<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED NOVEMBER 29, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ..................to.....................
Commission File No. 0-3488
H.B. FULLER COMPANY
(Exact name of registrant as specified in its charter)
Minnesota 41-0268370
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1200 WILLOW LAKE BOULEVARD, VADNAIS HEIGHTS, MINNESOTA 55110
(Address of principal executive offices) (Zip Code)
(612) 236-5900
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $1.00 per share
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 of 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. [ ]
The aggregate market value of the Common Stock, par value $1.00 per share, held
by non-affiliates of the Registrant as of January 30, 1998 was approximately
$677,282,000 (based on the closing price of such stock as quoted on the Nasdaq
National Market ($52.50) on such date).
The number of shares outstanding of the Registrant's Common Stock, par value
$1.00 per share, was 13,842,273 as of January 30, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Parts I, II and IV incorporate information by reference to portions of the H.B.
Fuller Company 1997 Annual Report to Shareholders.
Part III incorporates information by reference to portions of the Registrant's
Proxy Statement dated March 6, 1998.
<PAGE>
H.B. FULLER COMPANY
1997 Form 10-K Annual Report
Table of Contents
PART I PAGE
------ ----
Item 1. Business 3
Item 2. Properties 6
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote
of Security Holders 7
Executive Officers of the Registrant 8
PART II
-------
Item 5. Market for the Registrant's Common Stock
and Related Stockholder Matters 9
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of
Financial Condition and Results
of Operations 9
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk 9
Item 8. Financial Statements and Supplementary Data 9
Item 9. Changes in and Disagreements With
Accountants on Accounting and
Financial Disclosure 9
PART III
--------
Item 10. Directors and Executive Officers
of the Registrant 10
Item 11. Executive Compensation 10
Item 12. Security Ownership of Certain Beneficial
Owners and Management 10
Item 13. Certain Relationships and
Related Transactions 10
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 11
Signatures 14
Schedule II - Valuation and
Qualifying Accounts 16
-2-
<PAGE>
PART I
ITEM 1.
BUSINESS
- --------
Founded in 1887 and incorporated as a Minnesota corporation in 1915, H.B. Fuller
Company (the "Company") today is a worldwide manufacturer and marketer of
adhesives, sealants, coatings, paints and other specialty chemical products.
The Company currently employs approximately 6,000 people and has sales
operations in 42 countries in North America, Europe, Latin America and the
Asia/Pacific region.
The Company's largest worldwide business category is adhesives, sealants and
coatings, which generated more than 90 percent of 1997 sales. These products,
in thousands of formulations, are sold to customers in a wide range of
industries, including packaging, woodworking, automotive, aerospace, graphic
arts (books/magazines), appliances, filtration, windows, sporting goods,
nonwovens, shoes and ceramic tile.
The Company also is a quality producer and supplier of powder coatings to metal
finishing industries; commercial and industrial paints in Latin American
markets; specialty waxes in European markets, as well as mastics and coatings
for thermal insulation, indoor air quality and asbestos abatement applications
in the United States.
SEGMENT INFORMATION
- -------------------
For financial information relating to major geographic areas of the Company, see
Note 14, "Business Segment Information", on pages 45 and 46 of the Company's
1997 Annual Report to Shareholders, incorporated herein by reference.
LINE OF BUSINESS AND CLASSES OF SIMILAR PRODUCTS
- ------------------------------------------------
The Company is engaged in one line of business, the manufacturing of specialty
chemical products which includes formulating, compounding and marketing
adhesives, sealants and coatings, paints, specialty waxes and related chemicals.
The following tabulation sets forth information concerning the approximate
contribution to consolidated sales of the Company's classes of products:
<TABLE>
<CAPTION>
CLASS OF PRODUCT Sales
- ---------------- -----------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Adhesives, sealants and coatings 90% 88% 87%
Paints 7 7 7
Other 3 5 6
---- ---- ----
100% 100% 100%
==== ==== ====
</TABLE>
NON-U.S. OPERATIONS
- -------------------
Wherever feasible, the Company's practice has been to establish manufacturing
units outside of the United States to service the local markets. The principal
markets, products and methods of distribution in the non-U.S. business vary with
the country or business practices of the country. The products sold include not
only those developed by the local manufacturing plants but also those developed
within the United States and elsewhere in the world.
The Company's operations overseas face varying degrees of economic and political
risk. At the end of fiscal year 1997, the Company had plants in 30 countries
outside the United States and satellite sales offices in another 11 countries.
The Company also uses license agreements to maintain a worldwide manufacturing
network. In the opinion of management of the Company, there are several
countries where the Company has operating facilities which have political risks
higher than in the United States. Where possible, the Company insures its
physical assets against damage from civil unrest.
-3-
<PAGE>
COMPETITION
- -----------
The Company encounters a high degree of competition in the marketing of its
products. Because of the large number and variety of its products, the Company
does not compete directly with any one competitor in all of its markets. The
Company competes with several large firms as well as many smaller local,
independent firms. In North America there are a large number of competitors.
Since adhesives of all types are widely used, it is not possible to identify a
few competitors who would represent the major competition.
In Latin America, the Company experiences substantial competition in marketing
its printing inks and industrial adhesives. In Central America, it is a major
factor in the industrial adhesives market and, along with several other large
paint manufacturing firms, in the residential paint market. In Europe, the
Company is a large manufacturer of adhesives and specialty waxes and competes in
certain areas of this market with several large companies.
The principal competitive factors in the sale of adhesives, paints, coatings and
sealants are product performance, customer and technical service, quality and
price.
CUSTOMERS
- ---------
Of the Company's $1,306,789,000 total sales to unaffiliated customers in 1997,
$722,104,000 was sold through North American operations. The Company's largest
customer accounts for less than 5% of consolidated sales.
BACKLOG
- -------
Orders for the Company's products are generally processed within one week.
Therefore, the Company had no significant backlog of unfilled orders at November
29, 1997, November 30, 1996 or November 30, 1995.
RAW MATERIALS
- -------------
The Company purchases from large chemical suppliers raw materials including
solvents, plasticizers, waxes, resins, polymers and vinyl acetate monomer which
the Company uses to manufacture its principal products. Natural raw materials
are also purchased from outside suppliers and include starch, dextrines, natural
latex and resins. The Company attempts to find multiple sources for all of its
raw materials and alternate sources of supply are generally available. An
adequate supply of the raw materials used by the Company is presently available
in the open market. The Company's Latin American and Asia/Pacific operations
import many of their raw materials. Extended delivery schedules of these
materials are common, thereby requiring maintenance of higher inventory levels
than those maintained in North America and Europe.
A significant portion of the Company's raw materials are derived from petroleum-
based products and this is common to all adhesive manufacturers.
The Company is not a large consumer of energy and, therefore, has not
experienced any difficulties in obtaining energy for its manufacturing
operations. The Company anticipates it will be able to obtain needed energy
supplies in the future.
PATENTS, TRADEMARKS AND LICENSES
- --------------------------------
Much of the technology used in the manufacturing of adhesives, coatings and
other specialty chemicals is in the public domain. To the extent that it is
not, the Company relies on trade secrets and patents to protect its know-how.
The Company has agreements with many of its employees for the purpose of
protecting the Company's rights to technology and intellectual property. The
Company also routinely obtains confidentiality commitments from customers,
suppliers and others to safeguard its proprietary information. Company
trademarks such as HB Fuller(R), Kativo(R), Protecto(R) and Rakoll(R) are of
continuing importance in marketing its products.
-4-
<PAGE>
RESEARCH AND DEVELOPMENT
- ------------------------
The Company conducts research and development activities in an effort to improve
existing products and to design new products and processes. The Company's
research and development expenses during 1997, 1996 and 1995 aggregated
$24,830,000, $25,823,000 and $26,541,000, respectively.
ENVIRONMENTAL PROTECTION
- ------------------------
The Company regularly reviews and upgrades its environmental policies, practices
and procedures and seeks improved production methods that reduce waste,
particularly toxic waste, coming out of its facilities, based upon evolving
societal standards and increased environmental understanding.
The Company's high standards of environmental consciousness are supported by an
organizational program supervised by environmental professionals and the
Worldwide Environment, Health and Safety Committee, a committee with management
membership from around the world which proactively monitors practices at all
facilities. Company practices are often more stringent than local government
standards. The Company integrates environmental programs into operating
objectives, thereby translating philosophy into every day practice.
The Company believes that as a general matter its current policies, practices
and procedures in the areas of environmental regulations and the handling of
hazardous waste are designed to substantially reduce risks of environmental and
other damage that would result in litigation and financial liability. Some risk
of environmental and other damage is, however, inherent in particular operations
and products of the Company, as it is with other companies engaged in similar
businesses.
The Company is and has been engaged in the handling, manufacture, use, sale
and/or disposal of substances, some of which are considered by federal or state
environmental agencies to be hazardous. The Company believes that its
manufacture, handling, use, sale and disposal of such substances are generally
in accord with current applicable environmental regulations. Increasingly
strict environmental laws, standards and enforcement policies may increase the
risk of liability and compliance costs associated with such substances.
Environmental expenditures, reasonably known to management, to comply with
environmental regulations over the Company's next two fiscal years are estimated
to be approximately $12.0 million. The effects of compliance with environmental
laws and regulations are not expected to be material to the Company's
consolidated capital expenditures, earnings or competitive position. See
additional disclosure under Item 3, Legal Proceedings.
EMPLOYEES
- ---------
The Company and its consolidated subsidiaries employed approximately 6,000
persons on November 29, 1997, of which approximately 2,300 persons were employed
in the United States.
-5-
<PAGE>
ITEM 2.
PROPERTIES
- ----------
The principal manufacturing plants and other properties are located in 31
countries:
U.S. LOCATIONS
--------------
California Massachusetts - Wilmington
Chatsworth Michigan
Los Angeles (1 owned, 1 leased) Grand Rapids
Roseville Warren
Florida Minnesota
Gainesville Minneapolis and St. Paul
Pompano Beach (7 owned, 2 leased)
Georgia New Jersey - Edison
Conyers* (1 owned, 1 leased)
Covington (2 owned) North Carolina - Greensboro
Forest Park Ohio
Tucker Cincinnati
Illinois Dayton
Palatine Tennessee - Memphis*
Tinley Park Texas
Indiana - Elkhart Dallas
Kansas - Kansas City Houston
Kentucky Washington - Vancouver
Hopkinsville
Paducah
OTHER LOCATIONS
---------------
Argentina - Buenos Aires Honduras
Australia San Pedro Sula (2 owned)
Melbourne Italy - Borgolavezzaro
Austria - Wels Japan - Hamamatsu
Brazil - Sao Paulo Mexico - Mexico City*
Canada Netherlands - Amerongen
St. Andre est New Zealand - Auckland (2 owned)
Montreal Nicaragua - Managua
Toronto People's Republic of
Chile - Santiago China - Guangzhou*
Colombia - Itagui* Peru - Lima
Costa Rica - San Jose (5 owned) Philippines - Manila*
Dominican Republic - Santo Domingo Puerto Rico - Bayamon
Ecuador - Guayaquil (2 owned) Republic of Panama - Panama City
El Salvador - San Salvador Spain - Alicante
Federal Republic of Germany Taiwan - Taipei
Luneburg United Kingdom
Nienburg* Birmingham*
France - Le Trait Leabrooks*
Guatemala - Guatemala City Venezuela - Caracas
*Leased properties
-6-
<PAGE>
The Company's principal executive offices and central research facilities are
Company owned and located in the St. Paul, Minnesota metropolitan area.
The Company has facilities for the manufacture of various products with total
floor space of approximately 1,698,000 square feet, including 294,000 square
feet of leased space. In addition, the Company has approximately 2,039,000
square feet of warehouse space, including 531,000 square feet of leased space.
Offices and other facilities total 1,920,000 square feet, including 578,000
square feet of leased space. The Company believes that the properties owned or
leased are suitable and adequate for its business.
ITEM 3.
LEGAL PROCEEDINGS
- -----------------
ENVIRONMENTAL REMEDIATION
- -------------------------
The Company is subject to the federal Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") and similar state laws that impose
liability for costs relating to the clean-up of contamination resulting from
past spills, disposal or other release of hazardous substances. The Company is
currently involved in administrative proceedings or lawsuits under CERCLA or
such state laws relating to clean-up of 16 sites. The future costs in
connection with all of these matters have not been determined due to such
factors as the unknown timing and extent of the remedial actions which may be
required, the full extent of clean-up costs and the amount of the Company's
liability in consideration of the liability and financial resources of the other
potentially responsible parties. However, based on currently available
information, the Company does not believe that any liabilities allocated to it
in these administrative proceedings or lawsuits, individually or in the
aggregate, will have a material adverse effect on the Company's business or
financial condition.
The Company has received requests for information from federal, state or local
government entities regarding six other contaminated sites. The Company has not
been named a party to any administrative proceedings or lawsuits relating to the
clean-up of these sites.
From time to time the Company 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 $100,000 or more
(exclusive of interest and costs). Based on currently available information,
the Company does not believe that such compliance matters or alleged violations
of laws and regulations, individually or in the aggregate, will have a material
adverse effect on the Company's business or financial condition.
OTHER LEGAL PROCEEDINGS
- -----------------------
In November 1997, the Company was named one of approximately 78 defendants
(along with numerous other chemical companies) in a purported class action filed
in Texas State Court on behalf of 700 plaintiffs. The plaintiffs claim that the
defendants allowed toxic and hazardous wastes, substances and chemicals to
escape from a television assembly plant in Athens, Texas into the ground, water
and air in the vicinity of the plant. However, no Company products have been
identified as contributing to the claimed damages.
In addition, the Company is subject to other legal proceedings incidental to its
business.
Based on currently available information, the Company does not believe that an
adverse outcome in any pending legal proceedings individually or in the
aggregate would have a material adverse effect on the Company's business or
financial condition.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ---------------------------------------------------
Not applicable.
-7-
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------
The executive officers of the Company as of November 29, 1997 and their ages and
current offices are set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION PERIOD SERVED
- ----------------------- --- -------------------------------------------- -------------
<S> <C> <C> <C>
Anthony L. Andersen 61 Chair, Board of Directors Since 1992
Director Since 1966
Walter Kissling 66 President Since 1992
Chief Executive Officer Since 1995
Director Since 1968
Jorge Walter Bolanos 53 Chief Financial Officer and Treasurer Since 1992
Senior Vice President Since 1995
Lars T. Carlson 59 Senior Vice President - Administration Since 1996
Vice President Since 1986
John T. Ray, Jr. 60 Senior Vice President - North American Since 1984
Adhesives, Sealants and Coatings Group
Jerald L. Scott 56 Senior Vice President - Operations Since 1996
Vice President Since 1980
Richard C. Baker 45 Vice President Since 1993
Corporate Secretary Since 1995
General Counsel Since 1990
Sarah R. Coffin 45 Vice President - Specialty Group Manager Since 1994
Hermann Lagally 56 Group President - Europe Since 1996
Division Manager Since 1994
Regional Manager Since 1980
Antonio Lobo 54 Vice President - Latin America Group Manager Since 1989
Alan R. Longstreet 51 Vice President - Asia/Pacific Group Manager Since 1986
David J. Maki 56 Vice President Since 1990
Controller Since 1987
Rolf Schubert 59 Vice President - Chief Technology Officer Since 1982
Director Since 1972
</TABLE>
Officers are elected by the Board of Directors or appointed by the Chief
Executive Officer. Each of the Company's officers has served in various
capacities with the Company for more than five years, except Sarah R. Coffin.
Sarah R. Coffin joined the Company and was named Vice President/Specialty Group
Manager in 1994. In her most recent position prior to joining the Company, Ms.
Coffin served as Managing Director, Specialty Chemicals, General Electric
Plastics, a position she had held since 1991.
-8-
<PAGE>
PART II
Information for Items 5 through 8 of this report appear in the 1997 H.B. Fuller
Company Annual Report to Shareholders as indicated in the following table and is
incorporated herein by reference to the applicable portions of such Annual
Report:
ANNUAL
REPORT TO
SHAREHOLDERS
Page
----
ITEM 5.
Market for Registrant's Common Stock
- ------------------------------------
and Related Stockholder Matters
-------------------------------
Trading Market 52
High and Low Market Value 52
Dividend Payments 52
Dividend Restrictions (Note 13) 43
Holders of Common Stock 53
ITEM 6.
Selected Financial Data
- -----------------------
1969 - 1997 in Review and
Selected Financial Data 48-50
ITEM 7.
Management's Discussion and Analysis of
- ---------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
Management's Analysis of Results of
Operations and Financial Condition 25-31
ITEM 7A.
Quantitative and Qualitative Disclosures
- ----------------------------------------
About Market Risk
-----------------
Not applicable.
ITEM 8.
Financial Statements and Supplementary Data
- -------------------------------------------
Consolidated Financial Statements 32-46
Quarterly Data (Unaudited)(Note 15) 46
ITEM 9.
Changes in and Disagreements With Accountants
- ---------------------------------------------
on Accounting and Financial Disclosure
--------------------------------------
None
-9-
<PAGE>
PART III
ITEMS 10.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- --------------------------------------------------
The information under the heading "Election of Directors" (but not including the
sections entitled "Directors' Compensation" and "Board Meetings and Committees")
and the section entitled "Section 16(a) Beneficial Ownership Reporting
Compliance" contained in the Company's Proxy Statement dated March 6, 1998 (the
"1998 Proxy Statement") are incorporated herein by reference.
The information contained at the end of Part I hereof under the heading
"Executive Officers of the Registrant" is incorporated herein by reference.
ITEMS 11.
EXECUTIVE COMPENSATION
- ----------------------
The section under the heading "Election of Directors" entitled "Directors'
Compensation" and the sections under the heading "Executive Compensation"
entitled "Summary Compensation Table," "Long-Term Incentive Plans - Awards in
Last Fiscal Year," "Aggregated Option Exercises in Fiscal Year 1997 and Fiscal
Year End Option Values," "Retirement Plans," "Employment Agreements" and "Change
in Control Arrangements" contained in the 1998 Proxy Statement are incorporated
herein by reference.
ITEMS 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- --------------------------------------------------------------
The information under the heading "Security Ownership of Certain Beneficial
Owners and Management" contained in the 1998 Proxy Statement is incorporated
herein by reference.
ITEMS 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ----------------------------------------------
The section entitled "Exchange Agreement" contained in the 1998 Proxy Statement
is incorporated herein by reference.
-10-
<PAGE>
PART IV
Item 14.
Exhibits, Financial Statement Schedules and Reports on Form 8-K
- ---------------------------------------------------------------
<TABLE>
<CAPTION>
Reference
-------------------------------
Form 10-K Annual Report
Annual Report to Shareholders
Page Page
---------- --------------
<S> <C> <C>
(A)(1.) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
INCORPORATED BY REFERENCE TO THE APPLICABLE
PORTIONS OF THE 1997 ANNUAL REPORT TO
SHAREHOLDERS OF H.B. FULLER COMPANY:
Consolidated Statements of Earnings for the
Three Years Ended November 29, 1997,
November 30, 1996 and November 30, 1995 32
Consolidated Balance Sheets as of
November 29, 1997 and November 30, 1996 33
Consolidated Statements of Stockholders' Equity
for the Three Years Ended November 29, 1997,
November 30, 1996 and November 30, 1995 34
Consolidated Statements of Cash Flows
for the Three Years Ended November 29, 1997,
November 30, 1996 and November 30, 1995 35
Notes to Consolidated Financial Statements 36-46
Report of Independent Accountants 47
(A)(2.) INDEX TO CONSOLIDATED FINANCIAL STATEMENT
SCHEDULES FOR THE THREE YEARS ENDED NOVEMBER 29, 1997,
NOVEMBER 30, 1996 AND NOVEMBER 30, 1995:
Report of Independent Accountants on Financial
Statement Schedules 15
Schedule II Valuation and Qualifying Accounts 16
</TABLE>
All other financial statement schedules are omitted as the required information
is inapplicable or the information is given in the financial statements or
related notes.
-11-
<PAGE>
(A)(3.) EXHIBITS
--------
EXHIBIT NUMBER
3(a) Restated Articles of Incorporation - incorporated by reference to
Exhibit 3(a) to the Registrant's Annual Report on Form 10-K for the year
ended November 30, 1992.
3(b) By-Laws of H.B. Fuller Company - incorporated by reference to Exhibit
3(b) to the Registrant's Annual Report on Form 10-K for the year ended
November 30, 1995.
4(a) Rights Agreement, dated as of July 18, 1996, between H.B. Fuller Company
and Norwest Bank Minnesota, National Association, as Rights Agent, which
includes as an exhibit the form of Right Certificate, incorporated by
reference to Exhibit 4 to the Registrant's Form 8-K, dated July 24,
1996.
4(b) Restated Articles of Incorporation referring to rights of security
holders, Articles III, VII - incorporated by reference to Exhibit 4(b)
to the Registrant's Annual Report on Form 10-K for the year ended
November 30, 1992.
4(c) Specimen Stock Certificate - incorporated by reference to Exhibit 4(c)
to the Registrant's Annual Report on Form 10-K for the year ended
November 30, 1995.
4(d) Stock Exchange Agreement, dated July 18, 1996, between H.B. Fuller
Company and Elmer L. Andersen, including Designations for Series B
Preferred Stock, incorporated by reference to Exhibit 10 to the
Registrant's Form 8-K, dated July 24, 1996.
*10(a) H.B. Fuller Company 1992 Stock Incentive Plan - incorporated by
reference to Exhibit 10(a) to the Registrant's Annual Report on Form 10-
K for the year ended November 30, 1992.
*10(b) H.B. Fuller Company Restricted Stock Plan - incorporated by reference to
Exhibit 10(c) to the Registrant's Annual Report on Form 10-K for the
year ended November 30, 1993.
*10(c) H.B. Fuller Company Restricted Stock Unit Plan - incorporated by
reference to Exhibit 10(d) to the Registrant's Annual Report on Form 10-
K for the year ended November 30, 1993.
*10(d) Directors' Stock Plan - incorporated by reference to Exhibit 10(d) to
the Registrant's Annual Report on Form 10-K405 for the year ended
November 30, 1994.
*10(e) H.B. Fuller Company 1987 Stock Incentive Plan - incorporated by
reference to Exhibit 4(a) to the Registrant's Registration Statement on
Form S-8 (Commission File No. 33-16082).
*10(f) H.B. Fuller Company Nonqualified Retirement Plan for Costa Rica -
incorporated by reference to Exhibit 10(f) to the Registrant's Annual
Report on Form 10-K for the year ended November 30, 1988 (Commission
File No. 0-3488).
*10(g) Form of Employment Agreement signed by executive officers - incorporated
by reference to Exhibit 10(e) to the Registrant's Annual Report on Form
10-K for the year ended November 30, 1990 (Commission File No. 0-3488).
*10(h) Pension Plan Agreement with Dr. Hermann Lagally signed February 5, 1980
(English translation) - incorporated by reference to Exhibit 10(h) to
the Registrant's Annual Report on Form 10-K for the year ended November
30, 1996.
*10(i) Managing Director Agreement with Dr. Hermann Lagally signed December 1,
1995 - incorporated by reference to Exhibit 10(i) to the Registrant's
Annual Report on Form 10-K for the year ended November 30, 1996.
-12-
<PAGE>
(A)(3.) EXHIBITS (CONTINUED)
--------
*10(j) H.B. Fuller Company Supplemental Executive Retirement Plan -incorporated
by reference to Exhibit 10(j) to the Registrant's Annual Report on Form
10-K for the year ended November 30, 1992.
*10(k) H.B. Fuller Company Executive Benefit Trust, dated October 25, 1993,
between H.B. Fuller Company and First Trust National Association, as
Trustee, relating to the H.B. Fuller Company Supplemental Executive
Retirement Plan.
*10(l) Deferred Compensation Agreement dated December 22, 1994, between H.B.
Fuller Company and Walter Kissling - incorporated by reference to
Exhibit 10(m) to the Registrant's Annual Report on Form 10-K405 for the
year ended November 30, 1994.
*10(m) First Amendment to Deferred Compensation Agreement dated December 22,
1994, between H.B. Fuller Company and Walter Kissling.
*10(n) Deferred Compensation Agreement dated May 5, 1997, between H.B. Fuller
Company and Walter Kissling.
*10(o) Split-Dollar Insurance Agreement, dated May 5, 1997, between H.B. Fuller
Company and Jorge Walter Bolanos, as Trustee of the Walter Kissling
Irrevocable Trust Agreement dated May 5, 1997.
*10(p) Retirement Plan for Directors of H.B. Fuller Company - incorporated by
reference to Exhibit 10(n) to the Registrant's Annual Report on Form 10-
K405 for the year ended November 30, 1994.
*10(q) 1996 Performance Unit Plan - incorporated by reference to Exhibit 10(n)
to the Registrant's Annual Report on Form 10-K for the year ended
November 30, 1996.
* Asterisked items are management contracts or compensatory plans or
arrangements required to be filed as an exhibit to this Form 10-K pursuant to
Item 14(c) of this Form 10-K.
11 Statement re: Computation of Net Earnings Per Common Share
13 Pages 25-53 of the 1997 Annual Report to Shareholders
21 Subsidiaries of the Registrant
23 Consent of Price Waterhouse LLP
24 Manually signed Powers of Attorney
27 Financial Data Schedule
(B) REPORTS ON FORM 8-K
-------------------
No reports on Form 8-K were filed during the fourth quarter of the fiscal
year ended November 29, 1997.
(C) SEE EXHIBIT INDEX AND EXHIBITS ATTACHED TO THIS FORM 10-K.
----------------------------------------------------------
(D) SEE FINANCIAL STATEMENT SCHEDULE INCLUDED AT THE END OF THIS FORM 10-K.
-----------------------------------------------------------------------
-13-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
H.B. FULLER COMPANY
Dated: February 26, 1998 By /s/ Walter Kissling
----------------------------
WALTER KISSLING
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
SIGNATURE TITLE
--------- -----
/s/ Walter Kissling President and
- ------------------------ Chief Executive Officer and Director
WALTER KISSLING (Principal Executive Officer)
/s/ Jorge Walter Bolanos Senior Vice President,
- -------------------------- Chief Financial Officer and Treasurer
JORGE WALTER BOLANOS (Principal Financial Officer)
/s/ David J. Maki Vice President
- -------------------------- and Controller
DAVID J. MAKI (Principal Accounting Officer)
*ANTHONY L. ANDERSEN Chair, Board of Directors and Director
*NORBERT R. BERG Director
*EDWARD L. BRONSTIEN, JR. Director
*FREEMAN A. FORD Director
*GAIL D. FOSLER Director
*REATHA CLARK KING Director
*JOHN J. MAURIEL, JR. Director
*LEE R. MITAU Director
*ROLF SCHUBERT Vice President and Director
*LORNE C. WEBSTER Director
By: /s/ Richard C. Baker Dated: February 26, 1998
- -----------------------------
RICHARD C. BAKER
Attorney in Fact
* Power of Attorney filed with this report as Exhibit 24 hereto.
-14-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
------------------------------------
FINANCIAL STATEMENT SCHEDULES
-----------------------------
TO THE BOARD OF DIRECTORS
OF H.B. FULLER COMPANY
Our audits of the consolidated financial statements referred to in our report
dated January 11, 1998 appearing in the 1997 Annual Report to Stockholders of
H.B. Fuller Company (which report and consolidated financial statements are
incorporated by reference in this Annual Report on Form 10-K) also included an
audit of the Financial Statement Schedules listed in Item 14(a) of this Form 10-
K. In our opinion, these Financial Statement Schedules present fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
Price Waterhouse LLP
Minneapolis, Minnesota
January 11, 1998
-15-
<PAGE>
Schedule II
-----------
H.B. Fuller Company and Consolidated Subsidiaries
Valuation and Qualifying Accounts
(Dollars in thousands)
<TABLE>
Allowance for doubtful receivables
------------------------------------------------------
November 29, November 30, November 30,
Years Ended 1997 1996 1995
- ----------------------------------- -------------- -------------- --------------
<S> <C> <C> <C>
Balance at beginning of period $7,043 $6,256 $6,221
Additions(deductions):
Charged to costs and expenses 1,183 2,745 1,954
Accounts charged off during year (1,991) (1,897) (2,073)
Accounts of business sold (88) - -
Effect of currency exchange rate
changes on beginning of year
balance (268) (61) 154
------------- ------------- -------------
Balance at end of period $5,879 $7,043 $6,256
============= ============= =============
</TABLE>
-16-
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER
3(a) Restated Articles of Incorporation - incorporated by reference to Exhibit
3(a) to the Registrant's Annual Report on Form 10-K for the year ended
November 30, 1992.
3(b) By-Laws of H.B. Fuller Company - incorporated by reference to Exhibit 3(b)
to the Registrant's Annual Report on Form 10-K for the year ended November
30, 1995.
4(a) Rights Agreement, dated as of July 18, 1996, between H.B. Fuller Company
and Norwest Bank Minnesota, National Association, as Rights Agent, which
includes as an exhibit the form of Right Certificate, incorporated by
reference to Exhibit 4 to the Registrant's Form 8-K, dated July 24, 1996.
4(b) Restated Articles of Incorporation referring to rights of security
holders, Articles III, VII - incorporated by reference to Exhibit 4(b) to
the Registrant's Annual Report on Form 10-K for the year ended November
30, 1992.
4(c) Specimen Stock Certificate - incorporated by reference to Exhibit 4(c) to
the Registrant's Annual Report on Form 10-K for the year ended November
30, 1995.
4(d) Stock Exchange Agreement, dated July 18, 1996, between H.B. Fuller Company
and Elmer L. Andersen, including Designations for Series B Preferred
Stock, incorporated by reference to Exhibit 10 to the Registrant's Form 8-
K, dated July 24, 1996.
10(a) H.B. Fuller Company 1992 Stock Incentive Plan - incorporated by reference
to Exhibit 10(a) to the Registrant's Annual Report on Form 10-K for the
year ended November 30, 1992.
10(b) H.B. Fuller Company Restricted Stock Plan - incorporated by reference to
Exhibit 10(c) to the Registrant's Annual Report on Form 10-K for the year
ended November 30, 1993.
10(c) H.B. Fuller Company Restricted Stock Unit Plan - incorporated by reference
to Exhibit 10(d) to the Registrant's Annual Report on Form 10-K for the
year ended November 30, 1993.
10(d) Directors' Stock Plan - incorporated by reference to Exhibit 10(d) to the
Registrant's Annual Report on Form 10-K405 for the year ended November 30,
1994.
10(e) H.B. Fuller Company 1987 Stock Incentive Plan - incorporated by reference
to Exhibit 4(a) to the Registrant's Registration Statement on Form S-8
(Commission File No. 33-16082).
10(f) H.B. Fuller Company Nonqualified Retirement Plan for Costa Rica -
incorporated by reference to Exhibit 10(f) to the Registrant's Annual
Report on Form 10-K for the year ended November 30, 1988 (Commission File
No. 0-3488).
10(g) Form of Employment Agreement signed by executive officers - incorporated
by reference to Exhibit 10(e) to the Registrant's Annual Report on Form
10-K for the year ended November 30, 1990 (Commission File No. 0-3488).
10(h) Pension Plan Agreement with Dr. Hermann Lagally signed February 5, 1980
(English translation) - incorporated by reference to Exhibit 10(h) to the
Registrant's Annual Report on Form 10-K for the year ended November 30,
1996.
10(i) Managing Director Agreement with Dr. Hermann Lagally signed December 1,
1995 - incorporated by reference to Exhibit 10(i) to the Registrant's
Annual Report on Form 10-K for the year ended November 30, 1996.
<PAGE>
(A)(3.) EXHIBITS (CONTINUED)
--------
10(j) H.B. Fuller Company Supplemental Executive Retirement Plan - incorporated
by reference to Exhibit 10(j) to the Registrant's Annual Report on Form
10-K for the year ended November 30, 1992.
10(k) H.B. Fuller Company Executive Benefit Trust, dated October 25, 1993,
between H.B. Fuller Company and First Trust National Association, as
Trustee, relating to the H.B. Fuller Company Supplemental Executive
Retirement Plan.
10(l) Deferred Compensation Agreement dated December 22, 1994, between H.B.
Fuller Company and Walter Kissling - incorporated by reference to Exhibit
10(m) to the Registrant's Annual Report on Form 10-K405 for the year ended
November 30, 1994.
10(m) First Amendment to Deferred Compensation Agreement dated December 22,
1994, between H.B. Fuller Company and Walter Kissling.
10(n) Deferred Compensation Agreement dated May 5, 1997, between H.B. Fuller
Company and Walter Kissling.
10(o) Split-Dollar Insurance Agreement, dated May 5, 1997, between H.B. Fuller
Company and Jorge Walter Bolanos, as Trustee of the Walter Kissling
Irrevocable Trust Agreement dated May 5, 1997.
10(p) Retirement Plan for Directors of H.B. Fuller Company - incorporated by
reference to Exhibit 10(n) to the Registrant's Annual Report on Form 10-
K405 for the year ended November 30, 1994.
10(q) 1996 Performance Unit Plan - incorporated by reference to Exhibit 10(n) to
the Registrant's Annual Report on Form 10-K for the year ended November
30, 1996.
11 Statement re: Computation of Net Earnings Per Common Share
13 Pages 25-53 of the 1997 Annual Report to Shareholders.
21 Subsidiaries of the Registrant
23 Consent of Price Waterhouse LLP
24 Manually signed Powers of Attorney
27 Financial Data Schedule
<PAGE>
Exhibit 10(k)
-------------
H.B. FULLER COMPANY
EXECUTIVE BENEFIT TRUST
THIS AGREEMENT is made by and between H.B. Fuller Company (the "Company") and
First Trust National Association.
W I T N E S S E T H:
WHEREAS, the Company has established a plan for executive and key management
employees and may establish one or more other such plans, each of which is
listed on Exhibit A to this Agreement and is referred to in this Agreement as
the "Plan" or collectively as the "Plans"; and
WHEREAS, The Company desires to establish a trust for the purpose of
implementing the provisions of the Plan;
NOW, THEREFORE, In order to establish a trust under the Plans and in
consideration of the mutual undertakings of the parties, it is agreed as
follows:
ARTICLE I
RULES OF CONSTRUCTION
1.1 General Definitions. Unless the context otherwise indicates, the terms
used in this agreement are given the meaning ascribed to them by the Plan with
respect to which they are being applied.
1.2 Grantor Trust. The Trust is intended to be a grantor trust described in
section 671 of the Internal Revenue Code, and shall be construed accordingly.
1.3 "Change in Control" shall mean any of the following events:
(a) a determination made by the Board of Directors of the Company, in its
sole discretion, that a change in control of the Company has occurred;
(b) the acquisition, by any person (as such term is used in Sections 13(d)
and 14(d) (2) of the Securities and Exchange Act of 1934) or any group of
persons acting in concert, of beneficial ownership, direct or indirect, of
securities of the Company representing more than fifteen percent of the
combined voting power of the Company's then outstanding securities;
(c) the merger or consolidation of the Company in which it is not the
surviving corporation with, or the sale of all or substantially all of the
assets of the Company to, any person or entity or group of associated
persons or entities not
<PAGE>
affiliated (within the meaning of the Securities Act of 1933) with the
Company as of the date of this Agreement; or
(d) a change in the composition of the Board of Directors of the Company at
any time during any consecutive twelve month period such that the
"Continuity Directors" cease for any reason to constitute at least a
majority of the Board of Directors. For purposes of this clause (d),
"Continuity Directors" means those members of the Board of Directors of the
Company who either:
(i) were Directors at the beginning of such consecutive twelve (12) month
period; or
(ii) were elected by, or on the nomination or recommendation of, at least a
majority of the Board of Directors of the Company.
1.4 "Administrator" shall mean the Plan Administrator designated by the Plan
or, if not designated by the Plan, the Chief Executive Officer of the
Company or the person to whom the Chief Executive Officer has delegated the
Administrator's duties under the Plan.
1.5 "Trustee" shall mean the banking organization that has executed this
Agreement, or its successor in trust, who is at the relevant time acting as
the trustee under this Agreement.
ARTICLE II
APPLICATION OF FUNDS
2.1 Segregation of Trust Funds. The Trustee agrees to hold and manage all
contributions received from the Company or any other source and the income and
increment of such contributions. The trust estate shall be held separate and
apart from other funds of the Company and shall be used exclusively for the
purposes set forth in this Agreement.
2.2 Payment of Benefits. Subject to the provisions of Sections 2.3 and 3.1,
the Trustee shall distribute the trust fund to participants in accordance with
the terms of the Plan. If the Administrator fails to instruct the Trustee to
make a distribution from the Trust fund within thirty days after the occurrence
of an event entitling a participant to receive a distribution, the Trustee shall
be entitled to rely on instructions from the participant if the participant
submits proof that such an event has occurred with respect to the participant.
If the assets of the Trust are not sufficient to make payments of benefits under
the Plan to participants and their beneficiaries, the Company shall make the
balance of each such payment as it becomes due.
2.3 Reversion of Excess Assets. If, upon the Company's request, the Trustee
determines, on the basis of reasonable actuarial assumptions chosen by the
Trustee, that a
2
<PAGE>
portion of the Trust's assets or future earnings allocated to an account for a
Plan will not be required to pay benefits to participants and their
beneficiaries under the terms of the Plan in effect at the time of the
determination, all or any part of such portion of assets or future Trust earning
shall be returned to the Company upon the direction of the Company; provided
that no part of any assets or future Trust earning shall be paid to the Company
after the occurrence of a change in control except as provided in Section 5.2 or
10.3.
ARTICLE III
INSOLVENCY
3.1 Creditors' Claims. At all times during the term of this Trust, the
principal and income of the Trust shall be subject to the claims of general
creditors of the Company, and at any time the Trustee has actual knowledge, or
has determined, that the Company is insolvent, the Trustee shall deliver any
undistributed principal and income in the Trust to satisfy such claims as a
court of competent jurisdiction or a person appointed by the court may direct.
The Board of Directors and the Chief Executive Officer of the Company shall have
the duty to inform the Trustee of the Company's insolvency. If the Company or a
person claiming to be creditor of the Company alleges in writing to the Trustee
that the Company has become insolvent, the Trustee shall independently
determine, within thirty days after receipt of such notice, whether the Company
is insolvent and, pending such determination, the Trustee shall discontinue
payments of benefits under the Plan, shall hold the Trustee assets for the
benefit of the Company's general creditors, and shall resume payments of
benefits under the terms of the Plans only after the Trustee has determined that
the Company is not insolvent or is no longer insolvent, if the Trustee initially
determined the Company to be insolvent). Unless the Trustee has actual
knowledge of the Company's insolvency, the Trustee shall have no duty to inquire
whether the Company is insolvent. The Trustee may in all cases rely on such
evidence concerning the Company's solvency as may be furnished to the Trustee
which will give the Trustee a reasonable basis for making a determination
concerning the Company's solvency. Nothing in this Trust Agreement shall in any
way diminish any rights of a participant to pursue his rights as a general
creditor of the Company with respect to the benefits to which he is entitled
under the Plan, but the Trustee shall not, except upon direction of a court of
competent jurisdiction or a person appointed by the court, pay to any
participant any amounts representing the participant's priority claim for wages
or employee benefits.
3.2 Restoration of Benefits. If the Trustee discontinues payments of benefits
from the Trust pursuant to the provisions of Section 3.1, and subsequently
resumes such payments, the first payment following such discontinuance shall
include the aggregate amount of all payments that would have been made to the
participant during the period of such discontinuance, less the aggregate amount
of payments made to the participant by the Company in lieu of the payments that
would have been provided from this Trust during any such period of
discontinuance.
3
<PAGE>
3.3 "Insolvency." The Company shall be considered "insolvent" for purposes of
this Trust Agreement if (a) the Company is unable to pay its debts as they
mature, or (b) the Company is subject to a pending proceeding as a debtor under
the Bankruptcy Code.
ARTICLE IV
CHANGE IN CONTROL
4.1 Administration after Change in Control. Upon and after the Trustee
receives notice of the occurrence of a Change in Control, the Trustee shall
administer the Trust as follows:
(a) The Trustee shall segregate in a separate share of the Trust the assets
of the Trust held to provide benefits for all participants who were
participants in the Plans immediately prior to the Change in Control,
including any contributions received for such participants following the
Change in Control. A separate share of the Trust shall be created for
assets held to provide benefits for persons who become participants in the
Plans after the Change in Control. The assets of the separate shares shall
not be commingled, and in no event shall assets of such a share be used to
provide benefits under another share unless all benefits to participants
under the first share have been paid.
(b) The provisions of Section 3.1, relating to payments to general
creditors of the Company in the event of insolvency, shall not apply to the
separate share of the Trust that includes assets held prior to the Change
in Control until each other separate share has been exhausted by such
payments.
4.2 Notice. The Trustee shall be deemed to have received notice of the
occurrence of a Change in Control only upon actual delivery to the Trustee of a
written notice of such occurrence signed by an officer of the Company, a member
of the Board of Directors of the Company or a participant in the Plan. If,
following its receipt of such a notice, the Trustee determines that no Change in
Control has in fact occurred, it shall continue to administer the Trust as if
such notice had not been received.
ARTICLE V
ERISA TERMINATION
5.1 Loss of ERISA Exemptions. If the existence of the Trustee is finally
determined by a competent authority to constitute a fund that will cause any
Plan to lose its exemptions under Title I of ERISA as an unfunded plan
maintained for the purpose of providing deferred compensation for a select group
of management or highly compensated employees, the Trust shall terminate. If
such termination occurs prior to the date on which a statement regarding
ownership of five percent or more of the Company required by Section 13(d) or
14(d) of the Securities and Exchange Commission, or if such termination occurs
more than two years after such statement is filed and no Change in control has
occurred, the Trustee shall (a) transfer the assets of the Trust to the trustee
of
4
<PAGE>
a new trust established by the Company that, in the opinion of counsel selected
by the Trustee, will not constitute such a fund and is in other respects similar
to this Trust, or (b) if no such other trust is in existence within ninety days
after the termination, distribute to each participant the present value of his
benefit under each Plan. If such termination occurs less than two year after
such statement has been filed or after a Change in Control has occurred, the
Trustee shall distribute to each participant the present value of his benefits
under each Plan. For purposes of the foregoing, a final determination of a
competent authority means a court order or an opinion of the Department of Labor
which cannot, or which the Company determines will not, be appealed.
5.2 Allocation upon Termination. Upon any distribution to participants under
Section 5.1, the trustee shall make distributions with respect to benefits under
any Plan from the Account for such Plan to the extent of the balance of such
account. If such Account is insufficient to pay such benefits in full, the
deficiency shall be allocated among the participants in proportion to the
present value of the accrued benefit of each under the Plan. If the balance of
the Account exceeds the amount of benefits payable under the Plan, the excess
shall first be allocated to participants in proportion to the aggregate amount
of deficiencies allocated to each with respect to other Plans, and second, if
the assets of the Trust exceed the value of all accrued benefits under the
Plans, the excess shall be returned to the Company.
ARTICLE VI
ACCOUNTS
6.1 Separate Plan Accounts. The Trustee shall establish a separate account
within the Trust to evidence contributions made pursuant to each separate plan
and the earnings and losses attributable to such contributions. The Company
shall instruct the Trustee as to the account or accounts to which each
contribution is to be allocated. Each account shall reflect an undivided
interest in the assets of the Trust, except that if an insurance policy is
acquired under a specific Plan, such policy shall be credited to the account for
such Plan. A single policy may be allocated in specified portions to accounts
for two or more Plans in accordance with the direction of the Company. Earnings
and losses of the Trust, except those attributable to an insurance policy (or a
portion of a policy) allocated to a specific account, shall be apportioned among
the accounts in proportion to their balances, exclusive of insurance policies,
as of the first day of an accounting period. All distributions in satisfaction
of benefits under a Plan, including those payable to a participant or
beneficiary as a general creditor of the Company, shall be charged against the
account of such Plan. Expenses of the Trust and any distributions other than
Plan benefits to the Company's general creditors shall be charged against the
accounts in proportion to their balances, including the value of any insurance
polices. Insurance policies shall be valued at their surrender value as of the
valuation date.
6.2 Participant Accounts. The Administrator shall maintain accounts for each
participant (and for the beneficiary of each deceased participant) as provided
in the Plan. As of each valuation date under the Plan, the trustee shall adjust
such accounts for
5
<PAGE>
imputed gains and losses in the manner provided in the Plan or, if the Plan does
not otherwise provide, in a reasonable manner determined by the Trustee.
ARTICLE VIII
POWERS AND DUTIES OF TRUSTEE
7.1 Investments. The Trustee shall invest the assets of the Trust in the
manner directed by the Company. The Company may contribute to the Trust, or
direct the Trustee to obtain, one or more policies of insurance on the life of
the participant, former participant, other employee or against the disability of
any participant and to allocate such policy to a Plan, or to allocate specified
interests in such policy to two or more Plans. The Trustee shall have no
discretion with respect to the acquisition, disposition or allocation of any
such policy and shall act only at the direction of the Company. To the extent a
policy is acquired with funds allocated to a separate account for a Plan, an
interest in the policy proportionate to the funds provided from such account for
such acquisition shall be allocated to such account. The Trustee shall be the
owner and beneficiary of each such policy. If the Company fails to direct the
Trustee as to the investment of any assets of the Trust, the Trustee shall
invest such assets in such manner as it deems prudent pending the receipt of
investment directions from the Company; provided that the Trustee shall retain
each insurance policy contributed to the Trust or acquired pursuant to the
Company's direction until the Company directs the Trustee to surrender or
otherwise dispose of such policy. The Company may, at any time, direct the
Trustee to borrow funds under the loan provisions of any such policy and to
apply the proceeds of such loan to the premiums payable with respect to such
policy or to invest such proceeds in another manner directed by the Company.
7.2 General Powers. Except as otherwise directed by the Company, the Trustee
shall have the following powers with respect to the funds held pursuant to this
Agreement, in addition to those which it possesses as a matter of law and those
granted to it elsewhere in this Agreement:
(a) to sell properties held in the Trust fund at public or private sale for
cash or on credit; to exchange such properties; and to grant options for
the purchase or exchange of such properties;
(b) to exercise all conversion and subscription rights pertaining to
properties held in the Trust fund;
(c) to exercise all voting rights with respect to properties held in the
Trust and in connection with such rights to grant proxies, discretionary or
otherwise;
(d) to cause securities and other properties to be registered and held in
the name of a nominee for the Trustee or in such form that title will pass
by delivery;
6
<PAGE>
(e) to borrow money for the purposes of the Plan if, in its sole
discretion, the Trustee deems borrowing to be advisable; for sums so
borrowed to issue its promissory note as Trustee and to secure repayment by
pledging securities held in the Trust for which the funds were borrowed;
and to pay or charge interest at a reasonable rate upon sums so borrowed;
but this Trustee shall never be required to exercise the power to borrow
except as directed by the Company pursuant to Section 7.1 of this
Agreement;
(f) to consent to and participate in any plan of reorganization,
consolidation, merger, extension or other similar plan affecting property
held in the Trust fund; to consent to any contract, lease, mortgage,
purchase, sale or other action by any corporation pursuant to any such
plan; to accept and retain property issued under any such plan.
(g) to pay any premium due on any policy of insurance held in the Trust if
such premium is not paid by the Company.
7.3 Other Provisions Relating to Trustee. The Trustee accepts the Trust
created under this instrument but only upon the express terms and conditions of
this Agreement, including the following:
(a) Whenever in the administration of the Plan a certification is required
to be given to the Trustee, or the Trustee shall deem it necessary that a
matter be proved prior to taking, suffering or omitting any action
hereunder, such certification shall be duly made and said matter may be
deemed to be conclusively proved by an instrument, signed in the name of
the Company, by its Chief Executive Officer, its President, a Vice
President or by any other person specified in writing by the Company, but
in its discretion the Trustee may, in lieu thereof, accept other evidence
of the matter from a participant or may require such further evidence to it
as may seem reasonable. Generally, the Trustee shall be protected in
acting upon any notice, resolution, order, certificate, opinion, telegram,
letter or other document believed by the Trustee to be genuine and to have
been signed by the proper party or parties.
(b) The Trustee may consult with legal counsel (who may be counsel for the
Company) with respect to the construction of this Agreement or its duties
as Trustee, or with respect to any legal proceeding or any question of law.
(c) The Trustee may make any payment required by this Agreement by mailing
its check by first class mail in a sealed envelope addressed to the person
to whom such payment is to be made. The Trustee shall not be required to
make any investigation to determine or verify the identity or mailing
address of any person entitled to benefits under this Agreement and shall
be entitled to withhold making payments until the identity and mailing
addresses of persons entitled to benefits are certified to it. If any
dispute arises as to the identity or rights of
7
<PAGE>
persons entitled to benefits, the Trustee may withhold payment of benefits
until such dispute shall have been determined by arbitration or by a court
of competent jurisdiction or shall have been settled by written stipulation
of the parties concerned.
(d) The Trustee shall receive for its services compensation in accordance
with its separate agreement with the Company. Such compensation, together
with all other expenses of the Trustee incurred in its administration of
the trust, shall be charged to and paid by the Company or, if not so paid,
shall be paid from the Trust as an administrative expense.
(e) The Trustee shall keep full records of its administration of the Trust,
which the Company shall have the right to examine at any time during the
Trustee's regular business hours. Within sixty days following the close of
each calendar year, the Trustee shall furnish to the Company a statement of
account, and the Company shall promptly notify the Trustee in writing of
its approval or disapproval of such statement. Each such statement shall
include sufficient information for the Company to include in its income
tax returns all items of income, deduction and credit attributable to the
Trust Fund. If the Company fails to disapprove any such statement within
sixty days after its receipt, the Company shall be considered to have
approved the statement. Except to the extent inconsistent with law, the
approval by the Company of any statement of account shall be binding, as to
all matters embraced in the statement, on the parties to this Agreement and
on all participants, to the same extent as if the account of the Trustee
had been settled by judgment or decree in an action for a judicial
settlement of its accounts in a court of competent jurisdiction in which
the Trustee, the Company, the Administrator, and all persons having or
claiming any interest in the Trust were parties; provided, however, that no
provision of this Agreement shall deprive the Trustee of its right to have
its accounts judicially settled.
(f) Following prior written notice to the Company, the Trustee may accept,
compromise, settle, enforce or contest any obligation or liability due to
or from it as Trustee, including any claim that may be asserted for taxes
under present or future laws; but it shall not be required to institute or
continue litigation unless it is in possession of funds suitable for that
purpose or unless it has been indemnified to its satisfaction against its
counsel fees and all other expenses and liabilities to which it may in its
judgment be subjected by such action. The Trustee shall be entitled, out
of the recoveries of any litigation, to reimbursement for its expenses in
connection with such litigation.
(g) A third party dealing with the Trustee shall not be required to inquire
whether the Company, the Administrator or a participant has instructed the
Trustee, or whether the Trustee is otherwise authorized to take or omit any
action;
8
<PAGE>
or to follow the application by the Trustee of any money or property that
may be paid or delivered to the Trustee.
(h) The Trustee shall discharge its duties solely in the interest of the
participants and their beneficiaries, with the care, skill, prudence and
diligence in the circumstances then prevailing that a prudent person acting
in a like capacity and familiar with such matters would use in the conduct
of a like character with like aims.
(i) The liability of the Trustee to make the payments specified by the Plan
shall be limited to the funds which have come into its hands as Trustee.
ARTICLE VIII
CHANGE OF TRUSTEE
8.1 Resignation. The Trustee may resign at any time upon delivering to the
Chief Executive Officer or President of the Company a written notice of
resignation, to take effect not less than thirty days after its delivery, unless
such notice shall be waived.
8.2 Removal. The Trustee may, with the written consent of a majority of the
participants in all Plans for which a separate account is then maintained under
this Agreement, be removed by the Chief Executive Officer or President of the
Company and by delivery of a written notice of such action to the Trustee,
together with written notice of removal, to take effect at a date specified in
such notice, which shall not be less than thirty days after its delivery, unless
the Trustee waives such notice.
8.3 Discharge. A Trustee which has resigned or has been removed shall have the
right to a settlement of accounts, which may be made at the option of the
Trustee either by judicial settlement in an action instituted by the Trustee in
a court of competent jurisdiction or by agreement of settlement between the
Trustee, the Company and the participants of any Plan for which an account is
maintained.
8.4 Appointment of Successor. The Company covenants that it will, upon receipt
or giving of notice of the resignation or removal of a Trustee, forthwith
appoint, by action of its Chief Executive Officer or President, a successor
Trustee, which shall be independent of the Company and not subject to the
control of the Company or the participants. Such successor shall not, except
with the written consent of a majority of the participants in the Plans for
which the Trustee maintains separate accounts under this Agreement, be a person
other than a bank or trust company. Any successor Trustee so appointed may
qualify as such by executing, acknowledging and delivering to the Chief
Executive Officer or President of the Company and to the resigning or removed
Trustee, an instrument accepting such appointment, and such successor shall,
without further act, become vested with all the estate, rights, powers,
discretion and duties of the predecessor Trustee with like effect as if
originally named as Trustee.
9
<PAGE>
ARTICLE IX
AMENDMENTS OF TRUST AND PLANS
9.1 Trust Amendment. Except as limited below, the Chief Executive Officer of
the Company shall have the right to amend this Trust Agreement at any time to
any extent. Such amendment shall be stated in an instrument in writing,
executed by such Chief Executive Officer, attested by the Secretary or an
Assistant Secretary of the Company. Upon delivery of an executed counterpart of
such instrument to the Trustee, the Trust shall be deemed to have been amended
in the manner set forth in such counterpart, and all participants and Employers
shall be bound by the amendment; provided, however,
(a) that no amendment shall increase the duties or liabilities of the
Trustee without its written consent; and
(b) that no amendment shall have any retroactive effect so as to deprive
any participant, or the beneficiary of a deceased participant, of any
benefit attributable to a contribution made before such amendment to which
such participant or beneficiary would have been entitled had such amendment
not been made, unless the participant or beneficiary becomes entitled to an
amount equal to such benefit under another plan or practice adopted by the
Company or consents in writing to such amendment.
9.2 Additional Plans. The Company may, without the consent of any participant,
cause funds for one or more additional Plans to be held and administered
pursuant to this Agreement by delivering to the Trustee a revised Exhibit A
listing such additional Plans, executed in the manner of an amendment.
9.3 Plan Amendment. The Company covenants that it will promptly furnish or
cause to be furnished to the Trustee an executed counterpart of each document
amending a Plan.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Exclusive Benefit. Except as otherwise provided in the Plan or in this
Agreement, prior to the payment of all benefits under the Plan, in no
circumstances shall any part of the Trust fund revert to the Company or
otherwise be used for or diverted to any purpose other than the payment of
benefits under, and administrative expenses associated with, the Plan and other
than for the exclusive benefit of the participants or their beneficiaries.
10.2 Nonassignment. In no event shall any participant's or beneficiary's
interest in the Trust, while undistributed in fact, be alienated, assigned,
encumbered or anticipated in any manner, or be subject to garnishment,
attachment, execution or bankruptcy proceedings or to claims for alimony or
support or to any other claims of any person against such participant or
beneficiary.
10
<PAGE>
10.3 Termination of Trust. the Trust shall terminate when the entire Trust
fund has been disbursed by the Trustee in accordance with the terms of the Plans
and this Agreement or, if earlier, when all benefits that may become payable
under the Plan have been paid. Any property held by the Trustee upon
termination of the Trust shall be distributed to the Company or its successors
or assigns.
10.4 Name. The Trust evidenced by this Agreement may be referred to as the
"H.B. Fuller Company Executive Benefit Trust."
10.5 Governing Law. Except to the extent that state law has been preempted by
provisions of any laws of the United States, as they may be amended from time to
time, this Agreement shall be construed and enforced according to the laws of
the State of Minnesota.
10.6 Enforcement. This Trust Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors in interest and may be
enforced by any participant or beneficiary to whom benefits are payable from the
Trust funds.
IN WITNESS WHEREOF, the Company and the Trustee have executed this instrument as
of the date written below.
Dated: October 25, 1993 H.B. FULLER COMPANY
By /s/ Anthony L. Andersen
-----------------------------
Chief Executive Officer
Attest: /s/ Mark Tanning
-------------------------------
Corporate Benefits Manager
FIRST TRUST NATIONAL ASSOCIATION,
TRUSTEE
By /s/ (signature illegible)
-----------------------------
Assistant Vice President
FIRST TRUST NATIONAL ASSOCIATION,
TRUSTEE
By /s/ (signature illegible)
----------------------------
Vice President
11
<PAGE>
H.B. FULLER COMPANY
EXECUTIVE BENEFIT TRUST
SCHEDULE A
----------
1. Supplemental Executive Retirement Plan
12
<PAGE>
EXHIBIT 10(M)
-------------
First Amendment to
DEFERRED COMPENSATION AGREEMENT
This agreement amends that certain Deferred Compensation Agreement dated
December 22, 1994 (the "Deferred Compensation Agreement") between H.B. Fuller
Company, a Minnesota corporation (the "Company") and Walter Kissling, a citizen
of Costa Rica ("Kissling").
In consideration of the mutual covenants and agreements contained herein,
Company and Kissling hereby agree as follows:
1. Section 4.4 of the Deferred Compensation Agreement shall be amended by
amending the last sentence to read as follows:
"If Kissling should die while on expatriate assignment with the Company in
the United States and after giving effect to any liabilities of Kissling's
estate, Kissling's estate becomes subject to United States estate or gift
taxes as a result of the Account balance, the Company will indemnify and
hold Kissling's estate harmless from such estate or gift tax liability but
only to the extent such liability exceeds $8,500,000."
2. Except as hereby amended the Deferred Compensation Agreement shall remain in
full force and effect.
Dated May 5, 1997
H.B. FULLER COMPANY
By /s/ James A. Metts
---------------------------
JAMES A. METTS
Its: V.P. Human Resources
-------------------------
V.P. HUMAN RESOURCES
By /s/ Walter Kissling
---------------------------
WALTER KISSLING
<PAGE>
Exhibit 10(n)
-------------
DEFERRED COMPENSATION AGREEMENT
This Agreement dated May 5, 1997, is between H.B. Fuller Company, a
Minnesota corporation (the "Company") and Walter Kissling, a citizen of Costa
Rica and as of the date hereof, the President and Chief Operating Officer of the
Company ("Kissling").
WHEREAS, both Kissling and the Company wish to enter an agreement whereby
Kissling may be entitled to the receipt of certain additional compensation after
his expatriate assignment in the United States has ended if he is then living or
in the event he dies prior to the end of such expatriate assignment if his
estate is subject to United States taxes; and
WHEREAS, both Company and Kissling have agreed on an interest rate to
reflect the time value of money;
NOW THEREFORE, in consideration of the mutual covenants and agreements
contained herein, Company and Kissling hereby agree to the following deferred
compensation arrangement:
ARTICLE 1. DEFERRED COMPENSATION ACCOUNT
-----------------------------------------
1.1 Establishment of Account. The Company shall establish an account
("Account") for Kissling which shall be utilized solely as a device to measure
and determine the amount of deferred compensation to be paid under this
Agreement.
1.2. Property of Company. Any amounts so set aside for benefits payable
under this Agreement are the property of the Company, except, and to the extent,
of any assignment of such assets to an irrevocable grantor trust of the type
commonly referred to as a "rabbi trust".
1.3. Amount of Additional Deferred Compensation. The Account shall be
credited with the amounts determined in accordance with Schedule A hereto as of
the dates set forth in such Schedule provided Kissling is employed by Company as
its President and Chief Operating Officer as of such date.
1.4. Interest Rate. Prior to the distribution of the Account balance, on
the last day of each month, the Company will post to the Account interest on the
Account balance (including previously accrued interest) equal to Wall Street
Prime plus one percent.
ARTICLE 2. DISTRIBUTION OF ACCOUNT BALANCE
-------------------------------------------
2.1. Payment of Account Balance. Except as hereinafter described, the
entire Account balance shall be paid by the Company to Kissling, or in the event
of Kissling's death to Kissling's beneficiaries, on the earlier of: (i) June 30
of the year immediately following the date on which Kissling first ceases to be
a United States resident for United States income tax
<PAGE>
purposes, (ii) sixty days following the death of Kissling, or (iii) January 10,
2001. The earlier of these dates shall be referred to herein as the "Payment
Date." Notwithstanding the foregoing, in the event Kissling dies prior to
payment of the Account, the Company shall deduct an amount from the Account
balance payable to Kissling's beneficiaries equal to the lesser of (a) the
Account Balance, or (b) the difference between (i) the amount payable to
Kissling's beneficiaries under Massachusetts Mutual Life Insurance Company
policy of insurance (Policy No. 0 027 933, face value $3,500,000, and Prudential
policy of insurance Policy No. 77 848666, face value $5,000,000 or any
replacement policy); and (ii) the amount, if any, of estate tax or inheritance
taxes payable to the United States or any state.
2.2. Designation of Beneficiary. Kissling shall have the right to
designate primary and contingent beneficiaries to receive payment of the Account
balance under this Agreement in the event of his death. A beneficiary
designation by Kissling shall be in writing on a form acceptable to the Company
and shall only be effective upon delivery to the Company. A beneficiary
designation may be revoked by Kissling at any time by delivering to the Company
either written notice of revocation or a new beneficiary designation form. The
beneficiary designation form last delivered to the Company prior to the death of
Kissling shall control.
ARTICLE 3. FUNDING
-------------------
3.1. Source of Benefits. All benefits under this Agreement shall be paid
pursuant to Section 2.1 hereof out of Company assets, or from a trust of the
type commonly referred to as a "rabbi trust".
3.2. No Claim on Specific Assets. If the Company shall make advance
provisions for payment of its obligations under this Agreement, any amount so
set aside in trust or otherwise, shall nonetheless remain the exclusive property
of the Company and shall in no event be deemed to constitute a segregated fund
for the benefit of Kissling. Kissling shall not be deemed to have by virtue of
this Agreement, any claim on any specific assets of the Company such that
Kissling would be subject to income taxation on his benefits under this
Agreement prior to distribution. The rights of Kissling and his beneficiaries
to benefits to which they are otherwise entitled under this Agreement shall be
those of an unsecured general creditor of the Company, this agreement
constituting a mere promise by the Company to make the benefit payment in the
future.
ARTICLE 4. MISCELLANEOUS
-------------------------
4.1. Amendment. No amendment to this Agreement shall become effective
unless and until the Compensation Committee of the Board of Directors shall
approve of such amendment and the Company and Kissling shall agree in writing to
such amendment.
4.2. No Guarantee of Employment. This Agreement shall not be deemed to be
a contract of employment between the Company and Kissling.
4.3. Non-Alienation. The rights of Kissling and his beneficiaries to
receive payments under this Agreement are not subject in any manner to
anticipation, alienation, sale, assignment, pledge, encumbrance, attachment or
garnishment by the creditors of Kissling or his beneficiaries.
2
<PAGE>
4.4. Indemnification. The Company agrees to indemnify and hold Kissling
harmless from (i) any and all federal and/or state income and payroll taxes
which may become due and payable relating to the Account balance, either before
or following distribution of the Account balance, and (ii) foreign income taxes
relating to the Account balance which Kissling is required to pay which would
not have otherwise been payable by Kissling but for this Agreement.
4.5. Change in Control. Notwithstanding anything to the contrary
contained in this Agreement, upon the occurrence of a Change in Control of the
Company, the Account balance shall automatically and simultaneously, without any
further action, determination or notice of any kind, be credited with interest
as ascribed under Section 1.4 hereof, and the aggregate Account balance shall be
paid immediately by the Company to Kissling or, in the event of Kissling's death
to Kissling's beneficiaries, in a single sum. If a Change in Control of the
Company occurs, the entitlement of Kissling to receive such sum from the Company
shall be valid and enforceable by Kissling in any state or federal court having
jurisdiction thereof.
4.6. Definitions Relating to Change in Control. Whenever used in Section
4.5, the following words and phrases shall have the meanings set forth below
unless the context plainly requires a different meaning, and when a defined term
is intended, the term is capitalized.
4.6.1. Change in Control. "Change in Control" shall mean the
occurrence of any one of the following;
(1) a change in control of a nature that would be required to
be reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Exchange Act, whether or not the Company is
then subject to such reporting requirement; or
(2) the public announcement (which, for the purposes of this
definition, shall include, without limitation, a report filed
pursuant to Section 13(d) of the Exchange Act by the Company or any
"person" (as such term is used in Sections 13(d) and 14(4) of the
Exchange Act) that such person has become the "beneficial owner" (as
defined in Rule 13d-3 promulgated under the Exchange Act), directly
or indirectly, of securities of the Company representing 15% or more
of the combined voting power of the Company's then outstanding
securities; or
(3) the Continuing Directors cease to constitute a majority of
the Company's Board of Directors; or
(4) the shareholders of the Company approve (A) any
consolidation or merger of the Company in which the Company is not
the continuing or surviving corporation or pursuant to which shares
of Company stock would be converted into cash, securities or other
property, other than a merger of the Company in which shareholders
immediately prior to the merger have the same proportionate
3
<PAGE>
ownership of stock of the surviving corporation immediately after the
merger; (B) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or
substantially all of the assets of the Company; or (C) any plan of
liquidation or dissolution of the Company; or
(5) the majority of the Continuing Directors determine in their
sole and absolute discretion that there has been a change in control
of the Company;
provided, however, that within ten business days following the date of the
Change in Control, a majority of the Continuing Directors, if any,
determines that there shall be no acceleration of vesting with respect to
such Change in Control, then the acceleration provisions will not apply.
4.6.2. Continuing Director "Continuing Director" shall mean any person
who is a member of the Board of Directors of the Company, while such person
is a member of the Board of Directors, who is not an Acquiring Person (as
defined below) or an Affiliate or Associate (as defined below) of an
Acquiring Person, or a representative of an Acquiring Person or any such
Affiliate or Associate, and who (A) was a member of the Board of Directors
on the date of this Agreement as first written above, or (B) subsequently
becomes a member of the Board of Directors, if such person's initial
nomination for election or initial election to the Board of Directors is
recommended or approved by a majority of the Continuing Directors. For
purposes of this sub-paragraph, "Acquiring Person" shall mean any "person"
(as such term is used in Sections 13(d) and 14(d) of the Exchange Act) who
or which, together with all Affiliates and Associates of such person, is
the "beneficial owner" (as defined in Rule 13d-3 promulgated under the
Exchange Act), directly or indirectly, of securities of the Company
representing 15% or more of the combined voting power of the Company's then
outstanding securities, but shall not include the Company, any subsidiary
of the Company or any employee benefit plan of the Company or of any
subsidiary of the Company or any entity holding shares of the Common Stock
organized, appointed or established for, or pursuant to the terms of, any
such plan, Elmer L. Andersen, alone or together with any of his Affiliates,
or Anthony L. Andersen, alone or together with any of his Affiliates; and
"Affiliate" and "Associate" shall have the respective meanings ascribed to
such terms in Rule 12b-2 promulgated under the Exchange Act.
4.7 Funding. The Company's obligations under this Agreement are intended
to be "unfunded" for purposes of the Internal Revenue Code and Title I of ERISA.
However, nothing herein shall prevent the Company, in its sole discretion, from
establishing a trust, of the type commonly referred to as a "rabbi trust,' to
assist the Company in meeting its obligations under this Agreement.
4.8. Claims Procedure. The Company shall notify Kissling in writing
within ninety (90) days of the Participant's written application for benefits of
his eligibility or noneligibility for benefits under this Agreement. If the
Company determines that Kissling is not eligible for benefits or full benefits,
the notice shall set forth (a) the specific reasons for such denial, (b) a
4
<PAGE>
specific reference to the provision of this Agreement on which the denial is
based, (c) a description of any additional information or material necessary for
Kissling to perfect his claim, and a description of why it is needed, and (d) an
explanation of this Agreement's claims review procedure and other appropriate
information as to the steps to be taken if Kissling wishes to have his claim
reviewed. If the Company determines that there are special circumstances
requiring additional time to make a decision, the Company shall notify Kissling
of the special circumstances and the date by which a decision is expected to be
made, and may extend the time for up to an additional 90-day period. If Kissling
is determined by the Company to be not eligible for benefits, or if Kissling
believes that he is entitled to greater or different benefits, he shall have the
opportunity to have his claim reviewed by the Company by filing a petition for
review with the Company within sixty (60) days after receipt by him of the
notice issued by the Company. Said petition shall state the specific reasons
Kissling believes he is entitled to benefits or greater or different benefits.
Within sixty (60) days after receipt by the Company of said petition, the
Company shall afford Kissling (and his counsel, if any) an opportunity to
present his position to the Company orally or in writing, and Kissling (or his
counsel) shall have the right to review the pertinent documents, and the Company
shall notify Kissling of its decision in writing within said sixty (60) day
period, stating specifically the basis of said decision written in a manner
calculated to be understood by Kissling and the specific provisions of the Plan
on which the decision is based. If, because of the need for a hearing, the sixty
(60) day period is not sufficient, the decision may be deferred for up to
another sixty (60) day period at the election of the Company, but notice of this
deferral shall be given to Kissling.
4.9. Captions. Article and section headings and captions are provided for
purpose of reference and convenience only and shall not be relied upon in any
way to construe, define, modify, limit, or extend the scope of any provision of
this Agreement.
This Agreement and all rights hereunder shall be governed by and construed
according to the laws of the State of Minnesota, except to the extent such laws
are preempted by the laws of the United States of America.
IN WITNESS WHEREOF, the Company and Kissling have executed this Agreement
as of the 5th day of May, 1997.
H.B. FULLER COMPANY
By /s/ James A. Metts
-------------------------------
Its: Vice President Human Resources
------------------------------
/s/ Walter Kissling
------------------------------
Walter Kissling
5
<PAGE>
Schedule A
May 5, 1997 $ 56,820
May 5, 1998 $ 78,725
May 5, 1999 $106,730
May 5, 2000 $129,545
May 5, 2001 $152,255
6
<PAGE>
EXHIBIT 10(O)
-------------
SPLIT-DOLLAR INSURANCE AGREEMENT
THIS AGREEMENT is entered into this 5th day of May, 1997, by and between
H.B. FULLER COMPANY, a Minnesota corporation, hereinafter called "FULLER", and
JORGE WALTER BOLANOS, as Trustee of the Walter Kissling Irrevocable Trust
Agreement dated May 5th, 1997, hereinafter called "TRUSTEE".
AGREEMENT
FULLER and TRUSTEE agree as follows:
1. The life insurance policy with which this agreement deals is Policy Number
0 027 933 (hereinafter called "Policy") issued by Massachusetts Mutual
Life Insurance Company (hereinafter called "Insurer") on the life of Walter
Kissling ("Kissling"). Fuller shall be the sole owner of the Policy and
the direct beneficiary of the death proceeds in an amount equal to the cash
value of the Policy. Any indebtedness on the Policy shall first be
deducted from the proceeds payable to Fuller. Also, any collateral
assignment made by Fuller will be deducted from the proceeds payable to it.
As owner Fuller shall have the sole right to designate investment accounts
for the cash value.
2. Trustee shall have the right to designate and change direct and contingent
beneficiaries of any remaining death benefit proceeds and to elect and
change a payment plan for such beneficiaries. Any assignment of the
proceeds by the Trustee shall be limited to such remaining proceeds only.
Kissling shall have no rights to the policy.
3. While this Agreement is in effect, Fuller shall pay an annual premium to
the Insurer, on or before the policy anniversary date sufficient to
maintain the policy death benefit. Upon request, Fuller shall promptly
furnish the Trustee with evidence of timely payment of such premium
amounts.
4. At the time of each premium payment by Fuller, the Trustee shall reimburse
Fuller for a portion of the premium paid by Fuller. The amount of the
reimbursement shall equal the value of the economic benefit attributable to
the life insurance provided to the Trustee under this Agreement. Such
economic benefit shall be in an amount equal to the current published
premium rate charged by the Insurer for an initial issue individual one-
year term policy for an insured with an attained age equivalent to
Kissling's.
5. Dividends, if any, shall be applied to purchase paid-up additional
insurance protection.
6. Fuller shall not sell, surrender, change the insured or transfer ownership
of the Policy while this agreement is in effect. Fuller agrees that it
will take no action with respect to the Policy which would in any way
compromise or jeopardize the trustee's right to be paid the amount; if any,
owed it under this Agreement, without the express written consent of the
Trustee. Upon termination of this Agreement, Trustee shall have the option
to purchase the Policy during a period of 60 days from notice to Trustee.
The
<PAGE>
purchase price of the Policy shall be the cash value of the Policy as of
the date of transfer to Trustee, less any policy and premium loans and any
other indebtedness secured by the Policy. This restriction shall not
impair the right of the parties to terminate this agreement pursuant to
section 7 hereof.
7. This agreement may be terminated at any time by mutual consent of the
parties. This agreement shall terminate automatically upon termination of
Kissling's employment with Fuller for any reason whatsoever other than
Kissling's death. In the event of termination of the agreement, Trustee
shall have the right to purchase the Policy from Fuller on the same terms
and conditions as specified in section 6 hereof.
8. The Insurer shall be bound only by the provisions of and endorsements on
the Policy, and any payments made or action taken by it in accordance
therewith shall fully discharge it from all claims, suits and demands of
all persons whatsoever. In the event that there is any conflict between
the provisions of any endorsement on the Policy and this agreement, this
agreement shall govern the rights, obligations and interests of and between
Fuller and Trustee.
9. The Trustee shall have the right to assign any part or all of the Trustee's
interest in the Policy and this agreement to any person, entity or trust by
execution of a written assignment delivered to Fuller and to the Insurer.
10. Fuller and Trustee can mutually agree to amend this agreement and such
amendment shall be in writing and signed by Fuller and Trustee.
11. This agreement shall be binding on and insure to the benefit of Fuller and
its successors and assigns; the Trustee sand his successors and assigns;
and any Policy beneficiary.
12. This agreement and the rights of the parties hereunder shall be governed by
and construed in accordance with the laws of the State of Minnesota.
IN WITNESS WHEREOF the parties have signed and sealed this agreement.
In the presence of: H.B. FULLER COMPANY
/s/ James Schmitz By /s/ James A. Metts
--------------------------- -----------------------------
Its: V.P. Human Resources
----------------------------
/s/ Sandra Bates /s/ Jorge Walter Bolanos
---------------------------- ------------------------
Jorge Walter Bolanos, as Trustee
of the Walter Kissling Irrevocable
Trust Agreement dated May 5th, 1997
2
<PAGE>
Exhibit 11
----------
H.B. Fuller Company and Consolidated Subsidiaries
Computation of Net Earnings Per Common Share
Years Ended November 29, 1997, November 30, 1996,
and November 30, 1995
(Dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
Pro Forma
1997 1996 1995 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Primary
- -------
Earnings:
Earnings before accounting change $40,308 $45,430 $28,195 $31,195
Dividends on preferred stock (15) (15) (15) (15)
------------ ------------ ------------ ------------
Earnings before acctg. chg. applicable to common stock 40,293 45,415 28,180 31,180
Cumulative effect of accounting change (3,368) - (2,532) (2,532)
----------- ----------- ----------- -----------
Earnings applicable to common stock $36,925 $45,415 $25,648 $28,648
=========== =========== =========== ===========
Shares:
Weighted average number of common shares outstanding 13,991,805 14,027,303 13,967,716 13,967,716
Common share equivalents of stock options outstanding
(determined by the treasury stock method using
average quarterly prices) 108,471 86,564 91,000 91,000
----------- ----------- ----------- -----------
Weighted average shares outstanding and common
stock equivalent shares 14,100,276 14,113,867 14,058,716 14,058,716
=========== =========== =========== ===========
Primary earnings per common share:
Earnings before accounting change per share $2.86 $3.22 $2.01 $2.22
Cumulative effect of accounting change per share (0.24) (0.18) (0.18)
----------- ----------- ----------- -----------
Net earnings per common share $2.62 $3.22 $1.83 $2.04
=========== =========== =========== ===========
</TABLE>
This calculation is submitted in accordance with Securities Exchange Act of 1934
Release No. 9083 although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because it results in dilution of less that 3%.
<TABLE>
<S> <C> <C> <C> <C>
Assuming full dilution
- ----------------------
Earnings:
Earnings are exactly the same as presented above
under primary.
Shares:
Weighted average number of common shares outstanding 13,991,805 14,027,303 13,967,716 13,967,716
Common share equivalents of stock options outstanding
(determined by the treasury stock method using
higher of quarter end or average quarterly prices) 108,718 92,122 90,701 90,701
----------- ----------- ----------- -----------
Weighted average shares outstanding and common
stock equivalent shares 14,100,523 14,119,425 14,058,417 14,058,417
=========== =========== =========== ===========
Earnings per common share assuming full dilution:
Earnings before accounting change per share $2.86 $3.22 $2.01 $2.22
Cumulative effect of accounting change per share (0.24) (0.18) (0.18)
----------- ----------- ----------- -----------
Net earnings per common share $2.62 $3.22 $1.83 $2.04
=========== =========== =========== ===========
</TABLE>
<PAGE>
Management's Analysis of Results of Operations
and Financial Condition
(Dollars in thousands, except per share amounts)
The following discussion includes comments and data relating to the Company's
financial condition and results of operations for the three fiscal years ended
November 29, 1997. This section should be read in conjunction with the
Consolidated Financial Statements and related notes as they contain important
information for evaluation of the Company's comparative financial condition and
operating results.
Results of Operations:
1997 Compared to 1996
Worldwide sales for 1997 were a record $1,306,789, an increase of $31,073 or
2.4 percent over 1996 sales of $1,275,716.
Sales changes by geographic area were as follows:
<TABLE>
<CAPTION>
Area Increase/(Decrease)
- ---------------------------------------------
<S> <C> <C>
North America $38,421 5%
Latin America 8,322 5%
Europe (24,165) (9%)
Asia/Pacific 8,495 10%
-------
Total $31,073 2%
-------
</TABLE>
In North America, the 5 percent increase in sales is composed of a 6
percentage point increase due to volume and change in product mix and a negative
one percentage point related to pricing and strengthening of the U.S. dollar.
North American operating earnings increased 4.3 percent compared to 1996. Some
bonuses were not paid in 1996. On a comparable basis, adjusting for these
bonuses, operating earnings increased 12.5 percent year over year.
Within North America, the Adhesives, Sealants and Coatings (ASC) Group
produced a 7 percent sales increase over 1996 with 5 percentage points of the
increase a result of expanded sales within core industrial markets and moderate
sales growth by the ASC structural group, especially in the engineered systems
and window markets. ASC Group operating earnings had a strong increase over
1996, supported by relatively stable raw material costs and lower operating
expenses resulting from continuing cost containment programs.
North American automotive sales experienced a 9 percent increase over 1996
automotive sales and was composed of 13 percentage points resulting from the
EFTEC joint venture (See Note 3 to the Consolidated Financial Statements), and a
1996 acquisition offset by 4 percentage points of negative pricing. Operating
earnings decreased substantially as a result of low unit growth in the base
business (prior to the joint venture),
<TABLE>
<CAPTION>
TRADE SALES BY
SALES TO UNAFFILIATED CUSTOMERS OPERATING EARNINGS CLASS OF PRODUCT
<S> <C> <C> <C> <C> <C>
59% North America 68% North America 90% Adhesives, Sealants
19% Europe 18% Latin America and Coatings
15% Latin America 13% Europe 7% Paints
7% Asia/Pacific 1% Asia/Pacific 3% Others
</TABLE>
25
<PAGE>
negative pricing, competitive pressures in the automotive market, and costs of
merging and integrating the business of the joint venture partners.
The North American Specialty Group, adjusted for the sale of the Monarch
Division in the Third Quarter of 1996, experienced an 11 percent sales increase
and a substantial operating earnings increase in 1997 compared to 1996.
Industrial Coatings Division had a significant increase in sales, TEC
Incorporated had a strong sales increase and Foster Products Corporation and
Linear Products Incorporated had moderate increases in sales.
Sales by the Company's Latin American operations increased 5 percent compared
to the sales of the prior year, with a 6 percentage point increase resulting
from volume and product mix and a negative one percentage point resulting from
decreased pricing. Operating earnings for Latin America increased 19.2 percent
compared to 1996. On a comparative basis, adjusting for bonuses not paid in
1996, operating earnings increased 29.3 percent. The increase in operating
earnings resulted from improved unit volume growth and increased gross margins.
Sales in Europe decreased 9 percent in 1997 compared to 1996, with the
strengthening of the U.S. dollar negatively affecting the sales by 10 percentage
points. The one percentage point increase in local currency sales was primarily
from an 8 percentage point improvement in volume and change in product mix,
which was partially offset by 7 percentage points from negative pricing and the
impact of the sale of the construction business. Operating earnings decreased
6.3 percent in 1997 compared to the prior year. On a comparable basis, excluding
the benefit of not paying bonuses in 1996, operating income increased 25.5
percent.
Sales in Asia/Pacific increased 10 percent in 1997 from 1996. The
strengthening of the U.S. dollar accounted for a decrease of 8 percentage
points. The 18 percentage point increase in local currency sales included 19
percentage points from increased volume and change in product mix which was
partially offset by one percentage point of negative pricing. Operating losses
in the region in 1996 were replaced with a slight operating gain in 1997.
The Company continues to develop its organization and implement strategies to
effectively serve large global customers, recognizing that, along with
significant opportunities for sales growth, such an approach also carries the
usual risks of increasing dependence on fewer large customers. In 1997, no
single customer accounted for over 5 percent of Company-wide sales. Increasing
globalization of corporate functions such as information technology, purchasing,
research and development, manufacturing, engineering and quality programs should
result in improved productivity and customer service.
RETURN ON NET SALES RETURN ON AVERAGE EQUITY
1997 * 3.1% 1997 * 12.0%
1996 3.6% 1996 14.3%
1995 * 2.3% 1995 * 9.8%
1994 2.8% 1994 11.5%
1993 * 2.2% 1993 * 8.4%
1992 3.8% 1992 15.0%
1991 3.2% 1991 13.3%
1990 2.7% 1990 11.0%
1989 2.1% 1989 8.6%
1988 3.1% 1988 12.4%
* Excludes cumulative effect of change * Excludes cumulative effect of change
in accounting principles. in accounting principles.
1995 is pro forma 1995. 1995 is pro forma 1995.
26
<PAGE>
Consolidated gross margin for the Company, as a percent of sales, decreased
from 31.7 percent in 1996 to 31.6 percent in 1997. On a comparable basis,
excluding the favorable impact of not paying bonuses in 1996, gross margins, as
a percent of sales, improved from 31.3 percent in 1996 to 31.6 percent in 1997.
During 1997, the Company overall experienced relatively stable raw material
costs. Gross margins for North American ASC and Specialty Group, Latin America
and Asia/Pacific improved from 1996 levels.
Consolidated selling, administrative and other expenses for the Company
increased $2,241 or 0.7 percent from 1996, and as a percent of sales, decreased
from 25.4 percent in 1996 to 24.9 percent in 1997. This was primarily the result
of employee census control, cost control efforts and continued globalization of
the Company. The year-end 1997 number of employees increased 2 percent, to
6,000, with virtually all of the added census resulting from the 1997 EFTEC
joint venture and a small acquisition. Excluding the favorable bonus nonpayment
in 1996, operating expenses decreased $1,749 or 0.5 percent and the 1996 percent
to sales increased to 25.7 percent.
Interest expense was $19,836 in 1997, up $955 or 5.1 percent from the prior
year. Total Company borrowing at year-end 1997 was above that at year-end 1996,
primarily as a result of borrowing to fund benefit plans and the repurchase of
300,000 shares of Company stock. Capitalized interest costs associated with
major property and equipment projects decreased from $2,518 in 1996 to $1,245 in
1997.
Other income/expense, net, changed from $1,995 expense in 1996 to $7,295
expense in 1997, primarily as a result of increased currency losses in Asia/
Pacific, 1997 consulting costs and the costs associated with pursuing a large
acquisition. (See Notes 1 and 2 to the Consolidated Financial Statements.)
Gain on sale of assets decreased from $16,673 or $0.71 per share in 1996 to
$5,199 or $0.22 per share in 1997. The gain in 1996 was primarily the result of
the sale of Monarch sanitation chemicals.
Income taxes totaled $26,651 in 1997, a 14.7 percent decrease from $31,233 in
1996. The effective tax rate equaled the 40.8 percent in 1996.
Net earnings for 1997 were $36,940, a decrease of $8,490 or 18.7 percent from
1996 earnings of $45,430. 1997 net earnings were adversely affected by an
accounting change charge of $3,368. As discussed in Note 1 to the Consolidated
Financial Statements, the Company changed its accounting for certain information
technology transformation costs to conform with issue No. 97-13 of the Emerging
Issues Task Force.
RETURN ON AVERAGE ASSETS RETURN ON INVESTED CAPITAL (a)
1997 * 4.5% 1997 8.6%
1996 5.4% 1996 10.3%
1995 * 3.6% 1995 * 7.8%
1994 4.7% 1994 9.4%
1993 * 3.9% 1993 * 8.0%
1992 6.7% 1992 13.3%
1991 5.5% 1991 11.6%
1990 4.5% 1990 9.6%
1989 3.5% 1989 7.7%
1988 5.5% 1988 10.4%
* Excludes cumulative effect of change (a) Average invested capital is a two-
in accounting principles. point average of long-term and
short-term debt, minority interest
1995 is pro forma 1995. and stockholders' equity. After tax
interest expense and minority
interest are added back to net
earnings.
* Excludes cumulative effect of change
in accounting principles.
1995 is pro forma 1995.
27
<PAGE>
Results of Operations:
1996 Compared to 1995
Effective December 1, 1995, in the first quarter of the Company's 1996 fiscal
year, the Company's non-U.S. subsidiaries that previously reported on a fiscal
year ending September 30 changed their reporting period to a Company-wide
52-week fiscal year ending on the Saturday closest to November 30. The pro forma
1995 column in the income statement reflects the impact of this change on 1995
earnings. (See Note 1 to the Consolidated Financial Statements.) All comparisons
of 1996 results to 1995 results will be made to the pro forma 1995 results.
Worldwide sales for 1996 were $1,275,716, an increase of $26,904 or 2.2
percent over 1995 sales of $1,248,812. Net earnings for 1996 were $45,430, an
increase of $19,767 or 77.0 percent from 1995 earnings of $25,663. 1995 net
earnings were adversely affected by an accounting change charge of $2,532
relating to the Company's adoption of the Financial Accounting Standards Board
Statement No. 112, "Employers' Accounting for Postemployment Benefits."
Sales changes by geographic area were as follows:
<TABLE>
<CAPTION>
Area Increase/(Decrease)
- ---------------------------------------------
<S> <C> <C>
North America $40,775 6%
Latin America 385 -
Europe (13,792) (5%)
Asia/Pacific (464) (1%)
-------
Total $26,904 2%
-------
</TABLE>
In North America, the 6 percent increase in sales is composed of a 5
percentage point increase due to volume and change in product mix and one
percentage point related to acquisitions and divestitures. North American
operating earnings increased 36.3 percent compared to 1995.
Within North America, the ASC Group produced a 7 percent sales increase over
1995 with 3 percentage points of the increase a result of expanded sales within
core industrial markets and strong sales by the ASC structural group, especially
in the engineered systems and window markets. Sales to the automotive markets,
as a result of labor strikes at General Motors in 1996, approximated 1995 sales.
Sales to the nonwoven market were down slightly from 1995. ASC Group operating
earnings had a substantial increase over 1995 supported by relatively stable raw
material costs and lower operating expenses resulting from
RESEARCH AND DEVELOPMENT
EXPENSES (In millions) WORKING CAPITAL (In millions)
1997 $24.8 1997 $171.6
1996 $25.8 1996 $141.6
1995 $26.5 1995 $142.1
1994 $23.6 1994 $129.7
1993 $21.8 1993 $119.9
1992 $20.4 1992 $130.8
1991 $17.2 1991 $108.8
1990 $16.1 1990 $96.1
1989 $15.5 1989 $95.6
1988 $14.4 1988 $104.1
28
<PAGE>
continuing cost containment programs.
The North American Specialty Group, adjusted for the sale of the Monarch
Division in the Third Quarter of 1996, experienced an 8 percent sales increase
and strong operating earnings increase in 1996 compared to 1995. Foster Products
Corporation, TEC Incorporated and Linear Products Incorporated had strong sales
increases and Industrial Coatings Division had a moderate increase in sales.
Sales by the Company's Latin American operations approximated the sales of
the prior year with a 3 percentage point increase resulting from pricing, a 2
percentage point decrease in volume and product mix and a one percentage point
decrease from closing the Acrylicos Division in Costa Rica. The decrease in
volume was primarily the result of economic slowdowns in Ecuador, El Salvador,
Guatemala, Panama and Venezuela. Operating earnings for Latin America decreased
13.6 percent compared to 1995 due to increasing raw material costs, competitive
pressures, and the impact of reduced volumes in 1996.
Sales in Europe decreased 5 percent in 1996 compared to 1995, with the
strengthening of the U.S. dollar negatively affecting the sales by one
percentage point. The 4 percentage point decrease in local currency sales was
primarily from a decrease in volume and change in product mix. In spite of a
continuing weak German economy, which was the primary cause for the volume
declines, stringent cost control measures and stable raw material costs produced
operating earnings which increased 18.2 percent in 1996 compared to the prior
year.
Sales in Asia/Pacific decreased one percent in 1996 from 1995. The
strengthening of the U.S. dollar accounted for a decrease of 5 percentage
points. The 4 percentage point increase in local currency sales included 7
percentage points from increased volume and change in product mix which was
partially offset by 3 percentage points of negative pricing. Operating losses in
the region approximated the losses of 1995.
Consolidated gross margin for the Company, as a percent of sales, increased
to 31.7 percent in 1996 from 31.3 percent in 1995. During 1996, the Company
overall experienced relatively stable raw material costs and expects the same in
1997. Gross margins, as a percent of sales, in North America and Europe improved
from 1995 levels.
Consolidated selling, administrative and other expenses for the Company were
down $1,701 or 0.5 percent from 1995, and as a percent of sales, decreased from
26.0 percent in 1995 to 25.4 percent in 1996. This was primarily the result of
employee census control, cost control efforts and globalization of the Company.
The year-end 1996 number of employees was 8 percent less than the 6,400
employees at year-end 1995. Divestiture of the Monarch Division caused 2 percent
of the reduction.
CAPITAL EXPENDITURES
GROSS (In millions) CAPITALIZATION RATIO
1997 $69.2 1997 40.4%
1996 $89.8 1996 34.0%
1995 $90.7 1995 35.7%
1994 $65.0 1994 32.1%
1993 $41.8 1993 19.5%
1992 $34.5 1992 17.3%
1991 $30.0 1991 24.7%
1990 $31.5 1990 30.9%
1989 $40.9 1989 35.1%
1988 $40.2 1988 35.5%
29
<PAGE>
Interest expense was $18,881 in 1996, up $749 or 4.1 percent from prior year.
Total Company borrowing at year-end 1996 was above that at year-end 1995,
primarily as a result of borrowing to fund capital expenditures. Capitalized
interest costs associated with major property and equipment projects decreased
from $2,634 in 1995 to $2,518 in 1996.
Other income/expense, net, changed from $3,161 expense in 1995 to $1,995
expense in 1996, primarily as a result of decreased currency losses and a gain
on the sale of equity investments in 1996 which was partially offset by an
expense of $1,188 for an environmental clean up reserve. (See Notes 1 and 2 to
the Consolidated Financial Statements.)
Gain on sale of assets increased from $1,764 or $0.08 per share in 1995 to
$16,626 or $0.71 per share in 1996.
Income taxes totaled $31,233 in 1996, a 72.6 percent increase from $18,094 in
1995. The effective tax rate increased from 39.2 percent in 1995 to 40.8 percent
in 1996. The increase is primarily due to reduced losses or turnarounds in
earnings of non-U.S. loss operations in 1995 which reduced the 1995 effective
tax rate.
Liquidity and Capital Resources
The Company generated $68,581 in funds from operations in 1997 compared to
$81,261 in 1996 and $78,813 in 1995. The decrease in 1997 resulted primarily
from decreased earnings. The Company also generated funds from divestitures and
the sale of assets. (See Note 4 to the Consolidated Financial Statements.) Major
other uses of cash during 1997 were capital expenditures, repurchase of stock,
funding of postretirement and pension benefits, purchase of businesses and
payment of dividends. Cash was $2,710 at November 29, 1997, compared to $3,515
at November 30, 1996. The $2,710 cash balance is considered adequate to meet
Company needs in light of its unused lines of credit at November 29, 1997.
Working capital was $171,607 at November 29, 1997, compared to $141,617 at
November 30, 1996. A primary reason for this increased working capital is the
replacement of short-term debt with long-term debt. The current ratio at
year-end 1997 was 1.7. The number of days sales in trade accounts receivable was
53 at November 29, 1997, an increase of one days sales from 52 at November 30,
1996. The average days sales in inventory on hand was 62 in 1997 compared to 63
in 1996.
Management believes that the Company will continue to have access to
short-term and long-term credit markets to fund its working capital
requirements, capital expenditure programs and future acquisitions. The
Company's ratio of long-term debt to total capitalization was 40.4 percent at
November 29, 1997, compared to 34.0 percent at November 30, 1996. At year-end
1997, the Company had short-term and long-term lines of credit of $450,299 of
which $260,000 was committed. The unused portion of these lines of credit was
$310,316.
Capital expenditures for property, plant and equipment of $69,224 in 1997
were primarily for beginning construction of a manufacturing plant in Georgia,
for an information systems project, for general improvements in manufacturing
productivity and operating efficiency and for environmental projects.
Environmental capital expenditures, less than 10 percent of total expenditures,
are not a material portion of overall Company expenditures. Future commitments
related to 1997 capital projects are estimated to be approximately $27,000.
Over the recent past, approximately 50 percent of H.B. Fuller's sales have
come from its foreign subsidiaries. Swings in exchange rates, particularly the
deutsche mark and Japanese yen, can have an impact on Fuller's results. (See
Note 1 to Consolidated Financial Statements.) The Company's operations in Canada
and Europe use forward foreign exchange contracts to hedge foreign currency
denominated accounts receivable/ payable and intercompany loans.
Impact of the Year 2000 Issue
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Some of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process critical business transactions
including recording of sales, manufacture of products, inventory management and
distribution, preparation of invoices and collection of accounts receivables,
and many other normal business activities.
The Company Year 2000 Project Office has made every attempt to identify all
relevant software that
30
<PAGE>
may affect the Company's operations through extensive surveys and examination.
Based on risk assessments that have been completed for the majority of the
Company's operations, the Company must replace or repair some of its software
inventory so that the computer systems will properly utilize dates beyond
December 31, 1999. The Company expects to convert the majority of major business
operations to new Year 2000 compatible software by the end of 1998. The
conversion of some smaller operations are expected to be completed during 1998
and early 1999 by a combination of conversion to new software and upgrading
existing software. The cost of these conversions is not expected to have a
material impact to the company. However, there can be no guarantee that the
systems of other companies on which the Company's systems rely will be timely
converted, or that a failure to convert by another company, or a conversion that
is incompatible with the Company's systems, would not have a material adverse
effect on the Company.
Safe Harbor for Forward-Looking Statements
Certain statements in this Annual Report are forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
These statements are subject to various risks and uncertainties, including but
not limited to the following: political and economic conditions; product demand
and industry capacity; competitive products and pricing; manufacuring
efficiencies; new product development; product mix; availability and price of
raw materials and critical manufacturing equipment; new plant startups; accounts
receivable collection; the Company's relationships with its major customers and
suppliers; changes in tax laws and tariffs; patent rights that could provide
significant advantage to a competitor; foreign exchange rate fluctuations
(particularly with respect to the German mark and the Japanese yen); the
regulatory and trade environment; and other risks as indicated from time to time
in the Company's filings with the Securities and Exchange Commission. The
forward-looking information herein represents management's best judgment as of
the date hereof based on information currently available that in the future may
prove to have been inaccurate.
31
<PAGE>
Consolidated Statements of Earnings
H.B. Fuller Company and Subsidiaries
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------------------------
November 29, November 30, November 30, November 30,
1997* 1996* 1995 Pro Forma** 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $1,306,789 $1,275,716 $1,248,812 $1,243,818
Cost of sales 893,835 871,501 857,941 851,291
- ------------------------------------------------------------------------------------------------
Gross profit 412,954 404,215 390,871 392,527
Selling, administrative
and other expenses 325,702 323,461 325,162 322,762
- ------------------------------------------------------------------------------------------------
Operating earnings 87,252 80,754 65,709 69,765
Interest expense (19,836) (18,881) (18,132) (18,132)
Gain from sale of assets 5,199 16,673 1,764 1,764
Other income
(expense), net (7,295) (1,995) (3,161) (2,967)
- ------------------------------------------------------------------------------------------------
Earnings before income taxes, minority
interests and accounting change 65,320 76,551 46,180 50,430
Income taxes (26,651) (31,233) (18,094) (19,148)
Net earnings or losses of
consolidated subsidiaries
applicable to minority
interests 644 112 109 (87)
Earnings from equity investments 995 - - -
- ------------------------------------------------------------------------------------------------
Earnings before cumulative
effect of accounting change 40,308 45,430 28,195 31,195
Cumulative effect of
accounting change (3,368) - (2,532) (2,532)
- ------------------------------------------------------------------------------------------------
Net earnings $36,940 $45,430 $25,663 $28,663
================================================================================================
Earnings (loss) per common share:
Earnings before accounting change $2.86 $3.22 $2.01 $2.22
Accounting change (0.24) - (0.18) (0.18)
- ------------------------------------------------------------------------------------------------
Net earnings $2.62 $3.22 $1.83 $2.04
================================================================================================
Average number of common
and common equivalent
shares outstanding 14,100 14,114 14,059 14,059
- ------------------------------------------------------------------------------------------------
</TABLE>
* 52-week year
** See Consolidated Financial Statements Note 1, Change in Year-end.
See accompanying Notes to Consolidated Financial Statements.
32
<PAGE>
Consolidated Balance Sheets
H.B. Fuller Company and Subsidiaries
(In thousands)
November 29, November 30,
1997 1996
- --------------------------------------------------------------------------------
Assets
Current Assets:
Cash $2,710 $3,515
Trade receivables, less allowance for doubtful
accounts of $5,879 in 1997 and $7,043 in 1996 205,590 192,743
Inventories 150,685 151,212
Other current assets 50,171 40,728
- --------------------------------------------------------------------------------
Total current assets 409,156 388,198
Net property, plant and equipment 398,561 391,201
Deposits and miscellaneous assets 62,196 38,457
Other intangibles, less accumulated
amortization of $14,066 in 1997 and $11,158 in 1996 13,830 15,383
Excess of cost over net assets acquired,
less accumulated amortization of $15,599
in 1997 and $13,179 in 1996 33,903 36,036
- --------------------------------------------------------------------------------
Total assets $917,646 $869,275
================================================================================
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable $39,675 $47,920
Current installments of long-term debt 2,551 11,141
Accounts payable - trade 121,883 118,181
Accrued payroll and employee benefits 36,151 32,697
Other accrued expenses 32,802 28,513
Income taxes 4,487 8,129
- --------------------------------------------------------------------------------
Total current liabilities 237,549 246,581
Long-term debt, excluding current installments 229,996 172,779
Accrued pensions 76,694 89,735
Other liabilities 18,477 22,685
Minority interests in consolidated subsidiaries 15,816 2,755
Stockholders' Equity:
Series A preferred stock 306 306
Common stock 13,841 14,066
Additional paid-in capital 25,035 22,493
Retained earnings 304,974 292,828
Foreign currency translation adjustment 341 9,097
Unearned compensation - restricted stock (5,383) (4,050)
- --------------------------------------------------------------------------------
Total stockholders' equity 339,114 334,740
- --------------------------------------------------------------------------------
Total liabilities and stockholders' equity $917,646 $869,275
================================================================================
See accompanying Notes to Consolidated Financial Statements.
33
<PAGE>
Consolidated Statements of Stockholder's Equity
H.B. Fuller Company and Subsidiaries
(Dollars in thousands)
FISCAL YEARS 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Unearned
Foreign Compen-
Additional Currency sation
Preferred Common Paid-in Retained Translation Restricted
Stock Stock Capital Earnings Adjustment Stock
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances at November 30, 1994 $306 $13,935 $18,907 $236,572 $7,532 $(2,447)
Stock compensation plans, net - 72 1,864 - - (1,031)
Net earnings - 1995 - - - 28,663 - -
Dividends paid - - - (8,746) - -
Change in foreign currency
translation - - - - 3,787 -
- -------------------------------------------------------------------------------------------------------
Balances at November 30, 1995 306 14,007 20,771 256,489 11,319 (3,478)
Stock compensation plans, net - 59 1,722 - - (572)
Net earnings - change in non-
U.S. year-end* - - - 118 - -
Net earnings - 1996 - - - 45,430 - -
Dividends paid - - - (9,209) - -
Changes in foreign currency translation:
Translation gain adjustment included in
net earnings due to substantial
liquidation of non-U.S. assets - - - - 208 -
Other - - - - (2,430) -
- -------------------------------------------------------------------------------------------------------
Balances at November 30, 1996 306 14,066 22,493 292,828 9,097 (4,050)
Stock compensation plans, net - 76 3,039 - - (1,333)
Retirement of common stock - (301) (497) (14,726) - -
Net earnings - 1997 - - - 36,940 - -
Dividends paid - - - (10,068) - -
Changes in foreign currency translation:
Translation gain adjustment included in
net earnings due to substantial
liquidation of non-U.S. assets - - - - 97 -
Other - - - - (8,853) -
- -------------------------------------------------------------------------------------------------------
Balances at November 29, 1997 $306 $13,841 $25,035 $304,974 $341 $(5,383)
=======================================================================================================
</TABLE>
* See Consolidated Financial Statements Note 1, Change in Year-end.
See accompanying Notes to Consolidated Financial Statements.
34
<PAGE>
Consolidated Statements of Cash Flows
H.B. Fuller Company and Subsidiaries
(In thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------------
November 29, November 30, November 30,
1997 1996* 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $36,940 $45,430 $28,663
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 46,773 46,992 41,203
Pension costs 9,854 13,132 10,817
Gain on sale of assets (3,050) (10,041) (1,076)
Other items (6,001) 4,324 7,135
Change in current assets and liabilities
(net of effect of acquisitions/divestitures):
Accounts receivable (24,105) (28,781) (6,617)
Inventory (2,485) 7,727 (2,344)
Other current assets (6,507) (929) (1,672)
Accounts payable 8,224 5,138 8,646
Accrued expense 13,711 3,466 (3,960)
Income taxes payable (4,773) (5,197) (1,982)
- ------------------------------------------------------------------------------------------------
Net cash provided by
operating activities 68,581 81,261 78,813
Cash flows from investing activities:
Purchased property, plant and equipment (69,224) (89,847) (90,664)
Proceeds from sale of assets 14,382 29,194 2,103
Purchased businesses, net of
cash acquired (9,618) (8,120) (2,664)
- ------------------------------------------------------------------------------------------------
Net cash used in investing activities (64,460) (68,773) (91,225)
Cash flows from financing activities:
New long-term debt 68,255 62,643 79,954
Long-term debt paid (10,348) (58,504) (46,421)
Notes payable (4,035) (5,237) (584)
Dividends paid (10,068) (9,209) (8,746)
Repurchase common stock (15,524) - -
Fund pension and other employee
benefit plans (25,741) (8,227) (8,032)
Other (6,999) 662 (4,800)
- ------------------------------------------------------------------------------------------------
Net cash (used) provided by
financing activities (4,460) (17,872) 11,371
Effect of exchange rate changes (466) (162) 272
- ------------------------------------------------------------------------------------------------
Net change in cash (805) (5,546) (769)
Cash at beginning of year 3,515 9,061 9,830
- ------------------------------------------------------------------------------------------------
Cash at end of year $2,710 $3,515 $9,061
================================================================================================
Supplemental disclosure of
cash flow information:
Cash paid for interest $20,358 $21,901 $18,506
Cash paid for income taxes $33,996 $36,599 $30,083
</TABLE>
* Includes the fifty-two weeks ended November 30, 1996 for all
entities and the two month stub period for non-U.S. entities.
See Consolidated Financial Statements Note 1, Change in Year-end.
See accompanying Notes to Consolidated Financial Statements.
35
<PAGE>
Notes to Consolidated Financial Statements
H.B. Fuller Company and Subsidiaries
(In thousands, except share amounts)
1/ Summary of Significant
Accounting Policies
The following information is presented to explain the accounting policies
used to prepare H.B. Fuller Company's Consolidated Financial Statements.
Principles of Consolidation: The Consolidated Financial Statements include
the accounts of the Company and all subsidiaries. Beginning with 1996, the
Company's fiscal year ends on the Saturday closest to November 30th. All
significant intercompany items have been eliminated in consolidation.
Change in Year-end: Effective December 1, 1995, in the first quarter of the
Company's 1996 fiscal year, the Company's non-U.S. subsidiaries that previously
reported on a fiscal year ending September 30, changed their reporting period to
a Company-wide 52-week fiscal year ending on the Saturday closest to November
30. This change was made to reflect the results of operations and financial
position of these subsidiaries on a more timely basis and to increase operating
and planning efficiency. The results of operations of these subsidiaries for the
period October 1 through November 30, 1995, income of $118 or $0.01 per share,
have been reflected as an adjustment to retained earnings. Sales for the period
were $104,811 and cost of sales was $73,341. The Company also changed to
thirteen-week quarters.
Use of Estimates: Generally accepted accounting principles require management
to make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates.
Foreign Currency Translation: The financial statements of non-U.S. operations
are translated into U.S. dollars for inclusion in the Consolidated Financial
Statements.
Translation gains or losses resulting from the process of translating foreign
currency financial statements are reported as a separate component of
stockholders' equity for businesses not considered to be operating in highly
inflationary economies. Translation effect of subsidiaries operating in highly
inflationary economies and subsidiaries using the dollar as the functional
currency are included in determining net earnings.
Transaction losses included in determining earnings before income taxes and
minority interests were as follows:
1997 1996 1995
- -------------------------------------------------------------------
Currency translation gains, net $216 $2,182 $638
Flow-through effect of inventory
valuation, net (1,479) (246) (1,233)
- -------------------------------------------------------------------
(1,263) 1,936 (595)
Currency exchange losses, net (2,739) (3,090) (2,199)
- -------------------------------------------------------------------
Total $(4,002) $(1,154) $(2,794)
- -------------------------------------------------------------------
The net loss from the flow-through effects of inventory valuation results
from differences between translation of cost of sales at historic rates versus
average exchange rates. H.B. Fuller Company's Latin American operations,
whenever possible, raise local selling prices on their products to offset this
loss. The result of these efforts to keep pace with inflation appears in the
sales revenue of each operation.
Cash: The Company considers all highly liquid debt instruments purchased with
a maturity of three months or less to be cash equivalents.
Inventories: Inventories in the United States are recorded at cost (not in
excess of market value) as determined primarily by the last-in, first-out method
(LIFO). Inventories of non-U.S. operations are valued at the lower of cost
(mainly average cost) or market. Inventories at year-end are summarized as
follows:
1997 1996
- --------------------------------------------------------
Raw materials $71,234 $67,562
Finished goods 90,634 94,642
LIFO reserve (11,183) (10,992)
- --------------------------------------------------------
Total $150,685 $151,212
- --------------------------------------------------------
Property, Plant and Equipment: The major classes are:
1997 1996
- --------------------------------------------------------
Land $49,400 $51,597
Buildings and
improvements 204,782 178,704
Machinery and
equipment 374,747 338,727
Construction in
progress 68,988 95,164
- --------------------------------------------------------
Total, at cost 697,917 664,192
Accumulated
depreciation (299,356) (272,991)
- --------------------------------------------------------
Net property, plant
and equipment $398,561 $391,201
- --------------------------------------------------------
36
<PAGE>
Depreciation is generally computed on a straight-line basis over the useful
lives of the assets including assets acquired by capital leases. Accelerated
depreciation is used for income tax purposes where permitted.
Amortization: Other intangible assets, primarily technology, are amortized
over the estimated lives of 3 to 15 years. The excess of cost over net assets of
businesses acquired is charged against earnings over periods of 15 to 25 years.
The recoverability of unamortized intangible assets is assessed on an ongoing
basis by comparing anticipated undiscounted future cash flows from operations to
net book value.
Capitalized Interest Costs: Interest costs associated with major construction
of property and equipment are capitalized. Interest expense for each year
includes the following components:
1997 1996 1995
- ------------------------------------------------------------------
Interest costs
incurred $21,081 $21,399 $20,766
Capitalized
interest costs (1,245) (2,518) (2,634)
- ------------------------------------------------------------------
Interest expense $19,836 $18,881 $18,132
- ------------------------------------------------------------------
Non-U.S. Operations: Net earnings and equity of non-U.S. operations for each
year are:
Pro Forma
1997 1996 1995 1995
- ------------------------------------------------------------------------
Net
earnings $8,571 $1,984 $613 $3,613
Equity $181,999 $147,439 $137,174 $137,056
- ------------------------------------------------------------------------
Financial Instruments: The Company enters into foreign exchange contracts as
a hedge against firm commitment foreign currency intercompany
receivables/payables/debt. Market value gains and losses are recognized and the
resulting credit or debit offsets foreign exchange gains or losses on those
receivables/payables/debt.
The carrying amounts and estimated fair values of the Company's significant
other financial instruments at year-end are as follows:
Carrying Fair
Amount Value
- ---------------------------------------------------
1997:
Cash and short-term
investments $2,710 $2,710
Notes payable $39,675 $39,675
Long-term debt $232,547 $242,741
1996:
Cash and short-term
investments $3,515 $3,515
Notes payable $47,920 $47,920
Long-term debt $183,920 $194,412
Fair values of short-term financial instruments approximate their carrying
values due to their short maturity.
The fair value of long-term debt is based on quoted market prices for the
same or similar issues or on the current rates offered to the Company for debt
of similar maturities. The estimates presented above on long-term financial
instruments are not necessarily indicative of the amounts that would be realized
in a current market exchange.
Environmental Costs: The Company has a policy of expensing environmental
costs relating to "cleaning up" of a problem caused during the time the Company
owned the asset. If the problem was caused by a previous or other owner, the
amount may be capitalized if the expenditure significantly increases the value
of the asset. If there are doubts as to the impact on the value of the asset,
the amount is expensed. For further information on environmental clean-up costs,
see Item 3 of the 1997 10-K.
Income Taxes: The Company uses the asset and liability method of accounting
for income taxes. Under the asset and liability method, deferred income taxes
are recognized for the tax consequences of temporary differences by applying
enacted statutory tax rates applicable to future years to differences between
the financial statement carrying amounts and the tax basis of existing assets
and liabilities. The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date.
Other Postretirement Benefits: The Company provides medical benefits for
eligible retired employees, employee's beneficiaries and covered dependents.
These costs are accrued during the years the employee renders the necessary
service.
37
<PAGE>
Postemployment Benefits: The Company provides postemployment benefits to
inactive and former employees, employee's beneficiaries and covered dependents
after employment, but prior to retirement. The cost of providing these benefits
was previously recognized as a charge to income in the year the benefits were
provided. In November of 1992, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 112 requiring
accrual accounting for these costs during the years the employee renders the
necessary service. The Company adopted this Standard in Fiscal Year 1995, the
required effective date. The cumulative effect of adopting this Standard as of
December 1, 1994 resulted in a charge of $2,532 ($0.18 per share) to 1995
earnings, net of $793 of income taxes.
Accounting Change: In 1997, an accounting change impacted fourth quarter
earnings by $3,368, or $0.24 per share, net of $2,321 income taxes. The FASB
Emerging Issues Task Force on Issue No. 97-13, "Accounting for Costs Incurred in
Connection with a Consulting Contract or an Internal Project That Combines
Business Process Reengineering and Information Technology Transformation,"
issued November 20, 1997, required the Company to expense some costs that were
previously capitalizable before this pronouncement.
Earnings Per Common Share: Earnings per common share are determined by
dividing earnings by the weighted-average number of common shares, including
common share equivalents, outstanding during each year. Earnings used in the
calculation are reduced by the dividends paid to the preferred stockholder.
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share,"
replacing the presentation of primary earnings per share (EPS) with basic EPS.
It also requires dual presentation of basic and diluted EPS on the income
statement. The Company will implement this procedure in Fiscal 1998 as required.
Implementation is not expected to have a material effect on reported earnings
per share.
Purchase of Company Common Stock: Under the Minnesota Business Corporation
Act, repurchased stock is included in the authorized shares of the Company, but
is not included in shares outstanding. The excess of cost over par value is
charged proportionally to the Additional Paid-In Capital and to the Retained
Earnings. During 1996 the Board of Directors authorized a stock repurchase
program under which up to 300,000 shares of H.B. Fuller Company common stock may
be repurchased by the Company. The shares of common stock repurchased will be
available for compensation plans of the Company. During 1997 the Company
repurchased 300,000 shares of common stock.
Reclassification: Certain prior years' amounts have been reclassified to
conform to the 1997 presentation.
2/ Other Income (Expense), Net
Other income (expense), net in 1997 included $4,349 in costs associated with
an acquisition pursued and consulting costs. Other income (expense), net in 1996
included a $1,496 gain on the sale of equity investments. All years include
foreign currency losses. (See Note 1 to the Consolidated Financial Statements.)
3/ Acquisitions
In 1997 the Company and EMS-Chemie Holding AG formed an automotive adhesives,
sealants and coatings joint venture called EFTEC. In connection with the
formation of the joint venture, the Company purchased 30% of the European and
38% of the Asia/Pacific EMS-Chemie automotive business. EMS-Chemie holds a 30%
and 38% minority interest in the North American and Latin American automotive
business, respectively. In 1997 the Company also purchased the assets of another
business, with a total cash outlay in 1997 of $9,618. In 1996 the Company
purchased certain assets of a business for $8,120 cash. In 1995 the Company
purchased certain assets of a business for $2,664 cash. Assets acquired included
other intangibles of $4,100 in 1996 and excess of cost over net assets acquired
of $1,068 in 1997 and of $165 in 1996. The acquisitions were accounted for as
purchases and the accompanying Consolidated Financial Statements include the
results of these businesses since the purchase date. The historical results of
operations on a pro forma basis are not presented as the effects of the
acquisitions were not material.
4/ Divestitures
The Company sold its construction product line in Europe for $1,117 cash in
1997. It sold two product lines, including epoxy tooling slabs and Monarch
sanitation chemicals for $27,468 in 1996 and a product line for $1,495 in 1995.
The sales resulted in before tax gains of $667, $16,626 and $1,196, in 1997,
1996 and 1995 respectively.
38
<PAGE>
5/ Research and Development Expenses
Research and development expenses charged against earnings were $24,830,
$25,823 and $26,541 in 1997, 1996 and 1995, respectively.
6/ Income Taxes
Earnings before income taxes, minority interests and cumulative effect of
accounting changes for each year is as follows:
<TABLE>
<CAPTION>
Pro
Forma
1997 1996 1995 1995
- -------------------------------------------------------------
<S> <C> <C> <C> <C>
United
States (U.S.) $49,081 $66,403 $40,468 $40,468
Outside
U.S. 16,239 10,148 5,712 9,962
- -------------------------------------------------------------
Total $65,320 $76,551 $46,180 $50,430
- -------------------------------------------------------------
</TABLE>
The components of the provision for income taxes excluding cumulative effect
of accounting changes are:
<TABLE>
<CAPTION>
Pro
Forma
1997 1996 1995 1995
- --------------------------------------------------------------
<S> <C> <C> <C> <C>
Current:
U.S. federal $16,769 $23,225 $13,020 $13,020
State 1,706 3,555 1,750 1,750
Outside U.S. 5,705 6,487 9,791 10,845
- --------------------------------------------------------------
24,180 33,267 24,561 25,615
- --------------------------------------------------------------
Deferred:
U.S. federal 498 (2,453) 724 724
State 195 (82) 83 83
Outside U.S. 1,778 501 (7,274) (7,274)
- --------------------------------------------------------------
2,471 (2,034) (6,467) (6,467)
- --------------------------------------------------------------
Total $26,651 $31,233 $18,094 $19,148
- --------------------------------------------------------------
</TABLE>
The difference between the statutory U.S. federal income tax rate and the
Company's effective income tax rate is explained below:
<TABLE>
<CAPTION>
Pro
Forma
1997 1996 1995 1995
- ----------------------------------------------------
<S> <C> <C> <C> <C>
Statutory
U.S. federal
income
tax rate 35.0% 35.0% 35.0% 35.0%
State income
taxes 1.7 3.0 2.3 2.3
U.S. federal
income taxes
on dividends
received from
non-U.S.
subsidiaries,
before foreign
tax credits 5.2 3.6 7.3 7.3
Foreign tax
credits (1.7) (3.3) (4.8) (4.8)
Non-U.S.
taxes 1.3 3.1 (1.1) (2.3)
Other credits (2.7) (1.6) (1.2) (1.2)
Other 2.0 1.0 1.7 1.7
- ----------------------------------------------------
Total 40.8% 40.8% 39.2% 38.0%
- ----------------------------------------------------
</TABLE>
Deferred income tax balances at each year-end were:
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------
<S> <C> <C>
Deferred tax assets $65,205 $63,790
Valuation allowance (4,330) (6,258)
- -----------------------------------------------
Deferred tax assets net of
valuation allowance 60,875 57,532
Deferred tax liabilities (49,964) (43,778)
- -----------------------------------------------
Net deferred tax assets $10,911 $13,754
- -----------------------------------------------
</TABLE>
39
<PAGE>
Deferred income tax balances at each year-end were related to:
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------------
<S> <C> <C>
Depreciation $(21,463) $(23,215)
Pension 17,613 16,053
Deferred compensation 4,895 5,640
Postretirement medical
benefits 7,088 6,546
Tax loss carryforwards 11,049 12,871
Inventory 644 1,096
Provisions for expenses (6,405) (1,754)
Difference between assigned
value and tax basis of
acquisition (1,484) (1,564)
Currency gains/losses 1,186 1,581
Other 2,118 2,758
- ------------------------------------------------------
15,241 20,012
Valuation allowance (4,330) (6,258)
- ------------------------------------------------------
Net deferred tax assets $10,911 $13,754
- ------------------------------------------------------
</TABLE>
U.S. income taxes have not been provided on approximately $67,366 of
undistributed earnings of non-U.S. subsidiaries. The Company plans to reinvest
these undistributed earnings. If any portion were to be distributed, the related
U.S. tax liability would be reduced by foreign income taxes paid on those
earnings plus any available foreign tax credit carryforwards. Determination of
the unrecognized deferred tax liability related to these undistributed earnings
is not practicable.
While non-U.S. operations of the Company have been profitable overall,
cumulative losses of $30,813 are carried as net operating losses in 22 different
countries. These losses can be carried forward to offset income tax liability on
future income in those countries. Cumulative losses of $17,698 can be carried
forward indefinitely, while the remaining $13,115 must be used during the 1998-
2002 period.
7/ Notes Payable
The primary component of notes payable relates to the Company's short-term
lines of credit with banks. This component totals $30,779. The amount of unused
available borrowings under these lines at November 29, 1997 was $244,867.
The weighted average interest rate on short-term borrowings was 9.4%, 7.7%
and 9.1% in 1997, 1996 and 1995, respectively.
8/ Long-Term Debt
Long-term debt, including obligations under capital leases, is summarized as
follows:
<TABLE>
<CAPTION>
Interest
Rate Range Maturity 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. dollar obligations:
Notes (a) $98,740 $46,518
Senior notes 8.49-10.32% 1998-2010 90,000 90,000
Industrial and commercial
development bonds 4.00-7.75 2004-2016 7,100 7,100
Various other obligations 5.00-7.61 1998-2005 8,212 10,359
- --------------------------------------------------------------------------------
204,052 153,977
- --------------------------------------------------------------------------------
Foreign currency obligations:
Deutche mark notes (a) 3,230 -
New Zealand dollar 8.2% 1998-1999 2,902 8,046
Australian dollar 6.70-8.90 1999-2000 8,159 5,677
Italian lira 10.81 2000 3,599 3,698
Honduran Lempira 30.00 1999-2002 664 1,125
Costa Rican Colones 21.30-24.30 1999-2000 689 950
Dominican peso - 587
Japanese Yen 1.72-4.20 2002-2005 6,176 5,351
Various other obligations 7.50-27.00 1998-2001 1,169 1,721
- --------------------------------------------------------------------------------
26,588 27,155
Capital leases 2002 1,907 2,788
- --------------------------------------------------------------------------------
Total long-term debt 232,547 183,920
Current installments (2,551) (11,141)
- --------------------------------------------------------------------------------
Total $229,996 $172,779
- --------------------------------------------------------------------------------
</TABLE>
(a) The Company has revolving credit agreements with a group of major banks
which provide committed long-term lines of credit of $158,000 through
December 20, 2004. At the Company's option, interest is payable at the
London Interbank Offered Rate plus 0.175%-0.375%, adjusted quarterly based
on the Company's capitalization ratio, or a bid rate. A facility fee of
0.075%-0.175% is payable quarterly.
40
<PAGE>
The most restrictive debt agreements place limitations on secured and
unsecured borrowings, operating leases, and contain minimum interest coverage,
current assets and net worth requirements. In addition, the Company cannot be a
member of any "consolidated group" for income tax purposes other than with its
subsidiaries. At November 29, 1997 the Company exceeded minimum requirements for
all financial covenants.
Aggregate maturities of long-term debt, including obligations under capital
leases, amount to $2,551, $38,712, $10,316, $2,751 and $34,746 during the five
fiscal years 1998 through 2002.
9/ Lease Commitments
Assets under capital leases are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------
<S> <C> <C>
Land $2,824 $5,584
Buildings and improvements 5,365 10,006
Machinery and equipment - 35
- -------------------------------------------------
8,189 15,625
Accumulated depreciation (2,512) (4,068)
- -------------------------------------------------
Net assets under capital leases $5,677 $11,557
- -------------------------------------------------
</TABLE>
The following are the minimum lease payments that will have to be made in
each of the years indicated based on capital and operating leases in effect as
of November 29, 1997:
<TABLE>
<CAPTION>
Capital Operating
- ----------------------------------------
<S> <C> <C>
Fiscal year:
1998 $516 $7,585
1999 505 6,477
2000 493 5,396
2001 435 4,510
2002 247 4,374
Later years - 5,584
- ----------------------------------------
Total minimum
lease payments $2,196 $33,926
-------
Amount representing
interest (289)
- ------------------------------
Present value of minimum
lease payments $1,907
- ------------------------------
</TABLE>
Rental expense for all operating leases charged against earnings amounted to
$14,166, $13,385 and $14,051 in 1997, 1996 and 1995, respectively.
10/ Contingencies
Legal: The Company and its subsidiaries are parties to various lawsuits and
governmental proceedings. For further information on certain legal proceedings,
see Item 3 of the 1997 10-K. In particular, the Company is currently deemed a
potentially responsible party (PRP) or defendant, generally in conjunction with
numerous other parties, in a number of government enforcement and private
actions associated with hazardous waste sites. As a PRP or defendant, the
Company may be required to pay a share of the costs of investigation and cleanup
of these sites. In some cases the Company may have rights of indemnification
from other parties. The Company's liability in the future for such claims is
difficult to predict because of the uncertainty as to the cost of the
investigation and cleanup of the sites, the Company's responsibility for such
hazardous waste and the number or financial condition of other PRPs or
defendants. As is the case with other types of litigation and proceedings to
which the Company is a party, based upon currently available information, it is
the Company's opinion that none of these matters will result in material
liability to the Company.
Off Balance Sheet Financing: At November 29, 1997, the aggregate contract
value of instruments to sell 4,521 pound sterling and $4,397 to buy foreign
currency (primarily 22,340 Dutch guilders) was $12,075. The contracts mature
between December 23, 1997 and November 20, 2000.
11/ Retirement Plans
The Company has noncontributory defined benefit plans covering all U.S.
employees. Benefits for the plans are based primarily on years of service and
employees' average compensation during their five highest out of the last ten
years of service. The Company's funding policy is consistent with the funding
requirements of federal law and regulations. Plan assets consist principally of
listed equity securities and an Immediate Participation Guarantee contract with
an insurance company.
Certain non-U.S. consolidated subsidiaries provide pension benefits for
their employees consistent with local practices and regulations. Most of these
plans are noncontributory, unfunded, defined benefit plans covering
substantially all employees upon completion of a specified period of service.
Benefits for the plans are generally based on years of service and annual
compensation. The plans historically have been unfunded book reserved plans, but
in 1997 the Company partially funded the German plan. Related pension
obligations are provided through accrued pension costs.
41
<PAGE>
Pension cost consists of the following:
<TABLE>
<CAPTION>
U.S. Plans Non-U.S. Plans
----------------------------- --------------------------
1997 1996 1995 1997 1996 1995
- ------------------------------------------------------------------------------ --------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost-benefits earned during the period $4,633 $5,440 $4,190 $1,849 $2,586 $2,052
Interest cost on projected benefit obligation 11,048 10,026 9,287 3,482 5,087 3,778
Return on plan assets - actual (50,212) (11,607) (33,954) (788) (690) (406)
- deferred 38,707 1,096 24,668 275 373 93
Amortization of transition (asset) liability (27) (27) (27) 72 107 94
All other cost components 339 772 409 69 104 85
- ------------------------------------------------------------------------------ --------------------------
Net pension cost $4,488 $5,700 $4,573 $4,959 $7,567 $5,696
- ------------------------------------------------------------------------------ --------------------------
</TABLE>
The funded status of the plans and the amount recognized on the balance
sheet at each year-end are:
<TABLE>
<CAPTION>
Non-U.S. Plans
-------------------------------------------
U.S. Plans Assets Exceed ABO ABO Exceeds Assets
----------------------- -------------------- ---------------------
1997 1996 1997 1996 1997 1996
- --------------------------------------------------- ---------- -------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Actuarial present value of benefit
obligations:
- vested benefits $(111,644) $(95,720) $(4,155) $(3,086) $(40,251) $(44,133)
- non-vested benefits (3,576) (3,830) (3) (15) (760) (705)
- --------------------------------------------------- ---------- -------------------- ---------------------
Accumulated benefit obligation (ABO) (115,220) (99,550) (4,158) (3,101) (41,011) (44,838)
Effect of projected future
compensation increases (38,911) (35,137) (678) (402) (5,639) (8,516)
- --------------------------------------------------- ---------- -------------------- ---------------------
Projected benefit obligation (154,131) (134,687) (4,836) (3,503) (46,650) (53,354)
Plan assets at fair value 186,911 141,474 6,111 4,795 14,270 -
- --------------------------------------------------- ---------- -------------------- ---------------------
Plan assets in excess of (less than)
projected benefit obligation 32,780 6,787 1,275 1,292 (32,380) (53,354)
Unrecognized prior service cost 5,239 6,315 62 85 (41) 397
Unrecognized transition (asset) liability (178) (206) (85) (108) 1,202 1,527
Unrecognized net (gain) (74,299) (44,744) (65) (105) (1,418) (625)
- --------------------------------------------------- ---------- -------------------- ---------------------
(Accrued) prepaid pension costs $(36,458) $(31,848) $1,187 $1,164 $(32,637) $(52,055)
- ---------------------------------------------------- ---------- -------------------- ---------------------
</TABLE>
Assumptions used:
<TABLE>
<CAPTION>
U.S. Plans Non-U.S. Plans
--------------------------------- --------------------------------
1997 1996 1995 1997 1996 1995
- ------------------------------------------------------------------------ --------------------------------
<S> <C> <C> <C> <C> <C> <C>
Weighted average discount rate 7.5%(1) 8.0%(1) 7.25%(1) 6.5-8.0% 7.0-8.0% 7.0-8.0%
8.0%(2) 7.25%(2) 8.75%(2)
Rate of increase in
compensation levels 4.5%(1) 4.5%(1) 4.5%(1) 2.5-4.5% 3.0-5.0% 5.0-6.0%
4.5%(2) 4.5%(2) 5.5%(2)
Expected long-term rate of
return on plan assets 10.0% 10.0% 10.0% 8.0% 8.0% 8.0%
</TABLE>
(1) August 31, 1997 and 1996 and November 30, 1995 assumptions used for funded
status of U.S. plans.
(2) December 1, 1996, 1995 and 1994 assumptions used for U.S. plans pension
cost. The impact of a one percent increase in the discount rate is an
approximate $1,400 decrease in annual pension cost.
The charge to earnings relating to all plans was $11,774, $15,934 and
$12,627 in 1997, 1996 and 1995, respectively.
42
<PAGE>
12/ Other Postretirement Benefits
The Company and certain of its consolidated subsidiaries provide health care
and life insurance benefits for eligible retired employees and their eligible
dependents. These benefits are provided through various insurance companies and
health care providers.
The obligation for these benefits was determined by application of the terms
of health and life insurance plans, together with relevant actuarial assumptions
and health-care cost trend rates, as of December 1, 1996, projected at annual
rates ranging from 8.2 percent in 1997 graded down to 4.9 percent for the year
2001 and after. The benefit obligation discount rate at that time was 8.0
percent.
The funded status of the plan was determined based on actuarial assumptions
and health-care trend rates, as of August 31, 1997, projected at annual rates
ranging from 7.4 percent in 1997 graded down to 4.9 percent for the year 2001
and after. The benefit obligation discount rate at that time was 7.5 percent.
The effect of a one percent annual increase in the assumed health-care cost
trend rates would increase the accumulated postretirement benefits obligation at
August 31, 1997, by $4,255 and the aggregate of service and interest cost
components of net periodic postretirement benefit costs by $747.
The Company funds U.S. postretirement benefits through a Voluntary
Employees' Beneficiaries Association Trust which was established in 1991. The
funds are invested primarily in common stocks with an expected long-term rate of
return of 8.5 percent.
The funded status of the plan at each year-end is as follows:
1997 1996
- ----------------------------------------------------------
Actuarial present value of
postretirement
benefit obligation:
Retirees $(15,474) $(10,927)
Active employees fully
eligible for benefits (10,306) (9,146)
Other active employees (8,419) (7,837)
- ----------------------------------------------------------
Accumulated postretirement
benefit obligation (34,199) (27,910)
Fair value of plan assets 45,891 29,886
Unrecognized prior service cost (7,062) (5,738)
Unrecognized net (gain) loss (2,466) 54
- ----------------------------------------------------------
Prepaid (accrued) unfunded
postretirement benefit obligation $2,164 $(3,708)
- ----------------------------------------------------------
Benefit obligation discount rate 7.5% 8.0%
The components of net periodic postretirement benefit cost are as follows:
1997 1996 1995
- -------------------------------------------------------------
Service cost-benefits
earned during the period $1,740 $2,128 $1,820
Interest cost on
projected benefit obligation 2,447 2,437 2,623
Return on assets - actual (11,084) (1,643) (5,265)
- deferred 8,531 (421) 3,889
All other components (878) (425) 182
- -------------------------------------------------------------
Net periodic postretirement
benefit cost $756 $2,076 $3,249
- -------------------------------------------------------------
13/ Stockholders' Equity
Preferred Stock: The Board of Directors is authorized to issue up to
10,000,000 additional shares of preferred stock that may be issued in one or
more series and with such stated value and terms as may be determined by the
Board of Directors.
Series A Preferred Stock: There were 45,900 Series A preferred shares with a
par value of $6.67 authorized and issued at November 29, 1997 and November 30,
1996. The holder of Series A preferred stock is entitled to cumulative dividends
at the rate of $0.33 per share per annum. Common stock dividends may not be paid
unless provision has been made for payment of Series A preferred dividends. The
Series A preferred stock has multiple voting rights entitling the Series A
preferred stockholder to 80 votes per share. The terms of the Series A preferred
stock include the right of the Company to purchase the shares at specified times
and the right of the Company to redeem all shares at par value if authorized by
the shareholders.
Series B Preferred Stock: In connection with the adoption of the shareholder
rights plan, (see below) the Board of Directors authorized a new series of
preferred stock ("Series B preferred shares") that would be exchanged for the
Company's existing Series A preferred shares, if and at such time as the rights
issued pursuant to the shareholder rights plan become exercisable. The Series B
preferred shares have the same terms as the Series A preferred shares except
that the voting rights of the Series B preferred shares are increased
proportionately according to the number of shares issued upon the exercise or
exchange of rights. The Company entered into a Stock Exchange Agreement dated
July 18, 1996, with Elmer L. Andersen by which the Series B preferred shares
would be exchanged for all Series A preferred shares on the date the rights
under
43
<PAGE>
the shareholder rights plan become exercisable. The exchange of the Series A
preferred shares, all of which are held by Elmer L. Andersen, for the new Series
B preferred shares is intended to preserve Mr. Andersen's voting power, in the
event any rights are exercised. No event has occurred which would cause the
exchange to be effected.
Common Stock: There were 40,000,000 par value $1.00 common shares authorized
and 13,840,773 and 14,065,752 shares issued at November 29, 1997 and November
30, 1996, respectively.
Shareholder Rights Plan: The Company has a shareholder rights plan under
which each holder of a share of common stock also has one right to purchase one
share of common stock for $180. The rights are not presently exercisable. Upon
the occurrence of certain "flip-in" events, each right becomes exercisable and
then entitles its holder to purchase $180 worth of common stock at one-half of
its then market value. Upon certain "flip-over" events, each right entitles its
holder to purchase $180 worth of stock of another party at one-half of its then
market value. One flip-in event is when a person or group (an "acquiring
person") acquires 15 percent or more of the Company's outstanding common stock.
Rights held by an acquiring person or an adverse person are void. The Company
may redeem the rights for one cent per share, but the redemption right expires
upon the occurrence of a flip-in event. In addition, at any time after a person
or group acquires 15 percent or more of the Company's outstanding common stock,
but less than 50 percent, the Board of Directors may, at its option, exchange
all or part of the rights (other than rights held by the acquiring person) for
shares of the Company's common stock at a rate of one share of common stock for
every right. The rights expire on July 30, 2006.
Directors' Stock Plan: The Directors' Stock Plan reserves 75,000 shares of
common stock for allocation as payment of retainer fees. Directors, who are not
employees, can choose to receive all or a portion of the payment of their
retainer and meeting fees in shares of Company common stock when they leave the
Board rather than cash payments each year. At November 29, 1997, 39,124 shares
remained available for future allocation.
1992 Stock Incentive Plan: Under the 1992 Stock Incentive Plan a total of
900,000 shares of the Company's common stock are available for the granting of
awards during a period of up to ten years from April 16, 1992. The Stock
Incentive Plan permits the granting of (a) stock options; (b) stock appreciation
rights; (c) restricted stock and restricted stock units; (d) performance awards;
(e) dividend equivalents; and (f) other awards valued in whole or in part by
reference to or otherwise based upon the Company's stock.
A total of 38,736, 38,900 and 39,800 restricted shares of the Company's
common stock were granted to certain employees in 1997, 1996 and 1995,
respectively. The market value of shares awarded $2,108, $1,352 and $1,403 has
been recorded as unearned compensation - restricted stock in 1997, 1996 and
1995, respectively and is shown as a separate component of stockholders' equity.
Unearned compensation is being amortized to expense over the ten-year vesting
period and amounted to $548, $473 and $315 in 1997, 1996 and 1995, respectively.
A total of 21,850, 25,500 and 29,650 restricted share units of the Company's
common stock were allocated to certain employees in 1997, 1996 and 1995,
respectively. The market value of units allocated of $1,191, $886 and $1,045 in
1997, 1996 and 1995, respectively, is being charged to expense over the ten-year
vesting period.
At November 29, 1997, 585,693 shares remained available for future grants or
allocations.
Stock-Based Compensation: In October 1995, the FASB issued SFAS No. 123,
"Accounting for Stock-Based Compensation." As permitted by this Standard, the
Company will continue to measure compensation cost using the intrinsic
value-based method of accounting prescribed by the Accounting Principles Board
Opinion No. 25. Since the Company does not grant a significant number of stock
options, there is no pro forma impact to disclose due to the effectiveness of
SFAS No. 123.
1987 Stock Option Plan: 182,790 options were outstanding at November 29,
1997 under the Company's 1987 non-qualified plan. Options are exercisable over
varying periods ending on October 10, 2000. At November 29, 1997, no shares
remained available for grants under this plan.
44
<PAGE>
Information on stock options is shown in the following table:
Option Shares
- -----------------------------------------------------------------------
Outstanding Exercisable Price Range
- -----------------------------------------------------------------------
Balances at November 30, 1994 266,783 266,783 $14.33-16.33
Exercised (33,321) (33,321) 14.33
Cancelled (3,300) (3,300) 14.33
- -----------------------------------------------------------------------
Balances at November 30, 1995 230,162 230,162 14.33-16.33
Exercised (17,918) (17,918) 14.33-15.50
Cancelled (375) (375) 14.33
- -----------------------------------------------------------------------
Balances at November 30, 1996 211,869 211,869 14.33-16.33
Exercised (29,079) (29,079) 14.33
- -----------------------------------------------------------------------
Balances at November 29, 1997 182,790 182,790 $14.33-16.33
- -----------------------------------------------------------------------
14/ Business Segment Information
The Company is a manufacturer of specialty chemical products, which includes
the formulation, compounding and marketing of adhesives, sealants, coatings,
paints and other specialty chemical products. The Company considers its
manufacturing of specialty chemical and related products to be its dominant
industry segment. This segment is served commonly by corporate/regional service
departments including manufacturing, administration, research and development
and marketing services.
The segment uses many common raw materials which are either petroleum-based
or of a nonsynthetic nature. The segment is not capital intensive and the
manufacturing facilities and raw materials are relatively interchangeable and
are not, in general, highly specialized.
Operating earnings are net sales less operating costs and expenses
pertaining to specific geographic areas.
A summary of Company operations by geographic areas for each year is as
follows:
Sales to
unaffiliated Pro Forma
customers: 1997 1996 1995 1995
- ---------------------------------------------------------------------------
North
America $772,104 $733,683 $692,908 $692,099
Europe 247,920 272,085 285,877 284,049
Latin
America 192,530 184,208 183,823 182,009
Asia/
Pacific 94,235 85,740 86,204 85,661
- ---------------------------------------------------------------------------
Total trade
sales $1,306,789 $1,275,716 $1,248,812 $1,243,818
- ---------------------------------------------------------------------------
Inter-
company Pro Forma
sales: 1997 1996 1995 1995
- -----------------------------------------------------------------------------
North
America $17,257 $14,379 $16,032 $16,014
Europe 4,098 2,432 1,457 1,448
Latin
America 14,398 9,897 7,342 7,270
Asia/
Pacific 111 51 164 163
Eliminations (35,864) (26,759) (24,995) (24,895)
- -----------------------------------------------------------------------------
Total
intercompany
sales - - - -
- -----------------------------------------------------------------------------
Pro Forma
Net sales: 1997 1996 1995 1995
- ------------------------------------------------------------------------------
North
America $789,361 $748,062 $708,940 $708,113
Europe 252,019 274,517 287,334 285,497
Latin
America 206,928 194,105 191,165 189,279
Asia/
Pacific 94,345 85,791 86,368 85,824
Eliminations (35,864) (26,759) (24,995) (24,895)
- ------------------------------------------------------------------------------
Total net
sales $1,306,789 $1,275,716 $1,248,812 $1,243,818
- ------------------------------------------------------------------------------
45
<PAGE>
<TABLE>
<CAPTION>
Pro Forma
Earnings: 1997 1996 1995 1995
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
North
America $59,940 $57,485 $42,165 $41,908
Europe 11,112 11,864 10,036 12,567
Latin
America 15,659 13,140 15,208 16,516
Asia/
Pacific 541 (1,735) (1,700) (1,226)
- ---------------------------------------------------------------------------------
Operating
earnings 87,252 80,754 65,709 69,765
Interest
expense (19,836) (18,881) (18,132) (18,132)
Gain on
sale of assets 5,199 16,673 1,764 1,764
Other
(expense) (7,295) (1,995) (3,161) (2,967)
- ---------------------------------------------------------------------------------
Earnings
before
income taxes,
minority interest
and accounting
change $65,320 $76,551 $46,180 $50,430
- ---------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Identifiable assets: 1997 1996 1995
- -----------------------------------------------------------------
<S> <C> <C> <C>
North America $554,569 $503,976 $460,895
Europe 176,745 183,993 191,194
Latin America 150,138 135,031 139,005
Asia/Pacific 75,625 74,439 70,985
Eliminations (41,247) (30,408) (37,296)
General
corporate
assets 1,816 2,244 4,146
- -----------------------------------------------------------------
Total assets $917,646 $869,275 $828,929
- -----------------------------------------------------------------
</TABLE>
15/ Quarterly Data (unaudited)
<TABLE>
<CAPTION>
Net Sales: 1997 1996
- ---------------------------------------------------------
<S> <C> <C>
First quarter $304,091 $303,571
Second quarter 328,872 320,223
Third quarter 323,460 318,100
Fourth quarter 350,366 333,822
- ---------------------------------------------------------
Total year $1,306,789 $1,275,716
- ---------------------------------------------------------
Gross profit: 1997 1996
- ---------------------------------------------------------
First quarter $94,728 $92,061
Second quarter 105,473 101,266
Third quarter 102,760 102,458
Fourth quarter 109,993 108,430
- ---------------------------------------------------------
Total year $412,954 $404,215
- ---------------------------------------------------------
Operating earnings: 1997 1996
- ---------------------------------------------------------
First quarter $15,333 $10,027
Second quarter 22,263 17,075
Third quarter 21,946 26,989
Fourth quarter 27,710 26,663
- ---------------------------------------------------------
Total year $87,252 $80,754
- ---------------------------------------------------------
Net earnings: 1997 1996
- ---------------------------------------------------------
First quarter $5,821 $2,670
Second quarter 11,111 8,415
Third quarter 10,763 22,015
Fourth quarter 9,245* 12,330
- ---------------------------------------------------------
Total year $36,940* $45,430
- ---------------------------------------------------------
Net earnings per share: 1997 1996
- ---------------------------------------------------------
First quarter $0.41 $0.19
Second quarter 0.78 0.60
Third quarter 0.77 1.56
Fourth quarter 0.66* 0.87
- ---------------------------------------------------------
Total year $2.62* $3.22
- ---------------------------------------------------------
</TABLE>
* Fourth quarter earnings were $12,613 or $0.90 per share
before an accounting change charge of $(3,368) or $(0.24)
per share. Year-to-date earnings were $40,308 or $2.86 per
share before an accounting change charge of $(3,368) or
$(0.24) per share.
46
<PAGE>
-------------------------------------
Management's Report
-------------------------------------
The management of H.B. Fuller Company is responsible for the integrity,
objectivity and accuracy of the financial statements of the Company and its
subsidiaries. The accompanying financial statements, including the notes, were
prepared in conformity with generally accepted accounting principles appropriate
in the circumstances and include amounts based on the best judgment of
management.
Management is also responsible for maintaining a system of internal
accounting control to provide reasonable assurance that established policies and
procedures are followed, that the records properly reflect all transactions of
the Company and that assets are safeguarded against material loss from
unauthorized use or disposition. Management believes that the Company's
accounting controls provide reasonable assurance that errors or irregularities
that could be material to the financial statements are prevented or would be
detected within a timely period by employees in the normal course of performing
their assigned duties.
Jorge Walter Bolanos
Senior Vice President,
Chief Financial Officer and
Treasurer
Walter Kissling
President and
Chief Executive Officer
-------------------------------------
Report of Independent Accountants
-------------------------------------
To the Board of Directors and
Stockholders of H.B. Fuller Company
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings, 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, 1997 and November 30, 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended November 29, 1997, in conformity with generally accepted
accounting principles. 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 generally accepted auditing standards which
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 the opinion expressed above.
As discussed in Note 1, in 1997 the Company changed its accounting for
certain information technology transformation costs to conform with issue 97-13
of the Emerging Issues Task Force.
Price Waterhouse LLP
Minneapolis, Minnesota
January 11, 1998
47
<PAGE>
- --------------------------------------------------------------------------------
1969-1997 In Review and Selected Financial Data
H.B. Fuller Company and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Annual Growth Rate
1-yr 5-yr 10-yr
1996- 1992- 1987- (Dollars in thousands, Pro Forma
1997 1997 1997 except per share amounts) 1997* 1996* 1995** 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
% % % Income Statement Data:
2.4 6.8 8.1 Net sales $1,306,789 1,275,716 1,248,812 1,243,818 1,097,367 975,287 942,438 861,024
8.0 4.1 6.2 Operating earnings $87,252 80,754 65,709 69,765 65,953 53,470 71,406 59,846
Earnings from
(11.3) 2.5 4.6 continuing operations $40,308 45,430 28,195 31,195 30,863 21,701 35,622 27,687
(18.7) 0.7 3.6 Net earnings $36,940 45,430 25,663 28,663 30,863 9,984 35,622 27,687
(1.1) 10.2 11.8 Depreciation $40,412 40,878 35,134 28,177 24,934 24,865 21,787
5.1 9.6 13.7 Interest expense $19,836 18,881 18,132 11,747 10,459 12,537 14,788
(14.7) 1.5 5.0 Income taxes $26,651 31,233 18,094 19,148 19,782 19,191 24,716 19,173
Balance Sheet Data:
5.6 10.3 10.8 Total assets $917,646 869,275 828,929 742,617 564,521 561,204 508,911
21.2 5.6 7.1 Working capital $171,607 141,617 142,056 129,665 119,905 130,817 108,779
Current ratio 1.7 1.6 1.6 1.6 1.7 1.8 1.7
Net property,
1.9 12.3 12.1 plant and equipment $398,561 391,201 355,123 295,090 232,547 223,153 207,378
Long-term debt, excluding
33.1 33.9 21.4 current installments $229,996 172,779 166,459 130,009 60,261 53,457 71,814
1.3 5.9 7.7 Stockholders' equity $339,114 334,740 299,532 299,414 274,805 249,396 255,040 219,050
Stockholder Data:
Earnings from continuing
operations:
(11.2) 2.3 4.8 Per common share $2.86 3.22 2.01 2.22 2.20 1.55 2.55 2.00
Percent of net sales 3.1 3.6 2.3 2.5 2.8 2.2 3.8 3.2
Net earnings:
(18.6) 0.5 3.9 Per common share $2.62 3.22 1.83 2.04 2.20 0.71 2.55 2.00
Percent of net sales 2.8 3.6 2.1 2.3 2.8 1.0 3.8 3.2
Dividends paid:
9.9 9.4 10.3 Per common share $0.72 0.655 0.625 0.575 0.54 0.46 0.41
Stockholders' equity:
2.9 5.8 8.0 Per common share $24.48 23.78 21.36 21.35 19.70 17.92 18.43 15.96
Return on average
stockholders' equity 12.0 14.3 9.8 10.0 11.5 4.0 15.0 13.3
Common stock price:
26.2 2.5 6.4 High $60.25 47.75 39.75 42.25 42.75 53.25 38.33
50.8 6.4 10.7 Low $44.50 29.50 27.75 29.00 31.25 32.58 18.83
Average common shares
outstanding
(0.1) 0.2 (0.2) (in thousands) 14,100 14,114 14,059 14,036 14,018 13,989 13,854
1.7 0.7 2.7 Number of employees 6,000 5,900 6,400 6,400 6,000 5,800 5,600
</TABLE>
* 52-week years ended November 29, 1997 and November 30, 1996. All other
years are twelve-months ended November 30.
** See Consolidated Financial Statements Note 1, Change in Year-end.
48
<PAGE>
<TABLE>
<CAPTION>
Annual Growth Rate
1-yr 5-yr 10-yr
1996- 1992- 1987- (Dollars in thousands,
1997 1997 1997 except per share amounts) 1990 1989 1988 1987 1986 1985 1984 1983 1982
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
% % % Income Statement Data:
2.4 6.8 8.1 Net sales 792,230 753,374 684,034 597,061 528,483 457,937 447,984 414,210 321,502
8.0 4.1 6.2 Operating earnings 51,911 46,009 46,430 47,748 39,483 30,733 32,179 32,452 24,940
Earnings from
(11.3) 2.5 4.6 continuing operations 21,145 15,671 21,081 25,812 18,922 13,335 13,033 13,624 9,188
(18.7) 0.7 3.6 Net earnings 21,145 15,671 21,081 25,812 18,922 14,909 11,895 13,832 9,493
(1.1) 10.2 11.8 Depreciation 20,376 16,571 14,469 13,197 10,566 9,318 7,898 6,786 5,014
5.1 9.6 13.7 Interest expense 14,028 13,237 8,477 5,479 6,208 7,627 8,894 6,546 5,482
(14.7) 1.5 5.0 Income taxes 15,234 13,936 14,361 16,320 14,107 9,525 9,944 10,108 8,151
Balance Sheet Data:
5.6 10.3 10.8 Total assets 489,634 455,172 434,293 329,636 291,180 253,571 236,489 225,154 206,752
21.2 5.6 7.1 Working capital 96,097 95,645 104,071 86,598 74,232 69,477 68,072 59,848 48,969
Current ratio 1.7 1.8 1.9 1.9 1.9 2.0 2.1 2.0 1.8
Net property,
1.9 12.3 12.1 plant and equipment 202,341 186,631 161,605 126,905 108,989 97,173 87,357 80,427 73,077
Long-term debt, excluding
33.1 33.9 21.4 current installments 88,240 100,974 98,473 33,015 37,211 44,207 51,381 51,755 44,083
1.3 5.9 7.7 Stockholders' equity 197,191 186,515 178,871 161,355 135,479 113,417 99,908 92,212 81,645
Stockholder Data:
Earnings from continuing
operations:
(11.2) 2.3 4.8 Per common share 1.53 1.09 1.46 1.79 1.33 0.96 0.93 0.98 0.67
Percent of net sales 2.7 2.1 3.1 4.3 3.6 2.9 2.9 3.3 2.9
Net earnings:
(18.6) 0.5 3.9 Per common share 1.53 1.09 1.46 1.79 1.33 1.07 0.86 0.99 0.69
Percent of net sales 2.7 2.1 3.1 4.3 3.6 3.3 2.7 3.3 3.0
Dividends paid:
9.9 9.4 10.3 Per common share 0.40 0.38 0.35 0.27 0.23 0.21 0.20 0.18 0.17
Stockholders' equity:
2.9 5.8 8.0 Per common share 14.56 13.27 12.56 11.35 9.62 8.19 7.23 6.67 5.90
Return on average
stockholders' equity 11.0 8.6 12.4 17.4 15.2 14.0 12.4 15.9 12.1
Common stock price:
26.2 2.5 6.4 High 19.17 22.83 25.83 32.33 20.67 11.25 13.63 13.25 8.50
50.8 6.4 10.7 Low 13.75 13.83 16.00 16.17 10.25 8.17 7.83 7.63 4.75
Average common shares
outstanding
(0.1) 0.2 (0.2) (in thousands) 13,798 14,358 14,387 14,379 14,196 13,880 13,881 13,908 13,785
1.7 0.7 2.7 Number of employees 5,600 5,500 5,200 4,600 4,500 4,400 4,300 4,100 4,000
<CAPTION>
Annual Growth Rate
1-yr 5-yr 10-yr
1996- 1992- 1987- (Dollars in thousands,
1997 1997 1997 except per share amounts) 1981 1980 1979 1978 1977 1976
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
% % % Income Statement Data:
2.4 6.8 8.1 Net sales 318,793 288,653 251,558 219,962 192,848 167,892
8.0 4.1 6.2 Operating earnings 30,531 23,958 20,739 18,681 15,504 13,571
Earnings from
(11.3) 2.5 4.6 continuing operations 13,327 8,538 7,433 7,122 6,181 5,382
(18.7) 0.7 3.6 Net earnings 13,587 8,921 7,527 7,122 6,181 5,382
(1.1) 10.2 11.8 Depreciation 4,592 4,507 3,986 3,319 2,897 2,383
5.1 9.6 13.7 Interest expense 5,106 6,012 4,106 3,161 2,524 2,369
(14.7) 1.5 5.0 Income taxes 12,069 7,954 7,807 7,355 6,584 5,322
Balance Sheet Data:
5.6 10.3 10.8 Total assets 157,417 146,674 139,190 116,222 100,847 90,670
21.2 5.6 7.1 Working capital 42,370 41,229 32,696 32,575 32,135 29,194
Current ratio 1.9 1.9 1.7 1.9 2.1 2.1
Net property,
1.9 12.3 12.1 plant and equipment 46,938 47,245 42,193 35,478 30,154 28,110
Long-term debt, excluding
33.1 33.9 21.4 current installments 23,072 26,049 23,375 22,235 20,977 21,247
1.3 5.9 7.7 Stockholders' equity 75,842 64,951 57,867 50,698 45,016 40,075
Stockholder Data:
Earnings from continuing
operations:
(11.2) 2.3 4.8 Per common share 0.97 0.63 0.55 0.53 0.46 0.40
Percent of net sales 4.2 3.0 3.0 3.2 3.2 3.2
Net earnings:
(18.6) 0.5 3.9 Per common share 0.99 0.66 0.56 0.53 0.46 0.40
Percent of net sales 4.3 3.1 3.0 3.2 3.2 3.2
Dividends paid:
9.9 9.4 10.3 Per common share 0.15 0.13 0.12 0.11 0.09 0.07
Stockholders' equity:
2.9 5.8 8.0 Per common share 5.48 4.83 4.31 3.74 3.35 2.97
Return on average
stockholders' equity 19.3 14.5 13.7 15.0 14.5 14.2
Common stock price:
26.2 2.5 6.4 High 8.71 4.46 4.29 4.75 3.54 3.04
50.8 6.4 10.7 Low 3.92 2.92 3.25 2.79 2.46 1.75
Average common shares
outstanding
(0.1) 0.2 (0.2) (in thousands) 13,704 13,479 13,473 13,473 13,362 13,362
1.7 0.7 2.7 Number of employees 3,300 3,400 3,400 3,300 3,000 2,800
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
Annual Growth Rate
1-yr 5-yr 10-yr
1996- 1992- 1987- (Dollars in thousands,
1997 1997 1997 except per share amounts) 1975 1974 1973 1972 1971 1970 1969
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
% % % Income Statement Data:
2.4 6.8 8.1 Net sales 129,426 121,839 91,572 78,257 60,167 53,024 47,248
8.0 4.1 6.2 Operating earnings 9,060 12,745 8,657 7,394 5,088 5,273 4,726
Earnings from
(11.3) 2.5 4.6 continuing operations 3,785 5,323 3,274 3,112 2,247 2,347 2,018
(18.7) 0.7 3.6 Net earnings 3,785 5,323 3,274 3,112 2,247 2,347 2,018
(1.1) 10.2 11.8 Depreciation 2,000 1,705 1,518 1,464 1,147 851 789
5.1 9.6 13.7 Interest expense 1,900 2,098 1,370 1,173 687 515 434
(14.7) 1.5 5.0 Income taxes 3,290 5,023 3,470 3,080 1,960 2,322 1,978
Balance Sheet Data:
5.6 10.3 10.8 Total assets 78,643 70,830 61,021 51,194 40,210 33,294 27,352
21.2 5.6 7.1 Working capital 28,410 20,244 17,087 14,599 12,795 9,542 10,262
Current ratio 2.5 1.9 2.0 2.1 2.3 2.0 2.5
Net property,
1.9 12.3 12.1 plant and equipment 24,446 20,739 18,676 16,498 12,578 10,037 7,822
Long-term debt, excluding
33.1 33.9 21.4 current installments 21,368 12,537 13,108 10,336 6,033 3,194 3,178
1.3 5.9 7.7 Stockholders' equity 35,666 32,787 28,259 25,603 23,083 17,848 15,543
Stockholder Data:
Earnings from continuing
operations:
(11.2) 2.3 4.8 Per common share 0.28 0.40 0.24 0.23 0.18 0.19 0.18
Percent of net sales 2.9 4.4 3.6 4.0 3.7 4.4 4.3
Net earnings:
(18.6) 0.5 3.9 Per common share 0.28 0.40 0.24 0.23 0.18 0.19 0.18
Percent of net sales 2.9 4.4 3.6 4.0 3.7 4.4 4.3
Dividends paid:
9.9 9.4 10.3 Per common share 0.07 0.06 0.05 0.05 0.05 0.04 0.03
Stockholders' equity:
2.9 5.8 8.0 Per common share 2.65 2.43 2.09 1.91 1.72 1.47 1.29
Return on average
stockholders' equity 11.1 17.4 12.2 12.8 11.0 14.1 15.3
Common stock price:
26.2 2.5 6.4 High 2.29 1.87 4.33 3.71 4.71 4.00 3.97
50.8 6.4 10.7 Low 1.00 1.04 1.08 1.33 3.21 2.53 2.55
Average common shares
outstanding
(0.1) 0.2 (0.2) (in thousands) 13,362 13,362 13,371 13,419 12,390 12,048 11,175
1.7 0.7 2.7 Number of employees 2,600 2,300 2,100 1,800 1,700 1,600 1,500
</TABLE>
50
<PAGE>
H.B. Fuller Company
Milestones...
. 1887 - Harvey B. Fuller begins manufacturing wallpaper paste
. 1941 - Elmer Andersen purchases company
(sales: $250,000)
. 1968 - Establishment of Latin American operations
. 1968 - Initial sale of equity to public investors
. 1972 - Establishment of European operations
. 1974 - $100 million worldwide sales
. 1976 - Establishment of Asia/Pacific manufacturing
. 1976 - Community Affairs funding: 5% of U.S. pre-tax profits
. 1980 - U.S. market-driven realignment of sales organization to
strategic business units (SBUs)
. 1983 - First year to make Fortune magazine's Fortune 500 list - ranked 493
. 1987 - H.B. Fuller celebrated 100 years of business
. 1989 - Recognized in the book "The Service Edge" as one of the top 101
companies with outstanding service to customers
. 1990 - Global market-driven realignment of sales organization to
strategic business units (SBUs)
. 1993 - H.B. Fuller became the first manufacturer of specialty chemical
products to affirm the ten-point environmental code authored by the
Coalition for Environmentally Responsible Economies (CERES)
. 1994 - Exceeded $1 billion in worldwide sales ($1.1 billion in 1994)
. 1997 - H.B. Fuller named one of "The 100 Best Companies to Work For In
America" by Fortune magazine
51
<PAGE>
- --------------------------------------------------------------------------------
Investor Information
- --------------------------------------------------------------------------------
MARKET PRICE Highs Lows DIVIDENDS
Q1F97 $51.25 $44.50 Q1F97 $0.165
Q1F96 $39.25 $32.00 Q1F96 $0.160
Q2F97 $56.13 $46.50 Q2F97 $0.185
Q2F96 $36.50 $29.50 Q2F96 $0.165
Q3F97 $60.25 $46.88 Q3F97 $0.185
Q3F96 $37.50 $31.50 Q3F96 $0.165
Q4F97 $59.50 $45.38 Q4F97 $0.185
Q4F96 $47.75 $34.50 Q4F96 $0.165
Annual Meeting
The annual meeting of shareholders will be held on Thursday, April 16, 1998,
at 3 p.m. at the Regal Minneapolis Hotel, Forum Room, 1313 Nicollet Mall,
Minneapolis, Minn. All shareholders are cordially invited to attend.
Available Publications
The company's annual report is distributed regularly to stockholders. In
addition, other publications are available upon request. They include:
. Automatic Dividend Reinvestment Brochure
. Community Affairs Report
. Corporate Profile
. Environmental Report
. Form 10-K as filed with the Securities Exchange Commission
. The Story of H.B. Fuller Company 1887-1987
. Quarterly Reports
. Research and Development Brochure
If you want to receive shareholder material through the mail, or if you'd
like to be added to our mailing list, call our Shareholder Services Line at
1-800-214-2523. For a fax of the year's earnings releases, as well as faxes on
up-to-date information on the company call 1-800-758-5804 - Pin #336719.
Dividend Reinvestment Plan
The dividend reinvestment plan is designed for all H.B. Fuller shareholders.
It provides a convenient and economical way to purchase additional shares of
Fuller Common Stock, and to invest all or a portion of cash dividends in
additional shares of stock at a discount, all without payments of brokerage fees
or service changes. Using the plan you can: save on brokerage fees; pay 3
percent less for shares purchases with dividends; buy additional shares as often
as you like; have the plan administrator maintain your stock certificates; give
a gift of H.B. Fuller stock; obtain updates of your account easily.
Approximately 80 percent of our shareholders of record currently are
participants.
52
<PAGE>
Form 10-K Report
H.B. Fuller Company's Form 10-K annual report for the year ended Nov. 29,
1997, filed with the Securities and Exchange Commission, Washington, D.C., is
available upon request at no charge. Exhibits to the Form 10-K are available at
a charge sufficient to cover postage and handling. This material may be obtained
by writing to: Corporate Secretary, H.B. Fuller Company, P.O. Box 64683, St.
Paul, Minn. 55164-0683.
Independent Accountants
Price Waterhouse LLP, Minneapolis, Minn.
Investor Contact
Richard Edwards
Director of Investor Relations
612-236-5150
Market Makers
The following firms made a market in H.B. Fuller as of Nov. 29, 1997:
. Merrill Lynch, Pierce, Fenner
. Lehman Brothers Inc.
. Piper Jaffray Companies Inc.
. Cantor, Fitzgerald & Co.
. Salomon Smith Barney Inc.
. Sherwood Securities Corp.
. Knight Securities L.P.
. Dain, Bosworth, Inc.
Number of Common Shareholders
As of Nov. 29, 1997, there were approximately 4,831 common shareholders of
record.
Transfer Agent and Registrar
Norwest Bank Minnesota, N.A., 161 North Exchange, South St. Paul, Minn.
55075, 1-800-468-9716 or 612-450-4064 (in Minnesota).
Web Site
http://www.hbfuller.com
World Headquarters
H.B. Fuller Company, World Headquarters, 1200 Willow Lake Boulevard, St.
Paul, Minn. 55110-5101.
Send all correspondence to: H.B. Fuller Company, World Headquarters, P.O.
Box 64683, St. Paul, Minn. 55164-0683.
SHAREHOLDER COMPOSITION
November 1997
54% Institutions
27% Individuals
13% Employees
6% Directors & Officers
53
<PAGE>
Exhibit 21
----------
H.B. FULLER COMPANY AND CONSOLIDATED SUBSIDIARIES
AS OF NOVEMBER 29, 1997
<TABLE>
<CAPTION>
PERCENTAGE
JURISDICTION OF OF VOTING
SUBSIDIARY ORGANIZATION SECURITIES
- ------------------------- --------------- -----------
<S> <C> <C>
H.B. Fuller Company United States
Branches: Indonesia, Korea
H.B. Fuller Company Puerto Rico, Inc. United States 100.0
H.B. Fuller International Inc. United States 100.0
Branches: Hong Kong, Singapore
ChemEquity, Inc. United States 100.0
ChemEquity Communications, Inc. United States 100.0
F.A.I. Trading Company United States 100.0
Branches: Costa Rica
Fiber-Resin Corporation United States 100.0
H.B. Fuller Automotive Company United States 100.0
EFTEC North America, LLC United States 70.0
EFTEC Latin America Panama 88.5
EFTEC Brasil Ltda. Brazil 99.9
EFTEC Europe Holding AG Switzerland 30.0
EFTEC AG Switzerland 100.0
EFTEC Sarl France 100.0
EFTEC AB Sweden 100.0
EFTEC Ltd. U.K. 100.0
EFTEC NV Belgium 100.0
EFTEC Systems S.A. Spain 100.0
EFTEC Asia Pte. Ltd. Singapore 60.0
(also owned 20% directly by H.B. Fuller Automotive Co., Ety #022 )
EFTEC (Thailand) Co., Ltd. Thailand 80.0
Changchun EFTEC Chem China 25.0
Foster Products Corporation United States 100.0
TEC Incorporated United States 100.0
Linear Products, Inc. United States 100.0
Branches: Netherlands
H.B. Fuller Licensing & Financing Inc. United States 100.0
Aireline, Inc. United States 100.0 note a
Kativo Chemical Industries, S.A. Panama 99.7
Branches: Costa Rica (Surcusal)
(See listing of subsidiaries on the following pages.)
Pinturas Centroamericanas Costa Rica S.A. Costa Rica 100.0
Pinturas Ecuatorianas, S.A. Ecuador 100.0
Distribuidora Americana, S.A. Ecuador 100.0 note a
Glidden Avenida Nacional, S.A. Panama 100.0
Fabrica Pinturas Glidden, S.A. Panama 100.0
H.B. Fuller Holding Panama Co. Panama 100.0
Glidden Panama S.A. Panama 100.0
H.B. Fuller Commercial, S.A. Panama 100.0 *
ProColor, S.A. Panama 100.0
Adhesivos Industriales, S.A. Panama 100.0
H.B. Fuller Austria Gesellschaft m.b.H. Austria 100.0
H.B. Fuller Belgium N.V./S.A. Belgium 99.8 note b
Harved Oy Finland 100.0 note a
H.B. Fuller GmbH, Luneburg Germany 99.9
Branches: Poland
</TABLE>
Page 1 of 5
<PAGE>
Exhibit 21
----------
H.B. FULLER COMPANY AND CONSOLIDATED SUBSIDIARIES
AS OF NOVEMBER 29, 1997
<TABLE>
<CAPTION>
PERCENTAGE
JURISDICTION OF OF VOTING
SUBSIDIARY ORGANIZATION SECURITIES
- ------------------------- --------------- -----------
<S> <C> <C>
H.B. Fuller GmbH, Munich Germany 100.0
Isar-Rakoll Chemie, GmbH Germany 100.0 note a
H.B. Fuller France S.A. France 99.9 note c
H.B. Fuller Blattmann AG Switzerland 100.0
H.B. Fuller Italia s.r.l. Italy 97.0 note d
H.B. Fuller (Jersey) Limited Jersey 100.0
H.B. Fuller Nederland B.V. Netherlands 100.0
Prakoll, S.A. Spain 100.0
H.B. Fuller Sverige AB Sweden 100.0
H.B. Fuller Holdings Limited U.K. 100.0
H.B. Fuller U.K. Limited U.K. 100.0
H.B. Fuller Coatings Limited U.K. 100.0
Branches: Dubai, UAE
H.B. Fuller Linear Products Limited U.K. 100.0
H.B. Fuller Canada, Inc. Canada 100.0
H.B. Fuller Mexico, S.A. Mexico 100.0
H.B. Fuller Company Australia Pty. Ltd. Australia 100.0
H.B. Fuller (China) Adhesives Ltd. China 97.0
H.B. Fuller India Private Limited India 99.9 note a
H.B. Fuller Japan Company, Ltd. Japan 100.0
H.B. Fuller Korea Co., Ltd. Korea 100.0
H.B.F. Adhesives (Malaysia) Sdn. Bhd. Malaysia 100.0
H.B. Fuller Company (N.Z.) Ltd. New Zealand 99.9
H.B. Fuller Holdings (NZ) Ltd. New Zealand 99.9
H.B. Fuller Powder Coatings (NZ) Ltd. New Zealand 99.9
H.B. Fuller Powder
Coatings Pty. Ltd. Australia 99.0
H.B. Fuller (Philippines), Inc. Philippines 80.0
HBF Realty Corporation Philippines 40.0
H.B. Fuller Taiwan Company Ltd. Taiwan 100.0
H.B. Fuller (Thailand) Co., Ltd. Thailand 99.9
Multi-Clean Products Pty. Ltd. Australia 100.0 note a
Multi-Clean (Lebanon) S.A.R.L. Lebanon 100.0 note a
H.B. Fuller Lebanon S.A.R.L. Lebanon 100.0 note a
Nippon Tilement Company, Ltd. Japan 9.1
- -------------------------
Notes:
* inactive (to be liquidated)
a Shell corporation
b An additional 0.2% of the outstanding voting securities is owned
by H.B. Fuller GmbH, Luneburg
c H.B. Fuller GmbH, Luneburg 99.94% 73,940 shares
H.B. Fuller Company 0.01% 10 shares
H.B. Fuller Licensing & Financing, Inc. 0.01% 10 shares
H.B. Fuller International, Inv. 0.01% 10 shares
H.B. Fuller U.K. Limited 0.01% 10 shares
Prakoll S.A. 0.01% 10 shares
Gerard Campard 0.01% 10 shares
----- ------------
100.00% 74,000 shares
d An additional 3.0% of the outstanding voting securities is owned
by H.B. Fuller Nederland B.V.
</TABLE>
Page 2 of 5
<PAGE>
Exhibit 21
----------
KATIVO CHEMICAL INDUSTRIES, S.A. AND CONSOLIDATED SUBSIDIARIES
AS OF NOVEMBER 29, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PERCENTAGE
JURISDICTION OF OF VOTING
SUBSIDIARY OWNER OF VOTING SECURITIES ORGANIZATION SECURITIES
- ------------------------- -------------------------- ------------- ---------
Chemical Supply, S.A. Chemical Supply Corporation Argentina 100.00* note b
H.B. Fuller Argentina, S.A. Kativo Chemical Industries, S.A. Argentina 99.99
H.B. Fuller Company 0.01
- ------------------------------------------------------------------------------------------------------------
H.B. Fuller Latin America Kativo Chemical Industries, S.A. Bahamas 100.00* note b
- ------------------------------------------------------------------------------------------------------------
H.B. Fuller Bolivia, Ltda. Kativo Chemical Industries, S.A. Bolivia 50.00
Chemical Supply Corporation 50.00
- ------------------------------------------------------------------------------------------------------------
H.B. Fuller Brazil, Ltda. Chemical Supply Corporation Brazil 99.85
Kativo Chemical Industries, S.A. 0.14
Kativo de Panama, S.A. 0.01
Adhesivos H.B. Fuller (Sul) Ltda. Chemical Supply Corporation Brazil 99.81* note b
Kativo Chemical Industries, S.A. 0.15
H.B. Fuller Brazil, Ltda. 0.04
Chemical Supply de Brazil Adhesivos H.B. Fuller (Sul) Ltda Brazil 99.93* note a
Solventes, Ltda. H.B. Fuller Brazil, Ltda. 0.07
- ------------------------------------------------------------------------------------------------------------
H.B. Fuller Chile, S.A. Kativo Chemical Industries, S.A. Chile 99.99
Minority 0.01
- ------------------------------------------------------------------------------------------------------------
H.B. Fuller Colombia, Ltda. Kativo Chemical Industries, S.A. Colombia 98.00
Minority 2.00
- ------------------------------------------------------------------------------------------------------------
Kativo Costa Rica, S.A. Kativo Chemical Industries, S.A. Costa Rica 100.00
Reca Quimica, S.A. Kativo Chemical Industries, S.A. Costa Rica 100.00
H.B. Fuller Costa Rica, S.A. Kativo Chemical Industries, S.A. Costa Rica 100.00
Analko, S.A. Kativo Chemical Industries, S.A. Costa Rica 100.00* note b
Deco Tintas, S.A. Kativo Chemical Industries, S.A. Costa Rica 100.00
Resistol, S.A. Kativo Chemical Industries, S.A. Costa Rica 100.00* note b
- ------------------------------------------------------------------------------------------------------------
H.B. Fuller Dominicana, S.A. Kativo Chemical Industries, S.A. Dominican Republic 90.60
Chemical Supply Corporation 8.82
Kativo Panama, S.A. 0.01
Kativo Honduras, S.A. 0.01
Decotintas (Costa Rica), S.A. 0.01
Olga Ferrer 0.54
Juan Bancalari 0.01
- ------------------------------------------------------------------------------------------------------------
H.B. Fuller Ecuador, S.A. Kativo Chemical Industries, S.A. Ecuador 50.00
Chemical Supply Corporation 50.00
- ------------------------------------------------------------------------------------------------------------
Kativo de El Salvador, S.A. Kativo Chemical Industries, S.A. El Salvador 100.00*
Kativo Industrial de El Salvador, S.A. Kativo Chemical Industries, S.A. El Salvador 80.00 note b
Chemical Supply Corporation 20.00
H.B. Fuller El Salvador, S.A. Kativo Chemical Industries, S.A. El Salvador 80.00
Chemical Supply Corporation 20.00
Deco Tintas de El Salvador, S.A. Kativo Chemical Industries, S.A. El Salvador 80.00* note b
Chemical Supply Corporation 20.00
- ------------------------------------------------------------------------------------------------------------
Norchem, Ltda. Kativo Chemical Industries, S.A. Grand Cayman 100.00* note b
- ------------------------------------------------------------------------------------------------------------
Kativo Comercial de Guatemala, S.A. Kativo Chemical Industries, S.A. Guatemala 80.00
Chemical Supply Corporation 20.00
Compania Mercantil de Pinturas Kativo Chemical Industries, S.A. Guatemala 100.00* note a
Kiosko de Pinturas, S.A. Kativo de Guatemala, S.A. Guatemala 100.00* note a
H.B. Fuller Guatemala, S.A. Chemical Supply Corporation Guatemala 100.00
Resistol, S.A. H.B. Fuller Guatemala, S.A. Guatemala 100.00*
Sinteticos de Guatemala, S.A. Kativo Chemical Industries, S.A. Guatemala 80.00* note a
Chemical Supply Corporation 20.00
Punto de Viniles, S.A. Sinteticos de Guatemala, S.A. Guatemala 100.00* note a
Alfombras Canon de Guatemala, S.A. Sinteticos de Guatemala, S.A. Guatemala 100.00* note a
- ------------------------------------------------------------------------------------------------------------
* -- Inactive Entities
a -- Liquidation process has begun.
b -- To be liquidated.
</TABLE>
Page 3 of 5
<PAGE>
Exhibit 21
----------
KATIVO CHEMICAL INDUSTRIES, S.A. AND CONSOLIDATED SUBSIDIARIES
AS OF NOVEMBER 29, 1997
<TABLE>
<CAPTION>
PERCENTAGE
JURISDICTION OF OF VOTING
SUBSIDIARY OWNER OF VOTING SECURITIES ORGANIZATION SECURITIES
- ------------------------- -------------------- ------------- ---------
<S> <C> <C> <C>
Kativo de Honduras, S.A. Kativo Chemical Industries, S.A. Honduras 69.31note c
Fuller Istmena, S.A. 30.65
H.B. Fuller Panama, S.A. 0.02
Kativo de Panama, S.A. 0.02
Aerosoles de Centroamerica, S.A. Kativo Chemical Industries, S.A. Honduras 99.88note c
H.B. Fuller Panama, S.A. 0.09
Minority 0.03
Alfombras Canon, S.A. Kativo Chemical Industries, S.A. Honduras 80.00* notes b & c
H.B. Fuller Panama, S.A. 5.00
Kativo de Panama, S.A. 10.00
Fuller Istmena, S.A. 5.00
Comercial Punto de Viniles, S.A. Kativo Chemical Industries, S.A. Honduras 76.00* notes b & c
Fuller Istmena, S.A. 8.00
H.B. Fuller Panama, S.A. 8.00
Kativo de Panama, S.A. 8.00
Kiosko Comercial, S.A. Kativo Chemical Industries, S.A. Honduras 68.00* notes b & c
Kativo de Panama, S.A. 16.00
Fuller Istmena, S.A. 8.00
H.B. Fuller Panama, S.A. 8.00
Kativo Comercial, S.A. Kativo Chemical Industries, S.A. Honduras 35.00* note c
Fuller Istmena, S.A. 25.00
Kativo de Panama, S.A. 25.00
H.B. Fuller Panama, S.A. 15.00
Punto de Viniles, S.A. Kativo Chemical Industries, S.A. Honduras 74.00* notes b & c
Fuller Istmena, S.A. 8.00
Kativo de Panama, S.A. 10.00
H.B. Fuller Panama, S.A. 8.00
Kiosko de Pinturas, S.A. Kativo Chemical Industries, S.A. Honduras 64.00* notes b & c
Fuller Istmena, S.A. 8.00
Kativo de Panama, S.A. 20.00
H.B. Fuller Panama, S.A. 8.00
Fabrica de Pinturas Surekote Kativo Chemical Industries, S.A. Honduras 0.19* notes b & c
de Honduras, S.A. Fuller Istmena, S.A. 0.10
Kativo de Panama, S.A. 0.10
H.B. Fuller Panama, S.A. 99.52
Minority 0.10
Servicios e Inversiones Kiosko de Pinturas, S.A. Honduras 0.40* notes b & c
de Honduras, S.A. Kiosko Comercial, S.A. 0.40
Kativo Comercial, S.A. 0.40
Aerosoles de Centroamerica, S.A. 0.40
Kativo de Honduras, S.A. 98.40
Deco Tintas De Honduras, S.A. Kativo Chemical Industries, S.A. Honduras 80.00* notes b & c
Chemical Supply Corporation 19.95
Kativo de Panama, S.A. 0.02
H.B. Fuller Panama, S.A. 0.02
Decotintas de Panama, S.A. 0.02
H.B. Fuller Honduras, S.A. Kativo Chemical Industries, S.A. Honduras 20.00note c
Fuller Istmena, S.A. 20.00
Kativo de Panama, S.A. 20.00
H.B. Fuller Panama, S.A. 20.00
Chemical Supply Corporation 20.00
Comercial Fuller, S.A. Kativo Chemical Industries, S.A. Honduras 61.00* notes a & c
Kativo Comercial, S.A. (Panama) 10.00
Kativo de Panama, S.A. 10.00
H.B. Fuller Panama, S.A. 4.00
Chemical Supply Corporation 15.00
- ------------------------------------------------------------------------------------------------------------
* -- Inactive Entities
a -- Liquidation process has begun.
b -- To be liquidated.
c -- For company purposes it is owned 100% by KCI
</TABLE>
Page 4 of 5
<PAGE>
Exhibit 21
----------
KATIVO CHEMICAL INDUSTRIES, S.A. AND CONSOLIDATED SUBSIDIARIES
AS OF NOVEMBER 29, 1997
<TABLE>
<CAPTION>
PERCENTAGE
JURISDICTION OF OF VOTING
SUBSIDIARY OWNER OF VOTING SECURITIES ORGANIZATION SECURITIES
- ------------------------- -------------------------- ------------- ---------
<S> <C> <C> <C>
Industrias Kativo de Nicaragua, S.A. Kativo Chemical Industries, S.A. Nicaragua 99.99
Minority 0.01
Distribuidora Industrial y Reca Quimica, S.A. Nicaragua 86.00* note a
Comercial, S.A Minority 14.00
H.B. Fuller Nicaragua, S.A. Kativo Chemical Industries, S.A. Nicaragua 99.80*
Minority 0.20
- ------------------------------------------------------------------------------------------------------------
Chemical Supply Corporation Kativo Chemical Industries, S.A. Panama 100.00
Kativo de Panama, S.A. Kativo Chemical Industries, S.A. Panama 100.00* note b
Fuller Istmena, S.A. Kativo de Panama, S.A. Panama 100.00* note a
Deco Tintas Comerciales, S.A. Kativo Chemical Industries, S.A. Panama 100.00* note a
H.B. Fuller Panama, S.A. Kativo Chemical Industries, S.A. Panama 100.00* note a
Deco Tintas de Panama, S.A. Kativo Chemical Industries, S.A. Panama 100.00* note a
Sistemas Integrados, S.A. H.B.F. Holding Panama Co. Panama 100.00* note a
- ------------------------------------------------------------------------------------------------------------
Chemical Supply Peruana, S.A. Chemical Supply Corporation Peru 99.99* note b
Minority 0.00
H.B. Fuller Peru, S.A. Chemical Supply Peruana, S.A. Peru 23.34
Kativo Chemical Industries, S.A. 53.32
H.B. Fuller Company Canada 22.42
Fuller Adhesives International 0.92
- ------------------------------------------------------------------------------------------------------------
H.B. Fuller Uruguay, S.A. H.B. Fuller Argentina, S.A. Uruguay 100.00
- ------------------------------------------------------------------------------------------------------------
H.B. Fuller Venezuela, C.A. Kativo Chemical Industries, S.A. Venezuela 100.00
- ------------------------------------------------------------------------------------------------------------
* -- Inactive Entities
a -- Liquidation process has begun.
b -- To be liquidated.
Page 5 of 5
</TABLE>
<PAGE>
Exhibit 23
----------
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statements on Form S-3 (Registration No.
33-53387) and to the incorporation by reference in the Registration Statements
on Form S-8 (Registration Nos. 33-50786, 33-16082, 1-9225, 2-73650 and 333-
24703) of H.B. Fuller Company of our report dated January 11, 1998 appearing in
the 1997 Annual Report to Stockholders of H.B. Fuller Company which is
incorporated in this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report on the Financial Statement Schedules,
which appears in this Form 10-K.
Price Waterhouse LLP
Minneapolis, Minnesota
February 25, 1998
<PAGE>
Exhibit 24
----------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned directors of H.B.
FULLER COMPANY, a Minnesota corporation, which proposes to file with the
Securities and Exchange Commission, Washington D.C. 20549, under the provisions
of the Securities Exchange Act of 1934, as amended, a Form 10-K Annual Report
for the Company's fiscal year ended November 29, 1997, hereby constitute and
appoint ANTHONY L. ANDERSEN, JORGE WALTER BOLANOS AND RICHARD C. BAKER his/her
true and lawful attorneys-in-fact and agents, and each of them, with full power
to act without the other, for him/her and in his/her name, place and stead to
sign such annual report with power, where appropriate, to affix the corporate
seal of said Company thereto, and to attest said seal, and to file such annual
report so signed, with all exhibits thereto, and any and all other documents in
connection therewith, with the Securities and Exchange Commission and with the
appropriate office of any state, hereby granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform any and all
acts and things requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he/she might do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or either of them,
may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of the
5th day of December, 1997.
/s/ Anthony L. Andersen /s/ Reatha Clark King
- -------------------------- ------------------------
ANTHONY L. ANDERSEN REATHA CLARK KING
Chairman of the Board Director
/s/ Norbert R. Berg /s/ Walter Kissling
- ---------------------- ------------------------
NORBERT R. BERG WALTER KISSLING
Director President and Chief Executive
Officer and Director
/s/ Edward L. Bronstien, Jr. /s/ John J. Mauriel, Jr.
- ---------------------------- ------------------------
EDWARD L. BRONSTIEN, JR. JOHN J. MAURIEL, JR.
Director Director
/s/ Robert J. Carlson /s/ Lee R. Mitau
- --------------------------- -------------------------
ROBERT J. CARLSON LEE R. MITAU
Director Director
/s/ Freeman A. Ford /s/ Rolf Schubert
- --------------------------- -------------------------
FREEMAN A. FORD ROLF SCHUBERT
Director Vice President of Corporate Research
and Development and Director
/s/ Gail D. Fosler /s/ Lorne C. Webster
- -------------------------- --------------------------
GAIL D. FOSLER LORNE C. WEBSTER
Director Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET, INCOME STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-29-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-29-1997
<CASH> 2,710
<SECURITIES> 0
<RECEIVABLES> 211,469
<ALLOWANCES> 5,879
<INVENTORY> 150,685
<CURRENT-ASSETS> 409,156
<PP&E> 697,917
<DEPRECIATION> 299,356
<TOTAL-ASSETS> 917,646
<CURRENT-LIABILITIES> 237,549
<BONDS> 229,996
0
306
<COMMON> 13,841
<OTHER-SE> 324,967
<TOTAL-LIABILITY-AND-EQUITY> 917,646
<SALES> 1,306,789
<TOTAL-REVENUES> 1,306,789
<CGS> 893,835
<TOTAL-COSTS> 325,702
<OTHER-EXPENSES> (2,096)
<LOSS-PROVISION> 1,183
<INTEREST-EXPENSE> 19,836
<INCOME-PRETAX> 65,320
<INCOME-TAX> 26,651
<INCOME-CONTINUING> 40,308
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 3,368
<NET-INCOME> 36,940
<EPS-PRIMARY> 2.62
<EPS-DILUTED> 2.62
</TABLE>
