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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended November 27, 2004

OR

For the transition period from                      to                     

Commission File No. 001-09225

H.B. FULLER COMPANY

(Exact name of registrant as specified in its charter)

(Registrant’s telephone number, including area code) (651) 236-5900

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: none

(Title of class)

(Title of class)

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  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).  Yes  x    No  ¨

The aggregate market value of the Common Stock, par value $1.00 per share, held by non-affiliates of the registrant as of May 29, 2004 was approximately $754,468,000 (based on the closing price of such stock as quoted on the New York Stock Exchange of $26.79 on such date).

The number of shares outstanding of the registrant’s Common Stock, par value $1.00 per share, was 28,654,666 as of January 31, 2005.

DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates information by reference to portions of the registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on April 14, 2005.

This document contains 67 pages.

The exhibit index is set forth on page 66.

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H.B. FULLER COMPANY

2004 Annual Report on Form 10-K

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PART I

H.B. Fuller Company and its subsidiaries manufacture and market adhesives and specialty chemical products globally, with sales operations in 34 countries in North America, Europe, Latin America and the Asia Pacific region. The business is reported in two operating segments. The Global Adhesives operating segment represents approximately 70 percent of global net revenues and is managed on a worldwide basis. The Full-Valu/Specialty operating segment represents approximately 30 percent of global net revenue.

Segment Information.    The Global Adhesives operating segment produces and supplies industrial and performance adhesives products for applications in various markets, including assembly (woodworking, appliances, etc.), packaging, converting (corrugated, tape and label, tissue and towel, etc.), nonwoven (disposable diapers, feminine care and adult incontinence products), automotive, graphic arts (books, magazines, etc.) and footwear.

The Full-Valu/Specialty operating segment produces and supplies specialty chemical product lines such as ceramic tile application, HVAC insulation, powder coatings applied to metal surfaces for office furniture, appliances and lawn and garden equipment, specialty products and consulting for packaging solutions, consumer products and windows market applications, as well as liquid paint sold through retail outlets in Central America.

Management evaluates operating segment performance based on operating income which is defined as gross profit minus selling, general and administrative expenses (“SG&A”). Restructuring expenses are excluded from the operating segment results. Corporate expenses are fully allocated to the operating segments. Corporate assets are not allocated to the segments. Inter-segment revenues are recorded at cost plus a minor markup for administrative costs.

Financial Information with respect to the company’s segments and geographic areas is set forth in Note 13 to the Consolidated Financial Statements and is incorporated herein by reference.

Non-U.S. Operations.    The principal markets, products and methods of distribution outside the United States vary with business practices of the country. Non-U.S. operations face varying degrees of economic and political risks. At the end of 2004, the company had sales offices and manufacturing plants in 17 countries outside the United States and satellite sales offices in another 16 countries.

Competition.    The company sells a wide variety of products in numerous markets, each of which is highly competitive. Many competitors are part of large multi-national companies and may have more resources than the company. Any increase in competition may result in lost market share or reduced prices, which could result in reduced gross profit. This may impair the company’s ability to grow or even to maintain current levels of revenues and earnings.

The principal competitive factors in the sale of adhesives and other specialty chemicals are product performance, customer service, technical service, quality and price.

Customers.    Of the $1,409.6 million net revenue to unaffiliated customers in 2004, $767.7 million was sold through North American operations. No single customer accounted for more than 10 percent of consolidated net revenue.

Backlog.    Orders for products are generally processed within one week. Therefore, no significant backlog of unfilled orders existed at November 27, 2004, November 29, 2003, or November 30, 2002.

Raw Materials.    The principal raw materials used include resins, polymers, synthetic rubbers, vinyl acetate monomer and plasticizers. The company generally avoids sole source supplier arrangements for raw materials. While alternate supplies of most key raw materials are available, sustained strong economic growth in North

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America and China coupled with unplanned production outages have led to strained supply-demand situations for several key feedstocks (benzene and ethylene), some of their derivatives, several polymers and acrylate monomers.

The substitution of key raw materials requires the company to identify new supply sources, reformulate, retest and may require seeking re-approval from customers using those products.

The majority of the company’s raw materials are petroleum/natural gas based derivatives. Under normal conditions, all of these raw materials are generally available on the open market. Prices and availability are subject to supply and demand market mechanisms. Higher oil and natural gas costs usually result in higher prices for raw materials, although downstream price decoupling has been observed in some markets.

The Latin American and Asia Pacific operations import many of their raw materials. Expanding the company’s global supply base mandates a higher level of international procurement activity.

Patents, Trademarks and Licenses.    Much of the technology used in manufacturing adhesives and other specialty chemicals is in the public domain. For technology not in the public domain, the company relies on trade secrets and patents when appropriate to protect its know-how. The company also licenses some patented technology from other sources. Management does not believe its business is materially dependent upon licenses or similar rights or on any single patent or group of related patents.

There are agreements with many employees to protect rights to technology and intellectual property. Confidentiality commitments also are routinely obtained from customers, suppliers and others to safeguard proprietary information.

The company owns numerous trademarks and service marks. Trademarks, such as Advantra^®, Adalis^®, Sesame^®, Protecto^®, TEC^® and Plasticola^®, are important in marketing products. Most of the company’s trademarks and service marks are registered.

Research and Development.    The company continues to offer new and improved products. The primary emphasis has been on developing adhesives with applications across numerous markets. Research and development expenses were $16.0 million, $17.9 million and $17.9 million in 2004, 2003, and 2002, respectively. These costs are included in selling, general and administrative expenses. While the company makes efforts to improve its technology, unexpected technological advances by new or existing competitors could materially affect its business in one or more markets.

Environmental, Health and Safety.    The company undertakes to comply with applicable regulations relating to protection of the environment and workers’ safety. Management regularly reviews and upgrades its environmental policies, practices and procedures and seeks improved production methods that minimize waste coming out of its facilities, particularly toxic waste, based on evolving societal standards and increased environmental understanding.

Environmental expenditures to comply with environmental regulations over the next two years are estimated to be approximately $14.4 million, including approximately $2.9 million of capital expenditures.

—See additional disclosure under Item 3. Legal Proceedings.

Employees.    Approximately 4,500 individuals were employed on November 27, 2004, of which approximately 1,800 individuals were in the United States.

Available Information.    For more information about the company, visit our website at:

http://www.hbfuller.com.

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The company files annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (SEC) via EDGAR. The company’s SEC filings are available to the public at our website as soon as reasonably practicable after they have been filed with or furnished to the SEC. You may also request a copy of these filings (other than an exhibit to a filing unless that exhibit is specifically incorporated by reference into that filing) at no cost, by writing to or telephoning the company at the following address:

Office of the Corporate Secretary

H.B. Fuller Company

1200 Willow Lake Boulevard

P.O. Box 64683

St. Paul, Minnesota 55164-0683

(651) 236-5825

Principal executive offices and central research facilities are located in the St. Paul, Minnesota area. Manufacturing operations are carried out at 20 plants located throughout the United States and at 20 plants located in 17 other countries. The Global Adhesives and Full-Valu/Specialty segments operate 11 and 9 plants, respectively in the United States and 16 and 4 plants, respectively outside the United States. In addition, numerous sales and service offices are located throughout the world. Management believes that the properties owned or leased are suitable and adequate for its business. Operating capacity varies by product, but additional production capacity is available for most product lines by increasing the number of shifts worked. The following is a list of the company’s manufacturing plants as of November 27, 2004:

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Environmental Matters.    From time to time, the company is identified as a “potentially responsible party” under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) and similar state laws that impose liability for costs relating to the cleanup of contamination resulting from past spills, disposal or other release of hazardous substances. The company is also subject to similar laws in some of the countries where current and former plants are located. The company’s environmental, health and safety department monitors compliance with all applicable laws on a global basis.

Currently the company is involved in administrative proceedings or lawsuits in the United States relating to 35 sites. This number includes contaminated sites where the company’s sole involvement to date has been responding to a formal request for information. At many of these sites, the company has entered into participation agreements and consent decrees, tolling agreements exist, or the company has received no further communication after submitting its response for a request for information and/or its’ denial of liability. The estimated response costs for all potentially responsible parties at these sites is in excess of $1.0 billion and the range of claims for individual sites is from $1.5 to $600 million, but the amounts claimed against the company at many of the sites are unknown. In addition, the company is currently investigating soil contamination at its Sorocaba, Brazil facility. The company is working with Brazilian regulatory authorities to determine the necessary scope of remediation at the facility. During 2004, the company recorded expenses of $1.7 million related to investigation and remediation expenses for this site. Of the $1.7 million, $1.1 million is recorded as a liability as of November 27, 2004. Once the full scope of any necessary remediation is determined, the company may be required to record additional liabilities related to investigation and remediation costs at the Sorocaba facility.

The company’s management reviews each individual site, considering the number of parties involved, the level of potential liability or contribution of the company relative to the other parties, the nature and magnitude of the hazardous wastes involved, the method and extent of remediation, the estimated legal and consulting expense with respect to each site and the time period over which any costs would likely be incurred. The company accrues appropriate reserves for potential environmental liabilities, which are continuously reviewed and adjusted as additional information becomes available. As of November 27, 2004, the company had reserved $3.6 million, which represents its best estimate of probable liabilities with respect to environmental matters. However, the full extent of the company’s future liability for environmental matters 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 waste and the number of and financial condition of other potentially responsible parties.

From time to time management becomes aware of compliance matters relating to, or receives notices from federal, state or local entities regarding possible or alleged violations of environmental, health or safety laws and regulations. In some instances, these matters may become the subject of administrative proceedings or lawsuits and may involve monetary sanctions of $0.1 million or more (exclusive of interest and litigation costs).

While uncertainties exist with respect to the amounts and timing of the company’s ultimate environmental liabilities, based on currently available information, management does not believe that these matters, individually or in the aggregate, will have a material adverse effect on the company’s consolidated financial position, results of operations or cash flows. However, adverse developments could negatively impact earnings or cash flows in a particular future period.

Product Liability Matters and Other Legal Proceedings.    From time to time and in the ordinary course of business, the company is a party to, or a target of, lawsuits, claims, investigations and proceedings, including product liability, contract, patent and intellectual property, antitrust and employment matters. While the company is unable to predict the outcome of these matters, it does not believe, based upon currently available facts, that the ultimate resolution of any pending matter, including the EIFS and asbestos litigation described in the following paragraphs, will have a material adverse effect on its overall financial condition, results of operations or cash flows. However, adverse developments could negatively impact earnings or cash flows in a particular future period.

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As disclosed in prior filings, a subsidiary of the company is a defendant or co-defendant in numerous exterior insulated finish systems (“EIFS”) related lawsuits. As of November 27, 2004, the company’s subsidiary was a defendant or co-defendant in approximately 88 lawsuits and 6 claims related primarily to single-family homes. The EIFS product was used primarily in the residential construction market in the southeastern United States. Claims and lawsuits related to this product seek monetary relief for water intrusion related property damages. One of the lawsuits is a class action lawsuit purportedly involving 186 members, and some of the lawsuits involve EIFS in commercial or multi-family structures. As of November 27, 2004, the company had recorded $3.9 million for the probable liabilities and $1.5 million for insurance recoveries for all such matters. The company only has insurance coverage for certain years with respect to this product. The company continually reevaluates these amounts. Management does not believe that the ultimate outcome of any pending legal proceedings and claims related to this product line, individually or in aggregate, will have a material adverse effect on its consolidated financial position, results of operations or cash flows. However, projecting future events, such as the number of new claims to be filed each year, the average cost of disposing of each such claim, as well as the numerous uncertainties surrounding litigation in the United States, could cause the actual costs to be higher or lower than our current estimated reserves or insurance recoveries.

As previously reported, over the years, the company has been named as a defendant in lawsuits in various state courts in which plaintiffs alleged injury due to exposure to products manufactured by the company 20 to 30 years ago that contained asbestos. These cases generally seek unspecified damages for asbestos-related diseases. These suits frequently seek both actual and punitive damages, often in very large amounts. In many cases, plaintiffs are unable to demonstrate that they have suffered any compensable loss as a result of such exposure, or they are unable to demonstrate that injuries incurred in fact resulted from exposure to products manufactured by the company or its subsidiaries. In such cases, the company is generally dismissed without payment. With respect to those cases where compensable disease, exposure and causation are established with respect to one of the company’s products, the company generally settles for amounts that reflect the confirmed disease, the seriousness of the case, the particular jurisdiction and the number and solvency of other parties in the case. Substantially all of these cases have involved multiple co-defendants and the company is typically a de minimis party.

During fiscal year 2004, insurance or indemnification from solvent third parties in accordance with applicable policies or contracts paid virtually all of the defense costs associated with the company’s asbestos litigation. As previously reported, during 2003, the company’s insurers replaced the cost sharing agreement which had previously provided for the allocation of settlement payments among the insurers with an interim allocation formula. Under this formula the company has funded settlement amounts allocable to years in which the responsible insurer is insolvent. As previously reported, during the third quarter of 2004, the company and a group of other defendants entered into negotiations with a group of plaintiffs to settle a number of asbestos related lawsuits. Subject to finalization of certain terms and conditions of settlement, the company has agreed to contribute $3.5 million towards the settlement amount to be paid to the plaintiffs in exchange for a full release of claims by the plaintiffs. Of this amount, the company’s insurers have agreed to pay approximately $1.2 million. In total, during 2004 the company settled asbestos related lawsuits for an aggregate of $3.9 million. Based on the interim allocation formula, the company’s insurers have paid or are expected to pay approximately $1.4 million of these settlement amounts. The remainder represents amounts allocable to years in which the responsible insurer is insolvent. The company is pursing additional recovery from the liquidators for the insolvent insurers and claims for coverage from solvent excess insurers. The company and its insurers have also engaged in negotiations with respect to the terms of a new cost sharing arrangement which may result in a continuation or alteration of the interim allocation formula. To the extent the company can reasonably estimate the amount of its probable liability, the company will establish a financial reserve in an amount which it deems to be adequate and a corresponding amount for insurance coverage.

None in the quarter ended November 27, 2004.

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Executive Officers of the Registrant

The following table shows the name, age and business experience for the past five years of the executive officers as of January 31, 2005. Unless otherwise noted, the positions described are positions with the company or its subsidiaries.

The Board of Directors elects the executive officers annually.

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PART II

The company’s common stock is traded on the New York Stock Exchange under the symbol “FUL.” As of November 27, 2004, there were 3,104 common shareholders of record for the company’s Common Stock. The following table shows the high and low sales price per share of the common stock and the dividends declared for the fiscal quarters.

There are no significant contractual restrictions on the company’s ability to declare or pay dividends.

The annual meeting of shareholders will be held on Thursday, April 14, 2005, at 2 p.m., central time, at the Minnesota History Center, 345 West Kellogg Boulevard, St. Paul, MN. All shareholders are cordially invited to attend.

Issuer Purchases of Equity Securities

Upon vesting of restricted stock awarded by the company to employees, shares are withheld to cover the employees’ withholding taxes. No shares were withheld during the fourth quarter of 2004.

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Overview

When reviewing the company’s operating results it is important to understand how key external factors impact the company’s financial results. These factors include;

In 2004, the company generated 54 percent of its revenue in North America and 23 percent in Europe. The pace of economic growth in these regions has a direct impact on the revenues of certain business units in the company. Within the Global Adhesives operating segment, the revenues of the assembly, converting and automotive business units are especially sensitive to the economic growth rates. Customers of the assembly business include manufacturers of furniture, appliances and other durable goods that are sensitive to the fluctuations in economic activity. The converting business unit generates its revenue from companies that produce packaging materials such as corrugated boxes, which are in lower demand as economic activity slows down. Other business units within Global Adhesives that are not as susceptible to fluctuations in economic growth are the nonwoven and packaging business units. Nonwoven customers are primarily manufacturers of personal hygiene products and the packaging business unit generates a high percentage of its revenue from the food and beverage industry.

In the Full-Valu/Specialty operating segment the powder coatings business, which sells to manufacturers of appliances, office equipment, lawn and garden equipment and other products made with metals is the most sensitive to overall economic growth rates. The windows business unit and ceramic tile installation product line, both within the Full-Valu/Specialty segment, are sensitive to more specific economic indicators such as housing starts in the U.S.

Historically, price changes of crude oil and natural gas have been the most significant external factors influencing the company’s cost of raw materials. Many of the company’s raw materials are petroleum-based derivatives and are therefore subject to the fluctuations in the commodity prices. The increased energy costs in 2004 did have a significant impact on the company’s raw material cost increases. In addition to the impact from energy prices, raw material supply and demand issues had an even larger impact on the company’s cost increases. As global demand increased, especially from high-growth regions such as Asia, supplies became tight and certain raw materials were put on allocation in the second half of 2004. The company was able to meet all of its customers’ demands. With upwards of $700 million in annual purchases of raw materials and containers, managing these cost increases through effective selling price strategies is critical to the financial success of the company.

The movement of foreign currency exchange rates impacts the translation of the foreign entities’ financial statements into U.S. dollars. In 2004, due primarily to the significant strengthening of the euro against the U.S. dollar, currency rate changes increased the company’s net revenue by 3.3 percent, or over $42 million as compared to 2003. The strengthening of other currencies against the U.S. dollar such as the Japanese yen, Australian dollar, British pound and Canadian dollar also contributed to the net revenue increase in 2003. The stronger foreign currencies also caused U.S. dollar increases in cost of goods sold and selling, general and administrative expenses of approximately $39 million. The resulting increase in net income before income taxes of over $3 million translated into an estimated increase in earnings per share of $0.08.

The company had several positive accomplishments in 2004. From a financial standpoint, cash flow generation showed excellent improvement. Free cash flow, defined as net cash provided from operating activities, less cash outlays for capital expenditures and dividends, was $79 million in 2004 as compared to approximately $8 million

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in 2003. Effective February 29, 2004 the company acquired the adhesives and resins businesses of Probos, S.A. based in Oporto, Portugal, expanding its geographic reach in the Iberian Peninsula. Annualized net revenue from the purchased businesses is approximately $30 million. The implementation of the Lean Six Sigma^SM methodology for process improvements provided significant benefits in its first year of deployment.

On January 10, 2005, the company determined that it was unable to reconcile certain balance sheet accounts relating to its Chilean operations. The Audit Committee of the company’s Board of Directors conducted an independent investigation into the accounting and financial reporting matters at the company’s Chilean operations. The Audit Committee engaged special counsel and an independent accounting firm to assist in its investigation and report on this matter.

The investigation indicated that certain members of the local accounting organization knowingly recorded incorrect entries to certain accounts in the Chilean financial statements. Furthermore, the investigation indicated a portion of these accounting irregularities involved the misappropriation of company assets. The impact of these actions, which the investigation indicated began in fiscal year 1999, resulted in the cumulative overstatement of net income through August 28, 2004 totaling $3.1 million. Of this amount, $2.0 million related to overstatements occurring prior to fiscal year 2004. The amounts relating to prior year periods were determined to be immaterial to the respective prior year periods and 2004 and, accordingly, were recorded in the fourth quarter of 2004. The remaining $1.1 million represented misstatements in fiscal year 2004 of which, $0.5 million and $0.6 million occurred in the second and third quarters, respectively. The second and third quarters of 2004 are restated as shown in Note 16.

Critical Accounting Policies and Significant Estimates

Management’s discussion and analysis of its results of operations and financial condition are based upon consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Management believes the critical accounting policies and areas that require the most significant judgments and estimates to be used in the preparation of the consolidated financial statements are pension and other postretirement plan assumptions, goodwill recoverability, product, environmental and other litigation liabilities and income tax accounting.

Pension and Other Postretirement Plan Assumptions:    The company sponsors defined-benefit pension plans in both U.S. and foreign entities. Also in the U.S. the company sponsors other postretirement plans for health care and life insurance costs. Expenses and liabilities for the pension plans and other postretirement plans are actuarially calculated. These calculations are based on management’s assumptions related to the discount rate, expected return on assets, projected salary increases and healthcare cost trend rates. The annual measurement date for these assumptions is August 31. Note 10 to the Consolidated Financial Statements includes disclosure of these assumptions for both the non-U.S. and U.S. plans.

The discount rate assumption is tied to a long-term high quality bond index and is therefore subject to annual fluctuations. A lower discount rate increases the present value of the pension obligations, which results in higher pension expense. The discount rate in the U.S. was 5.75 percent at August 31, 2004 as compared to 6.25 percent at August 31, 2003 and 6.50 percent at August 31, 2002. A discount rate reduction of 0.5 percentage points increases pension and other postretirement plan expense (pretax) approximately $1.5 million. Discount rates for non-U.S. plans are determined in a manner consistent with the U.S. plan.

The expected return on assets assumption on the investment portfolios for the pension and other postretirement benefit plans is based on the long-term expected returns for the investment mix of assets currently in the portfolio. Because the rate of return is a long-term assumption, it generally does not change each year. Management uses historic return trends of the asset portfolio combined with recent market conditions to estimate the future rate of return. The current investment mix in the U.S. portfolios is nearly 100 percent in U.S. equities.

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From 1999 through 2001, the company used an expected return on assets assumption for the U.S. portfolio of 10.5 percent. At August 31, 2002, given the poor performance of the U.S. equity markets in 2001 and 2002, management lowered the expected rate of return assumption to 9.75 percent. This rate was used in calculating the expenses for 2003 and 2004 and will also be used for 2005. A change of 0.5 percentage points for the expected return assumption will impact U.S. net pension and other postretirement plan expense (pretax) by approximately $1.4 million. Expected return on asset assumptions for non-U.S. plans are determined in a manner consistent with the U.S. plan.

The projected salary increase assumption is based on historic trends and comparisons to the external market. Higher rates of increase result in higher pension expenses. As this rate is also a long-term expected rate it is less likely to change on an annual basis. In the U.S., management has used the rate of 4.02 percent for the past three years.

Goodwill:    Goodwill is the excess of cost of an acquired entity over the amounts assigned to assets acquired and liabilities assumed in a purchase business combination. As of November 27, 2004, the company’s balance sheet included approximately $96 million of goodwill. The goodwill is primarily included in the global adhesives operating segment.

SFAS No. 142 requires the company to test goodwill for impairment annually or more often if circumstances or events indicate a change in the impairment status. Impairment testing compares the fair value of the reporting units that contain the goodwill to the net asset carrying value of the reporting unit to determine if impairment exists. The calculations confirmed that the fair value of the reporting units exceeded the net asset carrying values for all reporting units.

Management judgment is required in calculating the fair value of the reporting units. The calculation uses a discounted cash flow analysis that requires management to project financial performance and related cash flows. The projections are based on management’s best estimate given recent financial performance, market trends, strategic plans and other available information. Future results will most likely differ from the projected results. However, based on the margin that fair value exceeded the net asset carrying value of the various reporting units, management does not anticipate a material impact on the company’s financial results from differences in these assumptions.

Product, Environmental and Other Litigation Liabilities:    As disclosed in Item 3 and in Note 1 and Note 12 to the Consolidated Financial Statements, the company is subject to various claims, lawsuits and other legal proceedings. Accruals for loss contingencies associated with these matters are made when it is determined that a liability is probable and the amount can be reasonably estimated. The assessment of the probable liabilities is based on the facts and circumstances known at the time that the financial statements are being prepared. For cases in which it is determined that a liability has been incurred but only a range for the potential loss exists, the minimum amount of the range is recorded and subsequently adjusted, as better information becomes available.

For cases in which insurance coverage is available, the gross amount of the estimated liabilities is accrued and a receivable is recorded for any probable estimated insurance recoveries. In the EIFS litigation involving single-family homes referred to in Note 12, $3.5 million for the potential liabilities and $1.1 million for potential insurance recoveries were accrued. The company also has accrued $3.5 million for potential liabilities and $1.2 million for potential insurance recoveries related to the asbestos settlement also discussed in Note 12. As of November 27, 2004, the company had reserved an additional $0.6 million for all other pending matters.

Based upon currently available facts, management does not believe that the ultimate resolution of any pending legal proceeding, individually or in the aggregate, will have a material adverse effect on the company’s consolidated financial condition, results of operations or cash flows. However, adverse developments could negatively impact earnings or cash flows in a particular future period.

Income Tax Accounting:    As part of the process of preparing the consolidated financial statements, management is required to estimate income taxes in each of the jurisdictions in which it operates. The process

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involves estimating actual current tax expense along with assessing temporary differences resulting from differing treatment of items for book and tax purposes. These temporary differences result in deferred tax assets and liabilities, which are included in the consolidated balance sheet. Management records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. Management has considered future taxable income and ongoing tax planning strategies in assessing the need for the valuation allowance. Increases in the valuation allowance result in additional expense to be reflected within the tax provision in the consolidated statement of income. At November 27, 2004, the valuation allowance to reduce deferred tax assets totaled $12.2 million.

Results of Operations:    2004 Compared to 2003 and 2002

Net Revenue:    Net revenue in 2004 of $1,409.6 million increased $122.3 million or 9.5 percent from the 2003 net revenue of $1,287.3 million. The 2003 net revenue was $31.1 million or 2.5 percent above the net revenue of $1,256.2 million in 2002. Management reviews variances in net revenue in terms of changes related to product pricing, sales volume, acquisitions/divestitures and changes in foreign currency exchange rates. The following table shows the net revenue variance analysis for the past two years:

Improved global economic activity in 2004 as compared to 2003 was an important factor in the 2004 growth in sales volume. Although selling price increases began to take hold in the fourth quarter of 2004, it was not enough to stop the overall average price reductions for the year. The adhesives market continued to be one of intense competition for volume, especially in water-based technologies. The positive currency effects on net revenue in both 2004 and 2003 were driven primarily by the stronger euro as compared to the U.S. dollar. The value of one euro as compared to the U.S. dollar at each of the past three fiscal year-end dates has been as follows:

Approximately 20 percent of the company’s 2004 net revenue was generated from euro-denominated transactions.

In the Global Adhesives operating segment net revenue increased by 10.5 percent in 2004 as compared to 2003. Included in the Global Adhesives 2004 net revenue growth was the positive effects from currency exchange rates of 4.1 percent, average selling price decreases of 0.6 percent and increases due to the acquisition of new businesses in Portugal of 2.9 percent. Increases in sales volume also contributed to increases in net revenue of 4.1 percent. In 2003, net revenue growth in Global Adhesives was 3.2 percent as compared to 2002. The 2003 growth was driven primarily by a 5.1 percent increase due to currency exchange rates. The Full-Valu/Specialty operating segment had net revenue growth in 2004 of 7.2 percent as compared to 2003. Sales volume increases accounted for a net revenue increase in 2004 of 4.8 percent as compared to 2003. Positive currency effects were 1.6 percent and average selling prices increased 0.8 percent. In 2003, the Full-Valu/Specialty segment had a net revenue increase of 1.0 percent as compared to 2002.

Cost of Sales:    The cost of sales of $1,037.0 million in 2004 was $101.8 million or 10.9 percent higher than the 2003 cost of sales of $935.1 million. The effects from currency fluctuations increased the 2004 cost of sales by approximately $31.4 million as compared to 2003. Other key components of the 2004 increase in cost of sales

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were increased sales volume, raw material cost increases and the cost of sales on the net revenue generated from the acquired businesses in Portugal. The rapid increase in raw material costs was especially significant in the second half of 2004. In prior years the main factors impacting the company’s cost of raw materials were energy prices as the company uses many petroleum-based raw materials in its products. In 2004 however, it was not only the rising costs of crude oil and natural gas that impacted the company’s costs, it was also increased demand from expanding regions such as Asia that drove up the costs. This increase in demand was occurring at a time of reduced capacity in the industry due to capacity shutdowns and minimal capital investment. The cost of sales increases were mitigated somewhat by reduced costs resulting from the company’s Lean Six Sigma^SM (LSS) initiatives. Projects utilizing the LSS methodology were successful in improving operating efficiencies and reducing waste in several of the company’s processes.

The cost of sales in 2003 of $935.1 million was $16.9 million or 1.8 percent more than the cost of sales of $918.2 million in 2002. The 2003 cost of sales included $3.6 million of costs related to the company’s 2001 – 2002 restructuring initiative and the 2002 cost of sales included $18.1 million of costs related to the same initiative. Currency effects caused an increase of approximately $35 million in the 2003 cost of sales as compared to 2002.

As a percent of net revenue, cost of sales were 73.6 percent, 72.6 percent and 73.1 percent in 2004, 2003 and 2002, respectively.

Gross Profit Margin:    The gross profit margin in 2004 of 26.4 percent was 1.0 percentage points lower than the 27.4 percent margin in 2003. In 2002, the gross profit margin was 26.9 percent. The main reason for the reduced margin in 2004 as compared to 2003 was that the pace of raw material cost increases exceeded the pace of the company’s selling price increases to its customers. Restructuring-related costs included in cost of sales reduced the gross profit margin in 2003 and 2002 by 0.3 and 1.4 percentage points, respectively.

Selling, General and Administrative (SG&A) Expenses:    SG&A expenses were $304.4 million in 2004, $284.2 million in 2003 and $281.6 million in 2002. Currency effects added approximately $8.0 million to the 2004 expenses as compared to 2003. The 2004 SG&A expenses included nearly $4 million from the new businesses in Portugal while the 2003 expenses included $4.8 million of costs related to the company’s restructuring initiative. Other contributing factors to the 2004 increase in SG&A expenses were:

The 2003 increase in SG&A expenses of $2.6 million as compared to 2002 consisted of several offsetting items. Restructuring-related expenses were $4.8 million in 2003 as compared to $13.7 million in 2002. The 2003 expenses also included an estimated savings of $8 million related to the various restructuring initiatives. Currency effects added approximately $9 million to the 2003 SG&A expenses as compared to 2002. Costs related to the company’s pension and other post-retirement benefit plans increased a total of $11.3 million in 2003, of which approximately 60 percent was included in SG&A expenses and 40 percent was included in cost of sales. Management incentive compensation expenses in 2003 were $8.1 million less than in 2002. Approximately $7.3 million of that decrease was included in SG&A expenses. In 2003, the financial results achieved compared to targets set at the beginning of that year were lower than the comparable performance of 2002, resulting in the significant reduction in management incentive expenses.

Interest Expense:    Interest expense was $13.7 million in 2004, $14.5 million in 2003 and $17.3 million in 2002. Lower average outstanding debt levels were the primary reason for the lower interest expense in 2004 as compared to 2003 and in 2003 compared to 2002. Using five-point quarterly averages, the average outstanding debt levels for fiscal years 2004, 2003 and 2002 were $176.8 million, $191.6 million and $209.6 million, respectively.

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Gains (Losses) from Asset Disposals:    The gains (losses) from asset disposals were losses of $0.4 million in 2004, gains of $2.8 million in 2003 and gains of $4.2 million in 2002. There were no significant gains or losses in 2004. In 2003, a $2.0 million gain was realized on the sale of a facility in North America that was closed as part of the restructuring initiative. In 2002, there were also $2.0 million of gains associated with properties sold that had been shut down in the restructuring activities. The 2002 result also included a gain of $1.4 million on the sale of an office building in Latin America.

Other Expense, net:    Other expense was $5.8 million in 2004, $5.4 million in 2003 and $3.0 million in 2002. The largest component of other expense, net is foreign currency transaction and remeasurement gains and losses. The net losses related to foreign currency were $4.5 million in 2004, $3.5 million in 2003 and $1.0 million in 2002. The 2004 figure included $1.5 million of losses related to misstatements in prior years in the company’s Chilean entity, which were recorded in the fourth quarter of 2004.

Income Taxes:    The effective income tax rate was 30.5 percent in 2004, 28.2 percent in 2003 and 32.2 percent in 2002. Included in the 2004 income taxes was a benefit of $1.8 million related to previous tax audits and reconciliations related to current year tax filings. This benefit reduced the 2004 effective rate by 3.7 percentage points. The 2004 effective tax rate was adversely affected by the one-time adjustments in the Chilean operations, most of which did not provide a tax benefit. The 2003 income tax expense included a $1.5 million benefit related to the liquidation of an inactive European legal entity. This benefit lowered the 2003 effective rate by 2.9 percentage points. Tax savings associated with restructuring-related costs increased the effective rate in 2003 by 0.4 percentage points and decreased the effective rate by 0.8 percentage points in 2002.

Minority Interests (Expense)/Income:    Minority interests was income of $0.2 million in 2004, income of $0.013 million in 2003 and expense of $1.0 million in 2002. The minority interest results were driven primarily by the profitability of the company’s North American automotive joint venture, of which the company owns 70 percent. Reduced profitability in this business resulted in the minority interest line being income for both 2004 and 2003. The 2002 minority interest expense included a $0.5 million credit related to $1.6 million of restructuring charges included in the pretax income of the automotive joint venture.

Income from Equity Investments:    Income from equity investments was $1.8 million in 2004, $2.1 million in 2003 and $1.8 million in 2002. The source of this income is the company’s 30 percent ownership interest in an automotive joint venture with a European company. The income from equity investments in 2004 was $0.3 million less than in 2003, a direct result of lower profitability of the European company.

Net Income:    Net income was $35.6 million in 2004, $38.6 million in 2003 and $28.2 million in 2002. The 2004 net income includes charges of $2.0 million resulting from overstatements of net income in prior years related to the Chilean accounting matters that were recorded in the fourth quarter of 2004. Net charges related to the restructuring initiatives reduced net income by $4.9 million in 2003 and $19.1 million in 2002. The income per diluted share was $1.23 in 2004, $1.35 in 2003 and $0.98 in 2002.

Operating Segment Results (2004 Compared to 2003 and 2002)

Note:    Management evaluates the performance of its operating segments based on operating income which is defined as gross profit less SG&A expenses and excluding the gains/(losses) on asset disposals. Charges in connection with the company’s restructuring initiatives are excluded from its operating segment results, consistent with internal management reporting. Corporate expenses are fully allocated to the operating segments. (See further discussion in Note 13 to the Consolidated Financial Statements.)

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Global Adhesives:    Net revenue in the Global Adhesives operating segment was $987.2 million in 2004, $893.2 million in 2003 and $865.8 million in 2002. The following table shows the net revenue variance analysis for the past two years:

The net revenue increases due to sales volume growth in 2004 as compared to 2003 were realized in all four geographic regions, i.e. North America, Europe, Latin America and Asia Pacific. The Asia Pacific region’s net revenue growth due to increased volume was nearly 12 percent. Also, by individual reporting unit within Global Adhesives, automotive, converting, nonwoven and assembly all had significant increases in sales volume in 2004 as compared to 2003. The company’s growth initiatives combined with improved economic conditions were the primary reasons for the sales volume increase. Selling price increases were difficult to implement for the majority of 2004 as the competition continued to hold, or even lower, selling prices in order to fill excess capacity. In the fourth quarter, however, average selling prices did increase in the global adhesives segment by 0.7 percent as compared to the fourth quarter of 2003. The currency effects were primarily due to the stronger euro as compared to the U.S. dollar. Lesser impacts resulted from strengthening of the Japanese yen, Australian dollar and Canadian dollar as compared to the U.S. dollar. In 2003, net revenue decreased due to reduced sales volume as compared to 2002. The reduced volume resulted largely from the slow economies in North America and Europe. Strong competition for volume also caused average selling prices to fall in 2003 as compared to 2002.

Operating income in the Global Adhesives segment was $35.3 million in 2004 as compared to $47.8 million in 2003 and $58.4 million in 2002. The combination of rising raw material costs and reduced selling prices was the main cause for the operating income decreases in 2004 compared to 2003 and in 2003 compared to 2002. The gross profit margin decreased 1.4 percentage points in 2004 as compared to 2003. This followed the decrease of 0.9 percentage points in 2003 as compared to 2002. SG&A expenses increased $21.5 million or 12.3 percent in 2004 as compared to 2003. Currency effects contributed approximately $7 million to the SG&A expense increase in 2004. SG&A expenses associated with the acquired businesses in Portugal added approximately $4 million to the 2004 Global Adhesives expenses. Other SG&A increases in 2004 related to growth initiatives such as the implementation of the Lean Six Sigma^SM methodology and the business expansion in Asia Pacific.

Full-Valu/Specialty:    Net revenue in the Full-Valu/Specialty operating segment was $422.4 million in 2004, $394.2 million in 2003 and $390.4 million in 2002. The following table shows the net revenue variance analysis for the past two years:

The 2004 net revenue growth due to increases in sales volume was driven by volume increases in the ceramic tile installation products, powder coatings, window adhesives and specialty products and consulting for packaging solutions. The stronger U.S. economy in 2004 as compared to 2003 was a key contributor to the volume growth. The currency effects in the Full-Valu/Specialty segment in 2004 resulted primarily from the stronger Australian dollar as compared to the U.S. dollar. In 2003, net revenue was basically flat with 2002. There was strong sales

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volume growth in the specialty packaging solutions and window adhesives that were offset by decreases in the powder coatings market. The main issue impacting net revenue growth in 2003 as compared to 2002 was the slow U.S economy.

Operating income in the Full-Valu/Specialty segment was $32.9 million in 2004, $28.6 million in 2003 and $29.8 million in 2002. The powder coatings operating unit reported the strongest operating income growth in 2004 as compared to 2003 largely due to changes in their cost structure resulting from projects utilizing the Lean Six Sigma^SM methodology. Improved yields and reduced downtime were key results from these projects. The overall Full-Valu/Specialty gross profit margin decreased from 2003 by 0.4 percentage points as selling price increases lagged behind the increased cost of raw materials. SG&A expenses increased 3.3 percent in 2004 as compared to 2003. Cost increases were incurred related to product liability matters in the exterior insulated finish systems product line and new initiatives such as the implementation of the Lean Six Sigma^SM methodology. Rigid cost controls and the elimination of certain positions helped to mitigate the increases mentioned above.

The operating income in 2003 decreased $1.2 million from 2002. The gross profit was slightly higher in 2003 as compared to 2002. Increased SG&A expenses from the company’s pension and other postretirement benefit plans along with increased product liability costs were important factors in the reduced operating income.

Operating income as a percent of net revenue was 7.8 percent in 2004, 7.3 percent in 2003 and 7.6 percent in 2002.

Restructuring and Other Related Costs:    The restructuring plan, which was contemplated in 2001, approved and implemented throughout 2002, was completed in 2003. As a result, approximately 20 percent of the company’s fiscal 2001 global manufacturing capacity was eliminated and the Global Adhesives operating segment sales force was realigned. The plan resulted in the elimination of 14 manufacturing facilities and 556 positions. The company recorded pretax charges of $31.8 million and $8.4 million in 2002 and 2003, respectively, related to the plan, including employee separation costs, accelerated depreciation on assets held and used until disposal, lease/contract termination costs and other costs directly related to the restructuring plan. The remaining liabilities accrued as part of the plan were $3.1 million and $4.6 million as of November 27, 2004 and November 29, 2003, respectively. Details of the restructuring activity for 2003 and 2004 are as follows:

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The long-term portion of the restructuring liability relates to adverse lease commitments that are expected to be paid beyond one year. Over the duration of the restructuring plan, aggregate charges were offset by $4.0 million of gains on sales of impacted assets. As of November 27, 2004, one facility that was closed as part of the plan was recorded as assets held for sale with a net book value of $8.1 million. That facility subsequently sold for a gain in the first quarter of 2005.

Liquidity and Capital Resources

Cash flows from Operating Activities:    Net cash provided by operating activities was $123.2 million in 2004, $59.7 million in 2003 and $82.3 million in 2002. Changes in net working capital, defined as trade accounts receivables plus inventory minus trade accounts payable generated $21.6 million of positive cash flow in 2004 as compared to a use of cash of $12.0 million in 2003. Changes in trade accounts payable had the most significant impact on the net working capital as management continues to emphasize not only price, but also payment terms in its negotiations with suppliers. Trade payable days outstanding were 52 days, 42 days and 43 days as of the end of the fiscal years 2004, 2003 and 2002, respectively. Trade accounts receivable days sales outstanding (DSO) were 63 days at November 27, 2004, 62 days at November 29, 2003 and 58 days at November 30, 2002. Inventory days on hand, which is calculated using a rolling five-quarter average of inventory dollars, was 61 days at the end of each of the fiscal years 2004, 2003 and 2002. Another important factor in the improved cash flow from operating activities in 2004 as compared to 2003 was that in 2003 the company contributed $20 million to its U.S. pension plan. This funding increased the U.S. pension plan assets to a level that exceeded the plan’s accumulated benefit obligation. There were no contributions to the U.S. plan in 2004. Cash used to pay restructuring-related costs was $1.2 million in 2004 as compared to $14.5 million in 2003 and $12.6 million in 2002.

Cash flows from Investing Activities:    Net cash used in investing activities was $48.5 million in 2004, $36.7 million in 2003 and $26.2 million in 2002. Cash used in the acquisition of the businesses in 2004 was $19.3 million. Capital spending in 2004 was $31.3 million as compared to $39.3 million in 2003 and $36.3 million in 2002. As part of its new venture activities in 2004 the company invested $3.0 million for minimal ownership percentages in two technology companies. Proceeds from sales of assets and investments were $5.1 million in 2004, $5.7 million in 2003 and $10.1 million in 2002. In 2003 and 2002 the company sold facilities that were closed as part of the restructuring initiatives.

Cash flows from Financing Activities:    Net cash used in financing activities was $14.0 million in 2004 as compared to $23.4 million in 2003 and $63.9 million in 2002. The cash used in financing activities for 2004 was primarily the $13.1 million to pay cash dividends on common stock. Dividend payments were $12.7 million in 2003 and $12.4 million in 2002. The large use of cash for financing activities in 2002 was primarily due to the reduction of long-term debt. During 2002, long-term debt was reduced by $43.4 million. Since the end of fiscal year 2002, long-term debt levels have remained relatively constant as the remaining outstanding debt agreements have prohibitive prepayment penalties. The company’s capitalization ratio, defined as total debt divided by total debt plus equity, was 24.0 percent at November 27, 2004, 25.5 percent at November 29, 2003 and 29.0 percent at November 30, 2002.

There are no contractual or regulatory restrictions on the ability of consolidated and unconsolidated subsidiaries to transfer funds in the form of cash dividends, loans or advances to the company, except for typical statutory restrictions, which prohibit distributions in excess of net capital or similar tests. Currently the company does not believe these restrictions will impact its ability to meet its obligations.

In September, 2002, the company registered with the Securities and Exchange Commission to issue, at an indeterminate date, debt and equity securities with an aggregate initial offering price not to exceed $500 million. Unless the applicable prospectus supplement states otherwise, the net proceeds from the sale of the offered securities will be added to general funds and may be used to finance business combinations, real estate and other assets; meet working capital requirements; fund capital expenditures; and refinance debt. As part of the shelf registration process, the company sought and obtained an investment grade rating (BBB) with a stable outlook from Standard & Poor’s.

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Contractual Obligations

Due dates and amounts of contractual obligations follow.

At November 27, 2004 short-term and long-term lines of credit were $300.4 million of which $8.2 million was used. The unused portion of these lines of credit was committed and was $292.3 million at November 27, 2004.

At November 27, 2004, the company has revolving credit agreements with a group of major banks, which provide committed long-term lines of credit through December of 2005 in an amount of $148 million. At the company’s option, interest is payable at the London Interbank Offered Rate plus 0.850%—1.250%, adjusted quarterly based on the company’s capitalization ratio, or a bid rate. A facility fee of 0.075%—0.150% is payable quarterly. No amounts were outstanding at November 27, 2004 and November 29, 2003.

Subsequent to year-end, the company renegotiated $123.0 million of its short-term lines of credit agreements with a group of major banks. The lines of credit are committed through December, 2007. At the company’s option, interest is payable at the London Interbank Offered Rate plus 0.850%—1.250%, adjusted quarterly based on the company’s capitalization ratio, or a bid rate. A facility fee of 0.150%—0.250% is payable quarterly. No amounts were outstanding at November 27, 2004 on these short-term lines of credit.

On February 3, 2005, the company paid $22.0 million on its senior notes that is included in the current maturities of long-term debt.

At November 27, 2004, the company was in compliance with all covenants of its contractual obligations. There are no rating triggers that would accelerate the maturity dates of any debt. Management believes the company has the ability to meet all of its contractual obligations and commitments in 2005.

Off Balance Sheet Arrangements

There are no relationships with any unconsolidated, special-purpose entities or financial partnerships established for the purpose of facilitating off-balance sheet financial arrangements.

Recently Issued Accounting Pronouncements

In December 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities” (“FIN 46R”), which addresses how a business should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. FIN 46R replaced FIN 46 which was issued in January 2003. FIN 46 or FIN 46R applied immediately to entities created after January 31, 2003 and no later than the end of the first reporting period that ended after December 15, 2003 to entities considered to be special-purpose entities (“SPEs”). FIN 46R was effective for all other entities no later than the end of the first interim or annual reporting period ending after March 15, 2004. The adoption of the provisions of FIN 46 or FIN 46R relative to SPEs and for entities created after January 31, 2003 did not have an impact on the company’s consolidated financial statements.

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As a result of the adoption of FIN 46R with respect to all other entities, the company’s consolidated automotive joint venture was determined to be the primary beneficiary of Autotek Sealants, Inc. (Autotek) and was required to consolidate Autotek in its financial statements effective May 29, 2004. The company’s automotive joint venture has a 48 percent ownership interest in Autotek. The consolidation of Autotek into the company’s automotive joint venture financial statements affected the company’s results of operations beginning with the thirteen weeks ended August 28, 2004. (See Note 14.)

In December 2003, the FASB issued revisions to Statement of Financial Accounting Standards (“SFAS”) No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits”. These revisions required changes to existing disclosures as well as new disclosures related to pension and other postretirement benefit plans. These additional disclosures are included in Note 10. Implementation of this pronouncement had no impact on the company’s results of operations or financial position. Interim period disclosures required by SFAS No. 132 related to contributions are effective with the company’s first quarter in fiscal year 2005.

In May 2004, the FASB issued FASB Staff Position No. 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (“FSP No. 106-2”). FSP No. 106-2, which replaced the same titled FSP No. 106-1, provides guidance on the accounting for the effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“Act”) that was signed into law in December 2003. Under FSP No. 106-1, the company elected to defer the accounting for the effects of the Act. The company adopted FSP No. 106-2 in the third quarter of 2004 using the prospective method, which means the reduction of the Accumulated Other Postretirement Benefits obligation (APBO) is recognized over future periods. This reduction in the APBO is due to a subsidy available on benefits provided to plan participants determined to be actuarially equivalent to the Act. Based on the current guidance of determining actuarial equivalence, the company has only been able to determine that some of the plan participants qualify the company for the subsidy. As required by FSP No. 106-2, the company’s actuaries, performed a remeasurment on the plan on February 29, 2004, which used a revised discount rate, and determined that after taking the subsidy into consideration on these participants, there is a reduction in the APBO of approximately $3,049. It is possible that after additional guidance on determining actuarial equivalence is issued, the company may be able to recognize an additional reduction to the APBO due to additional plan participants qualifying for the subsidy. The postretirement benefits expense for the third and fourth quarters of 2004 calculated in the February 29, 2004 remeasurement was $313 less than the original 2004 measurement calculated on August 31, 2003. This means that the second half of 2004 contained $625 less postretirement expense than the first two quarters of 2004.

In November 2003 and March 2004, the Emerging Issues Task Force (EITF) reached consensuses on Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain investments” (“EITF 03-1”), which addresses how to determine the meaning of other-than temporary impairments and how that concept should be applied to investments accounted for under SFAS No. 115, “Accounting in Certain Investments in Debt and Equity Securities”, and SFAS No. 124, “Accounting for Certain Investments Held by Not-for-Profit Organizations.” Disclosures related to these investments are effective in annual financial statements for fiscal years ending after December 15, 2003. The disclosure requirements for all other investments are effective in annual financial statements for fiscal years ending after June 15, 2004. In September 2004, the EITF delayed the effective date to apply EITF 03-1 on debt securities that are impaired because of interest rate and/or sector spread increases that are analyzed for impairment under paragraph 16. EITF 03-1 is not expected to have a material effect on the company’s financial position, results of operations or cash flows.

In November 2004 the FASB issued SFAS No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4” (SFAS 151). SFAS 151 amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing”, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and spoilage. This statement requires that those items be recognized as current period charges regardless of whether they meet the criterion of “so abnormal” which was the criterion specified in ARB No. 43. In addition, this Statement requires that allocation of fixed production overheads to the cost of production be based on normal capacity of the production facilities. This pronouncement is effective for the company beginning December 4, 2005. The company is in the process of evaluating whether the adoption of SFAS 151 will have a significant impact on the company’s overall results of operations, financial position or cash flows, however, it is unlikely the impact will be material.

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In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions.” The amendments made by Statement 153 are based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. Further, the amendments eliminate the narrow exception for nonmonetary exchanges of similar productive assets and replace it with a broader exception for exchanges of nonmonetary assets that do not have commercial substance. The Statement is effective for nonmonetary asset exchanges beginning December 4, 2005. The provisions of this Statement shall be applied prospectively. The company is in the process of evaluating whether the adoption of SFAS 153 will have a significant impact on the company’s overall results of operations or financial position.

In December 2004, the FASB issued SFAS No. 123(R) “Share-Based Payment.” SFAS 123(R) requires the recognition of compensation cost relating to share-based payment transactions in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued as of the grant date, based on the estimated number of awards that are expected to vest. SFAS 123(R) covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. Statement 123(R) replaces FASB Statement No. 123, “Accounting for Stock-Based Compensation,” and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” Statement 123(R) is effective beginning August 28, 2005. The company is in the process of evaluating the impact of SFAS 123(R) on the company’s overall results of operations, financial position and cash flows. Refer to pro forma disclosure under “Accounting for Stock-Based Compensation” in Note 1 for indication of ongoing expense that will be included in the income statement beginning in the fourth quarter of 2005.

2005 Outlook

The key to financial results in 2005 will be how the company manages raw material cost increases that are expected to continue at least into the first half of the year. Certain raw materials continue to be in short supply and the situation is not expected to ease in the near future. Management still believes however, that the company will be able to meet all of its customers’ demands. The environment in the adhesives market appears to be changing to one of greater acceptance of price increases. The positive effects from price increases in the fourth quarter of 2004 must continue into 2005 in order for the company to not only maintain, but to grow its gross profit margin above 2004 levels.

The company’s cost structures are continually analyzed and reviewed to ensure the company operates with maximum efficiency. The results from the implementation of the Lean Six Sigma^SM methodology are expected to be greater in 2005 as new projects are identified and more employees are trained. One area of cost increase in 2005 will be related to the company’s U.S. pension and other postretirement plans. Primarily due to lower interest rates used to calculate the plan liabilities and increased costs for retiree medical benefits, these costs will increase approximately $6.0 million in 2005. That increase represents an earnings per share impact of approximately $0.14 per share.

Merger and acquisition (M&A) activity is expected to increase in 2005. The company’s balance sheet in terms of debt to equity ratios combined with the strong cash flow from operations positions the company with borrowing capacity to support a significant level of M&A activity. Management continuously evaluates potential opportunities.

The company signed a definitive agreement, effective February 12, 2005, to enter into joint ventures with Sekisui Chemical Company in Japan and China. (See Note 18 to consolidated financial statements.) In Japan, Sekisui and H.B. Fuller will merge their Japanese adhesives businesses to create a new entity. Ownership will initially be split between Sekisui and H.B. Fuller, 60 percent and 40 percent, respectively. H.B. Fuller will retain an option, exercisable after two years, to increase its equity ownership to 50 percent. The new entity will be one of the largest industrial adhesives businesses in Japan with approximately $150 million in net revenues. In China, H.B. Fuller will sell a 20 percent equity interest in its China operations to Sekisui. Sekisui will retain an option, exercisable after two years, to increase its equity ownership to 30 percent.

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As a result of this transaction, the financial results from H.B. Fuller’s Japanese operations will no longer be consolidated in its financial statements. Based on 2004 results, this will result in the removal of approximately $45 million in consolidated net revenue and associated costs. The results of the Japanese joint venture are expected to be accounted for under the equity method of accounting. This transaction is expected to be neutral to net income in fiscal year 2005 before the realization of any synergies.

The joint ventures, which are subject to regulatory approvals and customary closing conditions, are expected to close in the second quarter of 2005.

Forward-Looking Statements and Risk Factors

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In this Annual Report on Form 10-K, including the “2005 Outlook” section, the company discusses expectations regarding future performance of the company which include anticipated financial performance, savings from restructuring and process initiatives, global economic conditions, liquidity requirements, the effect of new accounting pronouncements and one-time accounting charges and credits, and similar matters. This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may be identified by the use of words like “plan,” “expect,” “aim,” “believe,” “project,” “anticipate,” “intend,” “estimate,” “will,” “should,” “could” (including the negative or variations thereof) and other expressions that indicate future events and trends. These plans and expectations are based upon certain underlying assumptions, including those mentioned with the specific statements. Such assumptions are in turn based upon internal estimates and analyses of current market conditions and trends, management plans and strategies, economic conditions and other factors. These plans and expectations and the assumptions underlying them are necessarily subject to risks and uncertainties inherent in projecting future conditions and results. Actual results could differ materially from expectations expressed in the forward-looking statements if one or more of the underlying assumptions and expectations proves to be inaccurate or is unrealized. In addition to the factors described in this report, the following are some of the important factors that could cause the company’s actual results to differ materially from those in any such forward-looking statements. In order to comply with the terms of the safe harbor, the company hereby identifies important factors which could affect the company’s financial performance and could cause the company’s actual results for future periods to differ materially from the anticipated results or other expectations expressed in the forward-looking statements. Additionally, the variety of products sold by the company and the regions where the company does business makes it difficult to determine with certainty the increases or decreases in revenues 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. These factors should be considered, together with any similar risk factors or other cautionary language which may be made elsewhere in this Annual Report on Form 10-K.

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The company may refer to this section of the Form 10-K to identify risk factors related to other forward looking statements made in oral presentations, including investor conferences and/or webcasts open to the public.

The foregoing list of important factors does not include all such factors nor necessarily present them in order of importance. This disclosure, including that under “Outlook” and “Forward-Looking Statements and Risk Factors,” and other forward-looking statements and related disclosures made by the company in this report and elsewhere from time to time, represents management’s best judgment as of the date the information is given. The company does not undertake responsibility for updating any of such information, whether as a result of new information, future events, or otherwise, except as required by law. Investors are advised, however, to consult any further public company disclosures (such as in filings with the Securities and Exchange Commission or in company press releases) on related subjects.

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Market Risk:    The company is exposed to various market risks, including changes in interest rates, foreign currency rates and prices of raw materials. Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates and foreign currency exchange rates.

Interest Rate Risk:    Exposure to changes in interest rates result primarily from borrowing activities used to fund operations. Committed floating rate credit facilities are used to fund a portion of operations.

Management believes that probable near-term changes in interest rates would not materially affect consolidated financial position, results of operations or cash flows. The annual impact on the results of operations of a one-percentage point interest rate change on the outstanding balance of its variable rate debt as of November 27, 2004 would be approximately $0.1 million.

Foreign Exchange Risk:    As a result of being a global enterprise, there is exposure to market risks from changes in foreign currency exchange rates, which may adversely affect operating results and financial position. Approximately 50 percent of net revenue is generated outside of the United States. Principal foreign currency exposures relate to the euro, British pound sterling, Japanese yen, Australian dollar, Canadian dollar, Argentine peso and Brazilian real.

Management’s objective is to balance, where possible, local currency denominated assets to local currency denominated liabilities to have a natural hedge and minimize foreign exchange impacts. The company enters into cross border transactions through importing and exporting goods to and from different countries and locations. These transactions generate foreign exchange risk as they create assets, liabilities and cash flows in currencies other than the local currency. This also applies to services provided and other cross border agreements among subsidiaries.

Management takes steps to minimize risks from foreign currency exchange rate fluctuations through normal operating and financing activities and, when deemed appropriate, through the use of derivative instruments. During 2003, additional processes were implemented in an effort to further minimize foreign exchange exposure. Management does not enter into any speculative positions with regard to derivative instruments. Note 1 and Note 11 to the Consolidated Financial Statements provide additional details regarding the management of foreign exchange risk.

From a sensitivity analysis viewpoint, based on 2004 financial results, a hypothetical overall 10 percent change in the U.S. dollar would have resulted in a change of approximately $2.7 million in net income or $0.09 per diluted share.

Raw Materials:    The principal raw materials used to manufacture products include resins, polymers, synthetic rubbers, vinyl acetate monomer and plasticizers. The company generally avoids sole source supplier arrangements for raw materials. While alternate supplies of most key raw materials are available, sustained strong economical growth in North America and China coupled with unplanned production outages have led to strained supply-demand situations for several key feedstocks (benzene and ethylene), some of their derivatives, several polymers and acrylate monomers.

In 2004, the single largest expenditure was the purchase of raw materials. Management’s objective is to purchase raw materials that meet both its quality standards and production needs at the lowest total cost. Most raw materials are purchased on the open market or under contracts that limit the frequency but not the magnitude of price increases. In some cases, however, the risk of raw material price changes is managed by strategic sourcing agreements which limit price increases to increases in supplier feedstock costs, while requiring decreases as feedstock costs decline. The leverage of having substitute raw materials approved for use wherever possible is used to minimize the impact of possible price increases.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors

H.B. Fuller Company:

We have audited the accompanying consolidated balance sheet of H.B. Fuller Company and subsidiaries as of November 27, 2004, and the related consolidated statements of income, stockholders’ equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of H.B. Fuller Company and subsidiaries as of November 27, 2004, and the results of their operations and their cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 14 to the consolidated financial statements, the Company adopted the provisions of Financial Accounting Standards Board Interpretation No. 46 “Consolidation of Variable Interest Entities,” on May 29, 2004.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of H.B. Fuller Company’s internal control over financial reporting as of November 27, 2004, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 25, 2005 expressed an unqualified opinion on management’s assessment of, and an adverse opinion on the effective operation of, internal control over financial reporting.

/s/ KPMG LLP

Minneapolis, Minnesota

February 25, 2005

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

H.B. Fuller Company:

We have audited management’s assessment, included in the accompanying Management Report on Internal Control Over Financial Reporting, that H.B. Fuller Company did not maintain effective internal control over financial reporting as of November 27, 2004, because of the effect of the material weakness identified in management’s assessment that there was no review of the local books and records of the smaller locations within the Latin America region, which includes the Chilean operations, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). H.B. Fuller Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The following material weakness has been identified and included in management’s assessment: In its assessment as of November 27, 2004, management identified as a material weakness, insufficient supervision and oversight of certain local accounting personnel in its Chilean accounting operations. Specifically, Company policy did not provide for regional financial management or internal audit review of the local books and records of the smaller locations within the Company’s Latin America region, which includes the Chilean operations. As a result of this material weakness in internal control, H.B. Fuller Company’s financial statements were misstated due to the intentional recording of incorrect accounting entries by local accounting personnel under the supervision of the Chilean financial controller beginning in 1999, and continuing through the third quarter of 2004. These incorrect accounting entries resulted in the overstatement of other current assets and income taxes payable, the understatement of notes payable and trade payables, and a cumulative overstatement of net income during the aforementioned period amounting to $3.1 million.

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Of the cumulative overstatement of net income of $3.1 million, $2.0 million related to overstatements occurring prior to fiscal year 2004, which was determined to be immaterial to the respective prior year periods and 2004 and, accordingly, was recorded by the company in the fourth quarter of 2004. The remaining $1.1 million represented misstatements occurring in the second and third quarters in fiscal 2004 amounting to $0.5 million and $0.6 million, respectively. The Company has restated the unaudited interim financial information previously reported for the second and third quarters of 2004.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of H.B. Fuller Company as of November 27, 2004, and the related consolidated statements of income, stockholders’ equity, and cash flows for the year then ended. This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2004 consolidated financial statements, and this report does not affect our report dated February 25, 2005, which expressed an unqualified opinion on those consolidated financial statements.

In our opinion, management’s assessment that H.B. Fuller Company did not maintain effective internal control over financial reporting as of November 27, 2004, is fairly stated, in all material respects, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the criteria, H.B. Fuller Company has not maintained effective internal control over financial reporting as of November 27, 2004, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

H.B. Fuller Company acquired Proadec Productos Quimicos, S.A., Isar-Rakoll Chemie Portuguesa, S.A., Isar-Rakoll, S.A. and Proadec Quimicos Espana, S.A., collectively the adhesives and resins businesses of Probos Resinas e Plasiticos, S.A. in Portugal during 2004 (the Portugese acquisition). Management excluded from its assessment of internal control over financial reporting, the Portugese acquisition representing consolidated total assets of $43.0 million and consolidated revenues of $26.1 million included in the consolidated financial statements of H.B. Fuller Company and subsidiaries as of and for the year ended November 27, 2004. Our audit of internal control over financial reporting of H.B. Fuller Company also excluded an evaluation of the internal control over financial reporting of the Portugese acquisition. H.B. Fuller Company also excluded from its assessment of internal control over financial reporting, Autotek Sealants, Inc., which is consolidated pursuant to FASB Interpretation No. 46R, Consolidation of Variable Interest Entities, representing consolidated total assets of $7.6 million and consolidated net revenues of $4.1 million included in the consolidated financial statements of H.B. Fuller Company and subsidiaries as of and for the year ended November 27, 2004. Our audit of internal control over financial reporting of H.B. Fuller Company also excluded an evaluation of the internal control over financial reporting of Autotek Sealants, Inc.

/s/ KPMG LLP

Minneapolis, Minnesota

February 25, 2005

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of H.B. Fuller Company

In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income, of stockholders’ equity and of cash flows present fairly, in all material respects, the financial position of H.B. Fuller Company and its subsidiaries at November 29, 2003, and the results of their operations and their cash flows for each of the two years in the period ended November 29, 2003 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

Minneapolis, Minnesota

February 20, 2004

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CONSOLIDATED STATEMENT OF INCOME

H.B. Fuller Company and Subsidiaries

(In thousands, except per share amounts)

See accompanying notes to consolidated financial statements.

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CONSOLIDATED BALANCE SHEET

H.B. Fuller Company and Subsidiaries

(In thousands, except share and per share amounts)

See accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

H.B. Fuller Company and Subsidiaries

(In thousands)