Success Is the Journey 2001 ANNUAL REPORT
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abc Success is the Journey 2001 ANNUAL REPORT / 10K LETTER to STAKEHOLDERS 001 was a somber year, as we watched the world Within these next few pages you will find a dis- 2 around us take on a new tone, with the deepening cussion of several of the efforts that stood out on our of the economic downturn and the aftershocks of journey this past year. As always, we appreciate your con- September. Yet in the midst of turmoil and uncertainty, tinued support of H.B. Fuller Company. Thank you for I am pleased to report that H.B. Fuller remained quiet- joining us on our journey. ly on course. Our results, achieved in difficult and uncertain times, were steady and respectable. The Journey - 2001 About four years ago, H.B. Fuller Company began a new journey, one mapped to position the com- A little more than one year ago, we redefined our cor- pany for the 21st century. Since then, we have taken a porate culture, identifying the types of behaviors number of steps to improve our cost structures and com- embodied by a high-performance company. We petitiveness, to strengthen our organization, and to defined these under the attributes of performance, peo- increase shareholder value. These mileposts, as we call ple, risk and reward, knowledge, decision-making, and them, are highlighted on the following pages. They illus- leadership; a complete copy of our culture statement is trate our belief that success is a process - a journey, if you available on our Web site. We moved closer toward our will. Individually, each separate action or accomplish- ideal culture this year, shifting our mindset, increasing ment is significant; collectively, they illustrate progress our self-confidence, and demonstrating the courage and momentum, and represent our company's evolution. necessary to tackle difficult tasks and deliver on prom- It has been said that while it is good to have an ises. The dramatic improvement we made in this area end to journey toward, it is the journey that matters in is evidenced in the way our employees seized some crit- the end. While we must always remain focused on ical moments, made the best of opportunities before delivering results, we also know it is imperative that we us, and in short, moved the company forward in ways recognize the many efforts made along the way that that will benefit us in the future. Let me share some ultimately contribute to those results. examples. PERFORMANCE the new structure will enable us to take a true pan- In 2001, the environment was not conducive to European approach to conducting business in this region growth, and we experienced a 6.6 percent decline in net and better position us for growth, while reducing overall revenue from the previous year. Yet despite the chal- business costs and simplifying procedures. Implementing lenges, several of our markets, such as packaging, non- the three-party system, as we call it, was one of the most woven and footwear, outperformed the general market. complex and ambitious tasks ever undertaken by our Furthermore, we improved results in other areas. Our company. I am proud of the intercontinental team of operating expenses continued to decline on an annual associates who, through their commitment, tenacity and basis, completing the year at 20.2 percent of net revenue. determination, completed this project in 11 months. Our positive cash flow allowed us to reduce our debt level Their work captures the spirit of today's H.B. Fuller. by nearly $60 million, and to slice interest expense by $2.6 million. Our return on sales remained comparable RISK AND REWARD to the previous year. We made strides on key initiatives Based on the strong appreciation in our stock targeted at cutting costs, taking expense out of our organ- price over the last fiscal year - more than 70 percent - we ization and becoming more efficient. For example, our announced a two-for-one split of our common stock in adhesives business successfully continued its product October. It was issued on Nov. 16, 2001, to shareholders rationalization program. Since the start of 2000, we have of record on Oct. 26, 2001. On the surface, splitting consolidated or eliminated 40 percent of our manufac- stock may seem purely transactional, but it signifies tured product line. And price increases implemented in more. Making changes in any organization - let alone a late 2000 to offset the steady rise in raw material costs 115-year old company rooted in tradition - is never easy, took hold this year. There is more to be done in this area, and entails a degree of risk and uncertainty. Underlying but we are moving in the right direction. Overall, the stock split are the actions taken during the past sev- although we are limited in our ability to modify external eral years to strengthen the company. Our stock price is conditions, there are many actions we can take to adapt confirmation of the confidence investors have placed in our company to excel in the present environment. This is our company's capabilities and strategies, and it ulti- what becoming a high-performance company is about. mately rewards you, our shareholders. PEOPLE LEADERSHIP We restructured our European business into Leading the way with e-Business and using this three distinct functions and relocated the regional head- tool to create competitive advantage is one of our top pri- quarters to Zurich, Switzerland. By having each entity orities. The Fuller Store, our general adhesives site, went focus on the basic tasks assigned to it - administration, live in March 2001. It is designed to serve distributors, sales or manufacturing - we will enhance the speed of small-usage customers and strategic accounts, and is tai- decision-making and simplify processes. Furthermore, lored for their individual purchasing needs. Our Global Mileposts Segmented business into three distinct Streamlined procureme 1998 TO PRESENT value propositions Streamlined adhesive Reduced operating expenses as a percent consolidating approxi Redefined business - purpose, strategy of sales by more then 2 percentage points worldwide and culture Consolidated and centr Coatings Division has also begun selling online. when it occurs is where we will focus our energies in Additionally, we are using the Internet to revolutionize our 2002. We can't predict the future, but we can be pre- supply chain management strategy, and have established pared. We will continue our thrust to become as cost-effi- systems relationships with preferred vendors that enable cient as possible. Toward this end, in January 2002 we the complete automation of procurement. This is just the announced plans to reduce manufacturing capacity tip of the iceberg. Our goal is to rapidly migrate from throughout our organization by approximately 20 per- transactional capabilities to developing ways of using the cent. This will entail closure of 12 to 15 facilities in Internet to deliver customer-rich services. Complementing North America, Latin America and Europe, and the our e-Business strategies is Stratyc, a technology venture reduction of 250 positions. Aligning our available manu- incorporated by H.B. Fuller in October 2000. Like many facturing capacity with our needs is a difficult, but nec- manufacturers in the chemical, food processing and phar- essary, step to ensure our future competitiveness. maceutical industries, H.B. Fuller uses PRISM software in We will also continue to look for new avenues its operations. Stratyc has developed the tools necessary of growth. For example, in December 2001, we to web-enable PRISM users. In addition to benefiting announced the formation of a strategic alliance with H.B. Fuller, we are actively marketing our solution to Tracking Technologies, Inc., for the marketing and other companies. It is no secret that speed is critical in the servicing of microparticle security systems. These act as world of electronic commerce. We have momentum, and a defense against counterfeiting, product diversion and are well ahead of our competition. brand piracy by adding covert chemical codes to pack- aging, paper, plastics and adhesives. Partnering in such The Journey - 2002 ways, leveraging resources and expertise, is essential to achieving our growth objectives. In the year ahead we will encounter many of the same Looking back at the year completed, I am obstacles faced in 2001. Experts predict the recession will proud of our performance, and of our associates' hard continue well into this year, and the resulting weak work and dedication. We persevered in a difficult time. demand in automotive, construction, appliance and con- Looking ahead, I am confident of our capabilities. We are sumer goods will affect the need for our products in these committed to remaining a healthy, evolving organization markets. Similarly, we anticipate currency, particularly in that delivers compelling value for our shareholders. Our Japan, Europe and Australia, will remain a concern. The journey has just begun. crisis in Argentina poses a challenge to our Latin American business, but given our decades of experience in this region, we have proactively taken steps to mini- mize the impact. Albert P.L. Stroucken Minimizing the impact and positioning Chairman of the Board, H.B. Fuller to take advantage of the economic recovery President and Chief Executive Officer urement Developed standard information technology Split stock two-for-one esive product offerings, infrastructure Reduced total debt by approximately $130 proximately 40 percent Established three-party system in Europe to million in three years, a result of strong cash reduce operating costs while capitalizing on flow centralized manufacturing growth opportunities UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ࠚ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 1, 2001 OR □ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File No.