Acquisitions and Divestitures

9 Months Ended

Sep. 01, 2012

Acquisitions and Divestitures Abstract

Acquisitions and Divestitures Disclosure

Note 2: Acquisitions and Divestitures

Acquisitions

Forbo Industrial Adhesives. On March 5, 2012 we completed the acquisition of the global industrial adhesives and synthetic polymers business of Forbo Holding AG. We acquired the Forbo Group subsidiaries that operate the industrial adhesives business and directly purchased certain assets used in the industrial adhesives business that were not owned by the former Forbo Group subsidiaries on a cash-free and debt-free basis. The purchase price was 370,000 Swiss francs or $404,725 at the rate of 1.09385 USD/CHF when the acquisition closed. We financed the acquisition with the proceeds from our March 5, 2012 note purchase agreement under which we agreed to issue $250,000 in 4.12 percent Senior Notes and a $150,000 term loan at an initial interest rate of 1.75 percent.

The Forbo industrial adhesives business acquired is known for the breadth of its product line in all of our core markets, particularly packaging and durable assembly. The acquisition gives us added product technology, people and skills that will enhance the competitiveness of our business. The global industrial adhesives business acquired operated17 manufacturing facilities in 10 countries and employed more than 1,100 people globally. The acquired business will be integrated into our existing North America Adhesives, EIMEA, Latin America Adhesives and Asia Pacific operating segments. The integration will involve a significant amount of restructuring and capital investment to optimize the new combined operating segments. In addition, in July of 2011 we announced our intentions to take a series of actions in our existing EIMEA operating segment to improve the profitability and future growth prospects of this operating segment. We have combined these two initiatives into a single project which we refer to as the “Business Integration Project”.

The fair value measurement was preliminary at September 1, 2012, subject to further reviews and assessments of the preliminary fair values of certain assets acquired and liabilities assumed. We expect the fair value measurement process to be completed in the fourth quarter of 2012. The following table summarizes the preliminary fair value measurement of the assets acquired and liabilities assumed as of the date of acquisition:

Current assets	$	187,414
Property, plant and equipment		94,990
Goodwill		134,568
Other intangibles, net		121,690
Other assets		168
Current liabilities		(97,326)
Other liabilities		(36,779)
Total purchase price	$	404,725

Based on valuation results, we allocated $121,690 of the purchase price to acquired intangible assetsas follows: $42,190 was assigned to developed technology with expected lives between 7and 12 years, $57,140 was assigned to customer relationships with expected lives between 12and 13 years, $21,880 was assigned to trademarks/trade names with an expected life of 8 years and $480 was assigned to other intangibles with an expected life of 3 years.

Based on our preliminary fair value measurement of the assets acquired and liabilities assumed, we allocated $134,568 to goodwill for the expected synergies from combining the acquired business with our existing business. Upon completion of the fair value measurement, the goodwill will be assigned to our existing North America Adhesives, EIMEA, Latin America Adhesives and Asia Pacific operating segments. The estimated amount of goodwill deductible for tax purposes over a five year period is $3,060 and over a fifteen year period is $25,392. The goodwill non-deductible for tax purposes is $106,116.

Our condensed consolidated statements of income for the 13 weeks and 39 weeks ended September 1, 2012 included net revenue of $138,027 and $283,397, respectively,from the acquisition.

The following unaudited pro forma information gives effect to the acquisition of the Forbo industrial adhesives business acquired as if the acquisition occurred on November 28, 2010. The historical financial information has been adjusted to give effect to pro forma events that are directly attributable to the acquisition, supportable and expected to have a continuing impact on combined results. The unaudited pro forma results do not include any anticipated cost savings from operating efficiencies or synergies that could result from the acquisition. Accordingly, the unaudited pro forma results are not necessarily indicative of what actually would have occurred had the acquisition been in effect for the periods presented. The unaudited pro forma information for the 13 weeks and 39 weeks ended September 1, 2012 and August 27, 2011, assuming that the acquisition occurred at the beginning of fiscal 2011, is presented below:

		13 Weeks Ended				39 Weeks Ended
		September 1,		August 27,		September 1,		August 27,
		2012		2011		2012		2011
Net revenue	$	500,535	$	511,481	$	1,505,848	$	1,478,693
Net income from continuing operations		24,607		23,570		46,966		59,693
Net income attributable to H.B. Fuller		83,268		24,613		104,201		64,353
Diluted earnings per share from continuing operations	$	0.48	$	0.47	$	0.93	$	1.20
Diluted earnings per share		1.64		0.49		2.06		1.29

The pro forma results above include the gain on sale of discontinued operations of $51,680, net of tax of $14,995 for the 13 and 39 weeks ended September 1, 2012. The 39 weeks ended September 1, 2012include non-recurring expenses related to acquired inventory fair value adjustment of $2,406, net of tax. During the 13 weeks and 39 weeks ended September 1, 2012, we recorded special charges, net of $4,024 and $35,064, respectively, for the after tax non-recurring costs related to the acquisition and integration of the acquired business.

Liquamelt Corp. On April 15, 2011 we acquired the principal assets and certain liabilities of Liquamelt Corp., a manufacturer and marketer of unique adhesives and dispensing systems. Liquamelt Corp. was based in Lorain, Ohio. This innovative adhesive system delivers room temperature liquid adhesive to the point of application where it is heat activated and dispensed.The acquisition was recorded in our North America Adhesives operating segment.

The purchase price of $6,000was funded through existing cash. We incurred acquisition related costs of approximately $118, which were recorded as selling, general and administrative expenses in the Condensed Consolidated Statements of Income.

Divestitures

Central America Paints.On May 7, 2012 we agreed to sell our Central America Paints businessto Compania Global de Pinturas S.A., a company of Inversiones Mundial S.A.The sale was completed on August 6, 2012. Cash proceeds of $118,566 included the $120,000 sales price net of a purchase price adjustment of $1,434 for cash in excess of target cash, a working capital adjustment to target and cash settlement of other balance sheet adjustments. The cash proceeds included settlement of our intercompany debt in the amount of $25,325. As part of this transaction, we recorded a gain of $66,675 ($51,680 net of tax) which is net of direct external costs to sell of $4,638 and deferred a gain of $5,000 ($3,135, net of tax), because a portion of the cash proceeds was determined to be contingent consideration, pending resolution of purchase agreement contingencies which we expect to be resolved in early 2014. The contingent consideration was valued at fair value based on level 3 inputs and is included in long-term liabilities of discontinued operations in the Condensed Consolidated Balance Sheets.

In accordance with ASC 205-20, we have reclassified the results of this business as discontinued operations by restating previously reported results to reflect the reclassification on a comparable basis. The operational results of this business are presented in the “Income from discontinued operations, net of tax” line item on the Condensed Consolidated Statements of Income. Also in accordance with ASC 205-20, we have not allocated general corporate charges to this business. The assets and liabilities of this business are presented on the Condensed Consolidated Balance Sheets as assets and liabilities of discontinued operations.

Revenue and income from discontinued operations for the periods ended September 1, 2012 and August 27, 2011 were as follows:

	13 Weeks Ended				39 Weeks Ended
	September 1, 2012		August 27, 2011		September 1, 2012		August 27, 2011
Net revenue	$	17,014	$	24,686	$	73,143	$	78,486
Income from operations		1,573		1,331		8,235		7,173
Gain on sale of discontinued operations		66,675		-		66,675		-
Income taxes		(9,532)		(117)		(17,524)		(2,759)
Net income from discontinued operations	$	58,716	$	1,214	$	57,386	$	4,414

Income taxes for the 39 weeks ended September 1, 2012 includes$14,995 of tax expense related to the gain on the sale of discontinued operations, of which $5,766 was recorded in our second quarter due to specific changes in our corporate structure as a result of our May 7, 2012 agreement to sell our Central America Paints business.

The major classes of assets and liabilities of discontinued operations as of December 3, 2011 were as follows:

	September 1, 2012		December 3, 2011
Cash and cash equivalents	$	-	$	1,500
Trade receivables, net		-		26,852
Inventories		-		19,549
Other current assets		-		4,583
Current assets of discontinued operations		-		52,484
Property, plant and equipment, net		-		13,296
Other assets		1,865		3,563
Long-term assets of discontinued operations		1,865		16,859
Trade payables		87		11,936
Income taxes payable		18,630		4,567
Other accrued expenses		25		6,097
Current liabilities of discontinued operations		18,742		22,600
Accrued pension liabilities		-		1,288
Other liabilities		5,000		1,456
Long-term liabilities of discontinued operations		5,000		2,744