<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT
Under Section 13 or 15(d) of the Securities Exchange Act of 1934
FOR THE QUARTER ENDED MARCH 2, 1996
Commission File No. 0-3488
H. B. FULLER COMPANY
A Minnesota Corporation
IRS Employer Identification No. 41-0268370
2400 Energy Park Drive, St. Paul, Minnesota55108
Telephone - (612) 645-3401
Common Stock, $1.00 par value
14,008,528 shares outstanding
as of March 31, 1996
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No____
----
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<PAGE>
H. B. FULLER COMPANY
FIRST QUARTER 1996 Form 10-Q
Quarterly Report
Table of Contents
PART I. FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements:
Consolidated Condensed Statements of
Earnings - Thirteen weeks ended March 2, 1996
and three months ended February 28, 1995
Consolidated Condensed Balance Sheets -
March 2, 1996 and November 30, 1995
Consolidated Condensed Statements of
Cash Flows - Thirteen weeks ended March 2, 1996
and three months ended February 28, 1995
Notes to Consolidated Condensed
Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations
PART II. OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports on Form 8-K
Signatures
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<PAGE>
H.B. FULLER COMPANY AND CONSOLIDATED SUBSIDIARIES
Consolidated Condensed Statements of Earnings
(Unaudited)
(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Thirteen Three Proforma Three *
Weeks Ended Months Ended Months Ended
March 2, 1996 February 28, 1995 February 28, 1995
-------------- ----------------- -----------------
<S> <C> <C> <C>
Net sales $303,571 $295,649 $291,579
-------------- ----------------- -----------------
Costs and expenses:
Cost of sales 211,510 202,270 200,511
Selling, administrative
and other expenses 82,034 78,285 77,919
Interest expense 5,256 4,112 4,112
Other (income) expense, net 290 393 949
-------------- ----------------- -----------------
299,090 285,060 283,491
-------------- ----------------- -----------------
Earnings before income taxes and
minority interests 4,481 10,589 8,088
Income taxes (1,788) (4,320) (3,304)
Net earnings of consolidated subsidiaries
applicable to minority interests (23) (236) (167)
-------------- ----------------- -----------------
Earnings before accounting changes 2,670 6,033 4,617
Accounting changes - (2,532) (2,532)
-------------- ----------------- -----------------
Net earnings 2,670 3,501 2,085
Dividends on preferred stock (4) (4) (4)
-------------- ----------------- -----------------
Net earnings applicable to common stock $2,666 $3,497 $2,081
Average number of common and common ============== ================= =================
equivalent shares outstanding 14,088 14,031 14,031
============== ================= =================
Per share earnings before accounting changes $0.19 $0.43 $0.33
Per share accounting changes - (0.18) (0.18)
-------------- ----------------- -----------------
Net earnings per common share $0.19 $0.25 $0.15
============== ================= =================
Cash dividend per common share $0.16 $0.15 $0.15
============== ================= =================
</TABLE>
See accompanying Footnote 7 in Notes to Consolidated Condensed Financial
Statements.
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<PAGE>
H.B. FULLER COMPANY AND CONSOLIDATED SUBSIDIARIES
Consolidated Condensed Balance Sheets
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
March 2, 1996 November 30, 1995
------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $10,645 $9,061
Trade receivables 188,743 184,821
Allowance for doubtful accounts (6,897) (6,256)
Inventories 151,544 159,024
Other current assets 40,704 40,991
------------- ----------------
Total current assets 384,739 387,641
Property, plant and equipment, net of
accumulated depreciation of $259,174
in 1996 and $253,138 in 1995 360,134 355,123
Other intangibles 15,698 16,761
Excess cost 37,708 38,310
Other assets 35,793 31,094
------------- ----------------
Total assets $834,072 $828,929
============= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $65,015 $53,749
Current installments of long-term debt 4,630 5,722
Accounts payable 106,820 117,446
Accrued expenses 49,739 59,504
Income taxes payable 7,062 9,164
------------- ----------------
Total current liabilities 233,266 245,585
Long-term debt,
excluding current installments 183,425 166,459
Deferred income taxes, accrued pension
cost, postretirement costs, other
liabilities and minority interests 119,254 117,471
Stockholders' equity:
Preferred stock 306 306
Common stock 14,007 14,007
Additional paid-in capital 20,777 20,771
Retained earnings 257,032 256,489
Foreign currency translation adjustment 9,371 11,319
Unearned compensation (3,366) (3,478)
------------- ----------------
Total stockholders' equity 298,127 299,414
------------- ----------------
Total liabilities and
stockholders' equity $834,072 $828,929
============= ================
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
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<PAGE>
H.B. FULLER COMPANY AND CONSOLIDATED SUBSIDIARIES
Consolidated Condensed Statement of Cash Flows
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Three Months
Period Ended * Ended
March 2, 1996 February 28, 1995
-------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $2,789 $3,501
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 14,437 9,235
Pension costs 2,998 2,685
Deferred income tax 1,248 1,855
Accounting changes -- 2,532
Other items 3,571 (1,040)
Change in current assets and liabilities:
Increase in accounts receivable (6,833) (7,009)
Decrease(Increase) in inventory 6,091 (8,480)
Increase in prepaid assets (2,616) (6,164)
(Decrease)increase in accounts payable (8,126) 3,391
Decrease in accrued expense (9,216) (8,958)
(Decrease) in income taxes payable (2,606) (1,793)
------- -------
Net cash provided by operating activities 1,737 (10,245)
Cash flows from investing activities:
Purchased property, plant and equipment (22,161) (16,104)
Investment in affiliated companies -- (6)
------- -------
Net cash used in investing activities (22,161) (16,110)
Cash flows from financing activities:
Increase in long-term debt 26,359 50,200
Current installments and payments of long-term debt (13,544) (16,055)
Increase in notes payable 12,289 210
Dividends paid (2,245) (2,026)
Other (654) (6,448)
------- -------
Net cash provided by financing activities 22,205 25,881
Effect of exchange rate changes on cash (197) (203)
------- -------
Net change in cash and cash equivalents 1,584 (677)
Cash and cash equivalents at beginning of year 9,061 9,830
------- -------
Cash and cash equivalents at end of period $10,645 $9,153
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest expense (net of amount capitalized) $5,748 $4,268
Income taxes $1,094 $6,964
Noncash investing and financing activities:
Assets acquired by incurring notes payable/long-term debt $3,765 $750
</TABLE>
For purposes of this statement, the Company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents.
* Includes the thirteen weeks ended March 2, 1996 for all entities and the
two month stub period for Non-U.S. entities. See footnote 7.
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<PAGE>
H.B. FULLER COMPANY AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Amounts in Thousands)
(Unaudited)
1. In the opinion of the Company, the accompanying unaudited Consolidated
Condensed Financial Statements include all adjustments necessary to present
fairly the financial position as of March 2, 1996 and November 30, 1995,
the results of its operations for the thirteen weeks ended March 2, 1996
and three months ended February 28, 1995 and its cash flows for the
thirteen weeks ended March 2, 1996 and three months ended February 28,
1995. All adjustments were of a normal recurring nature.
2. The results of operations for the thirteen week period ended March 2, 1996
are not necessarily indicative of the results to be expected for the full
year.
3. The composition of inventories is presented below:
March 2, 1996 November 30, 1995
------------- -----------------
Raw materials $ 74,733 $ 78,180
Finished goods 88,668 92,629
LIFO reserve (11,857) (11,785)
-------- --------
$151,544 $159,024
======== ========
4. Net earnings per common share is determined by dividing the net earnings
applicable to common stock by the weighted average number of common and
common equivalent shares outstanding (stock options).
5. The Company enters into foreign exchange forward contracts as a hedge
against firm commitment foreign currency intercompany accounts
receivable/payable/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. At March 2, 1996, the aggregate contract
value of instruments used to buy U.S. dollars in exchange for foreign
currency (primarily 1,021 Canadian dollars) was $1,056. The aggregate
contract value of instruments used to sell pound sterling in exchange for
Dutch guilders was approximately $5,288. The contracts mature between March
20, 1996 and November 15, 2000.
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<PAGE>
6. The carrying amounts and estimated fair values of the Company's
significant other financial instruments at March 2, 1996, are as follows:
(000's)
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
-------- --------
<S> <C> <C>
Cash and short-term investments $ 10,645 $ 10,645
Notes payable 65,015 65,015
Long-term debt 188,055 197,563
</TABLE>
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.
7. Effective December 1, 1995, in the first quarter of the Company's 1996
fiscal year, the Company's international subsidiaries that previously
reported on a fiscal year ending September 30 changed their reporting
period to a Company wide 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, net
earnings 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.
1995 Proforma (International subsidiaries results restated to November 30 fiscal
year end)
<TABLE>
<CAPTION>
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $291,579 $321,381 $309,063 $326,789
Gross profit 91,068 101,811 97,920 100,072
Operating earnings 13,149 18,198 17,996 16,366
Earnings before cumulative
effect of accounting changes 4,617 8,020 7,332 8,226
Cumulative effect of
accounting changes (2,532) -- -- --
- -------------------------------------------------------------------------------
Net earnings $ 2,085 $ 8,020 $ 7,332 $ 8,226
- -------------------------------------------------------------------------------
Earnings(loss) per common share:
Earnings before cumulative
effects of accounting changes $ 0.33 $ 0.57 $ 0.52 $ 0.59
Cumulative effect of accounting
changes $ (0.18) -- -- --
- -------------------------------------------------------------------------------
Net earnings $ 0.15 $ 0.57 $ 0.52 $ 0.59
- -------------------------------------------------------------------------------
</TABLE>
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<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(Dollars in Thousands)
The following discussion includes comments and data relating to the Company's
financial condition and results of operations during the periods included in
the accompanying Consolidated Condensed Financial Statements.
Results of Operations
---------------------
Net sales for the first quarter of 1996 increased $7,922 or 2.7% when
compared to the same quarter in 1995. Net sales for the first quarter of
1996 on a proforma basis (See Note 7 to Consolidated Condensed Financial
Statements) increased $11,992, or 4.1%, when compared to 1995.
A comparison of sales increases by operating area is as follows:
<TABLE>
<CAPTION>
Quarter Ended
Quarter Ended March 2, 1996
March 2, 1996 Proforma Quarter (Note 7)
Operating Area February 28, 1995 Ended February 28, 1995
-------------- ------------------ -------------------------
<S> <C> <C>
North America $ 7,528 5% $ 8,269 5%
Latin America (2,055) (4%) 245 --
Europe 2,563 4% 1,196 2%
Asia/Pacific (114) (1%) 2,282 12%
------- -------
Total $ 7,922 3% $11,992 4%
======= =======
</TABLE>
In North America, the 5% first quarter sales increase was composed of 3
percentage points relating to increased volume and changes in product mix and
2 percentage points resulting from an increase in pricing. The Adhesives,
Sealants and Coatings Group had a 4% increase in sales with the growth
occurring primarily in the paper/converting and polymer markets of the
industrial adhesives group and in the engineered systems markets of the
structural adhesives group. Sales to the graphic arts market of the
industrial adhesives group and woodworking and window product markets of the
structural adhesives group were down from prior year, with the slow
construction market adversely affecting woodworking and window product sales.
In the Specialty Group, sales increased 6% primarily due to substantial
growth occurring in Foster Products Corporation and moderate growth in the
Industrial Coatings Division and Linear Products Corporation. Sales of the
Monarch Division and TEC Incorporated approximated the sales of 1995. North
American operating earnings grew at a rate of 9% increasing from $5,090 to
$5,547. On a proforma basis (See Note 7 Consolidated Condensed Financial
Statements), North American sales increased 5% and operating earnings grew at
a rate of 12% increasing from $4,971 to $5,547.
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<PAGE>
Latin American first quarter 1996 sales decreased 4% from 1995. The decrease
in sales is composed of 11 percentage points relating to decreased volume and
changes in product mix partially offset by a 7 percentage point increase in
pricing. Latin American operating earnings were down 40% when compared to
1995, decreasing from $6,927 to $4,164. High raw material costs, lower
volumes and a change in product mix (particularly paint sales) were causes
for the decrease in earnings. On a proforma basis (See Note 7 to
Consolidated Condensed Financial Statements), Latin American first quarter
1996 sales approximated the sales of 1995 and operating earnings decreased
from $5,840 to $4,164.
In Europe, the 4% first quarter 1996 sales increase was composed of 4
percentage points resulting from favorable foreign currency translations due
to the weakening of the U.S. dollar, 7 percentage points due to an increase
in pricing, and a negative 7 percentage points due to a decrease in volume
and changes in product mix. As a result of the decreased volumes, primarily
the result of a continuing weak Germany economy, operating earnings decreased
from $2,730 in 1995 to $731 in 1996. On a proforma basis (See Note 7 to
Consolidated Condensed Financial Statements), European sales increased 2% in
1996 compared to 1995 and operating earnings decreased from $2,485 in 1995 to
$731 in 1996.
Asia/Pacific sales were down 1% compared to the same period last year. The
strengthening of the U.S. dollar, compared to local currencies, caused a 2
percentage point decrease. Operating earnings decreased from $347 in 1995 to
($415) in 1996. On a proforma basis (See Note 7 to Consolidated Condensed
Financial Statements), Asia/Pacific sales were up 12% in 1996 compared to
1995 and operating earnings decreased from ($147) in 1995 to ($415) in 1996.
Cost of sales for the first quarter increased 4.6% ($9,240) over the same
quarter in 1995. Consolidated gross margins, as a percent of sales,
decreased from 31.58% in 1995 to 30.33% in 1996. Lower volume and product
mix in Europe and Latin America were the primary reasons for this decrease in
gross margin percent. On a proforma basis (See Note 7 to Consolidated
Condensed Financial Statements), cost of sales for the first quarter
increased 5.5% ($10,999) over the same period in 1995. Proforma consolidated
gross margins, as a percent of sales, decreased from 31.23% in 1995 to 30.33%
in 1996.
Selling, administrative, and other expenses for the quarter were up 4.8%
($3,749) when compared to the prior year. This category of expense, as a
percent of sales, increased from 26.5% in 1995 to 27.0% in 1996. The overall
reduction in volume for the quarter impacted the ability of the Company to
leverage operating expenses. On a proforma basis (See Note 7 to Consolidated
Condensed Financial Statements), selling, administrative, and other expenses
for the quarter were up 5.3% ($4,115) over the same period in 1995 and as a
percent of sales increased from 26.7% in 1995 to 27.0% in 1996.
Interest expense increased 27.8% ($1,144) primarily as a result of increased
borrowing to finance the increased capital spending.
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<PAGE>
Income taxes for the first quarter of 1996 decreased $2,532 (58.6%) when
compared to the first quarter of 1995 primarily as a result of decreased
earnings. The effective tax rate decreased from 40.8% in 1995 to 39.9% in
1996.
Net earnings decreased from $3,501 in the first quarter of 1995 to $2,670 in
the first quarter of 1996. Earnings before the cumulative effect of the
accounting change in 1995 were $6,033. On a proforma basis (See Note 7 to
Consolidated Financial Statements), 1995 earnings before the cumulative
effect of the accounting change were $4,617.
Liquidity and Capital Resources
-------------------------------
The cash flows as presented in this section have been calculated by
comparison of the Consolidated Condensed Balance Sheets at March 2, 1996 and
November 30, 1995 (September 30, 1995 for international subsidiaries) and
February 28, 1995 and November 30, 1994.
During the first quarter of 1996, the Company generated $1,737 of cash to
finance operations as compared to a $10,245 use of cash in the first quarter
of 1995. The increased generation of cash was primarily the result of a
$5,707 decrease in cash required to fund working capital in 1996 and a $5,202
increase in depreciation and amortization compared to 1995.
Working capital was $151,473 at March 2, 1996 compared to $142,056 at
November 30, 1995. The current ratio at March 2, 1996 was 1.6 equaling the
ratio at November 30, 1995. The number of days sales in trade accounts
receivable was 54 days at March 2, 1996 compared to 52 days sales at
February 28, 1995. The average days sales in inventory on hand was at 65
days compared to 72 days sales at February 28, 1995. The primary reason for
the reduction in accrued expenses is the payment of year-end 1995 salary
accruals in the first quarter of 1996. The primary reason for the decrease
in accounts payable was the decrease in inventories.
The Company's long-term debt to total capitalization ratio was 38.1% at March
2, 1996 compared to 35.7% at November 30, 1995. Long-term debt increased to
fund capital expenditures and to fund increased operating working capital.
Capital expenditures for property, plant and equipment of $22,161 in first
quarter 1996 were primarily for continued construction of the research and
development facility in Minnesota, the investment in information technology,
for general improvements in manufacturing productivity and operating
efficiency and for environmental projects. Environmental capital
expenditures, less than 10% of total expenditures, are not a material portion
of overall Company expenditures.
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<PAGE>
H.B. FULLER COMPANY AND CONSOLIDATED SUBSIDIARIES
Increases (Decreases)
(Dollars in Thousands)
A summary of the period to period changes in the principal items included in the
Consolidated Condensed Statements of Earnings is presented below:
<TABLE>
<CAPTION>
Comparison of Thirteen Comparison of Thirteen
Weeks Ended March 2, Weeks Ended March 2, 1996
1996 and Three Months and Proforma Three Months
Ended February 28, 1995 Ended February 28, 1995**
---------------------------- ---------------------------
<S> <C> <C> <C> <C>
Net sales $7,922 2.7% $11,992 4.1%
Cost of sales 9,240 4.6% 10,999 5.5%
Selling, administrative
and other expenses 3,749 4.8% 4,115 5.3%
Interest expense 1,144 27.8% 1,144 27.8%
Other income
(expense), net 103 26.2% 659 *
------------- -------------
Earnings before
income taxes and
minority interests (6,108) * (3,607) -44.6%
Income taxes (2,532) -58.6% (1,516) -45.8%
Net earnings of consolidated
subsidiaries applicable
to minority interests (213) -90.3% (144) -86.2%
------------- -------------
Earnings before accounting changes (3,363) -57.7% (1,947) -42.2%
Accounting changes 2,532 2,532
------------- -------------
Net earnings ($831) -23.7% 585 28.1%
============= =============
</TABLE>
* Change of 100% or more.
** See footnote 7.
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<PAGE>
PART II. OTHER INFORMATION
Item 6.
-------
Exhibits and reports on Form 8-K
--------------------------------
(a) Exhibits to Part I
27 Financial Data Schedule
(b) Reports on Form 8-K. No reports on Form 8-K were filed for the thirteen
weeks ended March 2, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
H. B. Fuller Company
Dated: April 15, 1996 /S/ Jorge Walter Bolanos
------------------------
Jorge Walter Bolanos
Senior Vice President,
Treasurer and
Chief Financial Officer
Dated: April 15, 1996 /S/ David J. Maki
------------------------
David J. Maki
Vice President
and Controller
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
Balance Sheet, Income Statement and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> MAR-02-1996
<CASH> 10,645
<SECURITIES> 0
<RECEIVABLES> 188,743
<ALLOWANCES> 6,897
<INVENTORY> 151,544
<CURRENT-ASSETS> 40,704
<PP&E> 619,308
<DEPRECIATION> 259,174
<TOTAL-ASSETS> 834,072
<CURRENT-LIABILITIES> 233,266
<BONDS> 183,425
<COMMON> 14,007
0
306
<OTHER-SE> 283,814
<TOTAL-LIABILITY-AND-EQUITY> 834,072
<SALES> 303,571
<TOTAL-REVENUES> 303,571
<CGS> 211,510
<TOTAL-COSTS> 293,544
<OTHER-EXPENSES> 290
<LOSS-PROVISION> 1,065
<INTEREST-EXPENSE> 5,256
<INCOME-PRETAX> 4,481
<INCOME-TAX> 1,788
<INCOME-CONTINUING> 2,670
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,670
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
