Fourth Quarter 2009 Highlights Included:

• Sequential improvement on the top-line continued, net revenue increased 8 percent over the third quarter;
• Gross margin improved 630 basis points year-over-year to 31.2 percent and held steady on a sequential basis;
• EBITDA margin² improved to 14.1 percent in the fourth quarter, within the Company's long-term target range of 14 to 16 percent;
• Strong cash flow performance continued -- cash flow from operations, before pension contributions of $125 million, was $79.2 million, versus $8.5 million last year;
• On an adjusted (comparable) basis, fourth quarter diluted EPS more than doubled versus prior year, from $0.24¹ to $0.50;
• Debt maturity profile was extended and liquidity position enhanced with agreement to issue $150 million in senior unsecured notes.

Full-Year 2009 Highlights Included:

• Gross margin expanded to 30.1 percent, a 390 basis point improvement versus full-year 2008;
• Operating margin³ increased 80 basis points to 8.7 percent on lower raw material costs and pricing discipline;
• Adjusted diluted EPS¹ grew 4 percent year-over-year despite difficult economic environment;
• Cash flow from operations, before pension contributions of $135 million, was $207 million, the strongest cash flow performance in the last decade.

Fourth Quarter 2009 Results:

Net income for the fourth quarter of 2009 was $24.6 million, or $0.50 per diluted share, versus a loss of $42.4 million, or $0.88 per diluted share, in last year's fourth quarter. Net loss for the fourth quarter of 2008 included non-cash asset impairment charges of $54.0 million, or $1.12 per diluted share. After adjusting for the non-cash impairment charges, fourth quarter 2008 net income was $11.6 million, or $0.24 per diluted share.

Net revenue for the fourth quarter of 2009 was $341.6 million, down 2.5 percent versus the fourth quarter of 2008. Foreign currency translation and acquisitions positively impacted net revenue growth by 1.8 and 0.6 percentage points, respectively. Lower volume and lower average selling prices reduced net revenue growth by 4.5 and 0.4 percentage points, respectively. Gross margin was up more than 600 basis points versus the fourth quarter of 2008, primarily due to significantly lower raw material costs. Investments for growth continued in the fourth quarter. These investments, together with higher variable compensation expense, largely led to the increase in SG&A expense versus the prior year. Overall, EBITDA margin² for the fourth quarter increased 400 basis points year-over-year to 14.1 percent.

On a sequential basis, net revenue increased 8 percent compared to the third quarter, supported by generally more favorable end-market conditions together with new business wins. Gross margin was relatively flat versus the third quarter. Although raw material costs increased and pricing declined slightly, reformulation efforts and higher volumes mitigated a large portion of the impact. SG&A expense increased approximately 5 percent versus the third quarter, driven primarily by additional investments in talent made in the fourth quarter. Overall, EBITDA margin² improved 40 basis points versus the third quarter.

Balance Sheet and Cash Flow:

At the end of the fourth quarter of 2009 total cash was $100 million and total debt was $214 million, compared to third quarter levels of $180 million and $244 million, respectively. Consequently, net debt increased $50 million on a sequential basis. The increase in net debt was primarily attributable to pension contributions made during the fourth quarter. Cash flow from operations, before pension contributions, was $79 million in the fourth quarter compared to $8 million in the fourth quarter of 2008. This year's fourth quarter cash flow from operations includes the impact from the $18.8 million settlement received from the lawsuit against the former owners of the Roanoke Companies Group.

During the fourth quarter of 2009, the Company made pension contributions into both its U.S. and German pension plans. In total, $125 million was contributed, $75 million into the U.S. plan and $50 million into the German plan. These contributions were funded through cash on hand and additional borrowing under the Company's revolving credit facility. The contributions were designed to bring each plan up to a fully funded status at fiscal year-end. Including the $10 million pension contribution made into the U.S. plan in the third quarter, total contributions into these plans were $135 million for the year.

Subsequent to the end of the fiscal year, the Company agreed to issue $150 million in senior unsecured notes in the U.S. private placement market. The proceeds from the offering will be used to pay down the Company's revolving credit facility, leaving this facility largely unutilized.

Fiscal Year 2009:

"We are very pleased with our performance in 2009 and the steady, incremental improvements we made throughout the year. Despite persistent weak end-market demand conditions, we remained focused and determined in executing our long-term growth strategy," said Michele Volpi, H.B. Fuller president and chief executive officer. "In 2009, we executed on a number of fronts and made H.B. Fuller a stronger company. We invested in several key talent additions throughout the organization and we built up the customer facing sides of our business through numerous investments in sales, marketing, and technical service. In addition, we acquired new value-added technologies through the acquisition of Nordic Adhesives and we directly invested for geographic expansion in both Asia Pacific and the Middle East through the addition of new manufacturing capacity in China and Egypt. We are proud of our team's ability to execute on multiple fronts and to advance our strategy, while remaining focused on delivering improved financial performance and outperforming the market in a challenging year."

Net income for fiscal year 2009 was $83.7 million, or $1.70 per diluted share, versus $18.9 million, or $0.36 per diluted share, in 2008. This year's net income included both a non-cash "true-up" for the estimated goodwill impairment charge taken at the end of fiscal year 2008 and a gain related to the settlement of a lawsuit against the former owners of the Roanoke Companies Group. The "true-up" charge reduced net income by $0.5 million, or $0.01 per diluted share, and the settlement increased net income by $11.8 million, or $0.24 per diluted share. Excluding these items, net income for the full year would have been $1.47 per diluted share versus the reported results of $1.70 per diluted share. In addition, last year's net income included non-cash asset impairment charges of $54.3 million, or $1.06 per diluted share. Excluding these impairment charges, fiscal year 2008 net income was $73.2 million, or $1.41 per diluted share. Therefore, on an adjusted (comparable) basis, diluted EPS increased 4 percent in 2009 relative to the prior year.

Net revenue for fiscal year 2009 was $1.235 billion, down 11.3 percent versus fiscal year 2008. Higher average selling prices and acquisitions positively impacted net revenue growth by 3.3 and 0.6 percentage points, respectively. Lower volume and unfavorable foreign currency translation adversely impacted net revenue growth by 11.7 and 3.5 percentage points, respectively. Consequently, organic sales declined by 8.4 percent year-over-year in 2009.

Fiscal 2010 Outlook:

"As we begin 2010, much remains uncertain," said Volpi. "However, we are confident that regardless of the end-user demand environment, we will continue to outperform the market with respect to revenue growth. In 2009, we successfully expanded customer relationships and landed sizable new business. We fully expect this trend to continue. With respect to gross margin, we will strive to maintain profitability around current levels, but we do expect to face low-to-mid single-digit raw material cost inflation in 2010. We will utilize our reformulation capabilities and pricing to mitigate the impact of this uncertain inflationary raw material environment. Regarding SG&A expense, we will accelerate our investments in the business to further support and drive consistent profitable growth. Resources to all the customer-centric functions of the business will be enhanced."

The following highlights the Company's expectations for several key metrics in its 2010 financial outlook:

• Total pension expense globally (including post-retirement health obligations in the U.S.) is planned to be $5.5 million in 2010, about $4.5 million higher than in 2009;
• Interest expense in 2010 will increase by about $4 million relative to 2009 due to an overall increase in rates and a higher proportion of fixed rate debt in 2010 relative to 2009;
• Capital expenditures in 2010 are expected to be approximately $25 million;
• The Company's effective tax rate, excluding discrete items, is expected to be 34 percent in 2010, in-line with fiscal year 2009 on the same basis.

Conference Call:

The Company will host an investor conference call to discuss fourth quarter and fiscal year 2009 results on Wednesday, January 13, 2010 at 9:30 a.m. central time (10:30 a.m. eastern time). The conference call audio and accompanying presentation slides will be available to all interested parties via a simultaneous webcast at www.hbfuller.com under the investor relations section. The event is scheduled to last one hour. For those unable to listen live, an audio replay of the event along with the accompanying presentation will be archived on the Company's website.

Regulation G:

The information presented in this earnings release regarding adjusted earnings per share, operating income, operating margin, and earnings before interest, taxes, depreciation, and amortization (EBITDA) does not conform to generally accepted accounting principles (GAAP) and should not be construed as an alternative to the reported results determined in accordance with GAAP. Management has included this non-GAAP information to assist in understanding the operating performance of the Company and its operating segments. The non-GAAP information provided may not be consistent with the methodologies used by other companies. All non-GAAP information is reconciled with reported GAAP results in the tables below.

About H.B. Fuller Company:

H.B. Fuller Company is a leading worldwide manufacturer and marketer of adhesives, sealants, paints and other specialty chemical products, with fiscal 2009 net revenue of $1.235 billion. Its common stock is traded on the New York Stock Exchange under the symbol FUL. For more information, please visit the website at www.hbfuller.com.

Safe Harbor for Forward-Looking Statements:

Certain statements in this document may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to various risks and uncertainties, including but not limited to the following: the Company's ability to effectively integrate and operate acquired businesses; political and economic conditions; product demand; competitive products and pricing; costs of and savings from restructuring initiatives; geographic and product mix; availability and price of raw materials; the Company's relationships with its major customers and suppliers; changes in tax laws and tariffs; devaluations and other foreign exchange rate fluctuations; the impact of litigation and environmental matters; the effect of new accounting pronouncements and accounting charges and credits; and similar matters. Further information about the various risks and uncertainties can be found in the Company's SEC 10-Q filing of April 3, 2009, July 1, 2009, and October 1, 2009, and 10-K filing of January 28, 2009. All forward-looking information represents management's best judgment as of this date based on information currently available that in the future may prove to have been inaccurate. Additionally, the variety of products sold by the Company and the regions where the Company does business make it difficult to determine with certainty the increases or decreases in net revenue resulting from changes in the volume of products sold, currency impact, changes in product mix, and selling prices. However, management's best estimates of these changes as well as changes in other factors have been included.

SOURCE: H.B. Fuller Company

H.B. Fuller Company
Investor Relations Contact:
Steven Brazones, 651-236-5158