H.B. Fuller Reports Continued OperationalImprovements and Strong Fourth Quarter Results
ST. PAUL, Minn.--(BUSINESS WIRE)--Jan. 17, 2006--H.B. FullerCompany (NYSE:FUL) reported today operating results for the fourthquarter and fiscal year that ended December 3, 2005 and announcedexpectations for fiscal year 2006.
Fourth Quarter Net Revenue:
Net revenue for the fourth quarter of 2005 was $413.2 million,representing a 9.2 percent increase over the fourth quarter of 2004.Improved pricing, higher volume, and positive currency effectscontributed 8.9 percent, 3.2 percent, and 0.1 percent, respectively.The deconsolidation of the Company's Japanese operations had anoffsetting impact of 3.0 percent. This year's fourth quarter includesthe impact of an extra week versus last year's fourth quarter. Theextra week contributed 7.8 percentage points of the increase in netrevenue for the fourth quarter and it was primarily volume related.
Global Adhesives' net revenue increased 7.4 percent versus thefourth quarter of last year. Improved pricing and higher volumecontributed 9.9 percent and 1.7 percent, respectively. Thedeconsolidation of the Company's Japanese operations had an offsetting4.2 percent impact. The extra week contributed 7.6 percentage pointsof the increase in net revenue for the fourth quarter and it wasprimarily volume related.
Full-Valu/Specialty Group's net revenue increased 13.4 percentversus the fourth quarter of last year. Improved pricing, highervolume, and positive currency effects contributed 6.4 percent, 6.7percent, and 0.3 percent, respectively. The extra week contributed 8.2percentage points of the increase in net revenue for the fourthquarter and it was primarily volume related.
Fourth Quarter Net Income and Diluted Earnings Per Share:
Fourth quarter net income was $23.3 million or $0.79 per share.Last year's fourth quarter net income was $10.9 million or $0.38 pershare. This year's fourth quarter net income includes, on a pre-taxbasis, $3.1 million in additional environmental remediation expense($0.07 per share) and $2.5 million in gains on insurance settlements($0.06 per share). In addition, this year's fourth quarter benefitedfrom an extra week as well as an improved effective tax rate. Theextra week and the improved tax rate benefited fourth quarter earningsper share by $0.07 and $0.05, respectively. Adjusting for these itemswould result in pro forma earnings per share for the fourth quarter of$0.68.
Fiscal Year 2005 Net Revenue:
Net revenue was $1,512.2 million compared to $1,409.6 millionreported last year, a 7.3 percent increase. Improved pricing, highervolume, and positive currency effects contributed 7.0 percent, 0.4percent, and 1.3 percent, respectively. The net impact of the Probosacquisition and the deconsolidation of the Japanese operations had anoffsetting impact of 1.4 percent. The extra week in the fourth quartercontributed 2.1 percentage points of the increase in net revenue forthe year and it was primarily volume related.
"2005 can best be characterized as a year of major operationalimprovement and steadfast resolve. Faced with an unprecedented run-upin raw material costs, the systematic implementation of our strategyenabled us to navigate through this challenging environment andachieve improved results," said Al Stroucken, Chairman and ChiefExecutive Officer. "As we begin 2006, with raw material cost pressurescontinuing to escalate, we will rely on the execution of our strategyand remain focused on our operational improvement efforts," Strouckensaid.
Fiscal Year 2005 Net Income and Diluted Earnings Per Share:
Net income was $61.6 million or $2.11 per share compared to $35.6million or $1.23 per share for fiscal year 2004. As identified in theCompany's previous 2005 quarterly earnings releases, and includingthose items occurring during the fourth quarter as outlined above,this year's net income includes, on a pre-tax basis, $4.0 million inseverance related expense ($0.09 per share), $1.0 million ininvestigation expense related to the Company's Chilean operations($0.02 per share), $3.1 million in additional environmentalremediation expense ($0.07 per share), $6.5 million in gains on salesof assets related to two significant transactions ($0.15 per share),and $3.5 million in insurance gains ($0.08 per share). In addition,this year benefited from an extra week as well as an improvedeffective tax rate. The extra week and the improved tax rate benefitedannual earnings per share by $0.07 and $0.05, respectively. Adjustingfor these items would result in pro forma earnings per share forfiscal year 2005 of $1.95.
Fiscal Year 2006 Expectations:
Starting in fiscal year 2006, the Company will begin to expensestock options in accordance with Statement of Financial AccountingStandard 123(R), "Share-Based Payment" (FAS 123R). This will have anegative impact on reported earnings per share relative to priorperiods. Assuming the Company had adopted FAS 123R for fiscal year2005, pro forma diluted earnings per share (as described above) wouldhave been reduced by $0.09 from $1.95 to $1.86. The option expenseadjusted pro forma diluted earnings per share of $1.86 forms the basisfrom which the Company derives its 2006 earnings expectations. As aresult, for fiscal year 2006, the Company expects diluted earnings pershare to be between $2.06 and $2.11.
Additionally, the Company expects full-year capital expendituresto be between $30 and $40 million, depreciation and amortizationexpense to be between $45 and $50 million, and the effective tax rateto be 32.0 percent.
Conference Call:
The Company will host an investor conference call to discussfourth quarter and fiscal year 2005 results on Wednesday, January 18,2006 at 9:30 a.m. central time (10:30 a.m. eastern time). The call canbe heard live over the Internet through the Company's website atwww.hbfuller.com under the investor relations section. The call isscheduled to last one hour. An audio replay and written transcript ofthe conference call will subsequently be made available on theCompany's website.
Regulation G:
The information presented above regarding pro forma dilutedearnings per share does not conform to generally accepted accountingprinciples (GAAP) and should not be construed as an alternative to thereported results determined in accordance with GAAP. Management hasincluded this non-GAAP information to assist in understanding thecomparability of results in light of the items identified above andthe forthcoming change in accounting policy regarding option expense.The non-GAAP information provided above may not be consistent with themethodologies used by other companies. All non-GAAP information isreconciled with reported GAAP results in the tables provided below.
Fourth Quarter (1)
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Fourth quarter reported diluted EPS $0.79
Add back: Additional environmental expense $0.07
Deduct: Gains on insurance settlements ($0.06)
Deduct: Impact of the extra week ($0.07)
Deduct: Impact of improved 2005 effective tax rate ($0.05)
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2005 pro forma diluted EPS $0.68
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Fiscal Year 2005 (1,2)
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2005 reported diluted EPS $2.11
Add back: Severance expense $0.09
Add back: Chilean investigation costs $0.02
Add back: Additional environmental expense $0.07
Deduct: Gains on sales of assets ($0.15)
Deduct: Gains on insurance settlements ($0.08)
Deduct: Impact of the extra week ($0.07)
Deduct: Impact of improved 2005 effective tax rate ($0.05)
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2005 pro forma diluted EPS $1.95
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Deduct: Option expense as if FAS 123R adopted ($0.09)
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2005 option adjusted pro forma diluted EPS $1.86
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1. The pro forma diluted earnings per share add backs anddeductions identified above are estimated using a 32.0% effective taxrate
2. Due to rounding to two decimal points, the numbers do not sumexactly to the total
Safe Harbor for Forward-Looking Statements:
Certain statements in this document may be consideredforward-looking statements within the meaning of the PrivateSecurities Litigation Reform Act of 1995. These statements are subjectto various risks and uncertainties, including but not limited to thefollowing: political and economic conditions; product demand;competitive products and pricing; costs of and savings fromrestructuring initiatives; product mix; availability and price of rawmaterials; the Company's relationships with its major customers andsuppliers; changes in tax laws and tariffs; devaluations and otherforeign exchange rate fluctuations (particularly with respect to theeuro, the British pound, the Japanese yen, the Australian and Canadiandollars, the Argentine peso and the Brazilian real); the impact oflitigation and environmental matters; the effect of new accountingpronouncements and accounting charges and credits; and similarmatters. Further information about the various risks and uncertaintiescan be found in the Company's SEC 10-Q filings of April 4, 2005, July1, 2005, and September 30, 2005 and the Company's 10-K filing ofFebruary 25, 2005. All forward-looking information representsmanagement's best judgment as of this date based on informationcurrently available that in the future may prove to have beeninaccurate. Additionally, the variety of products sold by the Companyand the regions where the Company does business make it difficult todetermine with certainty the increases or decreases in sales resultingfrom changes in the volume of products sold, currency impact, changesin product mix, and selling prices. However, management's bestestimates of these changes as well as changes in other factors havebeen included. References to volume changes include volume, productmix, and delivery charges, combined.
H.B. Fuller Company is a worldwide manufacturer and marketer ofadhesives, sealants, coatings, paints and other specialty chemicalproducts, with fiscal 2005 net revenue of $1.512 billion. Common stockis traded on the NYSE exchange under the symbol FUL. For moreinformation about the Company, visit their website atwww.hbfuller.com.
H.B. FULLER COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
In thousands, except per share amounts (unaudited)
| 14 Weeks Ended December 3, 2005 | 13 Weeks Ended November 27, 2004 | |
| Net revenue | $413,190 | $378,456 |
| Cost of sales | (301,984) | (285,484) |
| Gross profit | 111,206 | 92,972 |
| Selling, general and administrative expenses | (79,421) | (72,226) |
| Gains from sales of assets | 74 | - |
| Other income (expense), net | 1,095 | (1,382) |
| Interest expense | (3,179) | (3,309) |
| Income before income taxes, minority interests and income from equity investments | 29,775 | 16,055 |
| Income taxes | (7,991) | (5,712) |
| Minority interests in consolidated income | 114 | 29 |
| Income from equity investments | 1,421 | 519 |
| Net Income | $23,319 | $10,891 |
| Basic income per common share | $0.81 | $0.38 |
| Diluted income per common share | $0.79 | $0.38 |
| Weighted-average common shares outstanding: Basic | 28,932 | 28,495 |
| Diluted | 29,426 | 28,968 |
Selected Balance Sheet Information (subject to change prior to filing of the Company's Annual Report on Form 10-K)
| December 3, 2005 | November 27, 2004 | |
| Inventory | $142,984 | $159,067 |
| Trade accounts receivable, net | 238,550 | 262,932 |
| Trade accounts payable | 135,292 | 164,846 |
| Total assets | 1,129,960 | 1,135,359 |
| Long-term debt, including current installments | 137,241 | 161,069 |
H.B. FULLER COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
In thousands, except per share amounts (unaudited)
| 53 Weeks Ended December 3, 2005 | 52 Weeks Ended November 27, 2004 | |
| Net revenue | $1,512,193 | $1,409,606 |
| Cost of sales | (1,113,142) | (1,036,961) |
| Gross profit | 399,051 | 372,645 |
| Selling, general and administrative expenses | (311,711) | (304,444) |
| Gains from sales of assets | 7,150 | 370 |
| Other income (expense), net | 256 | (6,557) |
| Interest expense | (12,345) | (13,716) |
| Income before income taxes, minority interests and income from equity investments | 82,401 | 48,298 |
| Income taxes | (24,990) | (14,713) |
| Minority interests in consolidated income | 900 | 199 |
| Income from equity investments | 3,265 | 1,819 |
| Net Income | $61,576 | $35,603 |
| Basic income per common share | $2.14 | $1.25 |
| Diluted income per common share | $2.11 | $1.23 |
| Weighted-average common shares outstanding: | ||
| Basic | 28,734 | 28,429 |
| Diluted | 29,238 | 28,909 |
CONTACT:
St. Paul Investor Relations:
Steven Brazones,
651-236-5158