<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended May 27, 2000
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 of (I.R.S. Employer
incorporation or organization) Identification No.)
1200 Willow Lake Boulevard, Vadnais Heights, Minnesota 55110-5101
(Address of principal executive offices) (Zip Code)
(651) 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 [_]
The number of shares outstanding of the Registrant's Common Stock, par value
$1.00 per share, was 14,114,240 as of June 30, 2000.
-1-
<PAGE>
H.B. FULLER COMPANY AND CONSOLIDATED SUBSIDIARIES
Consolidated Condensed Statements of Earnings
(Unaudited)
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
-------------------------------- -----------------------------------
May 27, May 29, May 27, May 29,
2000 1999 2000 1999
-------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net sales $347,192 $348,198 $668,397 $675,408
Cost of sales (238,810) (235,708) (458,509) (458,344)
-------------- --------------- --------------- ---------------
Gross profit 108,382 112,490 209,888 217,064
Selling, administrative and other expenses (76,465) (81,808) (154,466) (163,757)
Restructuring and related (expenses)/credits - (6,060) 300 (8,169)
-------------- --------------- --------------- ---------------
Operating earnings 31,917 24,622 55,722 45,138
Interest expense (6,068) (6,587) (12,110) (13,454)
Other income (expense), net 1,749 (1,227) (714) (2,231)
-------------- --------------- --------------- ---------------
Income before income taxes and minority interests 27,598 16,808 42,898 29,453
Income taxes (9,911) (7,339) (15,878) (12,819)
Minority interests in consolidated income (650) (267) (978) (346)
Income from equity investments 735 824 1,460 1,337
-------------- --------------- --------------- ---------------
Net income $17,772 $10,026 $27,502 $17,625
============== =============== =============== ===============
Weighted-average common shares outstanding:
Basic 13,909 13,799 13,885 13,785
============== =============== =============== ===============
Diluted 14,086 13,969 14,093 13,910
============== =============== =============== ===============
Net income per common share:
Basic $1.28 $0.73 $1.98 $1.28
============== =============== =============== ===============
Diluted $1.26 $0.72 $1.95 $1.27
============== =============== =============== ===============
Cash dividend per common share $0.210 $0.205 $0.415 $0.405
============== =============== =============== ===============
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
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<PAGE>
H.B. FULLER COMPANY AND CONSOLIDATED SUBSIDIARIES
Consolidated Condensed Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
(Unaudited)
May 27, November 27,
2000 1999
------------------ ------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $3,520 $5,821
Trade receivables 237,978 249,526
Allowance for doubtful accounts (4,549) (4,871)
Inventories 158,167 148,589
Other current assets 43,730 41,078
------------------ ------------------
Total current assets 438,846 440,143
Property, plant and equipment, net of
accumulated depreciation of $361,077
in 2000 and $354,779 in 1999 399,650 412,524
Deposits and miscellaneous assets 87,252 74,288
Other intangibles, net 26,414 28,309
Excess of cost over net assets acquired, net 70,159 70,351
------------------ ------------------
Total assets $1,022,321 $1,025,615
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $43,429 $40,149
Current installments of long-term debt 6,825 11,332
Accounts payable 117,028 132,273
Accrued expenses 57,132 68,669
Accrued restructuring charges 3,530 8,762
Income tax payable 10,692 4,735
------------------ ------------------
Total current liabilities 238,636 265,920
Long-term debt,
excluding current installments 265,936 263,714
Accrued pension cost 73,043 78,286
Deferred income taxes and other liabilities 32,703 23,801
Minority interest 18,394 17,514
Stockholders' equity:
Preferred stock 306 306
Common stock 14,114 14,040
Additional paid-in capital 36,557 34,071
Retained earnings 362,356 341,356
Accumulated other comprehensive income (loss) (14,584) (7,522)
Unearned compensation (5,140) (5,871)
------------------ ------------------
Total stockholders' equity 393,609 376,380
------------------ ------------------
Total liabilities and stockholders' equity $1,022,321 $1,025,615
================== ==================
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
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<PAGE>
H.B. FULLER COMPANY AND CONSOLIDATED SUBSIDIARIES
Consolidated Condensed Statement of Cash Flows
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended
--------------------------------
May 27, May 29,
2000 1999
-------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income $27,502 $17,625
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 25,916 25,754
Restructuring and related items (300) (744)
Gain on sale of assets in the restructuring plan - (2,371)
Other items 4,414 918
Change in current assets and liabilities (net of
effects of acquisitions/divestitures):
Accounts receivable (419) (3,695)
Inventory (13,195) 1,939
Prepaid assets (4,134) (2,356)
Accounts payable (9,308) (4,747)
Accrued expense (8,660) 4,064
Accrued restructuring charges (5,232) (3,079)
Income taxes payable 6,579 8,509
-------------- ---------------
Net cash provided by operating activities 23,163 41,817
Cash flows from investing activities:
Purchased property, plant and equipment (22,727) (27,769)
Purchased business, net of cash acquired (5,498) (4,483)
Proceeds from sale of assets and businesses 10,270 5,009
-------------- ---------------
Net cash used in investing activities (17,955) (27,243)
Cash flows from financing activities:
Proceeds from long-term debt 36,121 53,230
Payments on long-term debt (33,008) (60,984)
Notes payable 4,614 4,367
Dividends paid (5,849) (5,680)
Other (9,158) (4,292)
-------------- ---------------
Net cash used in financing activities (7,280) (13,359)
Effect of exchange rate changes on cash (229) 49
-------------- ---------------
Net change in cash and cash equivalents (2,301) 1,264
Cash and cash equivalents at beginning of year 5,821 4,605
-------------- ---------------
Cash and cash equivalents at end of period $3,520 $5,869
============== ===============
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
-4-
<PAGE>
H.B. FULLER COMPANY AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
(Amounts in Thousands)
1. The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
in the United States for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information necessary for a fair
presentation of results of operations, financial position, and cash flows
in conformity with generally accepted accounting principles in the United
States. In the opinion of management, the consolidated financial statements
reflect all adjustments of a normal recurring nature considered necessary
for a fair presentation of the Company's results for the periods presented.
Operating results for interim periods are not necessarily indicative of
results that may be expected for the fiscal year as a whole. The
preparation of financial statements in conformity with generally accepted
accounting principles in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, expenses, and related disclosures at the date of the
financial statements and during the reporting period. Actual results could
differ from these estimates. These interim consolidated condensed financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report on
Form 10-K for the year ended November 27, 1999 as filed with the Securities
and Exchange Commission.
2. The composition of inventories is presented below:
May 27, 2000 November 27, 1999
------------ -----------------
Raw materials $ 63,906 $ 63,392
Finished goods 104,348 94,579
LIFO reserve (10,087) (9,382)
---------- ----------
$158,167 $148,589
========== ==========
3. Reconciliations of the net income and common share components for the basic
and diluted income per share calculations are as follows:
<TABLE>
<CAPTION>
Thirteen Weeks Ended
-----------------------------------
May 27, 2000 May 29, 1999
------------ ------------
<S> <C> <C>
Net income $17,772 $10,026
Dividends on preferred shares (4) (4)
----------- ------------
Income available to common shareholders $17,768 $10,022
=========== ============
Weighted-average common shares - basic 13,909 13,799
Effect of diluted securities
Stock options 16 93
Restricted stock 154 77
Key employee deferred compensation plan 7 -
----------- ------------
Weighted-average common shares - diluted 14,086 13,969
=========== ============
</TABLE>
<TABLE>
<CAPTION>
Twenty-six Weeks Ended
-----------------------------------
May 27, 2000 May 29, 1999
------------ ------------
<S> <C> <C>
Net income $27,502 $17,625
Dividends on preferred shares (8) (8)
----------- ------------
Income available to common shareholders $27,494 $17,617
=========== ============
Weighted-average common shares - basic 13,885 13,785
Effect of diluted securities
Stock options 50 71
Restricted stock 155 54
Key employee deferred compensation plan 3 -
----------- ------------
Weighted-average common shares - diluted 14,093 13,910
=========== ============
</TABLE>
-5-
<PAGE>
4. The components of total comprehensive income (loss) are shown below:
Thirteen Weeks Ended
-------------------------------
Total comprehensive income May 27, 2000 May 29, 1999
------------ ------------
Net income $17,772 $10,026
Other comprehensive income
Foreign currency translation, net (3,575) (4,215)
----------- -----------
Total other comprehensive income (3,575) (4,215)
----------- -----------
Total comprehensive income $14,197 $5,811
=========== ===========
Twenty-six Weeks Ended
-------------------------------
Total comprehensive income May 27, 2000 May 29, 1999
------------ ------------
Net income $27,502 $17,625
Other comprehensive income
Foreign currency translation, net (7,062) (5,888)
----------- -----------
Total other comprehensive income (7,062) (5,888)
----------- -----------
Total comprehensive income $20,440 $11,737
=========== ===========
5. The following table is a detailed reconciliation of the restructuring
reserve balance from November 27, 1999 to May 27, 2000. The reconciliation
reflects the adjustments recorded due to a change in estimate and payments
applied during the respective quarter.
<TABLE>
<CAPTION>
North Latin Asia/
America Europe America Pacific Total
------- ------ ------- ------- -----
<S> <C> <C> <C> <C> <C>
Balance: November 27, 1999 $1,924 $4,950 $763 $1,125 $8,762
Adjustments in first quarter, 2000 (300) -- -- -- (300)
Payments in first quarter, 2000:
Severance (1,018) (1,166) (301) (229) (2,714)
Contracts/leases -- (202) -- (397) (599)
------- ------ ------- ------- ------
--
(1,018) (1,368) (301) (626) (3,313)
------- ------ ------- ------- ------
Payments in second quarter, 2000:
Severance (263) (758) (28) (453) (1,502)
Contracts/leases -- (71) -- (46) (117)
------- ------ ------- ------- ------
(263) (829) (28) (499) (1,619)
------- ------ ------- ------- ------
Balance: May 27, 2000 $343 $2,753 $434 $ -- $3,530
======= ====== ======= ======= ======
</TABLE>
The remaining balance of $3,530 consists of $2,276 for severance and $1,254
for contracts/leases.
6. Nonrecurring amounts recorded in the second quarter ended May 27, 2000
consisted of pretax gains of $1,535 from a settlement with a raw material
vendor and of $1,612 from assets sold in the United States and Spain as
well as the sale of the liquid paint business in Ecuador.
7. On March 16, 2000, the Company acquired an adhesive product line in the
United States for $5,498. Based on a preliminary allocation, the purchase
price exceeds net assets acquired by approximately $5,166. The acquisition
was accounted for as a purchase business combination and the accompanying
Consolidated Financial Statements include the results of this product line
since the purchase date. The historical results of operations on a pro
forma basis are not presented as the effects of the acquisition are not
material.
-6-
<PAGE>
8. The following table presents information about the Company's reported
segments, which also are the Company's geographic segments. Management
measures performance using operating income by geographic segments.
Inter-
For the Thirteen Weeks Ended Trade Company Operating
May 27, 2000 Sales Sales Income
------------ ---------- -------- ---------
North America $209,141 $3,693 $17,559
Europe 67,833 1,145 7,009
Latin America 45,018 -- 5,910
Asia/Pacific 25,200 (4) 1,439
Eliminations -- (4,834) --
-------- -------- ---------
Total $347,192 -- $31,917
======== ======== =========
Inter-
For the Thirteen Weeks Ended Trade Company Operating
May 29, 1999 Sales Sales Income
------------ ---------- -------- ---------
North America $206,615 $ 6,001 $17,162
Europe 72,300 341 2,346
Latin America 44,757 3,236 3,692
Asia/Pacific 24,526 23 1,422
Eliminations -- (9,601) --
-------- -------- ---------
Total $348,198 -- $24,622
======== ======== =========
Inter-
For the Twenty-six Weeks Ended Trade Company Operating
May 27, 2000 Sales Sales Income
------------ ---------- -------- ---------
North America $394,405 $7,297 $28,837
Europe 131,635 1,773 13,120
Latin America 92,423 -- 11,103
Asia/Pacific 49,934 11 2,662
Eliminations -- (9,081) --
-------- -------- ---------
Total $668,397 -- $55,722
======== ======== =========
Inter-
For the Twenty-six Weeks Ended Trade Company Operating
May 29, 1999 Sales Sales Income
------------ ---------- -------- ---------
North America $389,513 $ 6,428 $29,245
Europe 140,992 1,120 2,915
Latin America 96,791 7,153 7,925
Asia/Pacific 48,112 73 5,053
Eliminations -- (14,774) --
-------- -------- ---------
Total $675,408 -- $45,138
======== ======== =========
9. In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101), which summarizes certain of the
staff's views in applying generally accepted accounting principles to
revenue recognition in financial statements. The Company is in the process
of analyzing the requirements of SAB 101, as amended, and is required to
comply by no later than the fourth quarter of fiscal year 2001. The Company
has not yet determined the impact of SAB 101 on its consolidated financial
statements.
-7-
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Thousands)
The following discussion includes comments and data relating to the Company's
financial condition and results of operations during the periods included in the
accompanying Consolidated Condensed Financial Statements.
Results of Operations
---------------------
Net sales for the second quarter of $347,192 were 0.3 percent below the second
quarter of 1999. Excluding the negative 1.7 percent impact from weaker foreign
currencies, primarily in Europe, the sales for the quarter increased 1.4 percent
over last year. Volume, combined with changes in product mix, increased 2.1
percent while selling prices declined 1.0 percent. Sales from recent
acquisitions accounted for the remaining 0.3 percent growth.
Through the first six months of 2000, net sales of $668,397 were 1.0 percent
below last year. The negative currency impact for the first half of the year was
also 1.7 percent. Volume and product mix increased 1.7 percent and pricing
decreased 1.1 percent.
The following table shows the second quarter and six month sales by geographic
operating segment:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
------------------------------ ----------------------------
Operating Segment May 27, 2000 May 29, 1999 May 27, 2000 May 29, 1999
----------------- ------------ --------------- ------------ ------------
<S> <C> <C> <C> <C>
North America $209,141 $206,615 $394,405 $389,513
Europe 67,833 72,300 131,635 140,992
Latin America 45,018 44,757 92,423 96,791
Asia/Pacific 25,200 24,526 49,934 48,112
---------- --------- ---------- --------
Total $347,192 $348,198 $668,397 $675,408
========== ========= ========== ========
</TABLE>
Net income in the second quarter was $17,772 or $1.26 per diluted share. The net
income in the second quarter of 1999 was $10,026 or $0.72 per diluted share.
Included in the 1999 results were restructuring and related charges of $6,060
($4,251 after tax), which reduced the net income per diluted share by $0.30.
Excluding the 1999 restructuring and related charges, net income in the second
quarter of 2000 increased 24 percent over last year.
Net income for the first six months of 2000 was $27,502 or $1.95 per diluted
share as compared to the first half of 1999, which had net income of $17,625 or
$1.27 per diluted share. First half results in 2000 include a $300 ($189 after
tax) restructuring credit and the 1999 results include restructuring and related
charges of $8,169 ($5,940 after tax). The $300 credit in 2000 was the result of
a reduction in the year-end 1999 restructuring accrual for severance due to a
change in estimate. Excluding the restructuring and related items, net income in
the first half of 2000 increased 16 percent over 1999 and the net income per
diluted share increased $0.25 or 15 percent.
In North America, second quarter sales exceeded last year by 1.2 percent. Volume
and product mix increased 1.7 percent, pricing declined 1.3 percent and
acquisitions contributed 0.7 percent. The North American adhesives business had
a 0.6 percent growth rate in the second quarter. Increases in sales to the
woodworking, packaging, polymer and graphic arts markets were offset by
decreases in nonwoven, fiber resin and engineered systems. Second quarter sales
in the Specialty Group increased 4.3 percent over last year with 2.7 percent of
the growth coming from an acquisition in the Foster Products business. Linear
Products, Inc. had excellent growth in the quarter while the Global Coatings
Division and TEC Specialty Products, Inc. were slightly above last year. The
Automotive Group reported a 2.1 percent decline in sales for the quarter.
-8-
<PAGE>
Through six months, North American sales were up 1.3 percent over last year with
a 1.2 percent increase from the Adhesives business, a 3.7 percent increase from
the Specialty Group and a decrease of 3.6 percent in the Automotive business.
Volume and product mix increased 2.3 percent while selling prices were down 1.6
percent.
Operating income in North America decreased $1,160 or 6.2 percent in the second
quarter compared to the second quarter of last year. Higher raw material costs,
combined with lower selling prices, were responsible for the lower operating
income. Petroleum-based raw materials such as Vinyl Acetate Monomer (VAM) and
Vinyl Acetate Emulsion (VAE) had substantially higher costs in 2000 due to the
increase in crude oil prices. Selling price increases were implemented in the
second quarter, however the benefits were not realized until late in the
quarter. The raw material cost increases were realized throughout the quarter.
Operating (selling, administrative and other) expenses were below last year's
level due to reduced census, lower employee and retiree benefit costs and
reduced management bonus accruals based on the Company's projected financial
performance. The operating expenses include approximately $1,200 related to the
Company's e-business initiative and tax planning project. This translates into
$0.05 per diluted share.
Through six months, the North American operating income, excluding restructuring
and related items, was below 1999 by $2,691 or 8.6 percent.
In Europe, second quarter net sales were below 1999 by 6.2 percent. Excluding
the weakness in foreign currencies, primarily the Euro, sales increased 3.0
percent. Volume and product mix increased 1.5 percent and selling prices
increased 1.2 percent. Strong growth in the paper packaging, woodworking and
engineered systems markets was partially offset by weakness in the
nonwoven/hygiene market. Similar to North America, Europe also experienced
rapidly increasing raw material costs. Although selling prices increased during
the quarter, they did not keep pace with the raw material increases. Therefore,
the gross margin rate decreased from last year by 2.8 percentage points to 31.2
percent. The weakness in the Euro had a positive impact on operating expenses of
approximately $1,300. The exchange impact, combined with savings related to the
Company's restructuring program, resulted in operating expenses below last year
by $3,190 or 17.4 percent. The operating income for the quarter of $7,009 was
$851 or 13.8 percent above last year. The currency impact on the operating
income was estimated at a negative $600.
Through six months, sales in Europe were below last year by 6.7 percent.
Included in the shortfall was a negative 9.5 percent impact related to currency.
Operating income was above last year by $2,637 or 25.2 percent.
Second quarter net sales in Latin America were 0.6 percent above last year. The
adhesive business increased 3.1 percent while the liquid paints business
decreased 1.3 percent. Sale of the liquid paint business in Ecuador resulted in
a negative 1.7 percent impact on total liquid paint sales and a 1.0 percent
negative impact on total Latin American sales. Volume and product mix were
strong in Latin America with an increase of 5.2 percent. This was in spite of
discontinuing sales of certain unprofitable product lines and markets which had
a negative impact of approximately 3.0 percent. Economic improvement in Chile
and Brazil contributed to the positive second quarter sales performance. In the
adhesives business, sales were strong in nonwoven, woodworking and graphic arts
while sales declines were realized in the consumer and footwear markets.
Operating income increased $1,629 or 38.1 percent in the second quarter as
compared to last year. The primary factor in the increase was a settlement with
a raw material supplier which resulted in a pretax gain of $1,535 or an increase
of $0.07 per diluted share. The settlement was reimbursement for lost business
due to a quality problem with materials from this vendor.
The six month results for Latin America showed a sales decrease of 4.5 percent
and an operating income increase of 27.7 percent. Excluding the settlement gain
from the raw material supplier, the year-to-date increase in operating income
was 10.0 percent.
Asia/Pacific net sales in the second quarter increased 2.7 percent over second
quarter, 1999. Foreign currency fluctuations accounted for a positive 1.4
percent. The positive impact from the yen offset the negative performance from
the Australian dollar. Volume and product mix increased 1.3 percent while
selling prices remained even with last year. Strong growth was realized in the
footwear and graphic arts
-9-
<PAGE>
markets, however lost business in the nonwoven market reduced the overall growth
to the reported 1.3 percent. Operating income, excluding restructuring and
related charges, decreased 5.6 percent to $1,439. Increases in raw material
costs were the primary causes of the earnings decline.
The first half results for Asia/Pacific showed a net sales increase of 3.8
percent and an operating income decrease of 8.1 percent.
Interest expense of $6,068 in the quarter represented a $519 or 7.9 percent
decrease from last year due to the reduction in the Company's debt level.
Other income/(expense) in the second quarter was income of $1,749 as compared to
an expense of ($1,227) in the second quarter of 1999. Included in the second
quarter income was a gain on the portfolio of assets held for the Supplemental
Executive Retirement Plan, or SERP, of $2,351. This compares to a gain in the
second quarter of 1999 of $1,048. Through March of 2000, this portfolio was
invested in a mutual fund based on the performance of the S&P 500 index. To
insulate the Company from unpredictable fluctuations in the markets, the assets
in the SERP portfolio were converted to fixed income securities. In future
quarters, the earnings impact is expected to be approximately $225, which
translates into $0.01 per diluted share. Also included in other income were
gains on sales of assets and businesses of $1,612 or an increase of $0.07 per
diluted share. Assets sold included property in the U.S. and Spain as well as
the sale of the liquid paint business in Ecuador.
The effective income tax rate for 2000 was lowered to 37 percent in the second
quarter from the 39 percent that was used in the first quarter. The year-to-date
change resulted in a rate of 35.9 percent for the second quarter. The effective
rate used in last year's second quarter, excluding the tax impact of
restructuring and related charges, was 40.0 percent. The 37 percent rate
reflects the expected rate for the year taking into consideration the current
mix of worldwide income and tax planning initiatives, both of which are subject
to change. During the first six months the Company incurred approximately $1,000
of tax consulting expenses to achieve the lower rate.
Liquidity and Capital Resources
-------------------------------
Cash flows provided by operations in the first half of 2000 were $23,163 as
compared to $41,817 generated in the first half of 1999. Operating working
capital increased $27,061 in the first half of 2000 compared to an increase of
$3,466 in the first half, 1999. Inventories increased $9,578 in the first half
of 2000 while trade accounts receivables decreased $11,548. During the second
quarter, inventories decreased $8,261 and trade accounts receivable increased
$6,173. The accounts receivable days sales outstanding were 61 at the end of the
second quarter, which compares to 63 at the end of the first quarter and 62 at
the end of 1999. The average days of inventory on hand at May 27, 2000, as
calculated on a four quarter rolling average, were at the year-end 1999 level of
61 days. Accrued expenses decreased by $11,537 in the first half of 2000
primarily due to the first quarter payments for management bonuses, which were
accrued for in 1999. The current ratio of 1.8 at May 27, 2000 compares to 1.7 at
November 27, 1999.
Payments in the first half of 2000 related to the Company's 1998 plan of
restructuring and reorganization were $4,932. Payments of $4,216 were for
accrued severance costs and $716 was for accrued costs related to contracts and
leases. The remaining balance of $3,530 consists of $2,276 for severance and
$1,254 for contracts/leases.
The Company's ratio of long-term debt to total capitalization was 40.3 percent
at May 27, 2000 as compared to 41.2 percent at November 27, 1999. At May 29,
1999 the ratio was 44.5 percent.
Capital expenditures for property, plant and equipment were $22,727 in the first
half, 2000 compared to $27,769 in the first half, 1999. The expenditures were
primarily for information technology projects and for general improvements in
manufacturing productivity and operating efficiency.
-10-
<PAGE>
Safe Harbor Statement under the Private Securities Litigation Act of 1995
-------------------------------------------------------------------------
Certain statements in this document 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; manufacturing 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; devaluations and other foreign exchange rate
fluctuations (particularly with respect to the Euro, the Japanese yen, and the
Brazilian real); 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. All forward-looking information represents management's
best judgment as of this date based on information currently available that in
the future may prove to have been inaccurate. Additionally, the variety of
products sold by the Company and the regions where the Company does business
makes it difficult to determine with certainty the increases or decreases in
sales resulting from changes in the volume of products sold, currency impact,
changes in product mix and selling prices. However, management's best estimates
of these changes as well as changes in other factors have been included.
Item 4.
Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Company held its Annual Meeting of Shareholders on April 20, 2000. Proxies
for such meeting were solicited pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended. A total of 17,731,813 common and preferred
share votes ("Votes") were entitled to be cast at the meeting. At such meeting,
each of management's four nominees for director in Class I were elected for a
three-year term (until the Company's 2003 Annual Meeting), and until the
directors' respective successors are duly elected and qualified. The number of
Votes cast for the election of each director and the number of Votes withheld
are as follows:
Combined Common & Combined Common &
Preferred Share Preferred Share
Director Name Votes in Favor Votes Withheld
------------- ----------------- -----------------
Robert J. Carlson 14,394,990 720,332
Gail D. Fosler 14,291,192 824,130
Reatha Clark King 14,426,098 689,224
Albert P.L. Stroucken 12,085,959 3,029,363
A proposal to ratify the appointment of PricewaterhouseCoopers LLP as
independent auditors for the Company for the fiscal year ending December 2, 2000
was approved by 14,921,249 Votes cast in favor, 156,520 Votes cast against, and
37,552 Votes abstaining. There were no broker non-votes with respect to the
ratification of the appointment of PricewaterhouseCoopers LLP as auditors.
A proposal to consider and vote on the H.B. Fuller Company Year 2000 Stock
Incentive Plan was approved by 9,583,745 Votes cast in favor, 5,440,729 Votes
cast against, and 90,847 Votes abstaining. There were no broker non-votes with
respect to the H.B. Fuller Company Year 2000 Stock Incentive Plan proposal.
A proposal to consider and vote on the H.B. Fuller Company Key Employee Deferred
Compensation Plan was approved by 13,957,985 Votes cast in favor, 1,044,806
Votes cast against, and 112,530 Votes abstaining. There were no broker non-votes
with respect to the H.B. Fuller Company Key Employee Deferred Compensation Plan
proposal.
A shareholder proposal requesting that the Board of Directors adopt a policy not
to sell its adhesives to any tobacco-related company when they will use it for
the production of cigarettes or other tobacco products was defeated by
13,071,291 Votes against the shareholder proposal, 1,087,146 Votes in favor of
the shareholder proposal and 459,490 Votes abstaining. There were 497,394 broker
non-votes with respect to the shareholder proposal.
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PART II. OTHER INFORMATION
Item 6.
Exhibits and reports on Form 8-K
--------------------------------
(a) Exhibits to Part I
27 Financial Data Schedule
(b) Reports on Form 8-K. No reports on Form 8-K were filed for the thirteen
weeks ended May 27, 2000.
SIGNATURES
Pursuant to the requirements 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: July 11, 2000 /s/ Raymond A. Tucker
---------------------
Raymond A. Tucker
Senior Vice President and
Chief Financial Officer
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<PAGE>
EXHIBIT INDEX
Exhibit Number
27 Financial Data Schedule.
