<PAGE>
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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 AUGUST 31, 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, Minnesota 55108
Telephone - (612) 645-3401
Common Stock, $1.00 par value
14,057,563 shares outstanding
as of September 30, 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
THIRD QUARTER 1996 Form 10-Q
Quarterly Report
Table of Contents
PART I. FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements:
Consolidated Condensed Statements of
Earnings - Thirty-nine weeks ended August 31, 1996
and nine months ended August 31, 1995
Consolidated Condensed Balance Sheets -
August 31, 1996 and November 30, 1995
Consolidated Condensed Statements of
Cash Flows - Thirty-nine weeks ended August 31, 1996
and nine months ended August 31, 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 1. Legal Proceedings
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>
Thirty-Nine Nine Proforma Nine *
Weeks Ended Months Ended Months Ended
August 31, 1996 August 31, 1995 August 31, 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
NET SALES $941,894 $930,674 $922,023
-------- -------- --------
Costs and expenses:
Cost of sales 646,109 634,198 631,224
Selling, administrative
and other expenses 241,694 239,773 241,456
Interest expense 14,521 13,693 13,693
(Gain) from sale of assets (17,803) - -
Other (income) expense, net 2,010 1,399 1,996
-------- -------- --------
886,531 889,063 888,369
-------- -------- --------
Earnings before income taxes and
minority interests 55,363 41,611 33,654
Income taxes (22,367) (16,561) (13,791)
Net earnings of consolidated subsidiaries
applicable to minority interests 104 (186) 106
-------- -------- --------
Earnings before accounting changes 33,100 24,864 19,969
Accounting changes - (2,532) (2,532)
-------- -------- --------
Net earnings 33,100 22,332 17,437
Dividends on preferred stock (12) (12) (12)
-------- -------- --------
NET EARNINGS APPLICABLE TO COMMON STOCK $ 33,088 $ 22,320 $ 17,425
======== ======== ========
Average number of common and common
equivalent shares outstanding 14,100 14,049 14,049
======== ======== ========
Per share earnings before accounting changes $ 2.35 $ 1.77 $ 1.42
Per share accounting changes - (0.18) (0.18)
-------- -------- --------
NET EARNINGS PER COMMON SHARE $ 2.35 $ 1.59 $ 1.24
======== ======== ========
Cash dividend per common share $ 0.49 $ 0.47 $ 0.47
======== ======== ========
</TABLE>
* See accompanying Footnote 9 in Notes to Consolidated Condensed Financial
Statements.
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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
August 31, 1996 August 31, 1995 August 31, 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
NET SALES $318,100 $312,590 $309,063
-------- -------- --------
Costs and expenses:
Cost of sales 215,642 213,261 211,143
Selling, administrative
and other expenses 75,469 79,700 79,924
Interest expense 4,306 5,118 5,118
(Gain) from sale of assets (16,568) - -
Other (income) expense, net 2,410 160 295
-------- -------- --------
281,259 298,239 296,480
-------- -------- --------
Earnings before income taxes and
minority interests 36,841 14,351 12,583
Income taxes (14,887) (5,711) (5,452)
Net earnings of consolidated subsidiaries
applicable to minority interests 61 122 201
-------- -------- --------
Net earnings 22,015 8,762 7,332
Dividends on preferred stock (4) (4) (4)
-------- -------- --------
NET EARNINGS APPLICABLE TO COMMON STOCK $ 22,011 $ 8,758 $ 7,328
======== ======== ========
Average number of common and common
equivalent shares outstanding 14,110 14,064 14,064
======== ======== ========
NET EARNINGS PER COMMON SHARE $ 1.56 $ 0.62 $ 0.52
======== ======== ========
Cash dividend per common share $ 0.16 $ 0.16 $ 0.16
======== ======== ========
</TABLE>
* See accompanying Footnote 9 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>
August 31, 1996 November 30, 1995
--------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,857 $ 9,061
Trade receivables 188,025 184,821
Allowance for doubtful accounts (6,710) (6,256)
Inventories 150,724 159,024
Other current assets 43,243 40,991
--------------- -----------------
Total current assets 384,139 387,641
Property, plant and equipment, net of
accumulated depreciation of $267,521
in 1996 and $253,138 in 1995 374,802 355,123
Other intangibles 18,383 16,761
Excess cost 36,364 38,310
Other assets 33,956 31,094
--------------- -----------------
Total assets $847,644 $828,929
=============== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 44,987 $ 53,749
Current installments of long-term debt 9,761 5,722
Accounts payable 109,667 117,446
Accrued expenses 57,260 59,504
Income taxes payable 17,501 9,164
--------------- -----------------
Total current liabilities 239,176 245,585
Long-term debt,
excluding current installments 163,873 166,459
Deferred income taxes, accrued pension
cost, postretirement costs, other
liabilities and minority interests 119,925 117,471
Stockholders' equity:
Preferred stock 306 306
Common stock 14,054 14,007
Additional paid-in capital 22,180 20,771
Retained earnings 282,823 256,489
Foreign currency translation adjustment 9,501 11,319
Unearned compensation (4,194) (3,478)
--------------- -----------------
Total stockholders' equity 324,670 299,414
Total liabilities and --------------- -----------------
stockholders' equity $847,644 $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>
Thirty-Nine Nine Months
Weeks Ended * Ended
August 31, 1996 August 31, 1995
------------------- -------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $33,219 $22,332
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 34,781 30,776
Pension costs 10,071 7,681
Gain from sale of assets (10,833) -
Deferred income tax 1,638 (1,226)
Accounting changes - 2,532
Other items 3,879 3,476
Change in current assets and liabilities:
Increase in accounts receivable (12,249) (5,569)
Decrease (increase) in inventory 8,074 (8,242)
Increase in prepaid assets (3,930) (5,060)
(Decrease) in accounts payable (4,373) (725)
Increase (decrease) in accrued expense 1,309 (2,675)
Increase in income taxes payable 1,074 359
------------------- -------------------
Net cash provided by operating activities $62,660 $43,659
Cash flows from investing activities:
Purchased property, plant and equipment (60,475) (57,247)
Proceeds from sale of assets 29,551 -
Purchased business, net of cash acquired (7,625) -
------------------- -------------------
Net cash used in investing activities (38,549) (57,247)
Cash flows from financing activities:
Increase in long-term debt 52,848 70,045
Current installments and payments of long-term debt (56,470) (48,845)
(Decrease) increase in notes payable (7,093) 3,360
Dividends paid (6,885) (6,501)
Other (6,527) (10,436)
------------------- -------------------
Net cash (used) provided by financing activities (24,127) 7,623
Effect of exchange rate changes on cash (188) 482
------------------- -------------------
Net change in cash and cash equivalents ($204) ($5,483)
Cash and cash equivalents at beginning of year 9,061 9,830
------------------- -------------------
Cash and cash equivalents at end of period $8,857 $4,347
=================== ===================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest expense (net of amount capitalized) $19,399 $12,242
Income taxes $7,598 $19,355
Noncash investing and financing activities:
Assets acquired by incurring notes payable/long-term debt $3,748 $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 thirty-nine weeks ended August 31, 1996 for all entities and the
two month stub period for Non-U.S. entities. See footnote 9.
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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 August 31, 1996 and November 30, 1995,
the results of its operations for the thirteen and thirty-nine week periods
ended August 31, 1996 and the three and nine month periods ended August 31,
1995 and its cash flows for the thirty-nine week period ended August 31,
1996 and nine month period ended August 31, 1995. All adjustments were of a
normal recurring nature.
2. The results of operations for the thirteen and thirty-nine week periods
ended August 31, 1996 are not necessarily indicative of the results to be
expected for the full year.
3. The composition of inventories is presented below:
<TABLE>
<CAPTION>
August 31, 1996 November 30, 1995
--------------- -----------------
<S> <C> <C>
Raw materials $ 67,601 $ 78,180
Finished goods 94,396 92,629
LIFO reserve (11,273) (11,785)
-------- -------
$150,724 $159,024
======== ========
</TABLE>
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. The aggregate contract value of
instruments used to sell pound sterling in exchange for Dutch guilders was
approximately $5,250. The contracts mature between October 20, 2000 and
November 20, 2000.
6. The carrying amounts and estimated fair values of the Company's significant
other financial instruments at August 31, 1996, are as follows:
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
-------- --------
<S> <C> <C>
Cash and short-term investments $ 8,857 $ 8,857
Notes payable 44,987 44,987
Long-term debt 173,634 181,573
</TABLE>
Fair values of short-term financial instruments approximate their carrying
values due to their short maturity.
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<PAGE>
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. During the second quarter, the Company acquired a hot melt adhesives
product line for industrial applications for $7,625. The acquisition
includes product formulas, customer lists, technology and inventory.
The Company has signed a long-term agreement to have these products
toll produced.
8. During the second quarter, the Company sold assets for $1,726. During the
third quarter, the Company sold two product lines for $27,825, including
epoxy tooling slabs and the previously announced sale of Monarch's
sanitation chemicals.
9. 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. The Company also changed to thirteen-week quarters.
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 third quarter of 1996 increased $5,510, or 1.8%, when compared
to the same quarter in 1995. Net sales for the third quarter of 1996, on a
proforma basis (See Note 9 to Consolidated Condensed Financial Statements),
increased $9,037, or 2.9%, when compared to 1995. Net sales for the first nine
months of 1996 increased $11,220, or 1.2%, when compared to the first nine
months of 1995. Net sales for the first nine months of 1996, on a proforma basis
(See Note 9 to Consolidated Condensed Financial Statements), increased $19,871,
or 2.2%, when compared to 1995.
A comparison of sales increases by operating area is as follows:
<TABLE>
<CAPTION>
Quarter Ended
Quarter Ended August 31, 1996
August 31, Proforma Quarter (Note 9)
Operating Area 1996 and 1995 Ended August 31, 1995
-------------- -------------- -------------------------
<S> <C> <C> <C> <C>
North America $ 13,974 8% $ 13,865 8%
Latin America 1,521 4% 1,577 4%
Europe (8,897) (12%) (5,190) (7%)
Asia/Pacific (1,088) (5%) (1,215) (6%)
------- -------
Total $ 5,510 2% $ 9,037 3%
======= =======
Nine Months Ended
Nine Months Ended August 31, 1996
August 31, Proforma Nine Months (Note 9)
Operating Area 1996 and 1995 Ended August 31, 1995
-------------- ------------------ -----------------------------
<S> <C> <C> <C> <C>
North America $ 31,299 6% $ 30,727 6%
Latin America (2,389) (2%) 2,491 2%
Europe (16,878) (8%) (13,214) (6%)
Asia/Pacific (812) (1%) (133) --
------- -------
Total $ 11,220 1% $ 19,871 2%
======= =======
</TABLE>
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<PAGE>
In North America, the 8% third quarter sales increase was composed of 7
percentage points relating to increased volume and changes in product mix, 2
percentage points related to fourth quarter 1995 and second quarter 1996
acquisitions and a negative one percentage point impact from pricing. The
Adhesives, Sealants and Coatings Group had a 9% increase in sales with 5
percentage points resulting from a late fourth quarter 1995 acquisition and a
second quarter 1996 acquisition and the other 4 percentage points of growth
occurring primarily in the packaging/converting market of the industrial
adhesives group and in the woodworking, window and engineered systems markets of
the structural adhesives group. Automotive sales were up slightly in the quarter
compared to last year and nonwoven sales were down moderately. The Specialty
Group produced a 10% increase in North American sales for the quarter adjusted
for the sale of the Monarch Division. TEC Incorporated experienced a strong
increase in sales with Linear Products Inc., Industrial Coatings Division and
Foster Products Corporation showing a moderate increase. North American
operating earnings grew at a rate of 43% increasing from $13,813 to $19,804. On
a proforma basis (See Note 9 to Consolidated Condensed Financial Statements),
North American sales increased 8% and operating earnings grew at a rate of 46%
increasing from $13,539 to $19,804.
For the first nine months of 1996, North American sales increased 6% and was
composed of 4 percentage points resulting from increased volume and changes in
product mix, 2 percentage points resulting from sales of businesses acquired
late in the fourth quarter of 1995 and second quarter of 1996, net of the
decreased sales resulting from the sale of the Monarch Division. The Adhesives,
Sealants and Coatings Group had a 7% increase in 1996 sales, with 4 percentage
points resulting from late fourth quarter 1995 and second quarter 1996
acquisitions and the other 3 percentage points of growth occurring primarily in
the packaging/converting and polymer units of the industrial adhesives group and
in engineered systems and window markets of the structural adhesives group. The
Specialty Group had a 6% sales growth adjusted for the sale of the Monarch
Division. Foster Corporation experienced a significant increase in sales
compared to 1995. Industrial Coatings Division, Linear Products Incorporated,
and TEC Incorporated all had moderate increases in sales. North American
operating earnings grew at a rate of 34% from $30,434 in 1995 to $40,636 for the
first nine months of 1996. On a proforma basis (See Note 9 to Consolidated
Condensed Financial Statements), North American sales increased 6% and operating
earnings grew at a rate of 33% increasing from $30,514 to $40,636.
Latin American third quarter 1996 sales increased 4% from 1995. The increase in
sales is composed of 2 percentage points relating to increased volume and
changes in product mix and a 2 percentage point increase in pricing. Latin
American operating earnings were up significantly when compared to 1995, from
$2,606 in 1995 to $3,112 in 1996. On a proforma basis (See Note 9 to
Consolidated Condensed Financial Statements), Latin American third quarter 1996
sales were also up 4% compared to sales of 1995 and operating earnings increased
substantially from $1,912 to $3,112. This improved operating earnings in 1996
was the result of cost reduction efforts in Latin America.
In Europe, the 12% third quarter 1996 sales decrease was composed of 5
percentage points resulting from unfavorable foreign currency translations due
to the strengthening of the U.S. dollar, one percentage point due to a decrease
in pricing and a negative 6 percentage points due to a decrease in volume and
changes in product mix. Operating earnings increased 26% from $3,581 in 1995 to
$4,502 in 1996 as a result of cost reduction efforts and improved gross margins.
On a proforma basis (See Note 9 to Consolidated Condensed Financial Statements),
European sales decreased 7% in 1996 compared to 1995 and operating earnings
increased from $3,105 in 1995 to $4,502 in 1996.
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<PAGE>
Asia/Pacific sales were down 5% compared to the third quarter last year. The
strengthening of the U.S. dollar, compared to local currencies, caused a 9
percentage point decrease which was partially offset by a 3 percentage point
increase resulting from increases in volume and change in product mix and one
percentage point increase due to pricing. Operating earnings decreased slightly
from ($371) in 1995 to ($429) in 1996. On a proforma basis (See Note 9 to
Consolidated Condensed Financial Statements), Asia/Pacific sales were down 6% in
1996 compared to 1995 and operating earnings improved from ($560) in 1995 to
($429) in 1996.
For the first nine months of 1996, Latin American sales decreased 2% from the
same period in 1995 with 6 percentage points accounted for by decreased volume
and changes in product mix, with a partial offset of 4 percentage points
resulting from increased pricing. Operating earnings decreased substantially
from $14,278 in 1995 to $9,922 in 1996 as a result of reduced volumes and a
change in paint sales mix. European sales were down 8% from first nine months
1995 sales with the strengthening of the U.S. dollar causing a one percentage
point decrease. The 7 percentage point decrease in local currency sales was
comprised of 9 percentage points resulting from decreased volume and changes in
product mix, primarily in Germany, and 2 percentage points in increased pricing.
Operating earnings decreased from $12,529 in 1995 to $4,696 in 1996.
Asia/Pacific sales decreased 1% with a 4 percentage point decrease resulting
from a strengthened U.S. dollar. A 6 percentage point increase resulting from
volume and changes in product mix was partially offset by a 3 percentage point
decrease in pricing. Continued expansion activities in Asia/Pacific and the
economic slowdown in Japan caused operating earnings to decrease from ($538) in
1995 to ($1,163) in 1996.
On a proforma basis (See Note 9 to Consolidated Condensed Financial Statements),
Latin American first nine months 1996 sales were up 2% from 1995 and operating
earnings decreased from $10,548 to $9,922. In Europe sales were down 6% compared
to 1995 and operating earnings decreased from $9,695 in 1995 to $4,696 in 1996.
In Asia/Pacific sales approximated 1995 sales and operating income improved from
($1,414) in 1995 to ($1,163) in 1996.
Cost of sales for the third quarter increased 1.1% ($2,381) over the same
quarter in 1995. Consolidated gross margins, as a percent of sales, increased
from 31.8% in 1995 to 32.2% in 1996. In the third quarters of 1995 and 1996,
respectively, cost of goods sold was favorably impacted by reversals of $1,470
and $1,540 of first and second quarter profit-sharing accruals due to lower
projected annual earnings. Excluding the impact of these reversals, consolidated
gross margins as a percent of sales, would have improved from 31.3% in 1995 to
31.7% in 1996. On a proforma basis (See Note 9 to Consolidated Condensed
Financial Statements), cost of sales for the third quarter increased 2.1%
($4,499) from the same period in 1995. Proforma consolidated gross margins in
1995, as a percent of sales, were 31.7% and 31.2% excluding the impact of
profit-sharing reversals. The consolidated improvement in gross margins
occurred as a result of improved gross margins, as a percent of sales, in North
America and Europe.
Year-to-date, cost of sales increased 1.9% ($11,911) when compared to the same
period in 1995. Consolidated gross margins, as a percent of sales, decreased
from 31.9% in 1995 to 31.4% in 1996 with lower volume and product mix in Europe
and Latin America in the first six months of 1996 being the primary reasons for
this decrease in gross margin percent. On a proforma basis (See Note 9 to
Consolidated Condensed Financial Statements), cost of sales for the first nine
months increased 2.4% ($14,885) over the same period in 1995. Proforma
consolidated gross margins, as a percent of sales, decreased from 31.5% in 1995
to 31.4% in 1996.
-11-
<PAGE>
Selling, administrative, and other expenses for the quarter decreased 5.3%
($4,231) when compared to the prior year. This category of expense, as a percent
of sales, decreased from 25.5% in 1995 to 23.7% in 1996. In the third quarters
of 1995 and 1996, respectively, this category of expense was favorably impacted
by $1,796 and $3,172 reversals of first and second quarter profit-sharing
accruals due to lower annual projected earnings. Excluding these reversals, the
expense, as a percent of sales, would have been 26.1% in 1995 and 24.7% in 1996.
On a proforma basis (See Note 9 to Consolidated Condensed Financial Statements),
selling, administrative, and other expenses for the quarter decreased 5.6%
($4,455) from the same period in 1995 and as a percent of sales decreased from
25.9% in 1995 to 23.7% in 1996.
Selling, administrative, and other expenses for the first nine months were up
0.8% ($1,921) when compared to the prior year. This category of expense, as a
percent of sales, decreased from 25.8% in 1995 to 25.7% in 1996. Adjusting for a
$2,790 restructuring charge in the second quarter, the expense was down 0.4%
($869) and the percent of sales for 1996 would be 25.4%. The overall low sales
volumes for the first six months of 1996 impacted the ability of the Company to
further leverage operating expenses. On a proforma basis (See Note 9 to
Consolidated Condensed Financial Statements), selling, administrative, and other
expenses for the first nine months were up 0.1% ($238) over the same period in
1995 and, as a percent of sales, decreased from 26.2% in 1995 to 25.7% in 1996.
Adjusting for the restructuring charge in the second quarter, the expense
decreased 1.1% ($2,552) and, as a percent of sales, improved from 26.2% in 1995
to 25.4% in 1996.
Year-to-date interest expense increased 6.0% ($828) primarily as a result of
increased borrowing to finance the increased capital spending.
In 1996 the Company had year-to-date (pre-tax) income of $17,803 from the sale
of assets. This income resulted from gains on the sale of property in Munich,
Germany in the second quarter of 1996 and gains from the sale of two product
lines in the third quarter of 1996.
Net earnings increased from $22,332 in the first nine months of 1995 to $33,100
in the first nine months of 1996. Earnings before the cumulative effect of the
accounting change in 1995 were $24,864. On a proforma basis (See Note 9 to
Consolidated Condensed Financial Statements), 1995 earnings before the
cumulative effect of the accounting change were $19,969.
Liquidity and Capital Resources
- -------------------------------
The cash flows as presented in this section have been calculated by comparison
of the Consolidated Condensed Balance Sheets at August 31, 1996 and November 30,
1995 (September 30, 1995 for international subsidiaries) and August 31, 1995 and
November 30, 1994.
During the first nine months of 1996, the Company generated $62,660 of cash from
operations as compared to $43,659 in the first nine months of 1995. The
increased generation of cash was primarily the result of a $11,817 decrease in
cash required to fund working capital in 1996 and a $4,005 increase in
depreciation and amortization compared to 1995.
-12-
<PAGE>
Working capital was $144,963 at August 31, 1996 compared to $142,056 at November
30, 1995. The current ratio at August 31, 1996 was 1.6 equaling the ratio at
November 30, 1995. The number of days sales in trade accounts receivable was 51
days at August 31, 1996 compared to 52 days sales at August 31, 1995. The
average days sales in inventory on hand was at 62 days at August 31, 1996
compared to 69 days sales at August 31, 1995.
The Company's long-term debt to total capitalization ratio was 33.5% at August
31, 1996 compared to 35.7% at November 30, 1995. Long-term debt decreased
primarily due to sale of assets which generated $29,551 in cash in the nine
months of 1996.
Capital expenditures for property, plant and equipment of $60,475 in first nine
months of 1996 were primarily for continued construction of the research and
development facility in Minnesota, construction of an adhesives plant in the
Philippines, 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.
-13-
<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 Thirty-Nine Comparison of Thirty-Nine
Weeks Ended August 31, Weeks Ended August 31, 1996
1996 and Three Months and Proforma Three Months
Ended August 31, 1995 Ended August 31, 1995 **
--------------------------- ------------------------------
<S> <C> <C> <C> <C>
Net sales $11,220 1.2% $19,871 2.2%
Cost of sales 11,911 1.9% 14,885 2.4%
Selling, administrative and other expenses 1,921 0.8% 238 0.1%
Interest expense 828 6.0% 828 6.0%
Gain from sale of assets 17,803 * 17,803 *
Other income (expense), net (611) -43.7% (14) -0.7%
Earnings before income taxes and ------------ -----------
minority interests $13,752 33.0% $21,709 64.5%
Income taxes (5,806) -35.1% (8,576) -62.2%
Net earnings of consolidated subsidiaries
applicable to minority interests 290 * (2) -1.9%
------------ -----------
Earnings before accounting changes $8,236 33.1% $13,131 65.8%
Accounting changes 2,532 * 2,532 *
------------ -----------
Net earnings $10,768 * $15,663 89.8%
============ ===========
</TABLE>
<TABLE>
<CAPTION>
Comparison of Thirteen Comparison of Thirteen
Weeks Ended August 31, Weeks Ended August 31, 1996
1996 and Three Months and Proforma Three Months
Ended August 31, 1995 Ended August 31, 1995 **
--------------------------- ------------------------------
<S> <C> <C> <C> <C>
Net sales $5,510 1.8% $9,037 2.9%
Cost of sales 2,381 1.1% 4,499 2.1%
Selling, administrative and other expenses (4,231) -5.3% (4,455) -5.6%
Interest expense (812) -15.9% (812) -15.9%
Gain from sale of assets 16,568 * 16,568 *
Other income (expense), net (2,250) * (2,115) *
Earnings before income taxes and ------------ -----------
minority interests $22,490 * $24,258 *
Income taxes (9,176) * (9,435) *
Net earnings of consolidated subsidiaries
applicable to minority interests (61) -50.0% (140) -69.7%
------------ -----------
Net earnings $13,253 * $14,683 *
============ ===========
</TABLE>
* Change of 100% or more.
** See footnote 9.
-14-
<PAGE>
PART II OTHER INFORMATION
Item 1.
Legal Proceedings.
- -----------------
ENVIRONMENTAL REMEDIATION
The Company is currently deemed a potentially responsible party ("PRP"), in
conjunction with numerous other parties, in a number of government enforcement
and private actions associated with hazardous waste sites ("Sites"). As a PRP,
the Company may be required to pay a share of the cost of investigation and
cleanup of these Sites. In some cases the Company may have rights of
indemnification from other parties.
The Company's future liability for such claims is difficult to predict because
of uncertainty as to the cost of investigation and cleanup of the Sites, the
Company's responsibility for such hazardous wastes and the number or financial
condition of other PRPs or defendants. Reserves for future liabilities are
established as soon as an estimate of potential cleanup costs and allocation can
be determined. The reserves are reviewed and revised quarterly in light of
currently available technical and legal information. Based upon such available
information, it is the Company's opinion that these environmental claims will
not result in material liability to the Company.
Following is an update on one previously reported Site.
Gloucester Environmental Management Services, Inc., Gloucester Township,
- ------------------------------------------------------------------------
New Jersey.
- -----------
The Company had previously received notice from the EPA that it may be a PRP at
this Site, and the New Jersey EPA served the Company with a complaint that named
Paisley Products, Inc., from which the Company acquired certain assets, as a
PRP. In addition, the Company may have liability at this Site as the result of a
class action filed by residents near the Site. The Company recently contributed
$82,079.42 as its portion of the allocation for the time period that the Company
operated the acquired Paisley Products facility for past obligations to the EPA
and the New Jersey EPA, as well as any expected cost of future remediation.
Accordingly, the Company has no further liability to any regulatory agencies as
a result of remedial activities at this Site. The Company believes that any
potential liability associated with the action brought by residents near the
landfill will be minimal, and will not materially affect its business or
financial condition.
Other Legal Proceeding
- ----------------------
As previously reported, on January 4, 1996, Ruth Linares Polanco filed a
wrongful death action against the Company and two Central American subsidiaries
in Federal District Court for the District of Minnesota. The plaintiff
subsequently amended the complaint, dropping the two subsidiaries as defendants.
The plaintiff alleged that her brother abused a solvent-based adhesive
manufactured by the Company by inhaling fumes from the adhesive, and that the
Company was substantially responsible for his death. The Company filed a motion
to dismiss the lawsuit on a number of legal grounds, including forum
nonconveniens. The Company also filed an answer to the plaintiff's complaint
denying all liability. On September 23, 1996, a United States District Court
judge dismissed the lawsuit against the Company on the basis of lack of
diversity and forum nonconveniens.
-15-
<PAGE>
Item 6.
Exhibits and Reports on Form 8-K
- --------------------------------
(a) Exhibits to Part I
27 Financial Data
(b) Reports on Form 8-K
During the fiscal quarter ended August 31, 1996, the Company filed one
report on Form 8-K, which report was dated July 18, 1996. This Form 8-K
(reporting on Item 5 "Other Events") disclosed (i) the adoption of the
Shareholder Rights Plan ("Rights Plan") by the Board of Directors of the
Company on July 18, 1996, (ii) the execution of an exchange agreement
between the Company and the holder of the outstanding Series A preferred
stock of the Company, and (iii) the authorization of a new Series B
preferred stock which would be exchanged for the Series A stock on the
"Distribution Date" as defined in the Rights Plan.
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: October 14, 1996 /s/ Jorge Walter Bolanos
------------------------
Jorge Walter Bolanos
Senior Vice President,
Treasurer and
Chief Financial Officer
Dated: October 14, 1996 /s/ David J. Maki
-----------------------
David J. Maki
Vice President
and Controller
-16-
<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> 9-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> AUG-31-1996
<CASH> 8,857
<SECURITIES> 0
<RECEIVABLES> 188,025
<ALLOWANCES> 6,710
<INVENTORY> 150,724
<CURRENT-ASSETS> 384,139
<PP&E> 642,323
<DEPRECIATION> 267,521
<TOTAL-ASSETS> 847,644
<CURRENT-LIABILITIES> 239,176
<BONDS> 163,873
<COMMON> 14,054
0
306
<OTHER-SE> 310,310
<TOTAL-LIABILITY-AND-EQUITY> 847,644
<SALES> 941,894
<TOTAL-REVENUES> 941,894
<CGS> 646,109
<TOTAL-COSTS> 241,694
<OTHER-EXPENSES> (15,793)
<LOSS-PROVISION> 2,557
<INTEREST-EXPENSE> 14,521
<INCOME-PRETAX> 55,363
<INCOME-TAX> 22,367
<INCOME-CONTINUING> 33,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,100
<EPS-PRIMARY> 2.35
<EPS-DILUTED> 2.35
</TABLE>
