during 1996 were capital
expenditures, funding of postretirement benefits, purchase of a business and
payment of dividends. Cash was $3,515 at November 30, 1996, compared to $9,061
at November 30, 1995. The $3,515 cash balance is considered adequate to meet
Company needs in light of its unused lines of credit at November 30, 1996.
Working capital was $141,617 at November 30, 1996, compared to $142,056 at
November 30,1995. The current ratio at year-end 1996 was 1.6, equal to the ratio
at year-end 1995. The number of days sales in trade accounts receivable was 52
at November 30, 1996, an increase of one days sales from 51 at November 30,
1995. The average days sales in inventory on hand was 63 in 1996, compared to 68
in 1995.
Exhibit 13 Page 20
RESEARCH AND DEVELOPMENT EXPENSES (In millions)
1996 $25.8
1995 $26.5
1994 $23.6
1993 $21.8
1992 $20.4
1991 $17.2
1990 $16.1
1989 $15.5
1988 $14.4
1987 $12.3
Exhibit 13 Page 20
WORKING CAPITAL (In millions)
1996 $141.6
1995 $142.1
1994 $129.7
1993 $119.9
1992 $130.8
1991 $108.8
1990 $96.1
1989 $95.6
1988 $104.1
1987 $86.6
20
1996 H.B. FULLER ANNUAL REPORT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Management believes that the Company will continue to have access to short-term
and long-term credit markets to fund its working capital requirements, capital
expenditure programs and future acquisitions. The Company's ratio of long-term
debt to total capitalization was 34.0 percent at November 30, 1996, compared to
35.7 percent at November 30, 1995. At year-end 1996, the Company had short-term
and long-term lines of credit of $358,064 of which $160,000 was committed. The
unused portion of these lines of credit was $262,019. Subsequent to the year-
end, the Company increased the lines of credit to $458,064 of which $260,000 is
committed. (See Notes 7 and 8 to the Consolidated Financial Statements.)
Capital expenditures for property, plant and equipment of $89,847 in 1996 were
primarily for completion of construction of a manufacturing plant in the
Philippines, to complete construction of a research and development facility in
Minnesota, for an information systems project, for general improvements in
manufacturing productivity and operating efficiency and for environmental
projects. Environmental capital expenditures, less than 10 percent of total
expenditures, are not a material portion of overall Company expenditures. Future
commitments related to 1996 capital projects are estimated to be approximately
$16,000 in 1997. The Company plans to decrease its capital expenditures in 1997
from 1996 levels.
Over the recent past, approximately 50 percent of H.B. Fuller's sales and
earnings have come from its foreign subsidiaries. In any one quarter, swings in
exchange rates, particularly the deutsche mark and Japanese yen, can have an
impact on Fuller's results. (See Note 1 to Consolidated Financial Statements.)
The Company's operations in Canada and Europe use forward foreign exchange
contracts to hedge foreign currency denominated accounts receivable/payable and
intercompany loans.
Exhibit 13 Page 21
CAPITAL EXPENDITURES GROSS (In millions)
1996 $89.8
1995 $90.7
1994 $65.0
1993 $41.8
1992 $34.5
1991 $30.0
1990 $31.5
1989 $40.9
1988 $40.2
1987 $29.6
Exhibit 13 Page 21
CAPITALIZATION RATIO
1996 34.0%
1995* 35.7%
1994 32.1%
1993* 19.5%
1992 17.3%
1991 24.7%
1990 30.9%
1989 35.1%
1988 35.5%
1987 17.0%
* Excludes cumulative effect of change in accounting principles.
1995 is pro forma 1995.
21
1996 H.B. FULLER ANNUAL REPORT
- --------------------------------------------------------------------------------
Consolidated Statements of Earnings
- --------------------------------------------------------------------------------
H.B. Fuller Company and Subsidiaries
(Dollars in thousands, except per share amounts)
Pro Forma
YEAR ENDED NOVEMBER 30 1996* 1995** 1995 1994
- -------------------------------------------------------------------------------------------------------------------
Net sales $1,275,716 $1,248,812 $1,243,818 $1,097,367
Cost of sales 871,501 857,941 851,291 743,843
- -------------------------------------------------------------------------------------------------------------------
Gross profit 404,215 390,871 392,527 353,524
Selling, administrative and other expenses 323,461 325,162 322,762 287,571
- -------------------------------------------------------------------------------------------------------------------
Operating earnings 80,754 65,709 69,765 65,953
Interest expense (18,881) (18,132) (18,132) (11,747)
Gain from sale of assets 16,673 1,764 1,764 -
Other income (expense), net (1,995) (3,161) (2,967) (3,188)
- -------------------------------------------------------------------------------------------------------------------
Earnings before income taxes, minority
interests and accounting change 76,551 46,180 50,430 51,018
Income taxes (31,233) (18,094) (19,148) (19,782)
Net earnings of consolidated subsidiaries
applicable to minority interests 112 109 (87) (373)
- -------------------------------------------------------------------------------------------------------------------
Earnings before cumulative effect
of accounting change 45,430 28,195 31,195 30,863
Cumulative effect of accounting change - (2,532) (2,532) -
- -------------------------------------------------------------------------------------------------------------------
Net earnings $45,430 $25,663 $28,663 $30,863
- -------------------------------------------------------------------------------------------------------------------
Earnings (loss) per common share:
Earnings before accounting change $3.22 $2.01 $2.22 $2.20
Accounting change - (0.18) (0.18) -
- -------------------------------------------------------------------------------------------------------------------
Net earnings $3.22 $1.83 $2.04 $2.20
- -------------------------------------------------------------------------------------------------------------------
Average number of common and common
equivalent shares outstanding 14,114 14,059 14,059 14,036
- -------------------------------------------------------------------------------------------------------------------
* 52-week year
** See Consolidated Financial Statements Note 1, Change in Year-end.
See accompanying Notes to Consolidated Financial Statements.
22
1996 H.B. FULLER ANNUAL REPORT
- --------------------------------------------------------------------------------
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
NOVEMBER 30 1996 1995 H.B. Fuller Company and
- ----------------------------------------------------------------------------------------------------- Subsidiaries
Assets (Dollars in thousands)
Current Assets:
Cash $ 3,515 $ 9,061
Trade receivables, less allowance for doubtful accounts
of $7,043 in 1996 and $6,256 in 1995 192,743 178,565
Inventories 151,212 159,024
Other current assets 40,728 40,991
- -----------------------------------------------------------------------------------------------------
Total current assets 388,198 387,641
Net property, plant and equipment 391,201 355,123
Deposits and miscellaneous assets 38,457 31,094
Other intangibles, less accumulated amortization
of $17,613 in 1996 and $16,956 in 1995 15,383 16,761
Excess of cost over net assets acquired, less accumulated
amortization of $13,179 in 1996 and $10,095 in 1995 36,036 38,310
- -----------------------------------------------------------------------------------------------------
Total assets $869,275 $828,929
- -----------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable $ 47,920 $ 53,749
Current installments of long-term debt 11,141 5,722
Accounts payable - trade 118,181 117,446
Accrued payroll and employee benefits 32,697 28,276
Other accrued expenses 28,513 31,228
Income taxes 8,129 9,164
- ------------------------------------------------------------------------------------------------------
Total current liabilities 246,581 245,585
Long-term debt, excluding current installments 172,779 166,459
Accrued pensions 89,735 85,689
Other liabilities 22,685 26,111
Minority interests in consolidated subsidiaries 2,755 5,671
Stockholders' Equity:
Series A preferred stock 306 306
Common stock 14,066 14,007
Additional paid-in capital 22,493 20,771
Retained earnings 292,828 256,489
Foreign currency translation adjustment 9,097 11,319
Unearned compensation - restricted stock (4,050) (3,478)
- ------------------------------------------------------------------------------------------------------
Total stockholders' equity 334,740 299,414
- ------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $869,275 $828,929
- ------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
23
1996 H.B. FULLER ANNUAL REPORT
- --------------------------------------------------------------------------------
Consolidated Statements of Stockholders' Equity
- --------------------------------------------------------------------------------
H.B. Fuller Company and Subsidiaries
(Dollars in thousands)
YEARS ENDED NOVEMBER 30, 1996, 1995 AND 1994
Unearned
Foreign Compen-
Additional Currency sation
Preferred Common Paid-in Retained Translation Restricted
Stock Stock Capital Earnings Adjustment Stock
- -----------------------------------------------------------------------------------------------------------------------------------
Balances at November 30, 1993 $306 $13,898 $16,908 $215,148 $ 4,357 $(1,221)
Stock compensation plans, net - 76 2,050 - - (1,226)
Retirement of common stock - (39) (51) (1,418) - -
Net earnings - 1994 - - - 30,863 - -
Dividends paid - - - (8,021) - -
Change in foreign currency translation - - - - 3,175 -
- -----------------------------------------------------------------------------------------------------------------------------------
Balances at November 30, 1994 306 13,935 18,907 236,572 7,532 (2,447)
Stock compensation plans, net - 72 1,864 - - (1,031)
Net earnings - 1995 - - - 28,663 - -
Dividends paid - - - (8,746) - -
Change in foreign currency translation - - - - 3,787 -
- -----------------------------------------------------------------------------------------------------------------------------------
Balances at November 30, 1995 306 14,007 20,771 256,489 11,319 (3,478)
Stock compensation plans, net - 59 1,722 - - (572)
Net earnings - change in non-U.S. year-end* - - - 118 - -
Net earnings - 1996 - - - 45,430 - -
Dividends paid - - - (9,209) - -
Changes in foreign currency translation:
Translation gain adjustment included in net
earnings due to substantial liquidation of
non-U.S. assets - - - - 208 -
Other - - - - (2,430) -
- -----------------------------------------------------------------------------------------------------------------------------------
Balances at November 30, 1996 $306 $14,066 $22,493 $292,828 $ 9,097 $(4,050)
- -----------------------------------------------------------------------------------------------------------------------------------
* See Consolidated Financial Statements Note 1, Change in Year-end.
See accompanying Notes to Consolidated Financial Statements.
24 1996 H.B. FULLER ANNUAL REPORT
- --------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30 1996* 1995 1994 H.B. Fuller Company and
- ----------------------------------------------------------------------------------------------------- Subsidiaries
Cash flows from operating activities: (Dollars in thousands)
Net earnings $ 45,430 $ 28,663 $ 30,863
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 46,992 41,203 33,379
Pension costs 13,132 10,817 10,453
Gain on sale of assets (10,041) (1,076) -
Other items 4,324 7,135 338
Change in current assets and liabilities
(net of effect of acquisitions/divestitures):
Accounts receivable (28,781) (6,617) (18,206)
Inventory 7,727 (2,344) (15,172)
Other current assets (929) (1,672) (1,985)
Accounts payable 5,138 8,646 7,010
Accrued expense 3,466 (3,960) 4,564
Income taxes payable (5,197) (1,982) (455)
- -----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 81,261 78,813 50,789
Cash flows from investing activities:
Purchased property, plant and equipment (89,847) (90,664) (65,018)
Proceeds from sale of assets 29,194 2,103 -
Purchased businesses, net of cash acquired (8,120) (2,664) (76,327)
- -----------------------------------------------------------------------------------------------------
Net cash used in investing activities (68,773) (91,225) (141,345)
Cash flows from financing activities:
New long-term debt 62,643 79,954 74,976
Long-term debt paid (58,504) (46,421) (4,204)
Notes payable (5,237) (584) 23,410
Dividends paid (9,209) (8,746) (8,021)
Fund postretirement benefits (5,899) (6,682) -
Other (1,666) (6,150) (3,680)
- -----------------------------------------------------------------------------------------------------
Net cash (used) provided by financing activities (17,872) 11,371 82,481
Effect of exchange rate changes (162) 272 528
- -----------------------------------------------------------------------------------------------------
Net change in cash (5,546) (769) (7,547)
Cash at beginning of year 9,061 9,830 17,377
- -----------------------------------------------------------------------------------------------------
Cash at end of year $ 3,515 $ 9,061 $ 9,830
- -----------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid for interest $ 21,901 $ 18,506 $ 12,628
Cash paid for income taxes $ 36,599 $ 30,083 $ 26,291
Noncash investing and financing activities:
Assets acquired by incurring notes payable $ 6,831 $ 750 $ 8,008
* Includes the fifty-two weeks ended November 30, 1996 for all entities and
the two month stub period for non-U.S. entities. See Consolidated Financial
Statements Note 1, Change in Year-end.
See accompanying Notes to Consolidated Financial Statements.
1996 H.B. FULLER ANNUAL REPORT
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
H.B. Fuller Company and Subsidiaries
(In thousands, except share amounts)
1/ Summary of Significant Accounting Policies
The following information is presented to explain the accounting policies used
to prepare H.B. Fuller Company's Consolidated Financial Statements.
Principles of Consolidation: The Consolidated Financial Statements include the
accounts of the Company and all subsidiaries. Beginning with 1996, the Company's
fiscal year ends on the Saturday closest to November 30th. All significant
intercompany items have been eliminated in consolidation.
Change in Year-end: Effective December 1, 1995, in the first quarter of the
Company's 1996 fiscal year, the Company's non-U.S. subsidiaries that previously
reported on a fiscal year ending September 30, changed their reporting period to
a Company wide 52-week fiscal year ending on the Saturday closest to November
30. This change was made to reflect the results of operations and financial
position of these subsidiaries on a more timely basis and to increase operating
and planning efficiency. The results of operations of these subsidiaries for the
period October 1 through November 30, 1995, income of $118 or $0.01 per share,
have been reflected as an adjustment to retained earnings. Sales for the period
were $104,811 and cost of sales was $73,341. The Company also changed to
thirteen-week quarters.
Use of Estimates: Generally accepted accounting principles require management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Foreign Currency Translation: The financial statements of non-U.S. operations
are translated into U.S. dollars for inclusion in the Consolidated Financial
Statements.
Translation gains or losses resulting from the process of translating foreign
currency financial statements are reported as a separate component of
stockholders' equity for businesses not considered to be operating in highly
inflationary economies. Translation effect of subsidiaries operating in highly
inflationary economies and subsidiaries using the dollar as the functional
currency are included in determining net earnings.
Transaction losses included in determining earnings before income taxes and
minority interests were as follows:
1996 1995 1994
- --------------------------------------------------------------------------------
Currency translation gains, net $ 2,182 $ 638 $ 4,450
Flow-through effect of inventory valuation, net (246) (1,233) (3,729)
- --------------------------------------------------------------------------------
1,936 (595) 721
Currency exchange losses, net (3,090) (2,199) (7,629)
- --------------------------------------------------------------------------------
Total $(1,154) $(2,794) $(6,908)
- --------------------------------------------------------------------------------
The net loss from the flow-through effects of inventory valuation results from
differences between translation of cost of sales at historic rates versus
average exchange rates. H.B. Fuller Company's Latin American operations,
whenever possible, raise local selling prices on their products to offset this
loss. The result of these efforts to keep pace with inflation appears in the
sales revenue of each operation.
Cash: The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
Inventories: Inventories in the United States are recorded at cost (not in
excess of market value) as determined primarily by the last-in, first-out method
(LIFO). Inventories of non-U.S. operations are valued at the lower of cost
(mainly average cost) or market. Inventories at November 30 are summarized as
follows:
1996 1995
- --------------------------------------------------------------------------------
Raw materials $ 67,562 $ 78,180
Finished goods 94,642 92,629
LIFO reserve (10,992) (11,785)
- --------------------------------------------------------------------------------
Total $ 151,212 $ 159,024
- --------------------------------------------------------------------------------
Property, Plant and Equipment: The major classes are:
1996 1995
- --------------------------------------------------------------------------------
Land $ 51,597 $ 52,161
Buildings and improvements 178,704 171,439
Machinery and equipment 338,727 318,437
Construction in progress 95,164 66,224
- --------------------------------------------------------------------------------
Total, at cost 664,192 608,261
Accumulated depreciation (272,991) (253,138)
- --------------------------------------------------------------------------------
Net property, plant and equipment $ 391,201 $ 355,123
- --------------------------------------------------------------------------------
Depreciation is generally computed on a straight-line basis over the useful
lives of the assets including assets acquired by capital leases. Accelerated
depreciation is used for income tax purposes where permitted.
1996 H.B. FULLER ANNUAL REPORT
26
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Amortization: Other intangible assets, primarily technology, are amortized over
the estimated lives of 3 to 15 years. The excess of cost over net assets of
businesses acquired is charged against earnings over periods of 15 to 25 years.
The recoverability of unamortized intangible assets is assessed on an ongoing
basis by comparing anticipated undiscounted future cash flows from operations to
net book value.
Capitalized Interest Costs: Interest costs associated with major construction of
property and equipment are capitalized. Interest expense for the years ended
November 30, includes the following components:
1996 1995 1994
- --------------------------------------------------------------------------------
Interest costs incurred $ 21,399 $ 20,766 $ 12,926
Capitalized interest costs (2,518) (2,634) (1,179)
- --------------------------------------------------------------------------------
Interest expense $ 18,881 $ 18,132 $ 11,747
- --------------------------------------------------------------------------------
Non-U.S. Operations: Net earnings and equity of non-U.S. operations for the
years ended November 30 are:
Pro Forma
1996 1995 1995 1994
- --------------------------------------------------------------------------------
Net earnings $ 1,984 $ 613 $ 3,613 $ 7,161
Equity $147,439 $137,174 $137,056 $128,312
- --------------------------------------------------------------------------------
Financial Instruments: Financial instruments are used to hedge financial risk
caused by fluctuating currency and interest rates. The differential to be paid
or received is accrued as rates change and is recognized over the life of the
agreements.
The Company enters into foreign exchange contracts as a hedge against firm
commitment foreign currency intercompany receivables/payables/debt. Market value
gains and losses are recognized and the resulting credit or debit offsets
foreign exchange gains or losses on those receivables/payables/debt.
The carrying amounts and estimated fair values of the Company's significant
other financial instruments at November 30 are as follows:
Carrying Fair
Amount Value
- --------------------------------------------------------------------------------
1996:
Cash and short-term investments $ 3,515 $ 3,515
Notes payable $ 47,920 $ 47,920
Long-term debt $183,920 $194,412
1995:
Cash and short-term investments $ 9,061 $ 9,061
Notes payable $ 53,749 $ 53,749
Long-term debt $172,181 $184,944
Fair values of short-term financial instruments approximate their carrying
values due to their short maturity.
The fair value of long-term debt is based on quoted market prices for the same
or similar issues or on the current rates offered to the Company for debt of
similar maturities. The estimates presented above on long-term financial
instruments are not necessarily indicative of the amounts that would be realized
in a current market exchange.
Environmental Costs: The Company has a policy of expensing environmental costs
relating to "cleaning up" of a problem caused during the time the Company owned
the asset. If the problem was caused by a previous or other owner, the amount
may be capitalized if the expenditure significantly increases the value of the
asset. If there are doubts as to the impact on the value of the asset, the
amount is expensed. For further information on environmental expense, see Item 3
of the 1996 10-K.
Income Taxes: The Company uses the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred income taxes are
recognized for the tax consequences of temporary differences by applying enacted
statutory tax rates applicable to future years to differences between the
financial statement carrying amounts and the tax basis of existing assets and
liabilities. The effect on deferred taxes of a change in tax rates is recognized
in income in the period that includes the enactment date.
Other Postretirement Benefits: The Company provides medical benefits for
eligible retired employees, employee's beneficiaries and covered dependents.
These costs are accrued during the years the employee renders the necessary
service.
Postemployment Benefits: The Company provides postemployment benefits to
inactive and former employees, employee's beneficiaries and covered dependents
after employment, but prior to retirement. The cost of providing these benefits
was
1996 H.B. FULLER ANNUAL REPORT
27
================================================================================
previously recognized as a charge to income in the year the benefits were
provided. In November of 1992, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS)No. 112 requiring
accrual accounting for these costs during the years the employee renders the
necessary service. The Company adopted this Standard in Fiscal Year 1995, the
required effective date. The cumulative effect of adopting this Standard as of
December 1, 1994 resulted in a charge of $2,532 ($0.18 per share) to 1995
earnings, net of $793 of income taxes.
Stock-Based Compensation: In October 1995, the FASB issued SFAS No. 123,
"Accounting for Stock-Based Compensation." As permitted by this Standard, the
Company will continue to measure compensation cost using the intrinsic value-
based method of accounting prescribed by the Accounting Principles Board Opinion
No. 25.
Earnings Per Common Share: Earnings per common share are determined by dividing
earnings by the weighted-average number of common shares, including common share
equivalents, outstanding during each year. Earnings used in the calculation are
reduced by the dividends paid to the preferred stockholder.
Purchase of Company Common Stock: The Minnesota Business Corporation Act and the
Company's Articles of Incorporation require that repurchased stock is included
in the authorized shares of the Company, but is not included in shares
outstanding. The excess of cost over par value is charged proportionally to the
Additional Paid-In Capital and to the Retained Earnings. During 1996 the Board
of Directors authorized a stock repurchase program under which up to 300,000
shares of H.B. Fuller Company common stock may be repurchased by the Company.
The shares of common stock repurchased will be available for compensation plans
of the Company. The program may be discontinued at any time. No shares were
repurchased during fiscal 1996.
Reclassification: Certain prior years' amounts have been reclassified to conform
to the 1996 presentation.
2/ Other Income (Expense), Net
Other income (expense), net in 1996 included a $1,496 gain on the sale of equity
investments. All years include foreign currency losses. (See Note 1 to the
Consolidated Financial Statements.)
3/ Acquisitions
In 1996 the Company purchased certain assets of a business for $8,120. In 1995
the Company purchased certain assets of a business for $2,664. In 1994 the
Company purchased three businesses and certain assets of another business for
$76,327 in cash. Assets acquired included other intangibles of $4,100 and $5,141
in 1996 and 1994, respectively and excess of cost over net assets acquired of
$165 and $33,598 in 1996 and 1994, respectively. The acquisitions were accounted
for as purchases and the accompanying Consolidated Financial Statements include
the results of these businesses since the purchase date. The historical results
of operations on a pro forma basis are not presented as the effects of the
acquisitions were not material.
4/ Sale of Assets
The Company sold assets and two product lines, including epoxy tooling slabs and
Monarch's sanitation chemicals for $29,194 in 1996 and assets and a product line
in 1995 for $2,103 resulting in before tax gains of $16,673 and $1,764,
respectively.
5/ Research and Development Expenses
Research and development expenses charged against earnings were $25,823, $26,541
and $23,624 in 1996, 1995 and 1994, respectively.
6/ Income Taxes
Earnings before income taxes, minority interests and cumulative effect of
accounting changes for the years ended November 30 are as follows:
Pro Forma
1996 1995 1995 1994
- --------------------------------------------------------------------------------
United States (U.S.) $66,403 $40,468 $40,468 $36,525
Outside U.S. 10,148 5,712 9,962 14,493
- --------------------------------------------------------------------------------
Total $76,551 $46,180 $50,430 $51,018
================================================================================
The components of the provision for income taxes excluding cumulative effect of
accounting changes are:
Pro Forma
1996 1995 1995 1994
- --------------------------------------------------------------------------------
Current:
U.S. federal $23,225 $13,020 $13,020 $13,379
State 3,555 1,750 1,750 1,842
Outside U.S. 6,487 9,791 10,845 7,024
- --------------------------------------------------------------------------------
33,267 24,561 25,615 22,245
- --------------------------------------------------------------------------------
Deferred:
U.S. federal (2,453) 724 724 (1,746)
State (82) 83 83 (199)
Outside U.S. 501 (7,274) (7,274) (518)
- --------------------------------------------------------------------------------
(2,034) (6,467) (6,467) (2,463)
- --------------------------------------------------------------------------------
Total $31,233 $18,094 $19,148 $19,782
================================================================================
1996 H.B. FULLER ANNUAL REPORT
28
================================================================================
The difference between the statutory U.S. federal income tax rate and the
Company's effective income tax rate is explained below:
Pro Forma
1996 1995 1995 1994
- --------------------------------------------------------------------------------
Statutory U.S. federal income tax rate 35.0% 35.0% 35.0% 35.0%
State income taxes 3.0 2.3 2.3 2.0
U.S. federal income taxes on dividends
received from non-U.S. subsidiaries,
before foreign tax credits 3.6 7.3 7.3 1.0
Foreign tax credits (3.3) (4.8) (4.8) (0.7)
Non-U.S. taxes 3.1 (1.1) (2.3) 1.5
Other (0.6) 0.5 0.5 -
- --------------------------------------------------------------------------------
Total 40.8% 39.2% 38.0% 38.8%
================================================================================
Deferred income tax balances at November 30 were:
1996 1995
- --------------------------------------------------------------------------------
Deferred tax assets $63,790 $57,378
Valuation allowance (6,258) (5,229)
- --------------------------------------------------------------------------------
Deferred tax assets net of valuation allowance 57,532 52,149
Deferred tax liabilities (43,778) (40,495)
- --------------------------------------------------------------------------------
Net deferred tax assets $13,754 $11,654
================================================================================
Deferred income tax balances at November 30 were related to:
1996 1995
- --------------------------------------------------------------------------------
Depreciation $(23,215) $(23,825)
Pension 16,053 14,845
Deferred compensation 5,640 4,786
Postretirement medical benefits 6,546 4,588
Tax loss carryforwards 12,871 12,267
Inventory 1,096 1,022
Provisions for expenses (1,754) 1,752
Difference between assigned value and tax
basis of acquisition (1,564) (1,656)
Currency gains/losses 1,581 1,510
Other 2,758 1,594
- --------------------------------------------------------------------------------
20,012 16,883
Valuation allowance (6,258) (5,229)
- --------------------------------------------------------------------------------
Net deferred tax assets $ 13,754 $ 11,654
================================================================================
U.S. income taxes have not been provided on approximately $69,630 of
undistributed earnings of non-U.S. subsidiaries. The Company plans to reinvest
these undistributed earnings. If any portion were to be distributed, the related
U.S. tax liability would be reduced by foreign income taxes paid on those
earnings plus any available foreign tax credit carryforwards. Determination of
the unrecognized deferred tax liability related to these undistributed earnings
is not practicable.
While non-U.S. operations of the Company have been profitable overall,
cumulative losses of $31,195 are carried as net operating losses in 24 different
countries. These losses can be carried forward to offset income tax liability on
future income in those countries. Cumulative losses of $14,801 can be carried
forward indefinitely, while the remaining $16,394 must be used during the 1997-
2003 period.
7/ Notes Payable
The primary component of notes payable relates to the Company's short-term lines
of credit with banks. This component totals $36,666. The amount of unused
available borrowings under these lines at November 30, 1996 was $128,808.
The weighted average interest rate on short-term borrowings was 7.7% and 9.1% in
1996 and 1995, respectively.
Subsequent to year-end, the Company established revolving credit agreements with
a group of major banks which provide committed short-term lines of credit of
$102,000 through December 18, 1997. At the Company's option, interest is payable
at the London Interbank Offered Rate plus 0.195%-0.4%, adjusted quarterly based
on the Company's capitalization ratio, or a bid rate. A facility fee of 0.055%-
0.15% is payable quarterly.
1996 H.B. FULLER ANNUAL REPORT
29
================================================================================
8/ Long-Term Debt
Long-term debt, including obligations under capital leases, is summarized as
follows:
1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Revolving credit agreements (a) (b) $ 46,518 $ 33,217
10.1% Senior Note, due 12/19/95 -- 10,000
10.32% Senior Note, due 12/19/98 25,000 25,000
8.49% Senior Note Series A, due 12/19/01 26,000 26,000
8.54% Senior Note Series B, due 3/31/02 5,000 5,000
8.58% Senior Note Series C, due 2/3/05 22,000 22,000
8.73% Senior Note Series D, due 4/28/10 12,000 12,000
Industrial and commercial development bonds:
TENR plus 1/4 of 1%, secured by a letter of credit, due 12/1/04 4,100 4,100
7.75%, due 11/1/16 3,000 3,000
6.1%-7.76% other U.S. dollar notes, due at various dates through 2/05 10,359 5,056
8.15%-10.5% New Zealand dollar notes, due 4/99 8,046 8,106
6.8% Australian dollar notes, due 1/20/98 5,677 747
10.81% Italian lira notes, due 11/00 3,698 3,078
33%-38% lempira notes, payments due through 1999 1,125 2,251
24%-32% colones notes, payments due through 2001 950 2,208
22% Dominican peso note, payments due through 1997 587 594
1.65%-4.2% yen notes, due at various dates through 2005 5,351 5,404
5%-28.5% other notes less than $500 each, due at various dates through 2002 1,721 913
Obligations under capital leases 2,788 3,507
- ------------------------------------------------------------------------------------------------------------------------------------
183,920 172,181
Current installments (11,141) (5,722)
- ------------------------------------------------------------------------------------------------------------------------------------
Total $172,779 $166,459
====================================================================================================================================
(a) The Company has revolving credit agreements with a group of major banks
which provide committed lines of credit of $160,000 through August 31, 2002.
At the Company's option, interest is payable at floating rates based on the
prime interest rate, the London Interbank Offered Rate plus 1/2 of 1%,
certificate of deposit rates plus 1/2 of 1% and a negotiated transaction
rate. A commitment fee is payable on the unused portion at 1/4% per annum on
the first $80,000 and at 1/8% per annum on the second $80,000.
(b) Subsequent to year-end, the Company established revolving credit agreements
with a group of major banks which provide committed long-term lines of
credit of $158,000 through December 20, 2003. At the Company's option,
interest is payable at the London Interbank Offered Rate plus 0.175%-0.375%,
adjusted quarterly based on the Company's capitalization ratio, or a bid
rate. A facility fee of 0.075%-0.175% is payable quarterly.
1996 H.B. FULLER ANNUAL REPORT
30
================================================================================
The most restrictive debt agreements place limitations on secured and unsecured
borrowings, operating leases, and contain minimum interest coverage, current
assets and net worth requirements. In addition, the Company cannot be a member
of any "consolidated group" for income tax purposes other than with its
subsidiaries. At November 30, 1996 the Company exceeded minimum requirements for
all financial covenants.
Aggregate maturities of long-term debt, including obligations under capital
leases, amount to $11,141, $11,095, $35,340, $7,707 and $2,239 during the five
fiscal years 1997 through 2001.
9/ Lease Commitments
Assets under capital leases are summarized as follows:
1996 1995
- --------------------------------------------------------------------------------
Land $ 5,584 $ 6,348
Buildings and improvements 10,006 10,463
Machinery and equipment 35 262
- --------------------------------------------------------------------------------
15,625 17,073
Accumulated amortization (4,068) (4,225)
- --------------------------------------------------------------------------------
Net assets under capital leases $11,557 $12,848
================================================================================
The following are the minimum lease payments that will have to be made in each
of the years indicated based on capital and operating leases in effect as of
November 30, 1996:
Capital Operating
- --------------------------------------------------------------------------------
Fiscal year:
1997 $576 $8,460
1998 569 6,848
1999 554 5,387
2000 538 3,584
2001 476 3,101
Later years 565 3,980
- --------------------------------------------------------------------------------
Total minimum
lease payments $3,278 $31,360
=======
Amount representing interest (490)
- ---------------------------------------------------------------------
Present value of minimum
lease payments $2,788
=====================================================================
Rental expense for all operating leases charged against earnings amounted to
$13,385, $14,051 and $11,853 in 1996, 1995 and 1994, respectively.
10/Contingencies
Legal: The Company and its subsidiaries are parties to various lawsuits and
governmental proceedings. For further information on certain legal proceedings,
see Item 3 of the 1996 10-K. In particular, the Company is currently deemed a
potentially responsible party (PRP) or defendant, generally in conjunction with
numerous other parties, in a number of government enforcement and private
actions associated with hazardous waste sites. As a PRP or defendant, the
Company may be required to pay a share of the costs of investigation and cleanup
of these sites. In some cases the Company may have rights of indemnification
from other parties. The Company's liability in the future for such claims is
difficult to predict because of the uncertainty as to the cost of the
investigation and cleanup of the sites, the Company's responsibility for such
hazardous waste and the number or financial condition of other PRPs or
defendants. As is the case with other types of litigation and proceedings to
which the Company is a party, based upon currently available information, it is
the Company's opinion that none of these matters will result in material
liability to the Company.
Off Balance Sheet Financing: At November 30, 1996, the aggregate contract value
of instruments to sell 4,823 pound sterling, 6,988 deutche marks, and $4,569 to
buy foreign currency (primarily 29,942 Dutch guilders) was $17,683. The
contracts mature between December 20, 1996 and November 20, 2000.
11/Retirement Plans
The Company has a noncontributory defined benefit plan covering all U.S.
employees. Benefits for the plan are based primarily on years of service and
employees' average compensation during their final five consecutive years of
service. The Company's funding policy is consistent with the funding
requirements of federal law and regulations. Plan assets consist principally of
listed equity securities and an Immediate Participation Guarantee contract with
an insurance company.
Certain non-U.S. consolidated subsidiaries provide pension benefits for their
employees consistent with local practices and regulations. Most of these plans
are noncontributory, unfunded, defined benefit plans covering substantially all
employees upon completion of a specified period of service. Benefits for the
plans are generally based on years of service and annual compensation. The plans
are mostly unfunded book reserved plans. Related pension obligations are
provided through accrued pension costs.
1996 H.B. FULLER ANNUAL REPORT
31
================================================================================
Pension cost consists of the following:
U.S. Plan Non-U.S. Plans
---------------------------------------- --------------------------------------
1996 1995 1994 1996 1995 1994
- ------------------------------------------------------------------------------------ --------------------------------------
Service cost-benefits earned during
the period $5,440 $4,190 $4,755 $2,586 $2,052 $1,961
Interest cost on projected benefit
obligation 10,026 9,287 8,413 5,087 3,778 3,306
Return on plan assets - actual (11,607) (33,954) (1,055) (690) (406) (317)
- deferred 1,096 24,668 (7,551) 373 93 29
Amortization of transition (asset)
liability (27) (27) (27) 107 94 80
All other cost components 772 409 768 104 85 104
- ------------------------------------------------------------------------------------ --------------------------------------
Net pension cost $5,700 $4,573 $5,303 $7,567 $5,696 $5,163
==================================================================================== ======================================
The funded status of the plans and the amount recognized on the balance sheet at
November 30 are:
Non-U.S. Plans
----------------------------------------------------
U.S. Plan Assets Exceed ABO ABO Exceeds Assets
--------------------------- --------------------------- -----------------------
1996 1995 1996 1995 1996 1995
- ----------------------------------------------------------------------- --------------------------- -----------------------
Actuarial present value of benefit
obligations:
- vested benefits $(95,720) $(99,677) $(3,086) $(3,152) $(44,133) $(42,573)
- non-vested benefits (3,830) (4,403) (15) (15) (705) (567)
- ----------------------------------------------------------------------- --------------------------- -----------------------
Accumulated benefit obligation (ABO) (99,550) (104,080) (3,101) (3,167) (44,838) (43,140)
Effect of projected future
compensation increases (35,137) (36,267) (402) (422) (8,516) (8,859)
- ----------------------------------------------------------------------- --------------------------- -----------------------
Projected benefit obligation (134,687) (140,347) (3,503) (3,589) (53,354) (51,999)
Plan assets at fair value 141,474 132,977 4,795 4,422 - -
- ----------------------------------------------------------------------- --------------------------- -----------------------
Plan assets in excess of (less than)
projected benefit obligation 6,787 (7,370) 1,292 833 (53,354) (51,999)
Unrecognized prior service cost 6,315 6,770 85 128 397 307
Unrecognized transition (asset)
liability (206) (233) (108) (140) 1,527 1,847
Unrecognized net (gain) loss (44,744) (28,269) (105) 320 (625) (2,517)
- ----------------------------------------------------------------------- --------------------------- -----------------------
(Accrued) prepaid pension costs $ (31,848) $ (29,102) $ 1,164 $ 1,141 $(52,055) $(52,362)
======================================================================= =========================== =======================
Assumptions used:
U.S. Plan Non-U.S. Plans
---------------------------------------- ------------------------------------
1996 1995 1994 1996 1995 1994
- --------------------------------------------------------------------------------------- ------------------------------------
Weighted average discount rate 8.0%(1) 7.25%(1) 8.75%(1) 7.0-8.0% 7.0-8.0% 7.0-8.0%
7.25%(2) 8.75%(2) 7.5%(2)
Rate of increase in compensation levels 4.5%(1) 4.5%(1) 5.5%(1) 3.0-5.0% 5.0-6.0% 5.0-6.0%
4.5%(2) 5.5%(2) 5.0%(2)
Expected long-term rate of return on plan
assets 10.0% 10.0% 10.0% 8.0% 8.0% 8.0%
(1) August 31, 1996 and November 30, 1995 and 1994 assumptions used for funded
status of U.S. plan.
(2) December 1, 1995, 1994 and 1993 assumptions used for U.S. plan pension cost.
The impact of a one percent increase in the discount rate is an approximate
$1,400 decrease in annual pension cost.
The charge to earnings relating to all plans was $15,934, $12,627, and $11,983
in 1996, 1995 and 1994, respectively.
1996 H.B. FULLER ANNUAL REPORT
32
================================================================================
12/Other Postretirement Benefits
The Company and certain of its consolidated subsidiaries provides health care
and life insurance benefits for eligible retired employees and their eligible
dependents. These benefits are provided through various insurance companies and
health care providers.
The obligation for these benefits was determined by application of the terms of
health and life insurance plans, together with relevant actuarial assumptions
and health-care cost trend rates, as of December 1, 1995, projected at annual
rates ranging from 9.1 percent in 1996 graded down to 4.9 percent for the year
2001 and after. The benefit obligation discount rate at that time was 7.25
percent.
The effect of a one percent annual increase in the assumed health-care cost
trend rates would increase the accumulated postretirement benefits obligation at
August 31, 1996, by $3,767 and the aggregate of service and interest cost
components of net periodic postretirement benefit costs by $915.
The funded status of the plan was determined based on actuarial assumptions and
health-care trend rates, as of August 31, 1996, projected at annual rates
ranging from 8.3 percent in 1996 graded down to 4.9 percent for the year 2001
and after. The benefit obligation discount rate at that time was 8.0 percent.
The Company funds postretirement benefits through a Voluntary Employees'
Beneficiaries Association Trust which was established in 1991. The funds are
invested primarily in common stocks with an expected long-term rate of return of
8.5 percent.
The funded status of the plan at November 30, is as follows:
1996 1995
- --------------------------------------------------------------------------------
Actuarial present value of postretirement
benefit obligation:
Current $(10,927) $(13,022)
Active employees fully eligible for benefits (9,146) (10,236)
Other active employees (7,837) (15,295)
- --------------------------------------------------------------------------------
Accumulated postretirement benefit
obligation (27,910) (38,553)
Fair value of plan assets 29,886 22,991
Unrecognized prior service cost (5,738) -
Unrecognized net (gain) loss 54 7,633
- --------------------------------------------------------------------------------
(Accrued) unfunded postretirement
benefit obligation $(3,708) $(7,929)
- --------------------------------------------------------------------------------
Benefit obligation discount rate 8.0% 7.25%
The components of net periodic postretirement benefit cost are as follows:
1996 1995 1994
- ----------------------------------------------------------------------------------------
Service cost-benefits earned during the period $2,128 $1,820 $1,696
Interest cost on projected benefit obligation 2,437 2,623 1,951
Return on assets - actual (1,643) (5,265) (71)
- deferred (421) 3,889 (942)
All other components (425) 182 17
- ----------------------------------------------------------------------------------------
Net periodic postretirement benefit cost $2,076 $3,249 $2,651
- ----------------------------------------------------------------------------------------
13/Stockholders' Equity
Preferred Stock:The Board of Directors is authorized to issue up to 10,000,000
additional shares of preferred stock that may be issued in one or more series
and with such stated value and terms as may be determined by the Board of
Directors.
Series A Preferred Stock: There were 45,900 Series A preferred shares with a par
value of $6.67 authorized and issued at November 30, 1996 and 1995. The holder
of Series A preferred stock is entitled to cumulative dividends at the rate of
$0.33 per share per annum. Common stock dividends may not be paid unless
provision has been made for payment of Series A preferred dividends. The Series
A preferred stock has multiple voting rights entitling the Series A preferred
stockholder to 80 votes per share. The terms of the Series A preferred stock
include the right of the Company to purchase the shares at specified times and
the right of the Company to redeem all shares at par value if authorized by the
shareholders.
Series B Preferred Stock: In connection with the adoption of the shareholder
rights plan, (see footnote below) the Board of Directors authorized a new series
of preferred stock ("Series B preferred shares") that would be exchanged for the
Company's existing Series A preferred shares, if and at such time as the rights
issued pursuant to the new shareholder rights plan become exercisable. The
Series B preferred shares have the same terms as the Series A preferred shares
except that the voting rights of the Series B preferred shares are increased
proportionately according to the number of shares issued upon the exercise or
exchange of rights. The Company entered into a Stock Exchange Agreement dated
July 18, 1996, with Elmer L. Andersen by which the Series B preferred shares
would be exchanged for all Series A preferred shares on the date the rights
under the shareholder rights plan become exercisable. The exchange of the Series
A preferred shares, all of which are held by Elmer L. Andersen, for the new
Series B preferred shares is intended to preserve Mr. Andersen's voting power,
in the event any rights are exercised. No event has occurred which would cause
the exchange to be effected.
Common Stock: There were 40,000,000 par value $1.00 common shares authorized and
14,065,752 and 14,006,719 shares issued at November 30, 1996 and 1995,
respectively.
1996 H.B. FULLER ANNUAL REPORT
33
================================================================================
Shareholder Rights Plan: The Company has a shareholder rights plan under which
each holder of a share of common stock also has one right to purchase one share
of common stock for $180. The rights are not presently exercisable. Upon the
occurrence of certain "flip-in" events, each right becomes exercisable and then
entitles its holder to purchase $180 worth of stock of another party at one-half
of its then market value. One flip-in event is when a person or group (an
"acquiring person") acquires 15 percent or more of the Company's outstanding
common stock. Rights held by an acquiring person or an adverse person are void.
The Company may redeem the rights for one cent per share, but the redemption
right expires upon the occurrence of a flip-in event. In addition, at any time
after a person or group acquires 15 percent or more of the Company's outstanding
common stock, but less than 50 percent, the Board of Directors may, at its
option, exchange all or part of the rights (other than rights held by the
acquiring person) for shares of the Company's common stock at a rate of one
share of common stock for every right. The rights expire on July 30, 2006.
Directors' Stock Plan: The Directors' Stock Plan reserves 75,000 shares of
common stock for allocation as payment of retainer fees. Directors, who are not
employees, can choose to receive all or a portion of the payment of their
retainer and meeting fees in shares of Company common stock when they leave the
Board rather than cash payments each year. At November 30, 1996, 43,987 shares
remained available for future allocation.
1992 Stock Incentive Plan: Under the 1992 Stock Incentive Plan a total of
900,000 shares of the Company's common stock are available for the granting of
awards during a period of up to ten years from April 16, 1992. The Stock
Incentive Plan permits the granting of (a) stock options; (b) stock appreciation
rights; (c) restricted stock and restricted stock units; (d) performance awards;
(e) dividend equivalents; and (f) other awards valued in whole or in part by
reference to or otherwise based upon the Company's stock.
A total of 38,900, 39,800 and 37,346 restricted shares of the Company's common
stock were granted to certain employees in 1996, 1995 and 1994, respectively.
The market value of shares awarded $1,352, $1,403 and $1,419 has been recorded
as unearned compensation - restricted stock in 1996, 1995 and 1994, respectively
and is shown as a separate component of stockholders' equity. Unearned
compensation is being amortized to expense over the ten-year vesting period and
amounted to $473, $315 and $180 in 1996, 1995 and 1994, respectively.
A total of 25,500, 29,650 and 34,400 restricted share units of the Company's
common stock were allocated to certain employees in 1996, 1995 and 1994,
respectively. The market value of units allocated of $886, $1,045 and $1,307 in
1996, 1995 and 1994, respectively, is being charged to expense over the ten-year
vesting period.
At November 30, 1996, 643,129 shares remained available for future grants or
allocations.
1987 Stock Option Plan: Options outstanding at November 30, 1996 are 211,869
shares under the Company's 1987 non-qualified plan. Options are exercisable over
varying periods ending on October 10, 2000. At November 30, 1996, no shares
remained available for grants under this plan.
Information on stock options is shown in the following table:
Option Shares
- -----------------------------------------------------------------------------------------------------------------------------------
Outstanding Exercisable Price Range
- -----------------------------------------------------------------------------------------------------------------------------------
Balances at November 30, 1993 303,846 303,846 $8.13-16.33
Exercised (36,563) (36,563) 8.13-14.33
Cancelled (500) (500) 10.83
- -----------------------------------------------------------------------------------------------------------------------------------
Balances at November 30, 1994 266,783 266,783 14.33-16.33
Exercised (33,321) (33,321) 14.33
Cancelled (3,300) (3,300) 14.33
- -----------------------------------------------------------------------------------------------------------------------------------
Balances at November 30, 1995 230,162 230,162 14.33-16.33
Exercised (17,918) (17,918) 14.33-15.50
Cancelled (375) (375) 14.33
- -----------------------------------------------------------------------------------------------------------------------------------
Balances at November 30, 1996 211,869 211,869 $14.33-16.33
===================================================================================================================================
1996 H.B. FULLER ANNUAL REPORT
34
================================================================================
14/Business Segment Information
The Company is a manufacturer of specialty chemical products, which includes the
formulation, compounding and marketing of adhesives, sealants, coatings, paints
and other specialty chemical products. The Company considers its manufacturing
of specialty chemical and related products to be its dominant industry segment.
This segment is served commonly by corporate/regional service departments
including manufacturing, administration, research and development and marketing
services.
The segment uses many common raw materials which are either petroleum-based or
of a nonsynthetic nature. The segment is not capital intensive and the
manufacturing facilities and raw materials are relatively interchangeable and
are not, in general, highly specialized.
Operating earnings are net sales less operating costs and expenses pertaining to
specific geographic areas.
A summary of Company operations by geographic areas for the years ended November
30 is as follows:
Sales to Pro Forma
unaffiliated customers: 1996 1995 1995 1994
- -------------------------------------------------------------------------------
North America $733,683 $692,908 $692,099 $637,632
Europe 272,085 285,877 284,049 231,594
Latin America 184,208 183,823 182,009 158,616
Asia/Pacific 85,740 86,204 85,661 69,525
- -------------------------------------------------------------------------------
Total trade sales $1,275,716 $1,248,812 $1,243,818 $1,097,367
===============================================================================
Pro Forma
Intercompany sales: 1996 1995 1995 1994
- -------------------------------------------------------------------------------
North America $14,379 $16,032 $16,014 $14,341
Europe 2,432 1,457 1,448 1,468
Latin America 9,897 7,342 7,270 7,570
Asia/Pacific 51 164 163 1
Eliminations (26,759) (24,995) (24,895) (23,380)
- -------------------------------------------------------------------------------
Total intercompany sales - - - -
===============================================================================
Pro Forma
Net sales: 1996 1995 1995 1994
- -------------------------------------------------------------------------------
North America $748,062 $708,940 $708,113 $651,973
Europe 274,517 287,334 285,497 233,062
Latin America 194,105 191,165 189,279 166,186
Asia/Pacific 85,791 86,368 85,824 69,526
Eliminations (26,759) (24,995) (24,895) (23,380)
- -------------------------------------------------------------------------------
Total net sales $1,275,716 $1,248,812 $1,243,818 $1,097,367
===============================================================================
Pro Forma
Earnings: 1996 1995 1995 1994
- -------------------------------------------------------------------------------
North America $57,485 $42,165 $41,908 $37,587
Europe 11,864 10,036 12,567 10,464
Latin America 13,140 15,208 16,516 17,631
Asia/Pacific (1,735) (1,700) (1,226) 271
- -------------------------------------------------------------------------------
Operating earnings 80,754 65,709 69,765 65,953
Interest expense (18,881) (18,132) (18,132) (11,747)
Gain on sale of assets 16,673 1,764 1,764 -
Other (expense)income (1,995) (3,161) (2,967) (3,188)
- -------------------------------------------------------------------------------
Earnings before income
taxes, minority interest
and accounting change $76,551 $46,180 $50,430 $51,018
===============================================================================
Identifiable assets: 1996 1995 1994
- --------------------------------------------------------------------------------
North America $503,976 $460,895 $440,025
Europe 183,993 191,194 155,290
Latin America 135,031 139,005 123,139
Asia/Pacific 74,439 70,985 64,679
Eliminations (30,408) (37,296) (41,736)
General corporate assets 2,244 4,146 1,220
- --------------------------------------------------------------------------------
Total assets $869,275 $828,929 $742,617
================================================================================
1996 H.B. FULLER ANNUAL REPORT
35
================================================================================
15/Quarterly Data (unaudited)
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. Year
- -----------------------------------------------------------------------------------------------------------------------------------
Net Sales:
1996 $303,571 $320,223 $318,100 $333,822 $1,275,716
Pro Forma 1995* 291,579 321,381 309,063 326,789 1,248,812
1995 295,649 322,434 312,590 313,145 1,243,818
Gross Profit:
1996 $92,061 $101,266 $102,458 $108,430 $404,215
Pro Forma 1995* 91,068 101,811 97,920 100,072 390,871
1995 93,379 103,768 99,329 96,051 392,527
Operating Earnings:
1996 $10,027 $17,075 $26,989 $26,663 $80,754
Pro Forma 1995* 13,149 18,198 17,996 16,366 65,709
1995 15,094 21,980 19,629 13,062 69,765
Earnings before cumulative effect of accounting change:
1996 $2,670 $8,415 $22,015 $12,330 $45,430
Pro Forma 1995* 4,617 8,020 7,332 8,226** 28,195
1995 6,033 10,069 8,762 6,331** 31,195
Cumulative effect of accounting change:
Pro Forma 1995* $(2,532) - - - $(2,532)
1995 (2,532) - - - (2,532)
Net Earnings:
1996 $2,670 $8,415 $22,015 $12,330 $45,430
Pro Forma 1995* 2,085 8,020 7,332 8,226** 25,663
1995 3,501 10,069 8,762 6,331** 28,663
Earnings before cumulative effect of accounting change per share:
1996 $0.19 $0.60 $1.56 $0.87 $3.22
Pro Forma 1995* 0.33 0.57 0.52 0.59** 2.01
1995 0.43 0.72 0.62 0.45** 2.22
Cumulative effect of accounting change per share:
Pro Forma 1995* $(0.18) - - - $(0.18)
1995 (0.18) - - - (0.18)
Net earnings per share:
1996 $0.19 $0.60 $1.56 $0.87 $3.22
Pro Forma 1995* 0.15 0.57 0.52 0.59** 1.83
1995 0.25 0.72 0.62 0.45** 2.04
* See Consolidated Financial Statements Note 1, Change in Year-end.
** Effective tax rates for fourth quarter 1995 and pro forma 1995 were 29.3% and
34.4%, respectively, versus 39.8% and 43.3% in the third quarter,
respectively, due to the geographical mix of earnings and the impact of
determining the valuation reserve on deferred tax assets.
1996 H.B. FULLER ANNUAL REPORT
36
- --------------------------------------------------------------------------------
Management's Report Report of Independent Accountants
- --------------------------------------------------------------------------------
The management of H.B. Fuller Company is responsible for the integrity,
objectivity and accuracy of the financial statements of the Company and its
subsidiaries. The accompanying financial statements, including the notes, were
prepared in conformity with generally accepted accounting principles appropriate
in the circumstances and include amounts based on the best judgment of
management.
Management is also responsible for maintaining a system of internal
accounting control to provide reasonable assurance that established policies and
procedures are followed, that the records properly reflect all transactions of
the Company and that assets are safeguarded against material loss from
unauthorized use or disposition. Management believes that the Company's
accounting controls provide reasonable assurance that errors or irregularities
that could be material to the financial statements are prevented or would be
detected within a timely period by employees in the normal course of performing
their assigned duties.
/s/ Jorge Walter Bolanos
Jorge Walter Bolanos
Senior Vice President,
Chief Financial Officer and
Treasurer
/s/ Walter Kissling
Walter Kissling
President and
Chief Executive Officer
To the Board of Directors and Stockholders of H.B. Fuller Company
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of earnings, stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of H.B.
Fuller Company and its subsidiaries at November 30, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended November 30, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As discussed in Note 1 to the consolidated financial statements, the
Company adopted the provisions of Statement of Financial Accounting Standards
No. 112, "Employers' Accounting for Postemployment Benefits" in 1995.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Minneapolis, Minnesota
January 10, 1997
1996 H.B. FULLER ANNUAL REPORT
37
- --------------------------------------------------------------------------------
1969-1996 In Review and Selected Data
- --------------------------------------------------------------------------------
H.B. Fuller Company
and Subsidiaries
Annual Growth Rate
1-yr 5-yr 10-yr
1995- 1991- 1986- (Dollars in thousands, Pro Forma
1996 1996 1996 except per share amounts) 1996* 1995** 1995 1994 1993 1992 1991 1990
- -----------------------------------------------------------------------------------------------------------------------------------
% % % Income Statement Data:
2.2# 8.2 9.2 Net sales $1,275,716 1,248,812 1,243,818 1,097,367 975,287 942,438 861,024 792,230
22.9# 6.2 7.4 Operating earnings $80,754 65,709 69,765 65,953 53,470 71,406 59,846 51,911
Earnings from
61.1# 10.4 9.2 continuing operations $45,430 28,195 31,195 30,863 21,701 35,622 27,687 21,145
77.0# 10.4 9.2 Net earnings $45,430 25,663 28,663 30,863 9,984 35,622 27,687 21,145
16.3 13.4 14.5 Depreciation $40,878 35,134 28,177 24,934 24,865 21,787 20,376
4.1 5.0 11.8 Interest expense $18,881 18,132 11,747 10,459 12,537 14,788 14,028
72.6# 10.3 8.3 Income taxes $31,233 18,094 19,148 19,782 19,191 24,716 19,173 15,234
Balance Sheet Data:
4.9 11.3 11.6 Total assets $869,275 828,929 742,617 564,521 561,204 508,911 489,634
(0.3) 5.4 6.7 Working capital $141,617 142,056 129,665 119,905 130,817 108,779 96,097
Current ratio 1.6 1.6 1.6 1.7 1.8 1.7 1.7
Net property,
10.2 13.5 13.6 plant and equipment $391,201 355,123 295,090 232,547 223,153 207,378 202,341
Long-term debt, excluding
3.8 19.2 16.6 current installments $172,779 166,459 130,009 60,261 53,457 71,814 88,240
11.8# 8.9 9.5 Stockholders' equity $334,740 299,532 299,414 274,805 249,396 255,040 219,050 197,191
Stockholder Data:
Earnings from continuing
operations:
60.2# 10.0 9.2 Per common share $3.22 2.01 2.22 2.20 1.55 2.55 2.00 1.53
Percent of net sales 3.6 2.3 2.5 2.8 2.2 3.8 3.2 2.7
Net earnings:
76.0# 10.0 9.2 Per common share $3.22 1.83 2.04 2.20 0.71 2.55 2.00 1.53
Percent of net sales 3.6 2.1 2.3 2.8 1.0 3.8 3.2 2.7
Dividends paid:
4.8 9.8 11.0 Per common share $0.655 0.625 0.575 0.54 0.46 0.41 0.40
Stockholders' equity:
11.3# 8.3 9.5 Per common share $23.78 21.36 21.35 19.70 17.92 18.43 15.96 14.56
Return on average
stockholders' equity 14.3 9.8 10.0 11.5 4.0 15.0 13.3 11.0
Common stock price:
20.1 4.5 8.7 High $47.75 39.75 42.25 42.75 53.25 38.33 19.17
6.3 9.4 11.2 Low $29.50 27.75 29.00 31.25 32.58 18.83 13.75
Average common shares
outstanding
0.4 0.4 (0.1) (in thousands) 14,114 14,059 14,036 14,018 13,989 13,854 13,798
(7.8) 1.0 2.7 Number of employees 5,900 6,400 6,400 6,000 5,800 5,600 5,600
Annual Growth Rate
1-yr 5-yr 10-yr
1995- 1991- 1986- (Dollars in thousands,
1996 1996 1996 except per share amounts) 1989 1988
- --------------------------------------------------------------------
% % % Income Statement Data:
2.2# 8.2 9.2 Net sales 753,374 684,034
22.9# 6.2 7.4 Operating earnings 46,009 46,430
Earnings from
61.1# 10.4 9.2 continuing operations 15,671 21,081
77.0# 10.4 9.2 Net earnings 15,671 21,081
16.3 13.4 14.5 Depreciation 16,571 14,469
4.1 5.0 11.8 Interest expense 13,237 8,477
72.6# 10.3 8.3 Income taxes 13,936 14,361
Balance Sheet Data:
4.9 11.3 11.6 Total assets 455,172 434,293
(0.3) 5.4 6.7 Working capital 95,645 104,071
Current ratio 1.8 1.9
Net property,
10.2 13.5 13.6 plant and equipment 186,631 161,605
Long-term debt, excluding
3.8 19.2 16.6 current installments 100,974 98,473
11.8# 8.9 9.5 Stockholders' equity 186,515 178,871
Stockholder Data:
Earnings from continuing
operations:
60.2# 10.0 9.2 Per common share 1.09 1.46
Percent of net sales 2.1 3.1
Net earnings:
76.0# 10.0 9.2 Per common share 1.09 1.46
Percent of net sales 2.1 3.1
Dividends paid:
4.8 9.8 11.0 Per common share 0.38 0.35
Stockholders' equity:
11.3# 8.3 9.5 Per common share 13.27 12.56
Return on average
stockholders' equity 8.6 12.4
Common stock price:
20.1 4.5 8.7 High 22.83 25.83
6.3 9.4 11.2 Low 13.83 16.00
Average common shares
outstanding
0.4 0.4 (0.1) (in thousands) 14,358 14,387
(7.8) 1.0 2.7 Number of employees 5,500 5,200
* 52-week year ** See Consolidated Financial Statements Note 1, Change in
Year-end.
# 1-year growth compared to pro forma 1995
38 1996 H.B. FULLER ANNUAL REPORT
Annual Growth Rate
1-yr 5-yr 10-yr
1995- 1991- 1986- (Dollars in thousands,
1996 1996 1996 except per share amounts) 1987 1986 1985 1984 1983 1982 1981 1980 1979 1978
- -----------------------------------------------------------------------------------------------------------------------------------
% % % Income Statement Data:
2.2# 8.2 9.2 Net sales 597,061 528,483 457,937 447,984 414,210 321,502 318,793 288,653 251,558 219,962
22.9# 6.2 7.4 Operating earnings 47,748 39,483 30,733 32,179 32,452 24,940 30,531 23,958 20,739 18,681
Earnings from
61.1# 10.4 9.2 continuing operations 25,812 18,922 13,335 13,033 13,624 9,188 13,327 8,538 7,433 7,122
77.0# 10.4 9.2 Net earnings 25,812 18,922 14,909 11,895 13,832 9,493 13,587 8,921 7,527 7,122
16.3 13.4 14.5 Depreciation 13,197 10,566 9,318 7,898 6,786 5,014 4,592 4,507 3,986 3,319
4.1 5.0 11.8 Interest expense 5,479 6,208 7,627 8,894 6,546 5,482 5,106 6,012 4,106 3,161
72.6# 10.3 8.3 Income taxes 16,320 14,107 9,525 9,944 10,108 8,151 12,069 7,954 7,807 7,355
Balance Sheet Data:
4.9 11.3 11.6 Total assets 329,636 291,180 253,571 236,489 225,154 206,752 157,417 146,674 139,190 116,222
(0.3) 5.4 6.7 Working capital 86,598 74,232 69,477 68,072 59,848 48,969 42,370 41,229 32,696 32,575
Current ratio 1.9 1.9 2.0 2.1 2.0 1.8 1.9 1.9 1.7 1.9
Net property,
10.2 13.5 13.6 plant and equipment 126,905 108,989 97,173 87,357 80,427 73,077 46,938 47,245 42,193 35,478
Long-term debt, excluding
3.8 19.2 16.6 current installments 33,015 37,211 44,207 51,381 51,755 44,083 23,072 26,049 23,375 22,235
11.8# 8.9 9.5 Stockholders' equity 161,355 135,479 113,417 99,908 92,212 81,645 75,842 64,951 57,867 50,698
Stockholder Data:
Earnings from continuing
operations:
60.2# 10.0 9.2 Per common share 1.79 1.33 0.96 0.93 0.98 0.67 0.97 0.63 0.55 0.53
Percent of net sales 4.3 3.6 2.9 2.9 3.3 2.9 4.2 3.0 3.0 3.2
Net earnings:
76.0# 10.0 9.2 Per common share 1.79 1.33 1.07 0.86 0.99 0.69 0.99 0.66 0.56 0.53
Percent of net sales 4.3 3.6 3.3 2.7 3.3 3.0 4.3 3.1 3.0 3.2
Dividends paid:
4.8 9.8 11.0 Per common share 0.27 0.23 0.21 0.20 0.18 0.17 0.15 0.13 0.12 0.11
Stockholders' equity:
11.3# 8.3 9.5 Per common share 11.35 9.62 8.19 7.23 6.67 5.90 5.48 4.83 4.31 3.74
Return on average
stockholders' equity 17.4 15.2 14.0 12.4 15.9 12.1 19.3 14.5 13.7 15.0
Common stock price:
20.1 4.5 8.7 High 32.33 20.67 11.25 13.63 13.25 8.50 8.71 4.46 4.29 4.75
6.3 9.4 11.2 Low 16.17 10.25 8.17 7.83 7.63 4.75 3.92 2.92 3.25 2.79
Average common shares
outstanding
0.4 0.4 (0.1) (in thousands) 14,379 14,196 13,880 13,881 13,908 13,785 13,704 13,479 13,473 13,473
(7.8) 1.0 2.7 Number of employees 4,600 4,500 4,400 4,300 4,100 4,000 3,300 3,400 3,400 3,300
Annual Growth Rate
1-yr 5-yr 10-yr
1995- 1991- 1986- (Dollars in thousands,
1996 1996 1996 except per share amounts) 1977 1976 1975 1974 1973 1972 1971 1970 1969
- ---------------------------------------------------------------------------------------------------------------------------
% % % Income Statement Data:
2.2# 8.2 9.2 Net sales 192,848 167,892 129,426 121,839 91,572 78,257 60,167 53,024 47,248
22.9# 6.2 7.4 Operating earnings 15,504 13,571 9,060 12,745 8,657 7,394 5,088 5,273 4,726
Earnings from
61.1# 10.4 9.2 continuing operations 6,181 5,382 3,785 5,323 3,274 3,112 2,247 2,347 2,018
77.0# 10.4 9.2 Net earnings 6,181 5,382 3,785 5,323 3,274 3,112 2,247 2,347 2,018
16.3 13.4 14.5 Depreciation 2,897 2,383 2,000 1,705 1,518 1,464 1,147 851 789
4.1 5.0 11.8 Interest expense 2,524 2,369 1,900 2,098 1,370 1,173 687 515 434
72.6# 10.3 8.3 Income taxes 6,584 5,322 3,290 5,023 3,470 3,080 1,960 2,322 1,978
Balance Sheet Data:
4.9 11.3 11.6 Total assets 100,847 90,670 78,643 70,830 61,021 51,194 40,210 33,294 27,352
(0.3) 5.4 6.7 Working capital 32,135 29,194 28,410 20,244 17,087 14,599 12,795 9,542 10,262
Current ratio 2.1 2.1 2.5 1.9 2.0 2.1 2.3 2.0 2.5
Net property,
10.2 13.5 13.6 plant and equipment 30,154 28,110 24,446 20,739 18,676 16,498 12,578 10,037 7,822
Long-term debt, excluding
3.8 19.2 16.6 current installments 20,977 21,247 21,368 12,537 13,108 10,336 6,033 3,194 3,178
11.8# 8.9 9.5 Stockholders' equity 45,016 40,075 35,666 32,787 28,259 25,603 23,083 17,848 15,543
Stockholder Data:
Earnings from continuing
operations:
60.2# 10.0 9.2 Per common share 0.46 0.40 0.28 0.40 0.24 0.23 0.18 0.19 0.18
Percent of net sales 3.2 3.2 2.9 4.4 3.6 4.0 3.7 4.4 4.3
Net earnings:
76.0# 10.0 9.2 Per common share 0.46 0.40 0.28 0.40 0.24 0.23 0.18 0.19 0.18
Percent of net sales 3.2 3.2 2.9 4.4 3.6 4.0 3.7 4.4 4.3
Dividends paid:
4.8 9.8 11.0 Per common share 0.09 0.07 0.07 0.06 0.05 0.05 0.05 0.04 0.03
Stockholders' equity:
11.3# 8.3 9.5 Per common share 3.35 2.97 2.65 2.43 2.09 1.91 1.72 1.47 1.29
Return on average
stockholders' equity 14.5 14.2 11.1 17.4 12.2 12.8 11.0 14.1 15.3
Common stock price:
20.1 4.5 8.7 High 3.54 3.04 2.29 1.87 4.33 3.71 4.71 4.00 3.97
6.3 9.4 11.2 Low 2.46 1.75 1.00 1.04 1.08 1.33 3.21 2.53 2.55
Average common shares
outstanding
0.4 0.4 (0.1) (in thousands) 13,362 13,362 13,362 13,362 13,371 13,419 12,390 12,048 11,175
(7.8) 1.0 2.7 Number of employees 3,000 2,800 2,600 2,300 2,100 1,800 1,700 1,600 1,500
1996 H.B. FULLER ANNUAL REPORT 39
- --------------------------------------------------------------------------------
Investor Information
- --------------------------------------------------------------------------------
[LINE GRAPH OF H.B. FULLER COMPANY COMMON STOCK PERFORMANCE APPEARS HERE]
Market Price
(Common Stock*)
Exhibit 13 Page 40
MARKET PRICE Highs Lows
Q1F96 $39.25 $32.00
Q1F95 $35.50 $27.75
Q2F96 $36.50 $29.50
Q2F95 $39.75 $32.50
Q3F96 $37.50 $31.50
Q3F95 $39.25 $32.00
Q4F96 $47.75 $34.50
Q4F95 $36.00 $30.00
Dividends
(per share)
Exhibit 13 Page 40
DIVIDENDS
Q1F96 $0.16
Q1F95 $0.145
Q2F96 $0.165
Q2F95 $0.16
Q3F96 $0.165
Q3F95 $0.16
Q4F96 $0.165
Q4F95 $0.16
Annual Meeting
The annual meeting of shareholders will be held on Thursday, April 17, 1997 at
3:00 p.m. at Bandana Square, Banquet and Conference Centre, 1021 Bandana
Boulevard East, St. Paul, MN. All shareholders are cordially invited to attend.
Available Publications
The company's annual report is distributed regularly to stockholders. In
addition, other publications are available upon request. They include:
. Automatic Dividend Reinvestment Brochure
. Community Affairs Report
. Corporate Profile
. Environmental Report
. Form 10-K as filed with the Securities Exchange Commission
. The Story of H.B. Fuller Company 1887-1987
. Quarterly Reports
. Research and Development Brochure
When you want to receive shareholder material through the mail or if you'd like
to be added to our mailing list, call our Shareholder Services Line at
1-800-214-2523. For a fax of the year's earnings releases, as well as faxes on
up-to-date information on the company call 1-800-758-5804 -- Pin #336719. Coming
in 1997, H.B. Fuller will be on the Internet. Watch for more details.
Dividend Reinvestment Plan
The dividend reinvestment plan is designed for all H.B. Fuller shareholders. It
provides a convenient and economical way to purchase additional shares of Fuller
Common Stock, and to invest all or a portion of cash dividends in additional
shares of stock at a discount, all without payments of brokerage fees or service
charges. Using the plan you can: save on brokerage fees; pay 3% less for shares
purchased with dividends; buy additional shares as often as you like; have the
plan administrator maintain your stock certificates; give a gift of H.B. Fuller
stock; obtain updates of your account easily. Approximately 77% of our
shareholders of record currently are participants.
1996 H.B. FULLER ANNUAL REPORT
40
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Form 10-K Report
H.B. Fuller Company's Form 10-K annual report for the year ended November 30,
1996, filed with Securities and Exchange Commission, Washington, DC, is
available upon request at no charge. Exhibits to the Form 10-K are available at
a charge sufficient to cover postage and handling. This material may be obtained
by writing to: Corporate Secretary, H.B. Fuller Company, P.O. Box 64683, St.
Paul, MN 55164-0683.
Independent Accountants
Price Waterhouse LLP, Minneapolis, MN
Investor Contact
Richard Edwards
Director of Investor Relations
612-415-5150
Market Makers
The following firms made a market in H.B. Fuller as of November 30, 1996:
. Merrill Lynch, Pierce, Fenner
. Smith Barney Inc.
. Piper Jaffray Companies Inc.
. Mayer & Schweitzer Inc.
. Cantor, Fitzgerald & Co.
. Lehman Brothers Inc.
. Everen Securities Inc.
Number of Common Shareholders
As of November 30, 1996, there were approximately 5,020 common shareholders of
record.
Transfer Agent and Registrar
Norwest Bank Minnesota, N.A., 161 North Exchange, South St. Paul, MN 55075,
1-800-468-9716 or 612-450-4064 (in MN).
Shareholder Composition
November 1996
[SHAREHOLDER COMPOSITION PIE CHART APPEARS HERE]
Exhibit 13 Page 41
SHAREHOLDER COMPOSITION
November 1996
54% Institutions
26% Individuals
14% Employees
6% Directors & Officers
World Headquarters
H.B. Fuller Company, World Headquarters, 1200 Willow Lake Boulevard, St. Paul,
MN 55110-5132. Send all correspondence to: H.B. Fuller Company, World
Headquarters, P.O. Box 64683, St. Paul, MN 55164-0683
1996 H.B. FULLER ANNUAL REPORT
41