<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 27, 1999
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)
<TABLE>
<S> <C>
Minnesota 41-0268370
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
1200 Willow Lake Boulevard, St. Paul, Minnesota 55110-5101
(Address of principal executive offices) (Zip Code)
</TABLE>
(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 [ ]
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 31, 2000 was approximately
$873,930,000 (based on the closing price of such stock as quoted on the NASDAQ
National Market ($66.06) on such date).
The number of shares outstanding of the Registrant's Common Stock, par value
$1.00 per share, was 14,058,338 as of January 31, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Parts I, II and IV incorporate information by reference to portions of the H.B.
Fuller Company 1999 Annual Report to Shareholders.
Part III incorporates information by reference to portions of the Registrant's
Proxy Statement dated March 10, 2000.
-1-
<PAGE>
H.B. FULLER COMPANY
1999 Form 10-K Annual Report
Table of Contents
<TABLE>
<CAPTION>
PART I Page
------ ----
<S> <C> <C>
Item 1. Business 3
Item 2. Properties 5
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 6
Executive Officers of the Registrant 6
PART II
-------
Item 5. Market for Registrant's Common Stock and Related Stockholder
Matters 8
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 8
Item 8. Financial Statements and Supplementary Data 8
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 8
PART III
--------
Item 10. Directors and Executive Officers of the Registrant 9
Item 11. Executive Compensation 9
Item 12. Security Ownership of Certain Beneficial Owners and Management 9
Item 13. Certain Relationships and Related Transactions 9
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 9
Signatures 13
Schedule II - Valuation and Qualifying Accounts 14
</TABLE>
-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 5,400 people and has sales
operations in 45 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 1999 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 producer and supplier of powder coatings to metal
finishing industries; commercial and industrial paints in Latin American
markets; as well as mastics and coatings for thermal insulation, indoor air
quality and asbestos abatement applications in the United States.
Segment Information
- -------------------
See Note 14, "Business Segment Information", on pages 59 and 60 of the Company's
1999 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, 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
---------------- -------------------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Adhesives, sealants and coatings 92% 91% 90%
Paints 8 8 7
Other - 1 3
----- ----- ------
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 1999, the Company had plants in 22 countries
outside the United States and satellite sales offices in another 22 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, multi-national companies as well as many
smaller local, independent firms. In North America, the Company competes with a
large number of both the multi-national companies and local firms.
Throughout Latin America, the Company experiences substantial competition in
marketing its industrial adhesives. In Central America, the Company also
competes with several large paint manufacturing firms. In Europe, the Company
is a large manufacturer of adhesives and competes with several large companies.
The principal competitive factors in the sale of adhesives, sealants, coatings
and paints are product performance, customer service, technical service, quality
and price.
Customers
- ---------
Of the Company's $1,364,458,000 total sales to unaffiliated customers in 1999,
$791,029,000 was sold through North American operations. No single customer
accounts for 10% or more of the Company's 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
27, 1999, November 28, 1998 or November 29, 1997.
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
including starch, dextrines, natural latex and resins are also used in the
Company's manufacturing processes. 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.
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 1999, 1998 and 1997 aggregated
$21,340,000, $22,255,000 and $24,830,000 respectively.
-4-
<PAGE>
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. See additional disclosure under Item 3,
Legal Proceedings.
Employees
- ---------
The Company and its consolidated subsidiaries employed approximately 5,400
persons on November 27, 1999, of which approximately 2,200 persons were employed
in the United States.
Item 2.
Properties
- ----------
The principal manufacturing plants are located in 23 countries:
<TABLE>
<CAPTION>
U.S. Locations Other Locations
- -------------- ---------------
<S> <C> <C>
California (4) Argentina Japan
Florida Australia Mexico
Georgia (4) Austria New Zealand
Illinois (2) Brazil Nicaragua
Indiana Canada (3) People's Republic of China
Kentucky Chile Peru
Michigan (4) Colombia Philippines
Minnesota (7) Costa Rica (5) Republic of Panama
New Jersey Dominican Republic United Kingdom (3)
North Carolina Ecuador (2)
Ohio (2) Federal Republic of Germany (2)
Texas (2) Honduras
Washington Italy
</TABLE>
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 1,571,000 square feet, including 325,000 square
feet of leased space. In addition, the Company has approximately 2,001,000
square feet of
-5-
<PAGE>
warehouse space, including 491,000 square feet of leased space. Offices and
other facilities total 1,836,000 square feet, including 426,000 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 11 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 affect on the Company's business or
financial condition.
The Company has received requests for information from federal, state or local
government entities regarding 6 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 affect on the Company's business or financial condition.
Other Legal Proceedings
- -----------------------
The Company is subject to 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 affect on the Company's business or financial condition.
Item 4.
Submission of Matters to a Vote of Security Holders
- ---------------------------------------------------
Not applicable.
Executive Officers of the Registrant
------------------------------------
The following sets forth the name, age and business experience for the past five
years of each of the executive officers of the Company as of January 31, 2000.
Unless otherwise noted, the positions described are positions with the Company
or its subsidiaries.
<TABLE>
<CAPTION>
Name Age Position Period Served
- ---- --- -------- -------------
<S> <C> <C> <C>
Albert P.L. Stroucken 52 Chairman of the Board October, 1999-Present
President and Chief Executive Officer April, 1998-Present
General Manager, Inorganics Division, 1997-1998
Bayer AG
Executive Vice President and 1992-1997
President, Industrial
Chemicals Division,
Bayer Corporation
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
Name Age Position Period Served
- ---- --- -------- -------------
<S> <C> <C> <C>
Raymond A. Tucker 54 Senior Vice President October, 1999-Present
Chief Financial Officer July, 1999-Present
Treasurer July-October, 1999
Senior Vice President, Inorganic Products, 1997-1999
Bayer Corporation
Vice President, Finance and Administration, 1992-1997
Industrial Chemicals Division,
Bayer Corporation
Lars T. Carlson 62 Senior Vice President-Manufacturing Integration December, 1999-Present
Senior Vice President-Administration 1996-1999
Vice President 1986-1996
Richard C. Baker 47 Corporate Secretary 1995-Present
Vice President 1993-Present
General Counsel 1990-Present
William L. Gacki 51 Vice President and Treasurer October, 1999-Present
Director, Treasury 1995-October, 1999
Linda J. Welty 44 Group President, General Manager September, 1998-Present
Specialty Group
Vice President, General Manager, 1997-1998
Superabsorbent Materials, Clariant International
Global Business Director 1994-1996
Superabsorbent Materials, Clariant International
Peter Koxholt 55 Group President, General Manager Europe January, 1999-Present
Head of Business Unit Textile Chemicals 1995-1998
& Specialties, Bayer AG
Vice President, Enamels and Ceramics Business, 1991-1995
Bayer Corporation
Antonio Lobo 57 Vice President, Group President, 1999-Present
General Manager Latin America
Vice President, Latin American Group Manager 1996-1999
Vice President, Asia/Pacific Group Manager 1989-1996
Alan R. Longstreet 53 Senior Vice President-Performance Products December, 1999-Present
Senior Vice President Global SBU's 1998-1999
Vice President-Asia/Pacific Group Manager 1996-1998
Vice President-ASC Structural 1992-1996
David J. Maki 58 Vice President 1990-Present
Controller 1987-Present
Michael D. Modak 43 Vice President-Industrial Products January, 2000-Present
Director, Corporate Development 1994-1999
Walter Nussbaumer 42 Vice President, Chief Technology Officer December, 1999-Present
and Full-Valu
Vice President, Chief Technology Officer January, 1999-Present
Director of Research & Development 1997-1998
Corporate Research & Development, 1992-1997
Group Leader
</TABLE>
-7-
<PAGE>
<TABLE>
<CAPTION>
Name Age Position Period Served
- ---- --- -------- -------------
<S> <C> <C> <C>
Matthew Critchley 50 Group President, General Manager Asia/Pacific October, 1998-Present
Managing Director, Australia/New Zealand 1994-1998
</TABLE>
The executive officers of the Company are elected annually by the Board of
Directors with the exception of the Group Presidents, Group Managers, Vice
President-Industrial Products and the Chief Technology Officer, who hold
appointed offices.
PART II
Information for Items 5 through 8 of this report appear in the 1999 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:
<TABLE>
<CAPTION>
Annual Report to Shareholders
Page
--------
<S> <C>
Item 5.
Market for Registrant's Common Stock
- ------------------------------------
and Related Stockholder Matters
-------------------------------
Trading Market 64
High and Low Market Value 64
Dividend Payments 64
Dividend Restrictions (Note 13) 56
Holders of Common Stock 64
Item 6.
Selected Financial Data
- -----------------------
1989 - 1999 in Review and
Selected Financial Data 62-63
Item 7.
Management's Discussion and Analysis of
- ---------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
Management's Discussion and Analysis of Results of
Operations and Financial Condition 31-39
Item 7A.
Quantitative and Qualitative Disclosures
- ----------------------------------------
About Market Risk
-----------------
Financial Instruments 45
Item 8.
Financial Statements and Supplementary Data
- -------------------------------------------------
Consolidated Financial Statements 40-60
Quarterly Data (Unaudited)(Note 15) 60
Report of the Independent Accountants 61
</TABLE>
Item 9.
Changes in and Disagreements with Accountants
- ---------------------------------------------
on Accounting and Financial Disclosure
--------------------------------------
None
-8-
<PAGE>
PART III
Item 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 10, 2000 (the
"2000 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.
Item 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," "Option Grants in Last Fiscal Year,"
"Aggregated Option Exercises in Fiscal Year 1999 and Fiscal Year End Option
Values," "Retirement Plans," "Employment and Consulting Agreements," and
"Change in Control Arrangements" contained in the 2000 Proxy Statement are
incorporated herein by reference.
Item 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 2000 Proxy Statement is incorporated
herein by reference.
Item 13.
Certain Relationships and Related Transactions
- ----------------------------------------------
The section entitled "Exchange Agreement" contained in the 2000 Proxy Statement
is incorporated herein by reference.
PART IV
Item 14.
Exhibits, Financial Statement Schedule 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 1999 Annual Report to Shareholders of H.B. Fuller
Company:
Consolidated Statements of Income for the
Three Years Ended November 27, 1999,
November 28, 1998 and November 29, 1997 40
Consolidated Balance Sheets as of
November 27, 1999 and November 28, 1998 41
</TABLE>
-9-
<PAGE>
<TABLE>
<CAPTION>
Form 10-K Annual Report
Annual Report to Shareholders
Page Page
----- ------
<S> <C> <C>
Consolidated Statements of Stockholders' Equity
for the Three Years Ended November 28, 1999,
November 28, 1998 and November 29, 1997 42
Consolidated Statements of Cash Flows
for the Three Years Ended November 28, 1999,
November 28, 1998 and November 29, 1997 43
Notes to Consolidated Financial Statements 44-60
Report of Independent Accountants 61
(a)(2.) Index to Consolidated Financial Statement
Schedule for the Three Years Ended November 27,
1999, November 28, 1998 and November 29, 1997:
Report of Independent Accountants on Financial
Statement Schedule 14
Schedule II Valuation and Qualifying Accounts 14
</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.
(a)(3.) Exhibits
--------
Exhibit Number
3(a) Restated Articles of Incorporation of H.B. Fuller Company, October 30,
1998 - incorporated by reference to Exhibit 3(a) to the Registrant's
Annual Report on Form 10-K405 for the year ended November 28, 1998.
3(b) By-Laws of H.B. Fuller Company as amended through July 14, 1999 -
incorporated by reference to Exhibit 3(b) to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended August 28, 1999.
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) Specimen Stock Certificate.
4(c) 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.
4(d) Agreement dated as of June 2, 1998 between H.B. Fuller Company and a
group of investors, primarily insurance companies, including the form of
Notes -incorporated by reference to Exhibit 4(a) to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended August 29, 1998.
*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-
<PAGE>
*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) H.B. Fuller Company Directors' Deferred Compensation Plan as Amended
February 10, 1999 - incorporated by reference to Exhibit 10(b) to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
February 27, 1999.
*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 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 - incorporated by reference to Exhibit 10(k) to the
Registrant's Annual Report on Form 10-K for the year ended November
29, 1997.
*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) H.B. Fuller Company Supplemental Executive Retirement Plan - 1998
Revision - incorporated by reference to Exhibit 10(j) to the
Registrant's Annual Report on Form 10-K405 for the year ended November
28, 1998.
*10(i) Amendments to H.B. Fuller Company Executive Benefit Trust, dated
October 1, 1997 and March 2, 1998, between H.B. Fuller Company and
First Trust National Association, as Trustee, relating to the H.B.
Fuller Company Supplemental Executive Retirement Plan - incorporated
by reference to Exhibit 10(k) to the Registrant's Annual Report on
Form 10-K405 for the year ended November 28, 1998.
*10(j) 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(k) Performance Unit Plan - incorporated by reference to Exhibit 10(a) to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
February 27, 1999.
*10(l) Employment Agreement, dated as of April 16, 1998, between H.B. Fuller
Company and Albert Stroucken - incorporated by reference to Exhibit
10(a) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended May 30, 1998.
*10(m) Consulting Agreement and First Amendment to International Service
Agreement and Non-Competition Agreement, effective as of April 30,
1998, between H.B. Fuller Company and Walter Kissling - incorporated
by reference to Exhibit 10(b) to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended May 30, 1998.
*10(n) H.B. Fuller Company 1998 Directors' Stock Incentive Plan -
incorporated by reference to Exhibit 10(c) to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended May 30, 1998.
*10(o) Restricted Stock Award Agreement, dated as of April 23, 1998, between
H.B. Fuller Company and Lee R. Mitau - incorporated by reference to
Exhibit 10(d) to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended May 30, 1998.
*10(p) Managing Director Agreement with Peter Koxholt signed October 15,
1998.
*10(q) Change in Control Agreement dated as of October 15, 1998 between H.B.
Fuller Company and Peter Koxholt.
-11-
<PAGE>
*10(r) First Amendment to H.B. Fuller Company Supplemental Executive
Retirement Plan dated November 4, 1998 - incorporated by reference to
Exhibit 10(x) to the Registrant's Annual Report on Form 10-K405 for
the year ended February 28, 1998.
*10(s) Form of Change in Control Agreement dated as of April 8, 1998 between
H.B. Fuller Company and each of its executive officers, other than
Peter Koxholt and Albert Stroucken - incorporated by reference to
Exhibit 10(y) to the Registrant's Annual Report on Form 10-K405 for
the year ended February 28, 1998.
*10(t) H.B. Fuller Company Key Employee Deferred Compensation Plan
- incorporated by reference to Exhibit 4.1 to the Registrant's
Registration Statement on Form S-8 (Commission File No. 333-89453).
*10(u) Employment Agreement dated May 6, 1999 between H.B. Fuller Company and
Raymond A. Tucker - incorporated by reference to Exhibit 10(a) to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
August 28, 1999.
*10(v) First Declaration of Amendment to the Retirement Plan for Directors of
H.B. Fuller Company dated February 10, 1999.
*10(w) H.B. Fuller Company Directors Benefit Trust, dated February 10, 1999,
between H.B. Fuller Company and U.S. Bank National Association, as
Trustee, relating to the Retirement Plan for Directors.
*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 Income Per Common Share
13 Pages 31-64 of the 1999 Annual Report to Shareholders
21 Subsidiaries of the Registrant
23 Consent of PricewaterhouseCoopers LLP
24 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 27, 1999.
(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.
-----
-12-
<PAGE>
S I G N A T U R E S
-------------------
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 24, 2000 By /s/ Albert P.L. Stroucken
-------------------------------------
ALBERT P.L. STROUCKEN
Chairman of the Board,
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/ Albert P.L. Stroucken Chairman of the Board,
- -----------------------------------
ALBERT P.L. STROUCKEN President and Chief Executive Officer
and Director
(Principal Executive Officer)
/s/ Raymond A. Tucker Senior Vice President,
- -----------------------------------
RAYMOND A. TUCKER Chief Financial Officer
(Principal Financial Officer)
/s/ David J. Maki Vice President and Controller
- -----------------------------------
DAVID J. MAKI (Principal Accounting Officer)
*Anthony L. Andersen *Norbert R. Berg
- ----------------------------------- -------------------------------------
ANTHONY L. ANDERSEN, Director NORBERT R. BERG, Director
*Edward L. Bronstien, Jr. *Robert J. Carlson
- ----------------------------------- -------------------------------------
EDWARD L. BRONSTIEN, JR., Director ROBERT J. CARLSON, Director
*Freeman A. Ford *Gail D. Fosler
- ----------------------------------- -------------------------------------
FREEMAN A. FORD, Director GAIL D. FOSLER, Director
*Reatha Clark King *Walter Kissling
- ----------------------------------- -------------------------------------
REATHA CLARK KING, Director WALTER KISSLING, Director
*John J. Mauriel, Jr. *Lee R. Mitau
- ----------------------------------- -------------------------------------
JOHN J. MAURIEL, JR., Director LEE MITAU, Director
*Rolf Schubert *Lorne C. Webster
- ----------------------------------- -------------------------------------
ROLF SCHUBERT, Director LORNE C. WEBSTER, Director
*By: /s/ Richard C. Baker Dated: February 24, 2000
------------------------------
RICHARD C. BAKER
Attorney in Fact
-13-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
------------------------------------
FINANCIAL STATEMENT SCHEDULE
----------------------------
To the Board of Directors
of H.B. Fuller Company
Our audits of the consolidated financial statements referred to in our report
dated January 10, 2000 appearing in the 1999 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 schedule listed in Item 14(a) of this Form
10-K. In our opinion, this financial statement schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
January 10, 2000
Schedule II
-----------
H.B. Fuller Company and Consolidated Subsidiaries
Valuation and Qualifying Accounts
(Dollars in thousands)
<TABLE>
<CAPTION>
Allowance for doubtful receivables
------------------------------------------
November 27, November 28, November 29,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of period $ 5,073 $ 5,879 $ 7,043
Additions(deductions):
Charged to costs and expenses 3,034 2,232 1,183
Accounts charged off during year (2,984) (2,836) (1,991)
Accounts of acquired businesses - (154) (88)
Effect of currency exchange rate
changes on beginning of year
balance (252) (48) (268)
------- ------- -------
Balance at end of period $ 4,871 $ 5,073 $ 5,879
======= ======= =======
</TABLE>
-14-
<PAGE>
EXHIBIT LIST
Exhibit Number
3(a) Restated Articles of Incorporation of H.B. Fuller Company, October 30,
1998 - incorporated by reference to Exhibit 3(a) to the Registrant's
Annual Report on Form 10-K405 for the year ended November 28, 1998.
3(b) By-Laws of H.B. Fuller Company as amended through July 14, 1999
- incorporated by reference to Exhibit 3(b) to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended August 28, 1999.
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) Specimen Stock Certificate.
4(c) 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.
4(d) Agreement dated as of June 2, 1998 between H.B. Fuller Company and a
group of investors, primarily insurance companies, including the form
of Notes - incorporated by reference to Exhibit 4(a) to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
August 29, 1998.
*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) H.B. Fuller Company Directors' Deferred Compensation Plan as Amended
February 10, 1999 - incorporated by reference to Exhibit 10(b) to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
February 27, 1999.
*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 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 - incorporated by reference to Exhibit 10(k) to the
Registrant's Annual Report on Form 10-K for the year ended November
29, 1997.
*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) H.B. Fuller Company Supplemental Executive Retirement Plan - 1998
Revision - incorporated by reference to Exhibit 10(j) to the
Registrant's Annual Report on Form 10-K405 for the year ended November
28, 1998.
*10(i) Amendments to H.B. Fuller Company Executive Benefit Trust, dated
October 1, 1997 and March 2, 1998, between H.B. Fuller Company and
First Trust National Association, as Trustee, relating to the H.B.
Fuller Company Supplemental Executive Retirement Plan - incorporated
by reference to Exhibit 10(k) to the Registrant's Annual Report on
Form 10-K405 for the year ended November 28, 1998.
1
<PAGE>
*10(j) 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(k) Performance Unit Plan - incorporated by reference to Exhibit 10(a) to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
February 27, 1999.
*10(l) Employment Agreement, dated as of April 16, 1998, between H.B. Fuller
Company and Albert Stroucken - incorporated by reference to Exhibit
10(a) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended May 30, 1998.
*10(m) Consulting Agreement and First Amendment to International Service
Agreement and Non-Competition Agreement, effective as of April 30,
1998, between H.B. Fuller Company and Walter Kissling - incorporated
by reference to Exhibit 10(b) to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended May 30, 1998.
*10(n) H.B. Fuller Company 1998 Directors' Stock Incentive Plan
- incorporated by reference to Exhibit 10(c) to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended May 30, 1998.
*10(o) Restricted Stock Award Agreement, dated as of April 23, 1998, between
H.B. Fuller Company and Lee R. Mitau - incorporated by reference to
Exhibit 10(d) to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended May 30, 1998.
*10(p) Managing Director Agreement with Peter Koxholt signed October 15,
1998.
*10(q) Change in Control Agreement dated as of October 15, 1998 between H.B.
Fuller Company and Peter Koxholt.
*10(r) First Amendment to H.B. Fuller Company Supplemental Executive
Retirement Plan dated November 4, 1998 - incorporated by reference to
Exhibit 10(x) to the Registrant's Annual Report on Form 10-K405 for
the year ended February 28, 1998.
*10(s) Form of Change in Control Agreement dated as of April 8, 1998 between
H.B. Fuller Company and each of its executive officers, other than
Peter Koxholt and Albert Stroucken - incorporated by reference to
Exhibit 10(y) to the Registrant's Annual Report on Form 10-K405 for
the year ended February 28, 1998.
*10(t) H.B. Fuller Company Key Employee Deferred Compensation Plan
-incorporated by reference to Exhibit 4.1 to the Registrant's
Registration Statement on Form S-8 (Commission File No. 333-89453).
*10(u) Employment Agreement dated May 6, 1999 between H.B. Fuller Company and
Raymond A. Tucker - incorporated by reference to Exhibit 10(a) to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
August 28, 1999.
*10(v) First Declaration of Amendment to the Retirement Plan for Directors of
H.B. Fuller Company dated February 10, 1999.
*10(w) H.B. Fuller Company Directors Benefit Trust, dated February 10, 1999,
between H.B. Fuller Company and U.S. Bank National Association, as
Trustee, relating to the Retirement Plan for Directors.
11 Statement re: Computation of Net Income Per Common Share
13 Pages 31-64 of the 1999 Annual Report to Shareholders
21 Subsidiaries of the Registrant
23 Consent of PricewaterhouseCoopers LLP
24 Powers of Attorney
27 Financial Data Schedule
*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.
2
<PAGE>
Exhibit 10(p)
MANAGING DIRECTOR AGREEMENT
between
H.B. Fuller GmbH
An der Roten Bleiche 2-3
D-21335 Luneburg
- - hereinafter called the "Company" - represented by its shareholder
H.B. Fuller Company
which is represented by
Mr. Albert Stroucken
and
Mr. Peter Koxholt
Moerser Str. 395
47803 Krefeld
- - hereinafter called the "Managing Director" -
1. Position
- ------------
Mr. Peter Koxholt
1.1 will become Managing Director (Geschaftsfuhrer) of the Company as of
January 1, 1999 or earlier if released from his current employment.
He is entitled to represent the Company with sole signature.
1.2 The Managing Director is Group President and General Manager Europe ASC; he
reports to the President and Chief Executive Officer of the H.B. Fuller
Company. His responsibility as Group President Europe includes strategic
management, coordination and integration of the European Fuller-Companies,
setting objectives for and operative control of the individual companies
and managing the resources that support the following fields:
- general management including acquisitions and investment policy
- marketing, sales promotion, competition analysis
- technical and product development, manufacturing processing, patents
- quality, environment, health and safety policy
- finance, data-processing, taxes and insurances, legal
- internal auditing
- personnel policy and organization development
1.3 The Managing Director has to observe the guidelines and instructions which
may be forthcoming from the shareholders meeting, all statutory provisions
and the provisions of the by-laws of the Company as well as the applicable
policies and procedures of H.B. Fuller Company.
1
<PAGE>
2. Remuneration
- -----------------
2.1 The Managing Director shall receive as remuneration for his services a
gross annual base salary of
DM 500,000.--
-------------
payable in thirteen equal installments becoming due at the end of each
month. The gross annual base salary includes the annual holiday allowance.
The base salary will be reviewed periodically, and may be increased, but
not decreased, from time to time during the term of this Agreement as
appropriate to reflect the Managing Director's contributions, the Company's
performance and market salary movements.
2.2 Additionally the Managing Director will participate in the Company's annual
incentive plan as established by the shareholder from year to year.
Currently, this plan provides for payment to the Managing Director of 35%
of his base if his performance meets targets as set by the Company and up
to 50% of base salary if his performance exceeds these targets.
For Fiscal Year 1999 a bonus payment of 35% of Base Salary is guaranteed
(i.e. DM 175,000.--), of which 50% is to be paid in January 2000 and 50% is
to be added to the "Transition Allowance" (re 9.2.-b).
Should performance warrant and should the Shareholder decide, the bonus
payment for fiscal year 1999 may be in excess of 35% of base; any such
excess would be paid along with the portion of the guaranteed bonus payable
in January 2000.
As per the appointment date the Managing Director will receive an initial
grant of 1,000 Restricted Stock Units in accordance with the 1992 Stock
Incentive Plan, but with the opportunity for these restrictions to lapse at
the end of four years from the date of employment based upon the
achievement of specific performance targets to be determined by the CEO no
later than January 31, 1999.
2.3 Furthermore the Managing Director will be eligible for all additional
benefits as granted to comparable members of management, which benefits may
be changed from time to time, including the participation in health and
retirement insurance contributions corresponding to the premium of the
statutory health and retirement insurance system.
2.4 In case of inability to work due to illness or accident the Managing
Director will receive after 42 days (for which period his legal claim for
continued payment of salary will endure) the difference between his regular
net income and the sickness benefit paid by social health insurance, but
not longer than for six months from the beginning of his inability to work.
2.5 In case of death of the Managing Director during service the Company will
pay the monthly salary for the respective month and additional three months
to the heirs.
2.6 The Managing Director will participate in the Company's Pension Plan
(att.).
Periodic adjustments of pension payments will be made in accordance with
standard practice.
The Managing Director will participate in H.B. Fuller Company's
Supplemental Executive Retirement Plan ("SERP") and shall be granted full
credit for all years of service with the prior employer for purposes of
eligibility. The benefit (the "SERP" Benefit) payable to the Managing
Director under the SERP shall be reduced by all other retirement benefits
received by the Managing Director from all other sources, including social
security; provided, however, that the SERP benefit shall not be less than
the amount that would have been paid to the Managing Director under the
Prior Employer's pension plan and/or supplemental executive retirement
plan, as in effect on the date of this Agreement, calculated as if the
Managing Director had continued in the employ of the Prior Employer during
the term of the Managing Director's employment under this Agreement. In
determining the amount that would have been paid to the Managing Director
under the Prior Employer's pension plan and/or supplemental executive
retirement plan, the Company may assume that the Managing Director's
compensation from the
2
<PAGE>
Prior Employer, and all other factors used to determine the amount of
such benefit, would have continued during the term of this Agreement at
the rate or rates in effect at the time of the Managing Director's
termination of employment with the Prior Employer.
If the Managing Director dies or becomes disabled before the age of 55,
the pension and/or disability benefits will be based on the number of
years of service the Managing Director would have reached at the age of
55.
2.7 The Company shall provide the Managing Director with an accident
insurance in accordance with the Corporate Business Travel Accident
Insurance Policy.
This insurance provides the Managing Director with a Class I coverage.
2.8 If as a result of the Managing Director's commencement of employment
hereunder, he does not receive from his Prior Employer any bonuses earned
but not received as of (resignation date) which he would have been
entitled to receive, the Company, upon proper documentation by the
Managing Director, shall pay to the Director such amount not to exceed
100.000 DM. This payment to be made as soon as practical after proper
determination.
2.9 The Managing Director will be eligible to participate in other long-term
incentive plans as offered to "like-managers" of the Company.
2.10 Life insurance benefits as well as medical benefits which the Managing
Director are provided by his current employer will be maintained under
this employment.
2.11 The above payments shall constitute compensation for all and any
activities and services of the Managing Director as member of the
Management, the Board of Directors, the Supervisory Board or any other
administrative or supervisory institution of the Company or one of the
affiliated companies.
3. Travel Expenses and Company Car
- --------------------------------------
3.1 Travel expenses shall be reimbursed upon presentation of invoices in
compliance with the applicable tax regulations and company policy.
3.2 The Managing Director is entitled to use a company car in accordance with
the applicable Company Car Policy and in compliance with the applicable
tax regulations and company policy.
The Company absorbs the costs for private usage. The Managing Director
carries the taxes associated with this benefit in kind.
4. Vacation
- ------------
The Managing Director is entitled to an annual vacation of currently 30
working days. Working days are all calendar days which are neither
Saturdays nor Sundays nor legal holidays at the place of business of the
Company.
5. Side Activities
- ----------------------
The Managing Director shall devote his efforts exclusively to the Company
and he shall promote the interest of the Company with his best ability.
He must not engage in any additional professional occupations against
remuneration or participation of any kind in any other business without
the consent of the shareholders meeting or the consent of his immediate
superior. The assumption of any professional or public honorary position
shall be reconciled with the immediate superior.
6. Secrecy and Inventions
- -----------------------------
6.1 The Managing Director is committed, in particular with respect to the
period after termination of this agreement, to keep strictly secret all
confidential matters and trade secrets of the Company which will have
come to his attention within the scope of his activities for the Company
and
3
<PAGE>
which are not public domain. When leaving the Company the Managing
Director shall return to the Company all files and other documents
concerning the business of the Company in his possession -- specifically
all customer lists, printed material, documents, sketches, notes,
drafts -- as well as copies thereof.
6.2 1. All rights pertaining to inventions, whether patentable or not, and to
proposals for technical improvements made and to computer software
developed by the Managing Director (hereinafter jointly called
"inventions") during the term of this Service Contract shall be deemed
acquired by the Company. The Managing Director shall inform the
Company of any inventions immediately in writing and shall assist the
Company in acquiring patent or other industrial property rights, if
the Company so desires.
2. Subsection (6.2.1) above shall apply to any inventions no matter
whether they
a) are related to the business of the Company,
b) are based on experience and Know-how of the Company,
c) emanate from such duties of activities as are to be performed by
the Managing Director within the Company, or
d) materialize during or outside normal business hours of the
Company.
3. The Company's right to inventions acquired hereunder shall in no way
be affected by any amendments to or the termination of this Service
Contract.
The Company shall be entitled to claim and utilize all inventions
which have been achieved by the Managing Director during the term of
this Agreement and which are either developed from the activities and
services owed to the Company and the affiliated companies or
substantially based on experiences or works of the Company or the
affiliated companies. In detail, the provisions of the Employee-
Invention Act of 25.7.1957 shall apply according to the version in
force at the relevant time.
6.3 Any compensation for inventions will be made in accordance with the
Employee-Inventions Act of 25.7.1957 in the version in force at the
relevant time.
7. Duration
- -------------
7.1 This Agreement will be entered for a period of three years. If no notice is
given six months before the expiration date, this Agreement will become an
agreement for an indefinite period of time and can then be terminated at
any time by the Company by giving six months notice to a month end or by
the Managing Director giving three months notice accordingly.
The Managing Director's employment may be terminated at any time by the
Company for cause.
The occurrences of any of the following events or circumstances shall
constitute "cause" for termination,
a) The perpetration of defalcations by the Managing Director involving
the Company or any of it affiliates, as established by certified
public accountants employed by the Company, or willful, reckless or
grossly negligent conduct of the Managing Director entailing a
substantial violation of any material provision of the laws, rules,
regulations or orders of any governmental agency applicable to the
Company or its subsidiaries.
b) The repeated and deliberate failure by the Managing Director, after
advance written notice to him, to comply with reasonable policies or
directives of the Board.
c) The breach by the Managing Director of this Agreement in any other
material respect and the failure of the Managing Director to cure such
breach within 30 calendar days after the Managing Director receives
written notice of such breach from his immediate superior.
4
<PAGE>
In the event that the Company terminates the Managing Director's employment
for cause as stated above or, the Managing Director voluntarily terminates
his employment, the Company shall thereupon have no further obligation to
the Managing Director to pay or provide for any of the compensation and
benefits hereunder, except that the Managing Director will be entitled to
be paid and to receive all Base Salary earned through the date of the
Managing Director's termination; the Managing Director's annual incentive
compensation, if any, according to the plan as then in effect; and any
other benefits payable pursuant to the provisions of the Company's employee
benefit plans as then in effect.
7.2 In the case of termination other than for cause or voluntary termination by
the Managing Director, the Company shall pay the Managing Director all base
salary earned through the duration of this contract. In addition, the
Managing Director will receive any annual incentive compensation earned by
unpaid as of the date of termination. The Managing Director will continue
to be covered under all applicable health, welfare and retirement plans, as
he was covered immediately prior to his termination under this section,
through the duration of the contract. Furthermore, from the date of
termination through the duration of the contract, the Managing Director
will continue to accrue service under the Company's pension plan and SERP.
7.3 At any time following the termination of the contract for any reason, the
Managing Director may apply for retirement benefits in accordance with
Section 2.6.
7.4 The Agreement will end in any case at the end of the month in which the
Managing Director has completed the 65th year of his life.
8. Post-Termination Non-Compete Agreement
- -------------------------------------------
8.1 In consideration of the Managing Director's activities for the Company and
his additional far-reaching European responsibilities which have provided
him and will further provide him with comprehensive business contacts and
knowledge in the field of the economic activities of the Company and/or
other companies of the Fuller Europe-Group, the parties agree to the
following terms and conditions of a post-termination non-compete agreement
which they acknowledge necessary and reasonable to protect the proper
business interests of the Company and/or other companies of the Fuller
Europe-Group.
8.2 The Managing Director shall, during a period of two years after the
termination of this Employment, neither on his own account nor in an
employment, advisory or any supporting capacity, neither occasionally or
permanently, neither directly or indirectly be engaged for any company or
affiliated company having business activities in the economic fields of the
Company and/or other companies of the Fuller Europe-Group ("competitive
business").
The Managing Director shall also not set up a competitive business or
participate in such competitive business, neither directly nor indirectly,
provided that such participation exceeds 5%.
8.3 This Post-Termination Non-Compete Agreement shall apply within the area of
Germany and Europe.
8.4 During the term of this Post-Termination Non-Compete Agreement the Company
shall pay to the Managing Director a monthly compensation in the amount of
the last monthly gross base salary, set out in 2.1, subject to the usual
tax and social security duties.
8.5 Any other income which the Managing Director receives for professional
activity or which he refuses to achieve in bad faith, shall be credited
against the compensation, set out in 8.4.
The Managing Director shall inform the Company of such other income and its
amount immediately and satisfactorily, including a formal and sufficient
declaration that his professional activity does not constitute a competing
activity according to 8.2, 8.3.
5
<PAGE>
Irrespective of the aforementioned, upon request, the Managing Director
shall inform the Company of any income and/or any opportunities of
professional activity.
In case the Managing Director should refuse such information, he shall not
receive the compensation set out in 8.4 for the time of such refusal. The
obligation of non-compete shall continue to apply.
8.6 The Company shall not pay any compensation if the Managing Director
receives pension payments out of an old age, invalidity and descendant's
pension system provided by the Company and/or any company of the Fuller
Europe-Group.
8.7 In case of the Managing Director's activity for a company of the Fuller
Europe-Group, the Company shall not pay the compensation set out in 8.4, if
the Managing Director's remuneration in respect of such activity exceeds
the amount of this compensation.
8.8 The Company shall be entitled to waive this Post-Termination Non-Compete
Agreement with immediate effect within two months after having received or
given notice of termination, in which case the Company will have no payment
obligation under 8.4.
8.9 If any regulation of this agreement of Clause 8 should be or become fully
or partly invalid, the validity of the remaining regulations shall not be
affected. The invalid regulation shall be replaced by such valid regulation
achieving the closest possible purpose of the invalid regulation. This
shall also apply if the invalidity of regulation should be based on reasons
of time, subject, area or compensation; in such case the legally admissible
shall apply.
Miscellaneous
- -------------
9.1 This contract will become null and void if the Managing Director is not
able to effectively assume the offered position as per January 1, 1999.
9.2 Relocation
----------
a) The relocation policy of H.B. Fuller Company will govern any
relocation required of the Managing Director as a result of his
joining the Company.
b) 50% of the guaranteed Incentive payment as referred to in 2.2. will be
added to the "Transition Allowance" [Relocation Allowance] payable at
joining date.
9.3 Amendments and additions must be in writing to be effective.
9.4 In the case of contradiction between both versions the German version shall
prevail.
9.5 The Agreement shall be subject to German law.
9.6 The court in which jurisdiction the Company falls, is the competent court.
9.7 The Collective Labour Agreement for university graduates in the chemical
industry will be used as a reference for the determination of the benefit
levels.
Date: October 15, 1998
/s/ Albert P.L. Stroucken /s/ Peter Koxholt
- ----------------------------------- --------------------------
H.B. Fuller GmbH, Luneburg
6
<PAGE>
Exhibit 10(q)
CHANGE IN CONTROL AGREEMENT
THIS AGREEMENT (the "Agreement") is made this 15/th/ day of October,
1998, by and between H.B. Fuller Company, a Minnesota corporation (the
"Company") and Peter Koxholt (the "Executive").
W I T N E S S E T H:
-------------------
WHEREAS, the Company recognizes the valuable services that Executive has
rendered to the Company and/or its Affiliated Entities and desires to be assured
that the Executive will continue to actively participate in the business of the
Company; and
WHEREAS, the Executive is willing to continue to serve the Company but
desires assurance that in the event of any change in control of the Company, or
a change in status of the Affiliated Entity for which the Executive is employed,
the Executive will continue to have the responsibility and status that the
Executive has earned; and
WHEREAS, the Company's Board of Directors has determined that it is
appropriate to reinforce and encourage the continued attention and dedication of
members of the Company's management, including the Executive, to their assigned
duties without distraction in potentially disturbing circumstances arising from
the possibility of a change in control of the Company;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the Company and the Executive hereby agree as follows:
1. Term. The Term of this Agreement shall commence on the date hereof
---------
and shall terminate upon the earliest to occur of:
(a) The "Expiration Date;"
(b) the termination of the Executive's employment under circumstances
that do not entitle the Executive to benefits under paragraph 3 or
paragraph 4;
(c) the Executive's death;
(d) the date, prior to a Change in Control or a Change in Status, on
which the Executive ceases to be in pay grade 35 through 49;
(e) the third anniversary of the occurrence of a Change in Control,
if the Executive is still employed by the Company and/or an Affiliated
Entity on such date; or
(f) the first anniversary of the occurrence of a Change in Status,
unless the Executive is still employed by the Company and/or an Affiliated
Entity on such date; provided, that the expiration of the Term shall not
relieve the Company of its obligations to make any payments or provide any
benefits which are or become due to the Executive subsequent to the
expiration of the Term. For purposes of this paragraph, the "Expiration
Date" of this Agreement is the first anniversary of the date on which the
Term begins; provided, that on each day after the date on which the Term
begins the Expiration Date shall automatically extend for an additional
day, so that the remaining Term shall always be one year, unless the
Company gives written notice to the Executive that the Term shall not be so
extended, whereupon the Expiration Date shall be the date which is one year
after the date of such notice. Notwithstanding the foregoing, upon the
occurrence of a Change in Control during the Term of this Agreement, the
Expiration Date shall
-1-
<PAGE>
automatically be extended to the third anniversary of the date on which the
Change in Control occurs.
2. Employment. In the absence of a Change in Control or a Change in
---------------
Status, the Executive agrees to remain in the employ of the Company and/or its
Affiliated Entities in a pay grade which is not less than the Executive's
existing pay grade, during the Term of this Agreement, unless the Executive's
employment is earlier terminated by the Company. It is understood and agreed
that this paragraph 2 does not impose any additional obligations on the Company
prior to the occurrence of a Change in Control or a Change in Status, nor does
it impair the Company's rights (if any) to terminate the Executive's employment,
or alter Executive's employment status, prior to a Change in Control or a Change
in Status, with or without Cause.
3. Change in Control Benefits. If, during the Term of this Agreement and
-------------------------------
upon or after the occurrence of a Change in Control, the Executive's employment
is terminated by the Company other than for Cause or Disability or by the
Executive for Good Reason, or if the Executive's employment is terminated by the
Executive for any reason during a period of 90 days following the first
anniversary of the occurrence of the Change in Control, the Executive shall be
entitled to the following payments and benefits:
(a) Severance Pay. The Executive shall be entitled to a lump sum
------------------
payment in an amount equal to three times the Executive's Annual
Compensation, which payment shall be made to the Executive within ten days
after the Executive's termination of employment. Payments under this
paragraph (a) shall be reduced (but not below zero) by any salary, bonuses,
or incentive payments the Executive is entitled to receive upon termination
pursuant to the terms of that certain Managing Director Agreement between
Executive and H.B. Fuller GmbH, and payments under this paragraph (a) shall
further be reduced (but not below zero) by any Post-Termination Non-Compete
Agreement payments the Executive is entitled to receive pursuant to the
terms of said Managing Director Agreement. If the Executive is also
entitled to severance payments which would be made in the absence of a
change in control under any plan or program of the Company, or under the
laws of any federal, state, local or foreign jurisdiction, the amount
payable to the Executive pursuant to this paragraph (a) shall be reduced
(but not below zero) by the Present Value of such other severance payments.
Payments under this paragraph (a) shall not be considered in determining
the amount of the Executive's benefits under any pension, profit sharing,
stock bonus or other employee benefit plan of the Company or any Affiliated
Organization.
(b) Medical and Dental Coverage. The Executive shall be entitled to
--------------------------------
continued coverage under any medical or dental plan maintained by the
Company in which the Executive was participating at the time of the
Executive's termination of employment, for a period of three years
following the Executive's termination of employment. Rules comparable to
those governing the provision of continuation coverage under Section 602 of
ERISA shall apply to the coverage provided under this paragraph, except
that:
(i) the coverage may not be discontinued prior to the
expiration of the period specified in this paragraph (a), except for
the Executive's failure to make a required contribution;
(ii) the contributions required of the Executive for such
coverage may not exceed the contributions required for the same
coverage from a similarly situated active employee; and
(iii) if the Company discontinues the plan or plans in which the
Executive was participating prior to the expiration of such three year
period, the Company shall substitute
-2-
<PAGE>
equivalent coverage under one or more other plans or, if there are no
other plans, under one or more individual insurance policies.
It is the intent of the Company that neither the coverage provided pursuant
to this paragraph (b), nor the benefits received as a result of such
coverage, shall be subject to U.S. income taxation to the Executive.
Accordingly, if the Company determines that the coverage to be provided
under this paragraph (b) would cause a self-insured plan maintained by the
Company or an Affiliated Organization to be in violation of the
nondiscrimination requirements of section 105(h) of the Code, it shall
substitute insured coverage providing equivalent benefits, at no greater
cost to the Executive, to the extent necessary to avoid such
discrimination.
(c) Outplacement Services. The Company shall pay for any
--------------------------
outplacement services provided to the Executive; provided, that the total
amount paid for such services shall not exceed $25,000. The Employer shall
pay (or, at its option, reimburse the Executive) for such services within
ten days after its receipt of a statement from the service provider.
(d) Company Car. The Company shall transfer to the Executive title
----------------
to his or her Company car, if any, at no cost to the Executive.
4. Change in Status Benefits. If, during the term of This Agreement and upon
- ------------------------------
the occurrence of a Change in Status, but before the first anniversary of the
occurrence of said Change in Status, the Executive's employment is terminated
other than for Cause or Disability or by the Executive for any reason, the
Executive shall, subject to the further provisions hereof, be entitled to
receive the same payments and benefits set forth in the preceding paragraphs
3(a),(b),(c), and (d).
In no event shall Executive be entitled to receive both the benefits under
paragraph 3 and paragraph 4 of this Agreement. Upon receipt of benefits under
either paragraph 3 or paragraph 4, the Executive's right to further benefits
hereunder shall be extinguished and this Agreement shall be terminated.
5. Limitation; Make Whole Payment.
-----------------------------------
(a) If any payments or other benefits due to the Executive under this
Agreement and/or under any other plan or program of the Company or an
Affiliated Organization would be subject to the tax (the "Excise Tax")
imposed by section 4999 of the Code, and if the amount of the Executive's
"parachute payments" (as defined in section 280G(b)(2) of the Code) with
respect to such Change in Control does not exceed 330% of the Executive's
"base amount" (as defined in section 280G(b)(3) of the Code), then such
payments or other benefits shall be adjusted until the amount of the
parachute payments equals 299% of such base amount. The adjustments shall
be made in such manner, and to such payments or other benefits, as the
Executive and the Company shall mutually agree.
(b) If any payments or other benefits due to the Executive under this
Agreement and/or under any other plan or program of the Company or an
Affiliated Organization would be subject to the Excise Tax, and if the
amount of the Executive's parachute payments (as defined in paragraph (a))
exceeds 330% of the Executive's base amount (as defined in paragraph (a)),
the Company shall pay to the Executive an additional amount (the "Make
Whole Payment") so that the net amounts retained by the Executive, after
the deduction of the Excise Tax and any federal, state, local, and foreign
income taxes and Excise Taxes imposed upon the Make Whole Payment, shall be
equal to the payments and other benefits the Executive would have received
in the absence of the Excise Tax. The Make Whole Payment shall be paid to
the Executive within 30 days after the Executive's termination of
employment.
-3-
<PAGE>
(c) For purposes of determining the amount of the Make Whole Payment,
the Executive shall be deemed to pay federal income tax at the highest
marginal rate of federal income taxation in the calendar year(s) in which
the Make Whole Payment is to be made and state, local and foreign income
taxes at the highest marginal rates of taxation in the state and locality
or foreign jurisdiction of the Executive's residence, net of the reduction
in federal income taxes which could be obtained from any deduction or
credit attributable to the state, local or foreign taxes. If, after a Make
Whole Payment has been made, the Excise Tax is determined to be less than
the Make Whole Payment, the Executive shall repay to the Company at the
time that the amount of such reduction in Excise Tax is finally determined
the portion of the Make Whole Payment attributable to such reduction, plus
interest on the amount of such repayment at the rate provided in section
1274(b)(2)(B) of the Code. If, after a Make Whole Payment has been made,
the Excise Tax is determined to exceed the amount of the Make Whole Payment
(including by reason of any payment the existence or amount of which cannot
be determined at the time of the Make Whole Payment), the Company shall
make an additional Make Whole Payment in respect of such excess, plus
interest on the amount of such payment at the rate provided in section
1274(b)(2)(B) of the Code, at the time that the amount of such excess is
finally determined.
6. Definitions. For the purposes of this Agreement:
----------------
(a) "Affiliated Entity" means any legal entity for which the Company
holds at least a 50% ownership interest.
(b) "Affiliated Organization" means any corporation that would be a
member of a controlled group of corporations (within the meaning of section
414(b) of the Code) that includes the Company, and any trade or business
(whether or not incorporated) that would be controlled (within the meaning
of section 414(c) of the Code) by the Company, if the phrase "at least 70%"
were substituted for the phrase "at least 80%" each place it appears in
section 1563(a)(1) of the Code and in regulations under section 414(c) of
the Code.
(c) "Annual Compensation" means the sum of:
(i) the Executive's annual base salary at the highest rate in
effect during the period commencing three months prior to the
occurrence of the Change in Control and ending on the date of the
Executive's termination of employment; plus
(ii) the largest bonus and/or incentive payments payable to the
Executive for any fiscal year of the Company during the period
commencing 36 months prior to the occurrence of the Change in Control
and ending on the date of the Executive's termination of employment.
(d) "Cause" means any act by the Executive that is materially
inimical to the best interests of the Company and that constitutes common
law fraud, a felony or other gross malfeasance of duty on the part of the
Executive. "Cause" specifically includes, but is not limited to, the
definition of "cause" set forth in Section 7 of that certain Managing
Director Agreement between Executive and H.B. Fuller GmbH. The Executive
may only be terminated for Cause upon 90 days prior written notice to the
Executive, which notice shall specify the nature of the Cause for
termination, and then only if it is subsequently determined by the Board of
Directors of the Company that the Executive has failed to cure the stated
Cause prior to or during such 90-day period.
(e) "Disability" or "Disabled" means the Executive's inability, by
reason of any physical or mental impairment, to perform the duties of the
position the Executive then occupies for a period of not less than 180
consecutive days. The Executive may only be terminated for Disability upon
receipt by the Company of an opinion of one or more physicians jointly
selected by
-4-
<PAGE>
the Executive and the Company that the Executive has been Disabled for such
period, and then only if the Executive is eligible for immediate benefits
under the Company's long-term disability plan.
(f) "Change in Control" means:
(i) a change in control of the Company 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;
(ii) the public announcement (which, for 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(d) 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 30% or more of the combined
voting power of the Company's then outstanding securities;
(iii) the Continuing Directors cease to constitute a majority of
the Company's Board of Directors;
(iv) the shareholders of the Company approve (A) any
consolidation, merger, or statutory share exchange of the Company with
any person in which the surviving entity would not have as its
directors at least 60% of the Continuing Directors and would not have
at least 60% of the combined voting power of its outstanding
securities held by persons who were shareholders of the Company
immediately prior to such consolidation, merger, or statutory share
exchange; (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
(v) the majority of the Continuing Directors determine in
their sole and absolute discretion that there has been a change in
control of the Company.
The Company shall notify the Executive promptly of the occurrence of a
Change in Control.
(g) "Change in Status" means:
(i) a sale or transfer of the Affiliated Entity for which the
Executive is employed, except for a sale or transfer to another
Affiliated Entity;
(ii) a combining of the Affiliated Entity for which the
Executive is employed with another entity such that the resulting
entity is no longer an Affiliated Entity; or
(iii) a filing for bankruptcy protection by the Affiliated
Entity for which the Executive is employed.
(h) "Code" means the Internal Revenue Code of 1986, as amended. Any
reference to a specific provision of the Code will include a reference to
such provision as it may be amended from time to time and to any successor
provision.
(i) "Company" means the Company as hereinbefore defined and any
successor or assign to its business and/or assets which executes and
delivers the agreement provided for in paragraph 10 or which otherwise
becomes bound by all the terms and provisions of this
-5-
<PAGE>
Agreement by operation of law. If at any time during the term of this
Agreement the Executive is employed by an Affiliated Organization, the term
"Company" as used in this Agreement (other than in paragraphs 6(e) and
10(a) hereof) shall in addition include such Affiliated Organization. In
such event, the Company agrees that it shall pay or provide, or shall cause
such Affiliated Organization to pay or provide, any amounts or benefits due
the Executive pursuant to this Agreement.
(j) "Continuing Director" means 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 (i) was a member of the Board of Directors on August 1, 1997 or
(ii) 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 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 30% 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, any employee benefit plan of the Company or
of any subsidiary of the Company or any entity holding shares of the
Company's common stock organized, appointed or established for, or pursuant
to the terms of, any such plan; and "Affiliate" and "Associate" shall have
the respective meanings ascribed to such terms in Rule 12b-2 promulgated
under the Exchange Act.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(l) "Good Reason" means:
(i) any change adverse to the Executive in the Executive's
position, reporting responsibilities, duties, compensation, benefits
or other terms or conditions of employment; or
(ii) any change in the Executive's principal place of employment,
if the new principal place of employment is more than 50 miles from
the previous principal place of employment.
The Executive shall not be deemed to have terminated employment for Good
Reason unless the termination occurs within 180 days after the Executive is
notified by the Company of the event constituting Good Reason or, if later,
within 180 days after the occurrence of such event.
(m) "Present Value" shall be determined based on the following
actuarial assumptions:
(i) Interest: The interest rate on 30-year U.S. Treasury
-------------
obligations as of the December 31 coinciding with or immediately
preceding the date as of which Present Value is determined.
(ii) Mortality: 1993 Group Annuity Mortality Table.
--------------
7. Legal Expenses. If the Executive institutes or defends any legal
-------------------
action to enforce the Executive's rights under, or to defend the validity of,
this Agreement, the Executive shall be entitled to recover from the Company any
actual expenses for attorney's fees and disbursements incurred by the Executive.
Such fees and disbursements shall be paid or reimbursed by the Company on a
regular,
-6-
<PAGE>
periodic basis upon presentation of statements prepared by the Executive's
attorney in accordance with his or her customary practices. Any amounts paid to
the Executive pursuant to this paragraph 7 shall be refunded to the Company,
with interest at the rate provided in section 1274(b)(2)(B) of the Code, if the
claim or defense asserted by the Executive is dismissed under circumstances
resulting in the imposition of sanctions under Rule 11 of the Federal Rules of
Civil Procedure, or under any similar federal, state or foreign rule or statute.
8. No Mitigation. The Executive's benefits hereunder shall be in
------------------
consideration of the Executive's past service and the Executive's continued
service from the date of this Agreement, and the Executive's entitlement thereto
shall not be governed by any duty to mitigate damages by seeking further
employment nor offset by any compensation which the Executive may receive from
future employment.
9. Other Benefits. The specific arrangements referred to in this
-------------------
Agreement are not intended to exclude Executive's participation in other
benefits available to executive personnel generally or to preclude other
compensation or benefits as may be authorized by the Company from time to time.
10. Successors.
---------------
(a) The Company will require any successor or assign (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, expressly, absolutely and
unconditionally to assume and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it if no
such succession or assignment had taken place. Any failure of the Company to
obtain such agreement prior to the effectiveness of any such succession or
assignment shall be a material breach of this Agreement and shall entitle the
Executive to terminate the Executive's employment for Good Reason, whereupon the
Executive shall be entitled to receive the payments and other benefits described
in this Agreement as though such termination had occurred upon or after the
occurrence of a Change in Control.
(b) This Agreement shall inure to the benefit of and be enforceable
by the Executive's personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive should die while any amounts are still payable to the Executive
hereunder, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the Executive's devisee, legatee,
or other designee or, if there be no such designee, to the Executive's estate.
11. Notice. For purposes of this Agreement, notices and all other
-----------
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail (or its equivalent for overseas delivery), return receipt
requested, postage prepaid, and addressed as follows:
If to the Company:
H.B. Fuller Company
P.O. Box 64683
St. Paul, MN 55164-0683
Attention: General Counsel
If to the Executive:
Peter Koxholt
Moerser Str. 395
47803 Krefield
Germany
-7-
<PAGE>
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
12. Severability. If any provision of this Agreement is held by a court
-----------------
of competent jurisdiction to be prohibited by or invalid under applicable law,
such provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement.
13. Counterparts. This Agreement may be executed in one or more
-----------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. Modifications; Waiver. No provision of this Agreement may be
--------------------------
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and the Company. No waiver by
either party hereto at any time of any breach by the other party of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
15. Applicable Law. This Agreement shall be governed by and construed in
-------------------
accordance with the laws of the State of Minnesota.
16. Status of Agreement. This Agreement is designated as a "Change in
------------------------
Control Agreement" for the purposes of Article XIII of the H.B. Fuller Company
Group Benefit Plan and for the purposes of any successor or substitute provision
requiring such a designation.
* * * * *
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
H.B. FULLER COMPANY
By: /s/ Albert Stroucken
------------------------------------
As its: President and CEO
--------------------------------
/s/ Peter Koxholt
---------------------------------------
Peter Koxholt
-8-
<PAGE>
Exhibit 10(v)
RETIREMENT PLAN FOR DIRECTORS OF
H.B. FULLER COMPANY
1994 REVISION
First Declaration of Amendment
------------------------------
Pursuant to Section 9 of the Retirement Plan for Directors of H.B. Fuller
Company--1994 Revision, the Company hereby amends the Plan as follows:
1. Section 4 is amended by adding the following additional sentences at
the end thereof, to read as follows:
"Notwithstanding the foregoing, but subject to the limitations of Section
11, a Director may elect to receive 90% of the present value of the
benefit payable to the Director under this Section 4 in a lump sum. The
lump sum will be paid on the date the installment payments described in
this section would otherwise begin, and it will be in lieu of any other
benefit payments to the Director and his or her Beneficiary. Such an
election shall be made in writing delivered to the Administrator at least
30 days prior to the date the Director's installment payments would
otherwise begin, and it will be irrevocable when received by the
Administrator. The present value of a Director's installment payments will
be determined by discounting the payments at a rate equal to the average
interest rate on 30-year U.S. Treasury obligations as of the last day of
the second month preceding the month in which the lump sum payment is
made."
2. Section 5(e) of the Plan is amended in its entirety, to read as
follows:
"(e) Present Value The present value of installment payments will be
-------------
determined by discounting the payments at a rate equal to the average
interest rate on 30-year U.S. Treasury obligations as of the last day
of the second month preceding the month in which the lump sum payment
is made."
3. A new Section 13 is added to the Plan, to read as follows:
"13. CHANGE IN CONTROL
-----------------
(a) Special Provisions. Notwithstanding anything in this Plan to
------------------
the contrary, the following provisions will apply upon and
after the occurrence of a Change in Control:
(i) Each Director will be deemed to have completed 10
Years of Service or, if greater, the Years of Service
actually completed by the Director.
(ii) Each Director will be deemed to have attained age 60
or, if greater, the age actually attained by the
Director.
(iii) The Plan may not be amended in a manner that would
reduce, impair, or otherwise adversely affect a
Director's right to receive any benefit under the
Plan, and the Plan may not be terminated with respect
to any Director, without the Director's written
consent. In addition, any amendment to or termination
of the Plan that reduces, impairs, or otherwise
adversely affects a Director's right to receive any
benefit which is adopted or effected, without the
Director's written consent, during the 12 consecutive
month period immediately preceding the occurrence of
a Change in Control shall be null and void from the
date of its adoption.
(b) Limitation; Make Whole Payment.
------------------------------
(i) If any payments or other benefits due to a Director
under this Plan and/or under any other plan or
program of the Company would be subject to the tax
(the `Excise Tax') imposed by section 4999 of the
Code, and if the amount of the Director's `parachute
-1-
<PAGE>
payments' (as defined in section 280G(b)(2) of the
Code) with respect to such Change in Control does not
exceed 330% of the Director's `base amount' (as
defined in section 280G(b)(3) of the Code), then such
payments or other benefits shall be adjusted until
the amount of the parachute payments equals 299% of
such base amount. The adjustments shall be made in
such manner, and to such payments or other benefits,
as the Director and the Company shall mutually agree.
(ii) If any payments or other
benefits due to the Director under this Plan and/or
under any other plan or program of the Company would
be subject to the Excise Tax, and if the amount of
the Director's parachute payments (as defined in
subparagraph (i)) exceeds 330% of the Director's base
amount (as defined in subparagraph (i)), the Company
shall pay to the Director an additional amount (the
`Make Whole Payment') so that the net amounts
retained by the Director, after the deduction of the
Excise Tax and any federal, state, local, and foreign
income taxes and Excise Taxes imposed upon the Make
Whole Payment, shall be equal to the payments and
other benefits the Director would have received in
the absence of the Excise Tax. The Make Whole Payment
shall be paid to the Director at least 30 days prior
to the date on which the Excise Tax is payable by the
Director.
(iii) For purposes of determining
the amount of the Make Whole Payment, the Director
shall be deemed to pay federal income tax at the
highest marginal rate of federal income taxation in
the calendar year(s) in which the Make Whole Payment
is to be made and state, local and foreign income
taxes at the highest marginal rates of taxation in
the state and locality or foreign jurisdiction of the
Director's residence, net of the reduction in federal
income taxes which could be obtained from any
deduction or credit attributable to the state, local
or foreign taxes. If, after a Make Whole Payment has
been made, the Excise Tax is determined to be less
than the Make Whole Payment, the Director shall repay
to the Company at the time that the amount of such
reduction in Excise Tax is finally determined the
portion of the Make Whole Payment attributable to
such reduction, plus interest on the amount of such
repayment at the rate provided in section
1274(b)(2)(B) of the Code. If, after a Make Whole
Payment has been made, the Excise Tax is determined
to exceed the amount of the Make Whole Payment
(including by reason of any payment the existence or
amount of which cannot be determined at the time of
the Make Whole Payment), the Company shall make an
additional Make Whole Payment in respect of such
excess, plus interest on the amount of such payment
at the rate provided in section 1274(b)(2)(B) of the
Code, at the time that the amount of such excess is
finally determined.
(c) Definitions. For the purposes of this section:
-----------
(i) A `Change in Control' shall be deemed to have
occurred upon any of the following events:
(A) a change in the control of the Company of a
nature that would be required to be reported
in accordance with Regulation 14A promulgated
under the Securities Exchange Act of 1934
(the `Exchange Act'), whether or not the
Company is then subject to such reporting
requirement;
(B) a public announcement (which, for purposes
hereof, shall include, without limitation, a
report filed pursuant to Section 13(d) of the
Exchange Act) that any individual,
corporation, partnership, association, trust
or other entity becomes 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 Voting Power
of the Company then outstanding;
-2-
<PAGE>
(C) the individuals who, as of the effective date
of this Section 13, are members of the Board
of Directors of the Company (the `Incumbent
Board') cease for any reason to constitute at
least a majority of the Board (provided,
however, that if the election or nomination
for election by the Company's shareholders of
any new director was approved by a vote of at
least a majority of the Incumbent Board, such
new director shall be considered to be a
member of the Incumbent Board);
(D) the approval of the shareholders of the
Company of: (1) any consolidation, merger, or
statutory share exchange of the Company with
any person in which the surviving entity
would not have as its directors at least 60%
of the Incumbent Board and as a result of
which those persons who were shareholders of
the Company immediately prior to such
transaction would not hold, immediately after
such transaction, at least 60% of the Voting
Power of the Company then outstanding or the
combined voting power of the surviving
entity's then outstanding voting securities;
(2) any sale, lease, exchange or other
transfer in one transaction or series of
related transactions of substantially all of
the assets of the Company; or (3) the
adoption of any plan or proposal for the
complete or partial liquidation or
dissolution of the Company; or
(E) a determination by a majority of the members
of the Incumbent Board, in their sole and
absolute discretion, that there has been a
Change in Control of the Company.
(ii) `Voting Power,' when used with reference to the
Company, shall mean the voting power of all classes
and series of capital stock of the Company now or
hereafter authorized other than the voting power of
any of the shares of Series A preferred stock
outstanding as of the effective date of this Section
13.
(iii) `Code' means the Internal Revenue Code of 1986, as
amended."
This amendment shall be effective as of the date of this instrument, and it
shall apply to all eligible Directors whose benefit payments had not commenced
on that date.
IN WITNESS WHEREOF, the Company has caused this instrument to be executed this
10/th/ day of February , 1999.
- ------ -----------------
H.B. FULLER COMPANY
/s/ Albert P.L. Stroucken
--------------------------
Chief Executive Officer
/s/ Norbert R. Berg
-------------------------
Chairman Compensation Committee
-3-
<PAGE>
Exhibit 10(w)
H.B. FULLER COMPANY
DIRECTORS BENEFIT TRUST
THIS AGREEMENT is made by and between H.B. Fuller Company (the "Company")
and U.S. Bank National Association, a national banking association (the
"Trustee").
W I T N E S S E T H:
WHEREAS, the Company has established a plan for Directors 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 Plans;
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 1
RULES OF CONSTRUCTION
.1 General Definitions. Unless the context otherwise indicates, the
-------------------
terms used in this Agreement are given the meanings ascribed to them by the Plan
with respect to which they are being applied.
.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.
.3 "Change in Control." A Change in Control shall be deemed to have
-----------------
occurred upon any of the following events:
(a) a change in the control of the Company of a nature that
would be required to be reported in accordance with Regulation 14A
promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"),
whether or not the Company is then subject to such reporting requirement;
(b) a public announcement (which, for purposes hereof, shall
include, without limitation, a report filed pursuant to Section 13(d) of
the Exchange Act) that any individual, corporation, partnership,
association, trust or other entity becomes 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
Voting Power of the Company then outstanding;
(c) the individuals who, as of the date of this Agreement, are
members of the Board of Directors of the Company (the "Incumbent Board")
cease for any reason to constitute at least a majority of the Board
(provided, however, that if the election or nomination for election by the
Company's shareholders of any new director was approved by a vote of at
least a majority of the Incumbent Board, such new director shall be
considered to be a member of the Incumbent Board);
(d) the approval of the shareholders of the Company of: (i) any
consolidation, merger, or statutory share exchange of the Company with any
person in which the surviving entity would not have as its directors at
least 60% of the Incumbent Board and as a result of which those persons who
were shareholders of the Company immediately prior to such transaction
would not hold, immediately after such transaction, at least 60% of the
Voting Power of the Company then outstanding or the combined voting power
of the surviving entity's then outstanding voting securities; (ii) any
sale, lease, exchange or other transfer in one transaction or series of
related transactions of substantially all of the assets of the Company; or
(iii) the adoption of any plan or proposal for the complete or partial
liquidation or dissolution of the Company; or
<PAGE>
(e) a determination by a majority of the members of the
Incumbent Board, in their sole and absolute discretion, that there has been
a Change in Control of the Company.
.4 "Administrator" shall mean the Plan Administrator designated by the
-------------
Plan or, if not designated by the Plan, the Compensation Committee of the
Company's Board of Directors or the person to whom the Compensation Committee
has delegated the Administrator's duties under the Plan.
.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.
.6 "Voting Power," when used with reference to the Company, shall mean
------------
the voting power of all classes and series of capital stock of the Company now
or hereafter authorized other than the voting power of any of the shares of
Series A preferred stock outstanding as of the date of this Agreement.
ARTICLE 2
APPLICATION OF FUNDS
.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 Payment of Benefits. Subject to the provisions of Sections 2.3, 3.1,
-------------------
and 4.1, the Trustee shall distribute Trust funds to the Plan participants and
their beneficiaries as directed by the Administrator. If the assets of the
Trust are not sufficient to make payments of benefits pursuant to the Plan to
participants and their beneficiaries, the Company shall make the balance of each
such payment as it becomes due.
.3 Reversion of Excess Assets. If, prior to a Change in Control, the
--------------------------
Company determines, on the basis of reasonable actuarial assumptions selected by
an independent actuary appointed by the Company, that a 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 earnings shall be returned to the Company upon
the direction of the Company; provided that no part of any assets or future
Trust earnings 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 3
INSOLVENCY
.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 a 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 Plans, shall hold the Trust 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
-2-
<PAGE>
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.
.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 "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 4
CHANGE IN CONTROL
.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.
(c) The provisions of Section 2.2 ("Payment of Benefits") shall
cease to apply, and the Trustee shall distribute the Trust fund to Plan
participants and their beneficiaries in accordance with the provisions of
the Plan. If the Administrator fails to provide the Trustee with
information sufficient for it to determine the amount or timing of any
distribution within thirty days after the Trustee's receipt of notice of
the occurrence of the event entitling the participant or beneficiary to
receive such distribution, the Trustee shall be entitled to conclusively
rely upon information provided by the participant or beneficiary. If the
assets of the Trust are not sufficient to make payments of benefits
pursuant to the Plan to participants and their beneficiaries, the Company
shall make the balance of each such payment as it becomes due.
.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, member of
the Board of Directors of the Company or a participant in any 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.
-3-
<PAGE>
.3 Investments. Upon and after the occurrence of a Change in Control,
-----------
the Trustee shall not be subject to the direction of the Company in the
acquisition, investment and disposition of the Trust's assets, and the Trustee
shall thereafter acquire, invest and dispose of Trust assets in such manner as
it deems prudent and in the best interests of the Plans' participants and their
beneficiaries.
.4 Contributions. Within ten business days following the occurrence of a
-------------
Change in Control, the Company shall make an irrevocable cash contribution to
the Trust in an amount which, when added to the then fair market value of the
Trust's assets, is not less than the present value of the payments which are
then due or which may thereafter become due to participants or beneficiaries
pursuant to the terms of each Plan. The amount of such contribution shall be
determined by assuming that each Plan participant who is a Director of the
Company at the time of the Change in Control will become entitled to receive
benefit payments on the earliest date as of which the participant could receive
his benefits without reductions based on the participant's age or length of
service. Present value shall be determined using the following actuarial
assumptions:
Interest: The average interest rate on 30-year U.S. Treasury obligations
--------
as of the last day of the second month preceding the month in
which the Change in Control occurs.
Mortality: Postretirement: 1983 Group Annuity Mortality Table.
---------
Preretirement: None.
As of each yearly anniversary of the occurrence of a Change in Control
("Valuation Date"), the Company shall determine the amount of the contribution
which would have been required pursuant to this Section 4.4 if the Change in
Control had occurred on such Valuation Date. If the amount so determined exceeds
the fair market value of the Trust assets on such Valuation Date, the Company
shall, within ten business days following such Valuation Date, make an
irrevocable cash contribution to the Trust in an amount which is not less than
such excess.
ARTICLE 5
EARLY TERMINATION
.1 Early Termination. Notwithstanding anything herein to the contrary,
-----------------
if there is a final determination that the existence of this Trust would cause
the Plan participants to be taxed on their benefits before they actually receive
them, the Trust shall terminate and the Trustee shall distribute to each
participant the present value of his benefits under each Plan. For the purposes
of this Section 5.1:
(a) a "final determination" means a determination by the
Internal Revenue Service or a court of competent jurisdiction from which no
further appeal may be taken, either because there is no further appeal
available or because the time to take such appeal has expired; and
(b) "present value" shall be determined as provided in
Section 4.4.
.2 Allocations 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 participant 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 participant 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.
-4-
<PAGE>
ARTICLE 6
ACCOUNTS
.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 directions 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
policies. Insurance policies shall be valued at their surrender value as of the
valuation date.
.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 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.
.3 Expense Account. The Company, in its discretion, may direct the
---------------
Trustee to establish a separate account (the "Expense Account") for the payment
of expenses incurred by the Trustee in administering the Trust, and it may
contribute to the Expense Account such amounts as it shall determine from time
to time, in its sole and absolute discretion. Notwithstanding anything herein to
the contrary:
(a) Prior to the occurrence of a Change in Control, amounts
credited to the Expense Account shall be used solely for the payment of
expenses incurred by the Trustee in administering the Trust, to the extent
the same have not been paid by the Company, including, without limitation,
the Trustee's compensation and expenses incurred by the Trustee in
connection with litigation undertaken pursuant to Section 7.3(f).
(b) After the occurrence of a Change in Control, amounts
credited to the Expense Account shall be used primarily for the payment of
expenses described in paragraph (a); provided, that if the Trustee
determines that the amounts from time to time credited to the Expense
Account exceed the amount of its reasonably anticipated expenses, it may
use the excess amounts to pay any benefits due under the Plans.
(c) Prior to the occurrence of a Change in Control, all or any
part of the amounts credited to the Expense Account shall be paid to the
Company upon the direction of the Company.
(d) No part of the amounts credited to the Expense Account 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 7
POWERS AND DUTIES OF TRUSTEE
.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 a
participant, former participant, or 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
-5-
<PAGE>
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.
.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;
(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 the 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; and
(g) to pay any premium due on any policy of insurance held in
the Trust if such premium is not paid by the Company.
.3 Other Provisions Relating to the 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 as it
may deem reasonable.
-6-
<PAGE>
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 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; provided, that
upon and after the occurrence of a Change in Control, the Trustee shall be
compensated in accordance with the fee schedule attached hereto as Exhibit
B. 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 any present or future law and any claim that the
Trust may have for contributions under Section 4.4; 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 in 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; or to follow the application by the Trustee of any
money or property that may be paid or delivered to the Trustee.
-7-
<PAGE>
(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 and 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.
(j) The Trustee may segregate any part or portion of the assets
of the Trust for the purpose of administration or distribution thereof and
may hold such part or portion uninvested whenever and for so long as is
required for the payment in cash of Plan benefits normally expected to
become payable in the near future. The Trustee may hold uninvested
reasonable amounts of cash whenever the Trustee deems it desirable to do so
to facilitate disbursements, pending investments, or for other operational
reasons and may deposit the same, without any liability for interest earned
thereon, for reasonable periods in the banking department of the Trustee or
of any other bank, trust company or other financial institution, including
those affiliated in ownership with the Trustee, notwithstanding the banking
department's or other entity's receipt of "float" from such uninvested
cash.
.4 Employment of Agents. The Trustee may employ agents, experts, and
--------------------
counsel to the extent necessary to the performance of its duties and
responsibilities hereunder, and it may reasonably compensate such agents,
experts, and counsel out of the assets of the Trust.
.5 Indemnification. Prior to a Change in Control, the Company shall
---------------
indemnify the Trustee and hold it harmless against any liabilities, losses, or
expenses (including reasonable attorneys' fees) incurred by it as a result of
any action taken by it pursuant to the instructions of the Company or the
Administrator, or by reason of its failure to act upon any matter as to which it
has no power to act when no such instructions have been received, except to the
extent any such action or failure to act was negligent or in bad faith. Upon or
after the occurrence of a Change in Control, the Company shall indemnify the
Trustee and hold it harmless against any liabilities, losses, or expenses
(including reasonable attorneys' fees) incurred by it as a result of any action
taken or omitted by it pursuant to this Agreement, except to the extent any such
action or omission was grossly negligent or in bad faith.
ARTICLE 8
CHANGE OF TRUSTEE
.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.
.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.
.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.
.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
-8-
<PAGE>
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.
ARTICLE 9
AMENDMENTS OF TRUST AND PLANS
.1 Trust Amendment. Except as limited below, the Chief Executive Officer
---------------
of the Company and the Chairman of the Compensation Committee of the Company's
Board of Directors shall have the right to amend this Trust Agreement at any
time. Such amendment shall be stated in an instrument in writing, executed by
such Chief Executive Officer and Chairman. 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 instrument, and all participants
and the Company shall be bound by the amendment; provided, however, that:
(a) no amendment shall increase the duties or liabilities of the
Trustee without its written consent;
(b) no amendment shall reduce, impair or otherwise adversely
affect any Plan participant's rights or protections under a Plan or this
Agreement unless the participant consents in writing to such amendment;
(c) no amendment shall cause the Trust to be terminated prior to
the time set forth in Section 10.3; and
(d) no amendment shall cause or permit any assets of the Trust
to revert to the Company, except as permitted in Sections 2.3, 5.2, and
10.3.
.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.
.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 10
MISCELLANEOUS PROVISIONS
.1 Exclusive Benefit. Except as otherwise provided in the Plans or in
-----------------
this Agreement, prior to the payment of all benefits under the Plans, in no
circumstance 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 Plans and other than for the
exclusive benefit of the participants or their beneficiaries.
.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.
.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
-9-
<PAGE>
all benefits that may become payable under the Plans 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.
.4 Name. The Trust evidenced by this Agreement may be referred to as the
----
"H.B. Fuller Company Directors Benefit Trust."
.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.
.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.
H.B. FULLER COMPANY
Dated: February 10, 1999 By /s/ Albert P.L. Stroucken
------------------------------------
Chief Executive Officer
Dated: February 10, 1999 By /s/ Norbert R. Berg
------------------------------------
Chairman of the Compensation Committee
U.S. BANK NATIONAL ASSOCIATION
Dated: May 12, 1999 By /s/ Robert H. Kaufer
-----------------------------------
Vice President
Dated: May 12, 1999 By /s/ Michael J. Clark
------------------------------------
Vice President
-10-
<PAGE>
H.B. FULLER COMPANY
DIRECTORS BENEFIT TRUST
SCHEDULE A
----------
1. Retirement Plan for Directors of H.B. Fuller Company
H.B. FULLER COMPANY
DIRECTORS BENEFIT TRUST
SCHEDULE B
----------
Upon and after the occurrence of a Change in Control, the Trustee shall be
compensated in accordance with the following fee schedule:
TRUSTEE FEES
- ------------
Domestic Market Value
---------------------
First $1,000,000 .30%
Next $4,000,000 .20%
Next $5,000,000 .15%
Next $15,000,000 .10%
Excess over $15,000,000 .05%
The assets of this trust shall be aggregated with the assets of the H.B.
Fuller Company Executive Benefit Trust for the purpose of determining the
Trustee Fees during such periods as U.S. Bank National Association is
serving as the Trustee of both of such trusts.
PARTICIPANT SERVICES
- --------------------
Recurring Distributions $ 2.50 per transaction
Lump Sum Distributions $10.00 per transaction
(Automated)
Lump Sum Distributions $15.00 per transaction
(Non-automated)
ACH Distributions $ 1.50 per transaction
ACH Distributions w/advice $ 2.00 per transaction
OUT OF POCKET EXPENSES
- ----------------------
Pass Through of Cost
-11-
<PAGE>
H.B. Fuller Company and Consolidated Subsidiaries Exhibit 11
----------
Computation of Net Income Per Common Share
Years Ended November 27, 1999, November 28, 1998, and
November 29, 1997
(Dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Basic
- -----
Income:
Income before accounting change $ 44,111 $ 15,990 $ 40,308
Dividends on preferred stock (15) (15) (15)
--------------- --------------- ---------------
Income before acctg. chg. applicable to common stock 44,096 15,975 40,293
Cumulative effect of accounting change (741) - (3,368)
--------------- --------------- ---------------
Income applicable to common stock $ $43,355 $ $15,975 $ 36,925
=============== =============== ===============
Shares:
Weighted-average shares outstanding 13,807,775 13,721,451 13,842,500
=============== =============== ===============
Basic income per common share:
Income before accounting change per share $ 3.19 $ 1.16 $ 2.91
Cumulative effect of accounting change per share (0.05) - (0.24)
--------------- --------------- ---------------
Net income per common share $ 3.14 $ 1.16 $ 2.67
=============== =============== ===============
Diluted
- -------
Income:
Income is exactly the same as presented above
under basic.
Shares:
Weighted-average number of common shares outstanding 13,807,775 13,721,451 13,842,500
Common share equivalents of stock options outstanding
(determined by the treasury stock method using
average quarterly prices) 170,615 122,368 145,841
--------------- --------------- ---------------
Weighted-average shares outstanding and common
stock equivalent shares 13,978,390 13,843,819 13,988,341
=============== =============== ===============
Diluted income per common share:
Income before accounting change per share $ 3.15 $ 1.15 $ 2.88
Cumulative effect of accounting change per share (0.05) - (0.24)
--------------- --------------- ---------------
Net income per common share $ 3.10 $ 1.15 $ 2.64
=============== =============== ===============
</TABLE>
<PAGE>
Management's Discussion and 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 27, 1999, November 28, 1998 and November 29, 1997,
respectively. 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:
1999 Compared to 1998
Net sales in 1999 were $1,364,458, an increase of $17,217 or 1.3
percent over 1998. The sales increase resulted from an increase in volume of 2.2
percent, a net decrease in pricing and product mix of 1.3 percent, an increase
of 0.5 percent from acquisitions, net of divestitures and a 0.1 percent decrease
due to foreign currency fluctuations versus the U.S. dollar.
Area Increase/(Decrease)
- ---------------------------------------------------------------
North America $11,530 1.5%
Europe 547 0.2%
Latin America (8,658) (4.4%)
Asia/Pacific 13,798 16.5%
-------
Total $17,217 1.3%
-------
Net income for 1999 increased 171 percent to $43,370, from $15,990 in
1998. The net income of both 1999 and 1998 were negatively impacted by
nonrecurring charges related to the Company's restructuring plan announced in
the third quarter of 1998 (See Note 3 to Consolidated Financial Statements). The
1999 charge was $17,204 ($12,709 after tax) and the 1998 charge was $26,747
($21,284 after tax). Also impacting the 1999 net income was a charge from an
accounting change of $1,204 ($741 after tax). In the fourth quarter, 1999 the
Company adopted early AICPA Statement of Position No. 98-5, "Reporting on the
Costs of Start-up Activities", which requires the Company to expense as incurred
all costs related to start-up and organizational activities.
North America: In North America, the 1.5 percent sales increase
consisted of a 3.3 percent increase in volume, a 1.4 percent net decrease from
pricing and product mix, a 0.3 percent decrease due to the sale in 1998 of the
hot melt glue stick and gun business and a 0.1 percent decrease resulting from
fluctuations of the Canadian dollar versus the U.S. dollar. Sales in the
Adhesives, Sealants and Coatings Group increased 0.5 percent compared to 1998.
Packaging adhesive sales grew at a 2 percent rate over 1998. A key factor which
limited the 1999 sales growth in the Adhesives, Sealants and Coatings Group was
the Company's focus on rationalizing the product line and discontinuing sales
that did not meet
Exhibit 13 Page 31
TRADE SALES BY
CLASS OF PRODUCT
92% Adhesives, Sealants
and Coatings
8% Paints
Exhibit 13 Page 31
SALES TO UNAFFILIATED CUSTOMERS
67% North America
14% Europe
13% Latin America
6% Asia/Pacific
Exhibit 13 Page 31
OPERATING EARNINGS
58% North America
21% Europe
14% Latin America
7% Asia/Pacific
Energized to Meet Tomorrow's Opportunities 31
<PAGE>
the Company's profit objectives. The Specialty Group had a sales increase of 4.2
percent over 1998 driven by strong increases from TEC Specialty Products, Inc.
and Linear Products, Inc. These increases were partially offset by a sales
decrease in the Global Coatings Division. The Automotive Group (EFTEC) had a
1999 sales increase of 0.7 percent. North American operating income, prior to
the nonrecurring charges of $2,493 in 1999 and $12,879 in 1998, increased 25% in
1999 to $70,377. Improved raw material costs as a percentage of sales, savings
associated with the restructuring plan and overall expense control were the key
reasons for the improved operating income.
Europe: In Europe, the sales increase of 0.2 percent consisted of a 0.7
percent decrease in volume, a 1.0 percent net increase in pricing and product
mix, a 2.2 percent decrease caused by weakness in foreign currencies, primarily
the deutsche mark, and a 2.1 percent net increase from acquisitions and the 1998
divestiture of the wax business. Operating income, prior to the nonrecurring
charges of $12,552 in 1999 and $6,025 in 1998, increased 57 percent from $17,627
in 1998 to $27,655 in 1999. Expense reductions resulting from the restructuring
plan were the primary drivers of the improved results.
Latin America: The Latin America sales decrease of 4.4 percent included
a 1.8 percent decrease in volume and a 2.6 percent net decrease in pricing and
product mix. The sales decrease was driven by unfavorable economic conditions,
particularly in Brazil and Argentina. Positive results were achieved however, in
the second half of the year in the Central American region as the Company
increased its utilization of distributors to service its customer base.
Operating income in 1999, prior to nonrecurring charges of $2,975, was $17,976,
representing an increase of 27% from the 1998 operating income of $14,111,
excluding nonrecurring charges of $7,406.
Asia/Pacific: The sales increase in Asia/Pacific of 16.5 percent in
1999 consisted of a volume increase of 12.3 percent, a net decrease in pricing
and product mix of 6.7 percent, a 4.8 percent increase due to two acquisitions
made at the end of 1998 and a 6.1 percent increase resulting from foreign
currency fluctuations, primarily the strengthening of the Japanese yen against
the U.S. dollar. Increasing sales of footwear adhesives was a key contributor to
the volume growth in the region. The 1999 operating income, prior to
nonrecurring charges, improved from an operating loss of $286 in 1998 to income
of $4,943 in 1999. In 1999, there were nonrecurring charges of $1,633, which
were offset by gains on the sale of assets of $2,449. In 1998, the nonrecurring
charges were $437. The profit improvement was the result of the higher sales
volume, stable raw material costs and expense savings associated with the
restructuring plan.
Exhibit 13 Page 32
RETURN ON NET SALES
1999 (b)(c) 4.2%
1998 (c) 2.8%
1997 (b) 3.1%
1996 3.6%
1995 (b) 2.5%
(b) Excludes cumulative effect of accounting change.
(c) Excluding non recurring charges.
Exhibit 13 Page 32
RETURN ON AVERAGE ASSETS
1999 (b)(c) 5.5%
1998 (c) 3.8%
1997 (b) 4.5%
1996 5.4%
1995 (b) 4.0%
(b) Excludes cumulative effect of accounting change.
(c) Excluding non recurring charges.
32 Energized to Meet Tomorrow's Opportunities
<PAGE>
Gross Margin: Total Company gross margin, as a percent of sales,
increased 1.2 percentage points in 1999 to 32.5 percent. As a percent of sales,
both raw material costs and manufacturing overhead improved from 1998.
Implementation of the restructuring plan contributed significantly to the
improvement in manufacturing overhead. The focus on product line management and
eliminating sales that do not meet the Company's profit objectives also had a
positive impact on the gross margin.
Selling, Administrative and Other Expenses: Selling, administrative
and other expenses decreased as a percent of sales from 24.8 percent in 1998 to
23.6 percent in 1999. In dollars, this represented a decrease of $11,741 or 3.5
percent. Cost control measures implemented throughout the Company, combined with
the savings resulting from the restructuring plan, drove the reduction in
expenses. Employee census was reduced by 10 percent from 6,000 employees as of
November 28, 1998 to 5,400 at November 27, 1999.
Nonrecurring Charges/Restructuring: In the third quarter of 1998 the
Company's Board of Directors approved, and the Company announced, a
restructuring plan to streamline the organizational structure worldwide (See
Note 3 to Consolidated Financial Statements). Over the last two quarters of 1998
and throughout 1999, two businesses were sold, several manufacturing facilities
were closed or considerably scaled back, sales offices and warehouses were
consolidated and layers of management were reduced. Since the plan was
announced, the Company has incurred $43,951 (before tax) of net charges to the
income statement with $17,204 recorded in 1999 and $26,747 in 1998. The
following tables show details of the nonrecurring charges for each year by
geographic area:
<TABLE>
<CAPTION>
North Latin Asia/
America Europe America Pacific Total
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999 Severance
(net of pension
curtailment) $ 1,943 $ 8,372 $ 1,114 $ 676 $ 12,105
Contracts/leases -- 1,660 16 618 2,294
- -----------------------------------------------------------------------------
Total restructuring 1,943 10,032 1,130 1,294 14,399
Impairment of
property, plant
and equipment 66 2,228 188 32 2,514
Consulting 243 685 192 15 1,135
Integration and
relocation costs/1/ 2,052 1,104 1,465 292 4,913
Less: Gain on the
sale of assets (1,811) (1,497) -- (2,449) (5,757)
- -----------------------------------------------------------------------------
Total $ 2,493 $ 12,552 $ 2,975 $ (816) $ 17,204
- -----------------------------------------------------------------------------
</TABLE>
Exhibit 13 Page 33
RETURN ON INVESTED CAPITAL (a)
1999 (b)(c) 10.4%
1998 (c) 7.9%
1997 (b) 8.6%
1996 10.3%
1995 (b) 8.4%
(a) Average invested capital is a two-point average of long-term and short-term
debt, minority interest and stockholders' equity. After tax interest expense
and minority interest are added back to net earnings.
(b) Excludes cumulative effect of accounting change.
(c) Excluding non recurring changes.
Exhibit 13 Page 33
RETURN ON AVERAGE EQUITY
1999 (b)(c) 15.8%
1998 (c) 11.0%
1997 (b) 12.0%
1996 14.3%
1995 (b) 10.9%
(b) Excludes cumulative effect of accounting change.
(c) Excluding non recurring changes.
Energized to Meet Tomorrow's Opportunities 33
<PAGE>
<TABLE>
<CAPTION>
North Latin Asia/
America Europe America Pacific Total
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 Severance
(net of pension
curtailment) $ 3,945 $ 8,526 $ 3,704 $ 278 $ 16,453
Contracts/leases 526 266 -- 53 845
- ----------------------------------------------------------------------------
Total restructuring 4,471 8,792 3,704 331 17,298
Impairment of
property, plant
and equipment 9,481 4,063 3,564 -- 17,108
Consulting 121 764 12 2 899
Integration and
relocation costs/1/ 193 -- 126 104 423
Less: Gain on the
sale of businesses (1,387) (7,594) -- -- (8,981)
- ----------------------------------------------------------------------------
Total $ 12,879 $ 6,025 $ 7,406 $ 437 $ 26,747
- ----------------------------------------------------------------------------
</TABLE>
1. Integration and relocation costs consisted primarily of costs related to the
shutdown of facilities, relocation of employees and other related one-time
costs to carry out the restructuring/reorganization activities.
The 1999 charges, prior to the gain on sale of assets of $5,757,
included $22,301 of costs requiring cash outlays, $2,514 of non-cash costs and a
pension curtailment benefit of $1,854. In 1998, the charges before accounting
for the gain on the sale of businesses of $8,981, included $19,685 of costs
requiring cash outlays, $17,108 of non-cash charges and a pension curtailment
benefit of $1,065. Total costs requiring cash outlays since inception of the
plan in 1998, were $41,986.
Employee census reductions resulting from the restructuring plan were
142 in 1998 and 588 in 1999 for a total of 730. An additional census reduction
of 122 employees will be realized in 2000 relating to reductions announced and
communicated in 1999. Annual cost savings as a result of the plan are expected
to exceed $30,000 (before tax) upon full realization of the benefits of the
enacted plan. No additional charges related to the original
restructuring/reorganization plan are expected to be incurred beyond 1999.
In 1999, the North American charges related primarily to a plant
shutdown, and severance associated with closing sales offices and warehouses.
These costs were partially offset by the gain on the sale of assets. In 1998,
the charges related to an announced manufacturing plant closing, reduced layers
of management and the impairment recognized on property, plant and equipment,
including machinery and previously capitalized software
Exhibit 13 Page 34
Working Capital (In millions)
1999 $174.2
1998 $172.7
1997 $171.6
1996 $141.6
1995 $142.1
Exhibit 13 Page 34
Capitalization Ratio
1999 41.2%
1998 46.8%
1997 40.4%
1996 34.0%
1995 35.7%
34 Energized to Meet Tomorrow's Opportunities
<PAGE>
costs, due to the reassessment of system benefits as a result of the
restructuring. These costs were partially offset by a gain on the sale of the
hot melt glue stick and gun business.
In Europe, the 1999 charges related primarily to severance and the
impairment of assets associated with the shutdown of three manufacturing
facilities, the reduction in the layers of management and the costs associated
with the relocation of the European area office. The 1998 charges in Europe
related to announced plant closings in two countries including the associated
impairment of property, plant and equipment and severance associated with the
reduction in layers of management. These costs were partially offset by the gain
on the sale of the wax business in the fourth quarter of 1998.
Latin American charges in 1999 were mainly for the integration costs
associated with the closing of four of the five facilities that were announced
in 1998. In 1999, the Company decided to leave one of the five facilities in
operation due to a change in local import restrictions and related costs.
Severance costs provided in 1998 for this operation were reversed in 1999.
Severance related to the closing of three sales offices is included in the 1999
charges. Latin American charges in 1998 related primarily to
severance and the impairment of property, plant and equipment associated with
the announced closing of the five manufacturing plants mentioned above. Also
included in the 1998 cost was severance related to reducing layers of
management.
The Asia/Pacific charges in 1999 were mainly for severance and the
buyout of leases associated with closing warehouses and sales offices,
relocation costs related to moving the area office and severance due to reducing
layers of management. The charges were more than offset by the gain on sale of
assets of the one manufacturing facility that was closed in the region. The 1998
charges in the Asia/Pacific region related primarily to severance associated
with the closing of the one manufacturing facility that was sold in 1999. Sales
offices and warehouses were also closed in 1998.
Exhibit 13 Page 35
CAPITAL EXPENDITURES
GROSS (In millions)
1999 $56.3
1998 $62.3
1997 $69.2
1996 $89.8
1995 $90.7
Exhibit 13 Page 35
SELLING, ADMINISTRATIVE AND
OTHER EXPENSES AS PERCENT OF SALES
1999 23.6%
1998 24.8%
1997 24.9%
1996 25.4%
1995 25.9%
Energized to Meet Tomorrow's Opportunities 35
<PAGE>
The following table is a detailed reconciliation of the restructuring
reserve balance from November 29, 1997 to November 27, 1999:
Liability for nonrecurring charges:
<TABLE>
<CAPTION>
North Latin Asia/
America Europe America Pacific Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance
November 29, 1997 $ - $ - $ - $ - $ -
Provisions in 1998:
Severance 4,749 8,726 3,765 278 17,518
Contracts/leases 526 266 - 53 845
- -------------------------------------------------------------------------------
5,275 8,992 3,765 331 18,363
Payments in 1998:
Severance (2,757) (998) (624) (190) (4,569)
Contracts/leases (526) - - (53) (579)
- -------------------------------------------------------------------------------
(3,283) (998) (624) (243) (5,148)
- -------------------------------------------------------------------------------
Balance
November 28, 1998 1,992 7,994 3,141 88 13,215
Provisions in 1999:
Severance 3,057 8,952 1,022 668 13,699
Contracts/leases - 1,660 16 618 2,294
- -------------------------------------------------------------------------------
3,057 10,612 1,038 1,286 15,993
Adjustments to
1998 provisions (65) 225 92 8 260
Payments in 1999:
Severance (3,060) (13,482) (3,492) (82) (20,116)
Contracts/leases - (399) (16) (175) (590)
- -------------------------------------------------------------------------------
(3,060) (13,881) (3,508) (257) (20,706)
Balance
November 27, 1999 $ 1,924 $ 4,950 $ 763 $ 1,125 $ 8,762
- -------------------------------------------------------------------------------
</TABLE>
Interest Expense: Interest expense in 1999 of $26,823 was $166 or 0.6
percent less than 1998. Total Company borrowings at November 27, 1999 of
$315,195 were $48,589 or 13.4 percent lower than November 28, 1998. The reduced
debt level was a direct result of improved cash flow provided by operating
activities.
Gains From Sales of Assets: The gains from sales of assets decreased
from $3,237 in 1998 to $366 in 1999, excluding the sales of assets as part of
the restructuring plan.
Other Income/Expenses, Net: Other income/expense, net, decreased from
expense of $4,674 in 1998 to expense of $2,864 in 1999. The primary reason for
the decrease was that the 1998 expense included $2,490 of consulting costs and
costs associated with the Company's transition to a new Chief Executive Officer.
Foreign currency losses in 1999 were $2,856 as compared to losses of $2,124 in
1998.
Income Taxes: Income tax expense of $31,807 in 1999 was 69 percent
higher than the 1998 expense of $18,826. The effective rate in 1999 was 42.7
percent compared to 57.4 percent in 1998. Excluding the impact of the
nonrecurring charges, the effective tax rate decreased to 39.6 percent in 1999
from 40.8 percent in 1998. The negative impact of the nonrecurring charges was
due to a portion of the charges being incurred in countries where no tax benefit
was available.
Results of Operations:
1998 Compared to 1997
Worldwide sales for 1998 were $1,347,241, an increase of $40,452 or 3.1
percent over 1997 sales of $1,306,789. The sales increase was the result of 2.5
percentage points from increased volume and product mix, a net increase of 3.3
percentage points from acquisitions and divestitures, a negative 1.0 percentage
point from reduced pricing and a negative 1.7 percentage points due to the
strengthening of the U.S. dollar.
Sales changes by geographic area were as follows:
Area Increase/(Decrease)
- ----------------------------------------------------
North America $ 7,395 1%
Latin America 5,047 3%
Europe 38,454 16%
Asia/Pacific (10,444) (11%)
---------
Total $ 40,452 3%
---------
Net income for the year decreased from $36,940 in 1997 to $15,990 in
1998. The earnings in 1998 were impacted by $26,747 ($21,284 after tax) of
nonrecurring charges. 1997 net income included a charge of ($3,368) for an
accounting change.
In North America, the one percent sales increase was composed of 2
percentage points related to increased volume and changes in product mix and a
negative one percentage point impact from pricing and currency. The Adhesives,
Sealants and Coatings Group had a 2 percent decrease in sales compared to 1997
primarily due to a reduction in paper converting sales. The Automotive Group
(EFTEC) had a 7 percent increase in sales compared to the prior year with 5
percentage points of the increase the result of the 1997 Automotive acquisitions
for the full year. The General Motors strike during the third quarter of 1998
had an approximate 5 percentage point negative impact on 1998 EFTEC annual
sales. In the Specialty Group, sales increased 5 percent. Strong increases in
TEC Specialty Products, Inc. and Foster Products
36 Energized to Meet Tomorrow's Opportunities
<PAGE>
Corporation sales were offset by reduced Linear Products Inc. sales. North
American operating income decreased from $59,940 to $56,507, before the $12,879
nonrecurring charge. The primary reasons for this decrease were the impact of
the General Motors strike and the impact of reduced paper converting sales.
In Latin America, 1998 sales increased 3 percent from 1997. The
increase in sales was composed of 5 percentage points relating to increased
volume and changes in product mix partially offset by a 2 percentage point
decrease in pricing. Latin American operating income decreased 10 percent when
compared to 1997, decreasing from $15,659 to $14,111, before the $7,406
nonrecurring charge. Low volumes, economic pressure within the region and the
impact of Hurricane Mitch were the primary reasons for the reduction in
operating income.
In Europe, the 16 percent 1998 sales increase was composed of 4
percentage points due to increased volume and changes in product mix, a net 16
percentage point increase related to two 1998 United Kingdom (U.K.) acquisitions
and the divestiture of the construction business in 1997 and the wax business in
1998, and a negative 4 percentage points from pricing and strengthening of the
U.S. dollar. Operating income increased from $11,112 in 1997 to $17,627 in 1998,
before the $6,025 nonrecurring charge, with operating income from the U.K.
acquisitions and control of operating expenses being the primary reasons for the
increase.
Asia/Pacific sales decreased 11 percent from sales in 1997. The
strengthening of the U.S. dollar, compared to local currencies, caused a 15
percentage point decrease. The remaining changes were a positive 6 percentage
point increase due to increased volume and changes in product mix, offset by a
net negative 2 percentage points resulting from a divestiture and an acquisition
in New Zealand in 1998 and an acquisition in Australia late in 1997. Operating
income decreased from $541 in 1997 to operating losses of $286 in 1998, before
the non-recurring charge of $437, with all of the change resulting from the New
Zealand divestiture.
Consolidated gross margin for the Company, as a percent of sales,
decreased from 31.6 percent in 1997 to 31.3 percent in 1998. During 1998, the
Company overall experienced stable raw material costs. Gross margins for Europe
improved from 1997 levels. The primary cause for the overall decrease in gross
margins were economic pressures in Latin America and Asia/Pacific.
Consolidated selling, administrative and other expenses for the
Company, excluding nonrecurring charges (See Note 3 to Consolidated Financial
Statements), increased $8,210 or 2.5 percent from 1997, and as a percent of
sales, decreased from 24.9 percent in 1997 to 24.8 percent in 1998. This
decrease was primarily the result of employee census control, cost control
efforts and continued globalization of the Company. The year-end 1998 employee
census decreased one percent to 6,000 in spite of the fact that 1998
acquisitions net of divestitures added approximately 200 employees.
During 1998, the Company incurred nonrecurring charges of $26,747
related to a restructuring plan (See Note 3 to Consolidated Financial
Statements). The restructuring charges for the year included $16,453 of net
severance related costs, $17,108 for the write-down of assets due to the
restructuring plan, $845 for contract and lease charges impacted by the
restructuring and $1,322 in other restructuring expenses. These charges were
offset by $8,981 of gains on the sale of two businesses divested as a part of
the plan. The restructuring plan actually generated $2,511 in cash in 1998, with
the proceeds of the businesses sold exceeding the cash expended.
Interest expense was $26,989 in 1998, up $7,153 or 36.1 percent from
the prior year. Total Company borrowings at year-end 1998 were above that at
year-end 1997, primarily as a result of borrowings to fund acquisitions.
Other income/expense, net, changed from $7,295 expense in 1997 to
$4,674 expense in 1998, primarily as a result of 1997 consulting costs and the
1997 costs associated with pursuing a large acquisition. (See Note 5 to the
Consolidated Financial Statements).
Gains on the sale of assets decreased from $5,199 in 1997 to $3,237 in
1998, excluding the sale of businesses as part of the restructuring plan.
Income taxes totaled $18,826 in 1998, a 29.4 percent decrease from
$26,651 in 1997. The effective tax rate in 1998 equaled the 40.8 percent in
1997, after the consideration of the low tax benefit provided for a portion of
the nonrecurring charges incurred in countries where no tax benefit is
available.
Energized to Meet Tomorrow's Opportunities 37
<PAGE>
Liquidity and Capital Resources
The net cash provided by operating activities increased 119 percent,
from $51,972 in 1998 to $113,704 in 1999. Higher net income and stronger results
from the changes in current assets and current liabilities were the primary
reasons for the improved cash flow. Net income increased $27,380 while the
changes in current assets and current liabilities, excluding cash, notes payable
and net of the effect of acquisitions and divestitures, improved by $32,722 from
a use of cash of $17,801 in 1998 to a source of cash of $14,921 in 1999. Major
uses of cash in 1999 included capital expenditures, reduction of debt and the
payment of dividends. Cash and cash equivalents at November 27, 1999 were $5,821
as compared to $4,605 at November 28, 1998. The $5,821 in cash and the Company's
unused lines of credit are considered adequate to meet Company obligations over
the next year.
Working capital at November 27, 1999 was $174,223 compared to $172,740
at November 28, 1998. Total current assets decreased $17,757 while total current
liabilities decreased $19,240. Included in the reduction of current liabilities
was a short-term debt reduction of $12,229 and a decrease in the restructuring
liability of $4,453. The current ratio was 1.7 at November 27, 1999 as compared
to 1.6 at November 28, 1998. The number of days sales in trade accounts
receivable (net of allowance for doubtful accounts) was 62 at November 27, 1999
as compared to 61 at November 28, 1998. The average days sales on hand of
inventory was 61 at November 27, 1999 as compared to 63 at November 28, 1998.
For management purposes, the Company measures working capital performance in
terms of operating working capital, which is defined as current assets less
cash, minus current liabilities less short-term debt. The operating working
capital at November 27, 1999 of $219,883 was $11,962 or 5% lower than the
$231,845 at November 28, 1998.
The Company's ratio of long-term debt to total capitalization was 41.2
percent at November 27, 1999 as compared to 46.8 percent at November 28, 1998.
At year-end 1999, the Company had short-term and long-term lines of credit of
$451,784 of which $234,000 was committed. The unused portion of these lines of
credit was $375,694.
Capital expenditures for property, plant and equipment of $56,253 were
primarily for expansion of manufacturing capacity in Germany, information
systems projects, general improvements in manufacturing productivity and
operating efficiency and various environmental projects. Environmental capital
expenditures were less than 10 percent of total capital expenditures and do not
represent a significant portion of overall Company expenditures. Future
commitments related to 1999 capital projects are estimated to be less than $20
million.
Over the recent past, approximately 50 percent of the Company's sales
have come from its foreign subsidiaries. In 1999, that number was 45 percent.
Fluctuations in exchange rates, particularly the deutsche mark and Japanese yen,
can have an impact on the Company's financial results. (See Note 1 to
Consolidated Financial Statements.) The Company continually monitors changing
economic conditions in the South American countries, especially Argentina,
Brazil and Ecuador.
Impact of the Year 2000 Issue
The Company's Year 2000 Project Office (consisting of information
technology ("IT") personnel) established a three-phase program to address the
Year 2000 Issue. The three phases consisted of (a) an assessment phase, (b) an
analysis and resolution strategy phase and (c) a remediation and testing phase.
The readiness program focused on the Company's IT as well as non-lT systems
(which systems contain embedded technology in manufacturing or process control
equipment containing microprocessors or similar circuitry).
The Company also formed a Year 2000 Task Force (consisting of
representatives from its financial, IT, legal and risk management departments
and from its key business units) to further address internal and external Year
2000 Issues.
The Company incurred Year 2000 compliance costs of approximately
$3,500 over a three-year period ending November 27, 1999. In recent years, the
Company replaced certain of its financial and operating systems. These systems
have not required modification to address the Year 2000 Issue, and, as a result,
the Company's Year 2000 costs have been relatively low.
Based on its assessments and current knowledge, the Company believes
it will not, as a result of the Year 2000 Issue, experience any material
disruptions in internal manufacturing processes, information processing or
interfaces with major customers, or with processing orders and billing. Assuming
no major disruption in service from critical third-party providers, the Company
believes that it will continue to be able to continue to manage its total Year
2000 transition without any material effect on the Company's results of
operations or financial condition.
38 Energized to Meet Tomorrow's Opportunities
<PAGE>
Safe Harbor Statement Under the Private Securities Litigation Act of 1995
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; 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 German mark, the Japanese
yen, the Brazilian real and the Ecuadorian sucre); 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.
Energized to Meet Tomorrow's Opportunities 39
<PAGE>
Consolidated Statements of Income
H.B. Fuller Company and Subsidiaries
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------------------------
November 27, November 28, November 29,
1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $1,364,458 $1,347,241 $1,306,789
Cost of sales 921,336 925,370 893,835
- --------------------------------------------------------------------------------------------------------------------------
Gross profit 443,122 421,871 412,954
Selling, administrative and other expenses 322,171 333,912 325,702
Nonrecurring charges 17,204 26,747 -
- --------------------------------------------------------------------------------------------------------------------------
Operating income 103,747 61,212 87,252
Interest expense (26,823) (26,989) (19,836)
Gains from sales of assets 366 3,237 5,199
Other income (expense), net (2,864) (4,674) (7,295)
- --------------------------------------------------------------------------------------------------------------------------
Income before income taxes, minority
interests and accounting change 74,426 32,786 65,320
Income taxes (31,807) (18,826) (26,651)
Minority interests in consolidated income (1,033) (117) 644
Income from equity investments 2,525 2,147 995
- --------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect
of accounting change 44,111 15,990 40,308
Cumulative effect of accounting change (741) - (3,368)
- --------------------------------------------------------------------------------------------------------------------------
Net income $ 43,370 $ 15,990 $ 36,940
- --------------------------------------------------------------------------------------------------------------------------
Basic income (loss) per common share:
Income before accounting change $ 3.19 $ 1.16 $ 2.91
Accounting change (0.05) - (0.24)
- --------------------------------------------------------------------------------------------------------------------------
Net income $ 3.14 $ 1.16 $ 2.67
- --------------------------------------------------------------------------------------------------------------------------
Diluted income (loss) per common share:
Income before accounting change $ 3.15 $ 1.15 $ 2.88
Accounting change (0.05) - (0.24)
- --------------------------------------------------------------------------------------------------------------------------
Net income $ 3.10 $ 1.15 $ 2.64
- --------------------------------------------------------------------------------------------------------------------------
Weighted-average common shares outstanding:
Basic 13,808 13,721 13,843
Diluted 13,978 13,844 13,988
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
40 Energized to Meet Tomorrow's Opportunities
<PAGE>
Consolidated Balance Sheets
H.B. Fuller Company and Subsidiaries
(In thousands)
<TABLE>
<CAPTION>
November 27, November 28,
1999 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 5,821 $ 4,605
Trade receivables, less allowance for doubtful accounts
of $4,871 in 1999 and $5,073 in 1998 244,655 242,879
Inventories 148,589 158,606
Other current assets 41,078 51,810
- ------------------------------------------------------------------------------------------------------------------------
Total current assets 440,143 457,900
Net property, plant and equipment 412,524 414,467
Deposits and miscellaneous assets 74,288 67,342
Excess of cost over net assets acquired, less accumulated
amortization of $12,803 in 1999 and $15,892 in 1998 70,351 71,743
Other intangibles, less accumulated amortization
of $18,255 in 1999 and $16,405 in 1998 28,309 34,717
- ------------------------------------------------------------------------------------------------------------------------
Total assets $1,025,615 $1,046,169
- ------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable $ 40,149 $ 59,282
Current installments of long-term debt 11,332 4,428
Accounts payable - trade 132,273 129,694
Accrued payroll and employee benefits 37,573 34,780
Other accrued expenses 31,096 36,945
Accrued nonrecurring charges 8,762 13,215
Income taxes 4,735 6,816
- ------------------------------------------------------------------------------------------------------------------------
Total current liabilities 265,920 285,160
Long-term debt, excluding current installments 263,714 300,074
Accrued pensions 78,286 83,500
Other liabilities 23,801 19,833
Minority interests in consolidated subsidiaries 17,514 16,198
Stockholders' Equity:
Series A preferred stock 306 306
Common stock 14,040 13,983
Additional paid-in capital 34,071 31,140
Retained earnings 341,356 309,966
Accumulated other comprehensive income (loss) (7,522) (5,997)
Unearned compensation - restricted stock (5,871) (7,994)
- ------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 376,380 341,404
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,025,615 $1,046,169
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
Energized to Meet Tomorrow's Opportunities 41
<PAGE>
Consolidated Statements of Stockholders' Equity
H.B. Fuller Company and Subsidiaries
(In thousands)
Fiscal Years 1999, 1998 and 1997
<TABLE>
<CAPTION>
Accumulated
Other Unearned
Compre- Compen- Total
Additional hensive sation- Compre-
Preferred Common Paid-in Retained Income Restricted hensive
Stock Stock Capital Earnings (Loss) Stock Income
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance November 30, 1996 $ 306 $14,066 $22,493 $ 292,828 $ 9,097 $(4,050)
Net income - - - 36,940 - - $36,940
Foreign currency translation
adjustment - - - - (8,853) - (8,853)
Less: foreign currency translation
adjustment included in net
income - - - - 97 - 97
-------
Total comprehensive income - - - - - - $28,184
-------
Dividends - - - (10,068) - -
Retirement of common stock - (301) (497) (14,726) - -
Stock compensation plans, net - 76 3,039 - - (1,333)
- ----------------------------------------------------------------------------------------------------------------------
Balance November 29, 1997 306 13,841 25,035 304,974 341 (5,383)
Net income - - - 15,990 - - $15,990
Foreign currency translation
adjustment - - - - (5,770) (5,770)
Less: foreign currency translation
adjustment included in net
income - - - - 123 - 123
Minimum pension liability - - - - (691) - (691)
-------
Total comprehensive income - - - - - - $ 9,652
-------
Dividends - - - (10,947) - -
Retirement of common stock - (1) (3) (51) - -
Stock compensation plans, net - 143 6,108 - - (2,611)
- ----------------------------------------------------------------------------------------------------------------------
Balance November 28, 1998 306 13,983 31,140 309,966 (5,997) (7,994)
Net income - - - 43,370 - - $43,370
Foreign currency translation
adjustment - - - - (1,684) - (1,684)
Less: foreign currency translation
adjustment included in net
income - - - - 136 - 136
Minimum pension liability - - - - 23 - 23
-------
Total comprehensive income - - - - - - $41,845
-------
Dividends - - - (11,440) - -
Retirement of common stock - (9) (22) (540) - -
Stock compensation plans, net - 66 2,953 - - 2,123
- ----------------------------------------------------------------------------------------------------------------------
Balance November 27, 1999 $ 306 $14,040 $34,071 $ 341,356 $ (7,522) $(5,871)
- ----------------------------------------------------------------------------------------------------------------------
Detail of activity within Accumulated Other Comprehensive Income (Loss): 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
Beginning balance $(5,997) $ 341 $ 9,097
Foreign currency items (1,548) (5,647) (8,756)
Minimum pension liability adjustment net of taxes of $(15) and $442 in 1999 and 1998 23 (691) -
- ----------------------------------------------------------------------------------------------------------------------
Ending balance $(7,522) $ (5,997) $ 341
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
42 Energized to Meet Tomorrow's Opportunities
<PAGE>
Consolidated Statements of Cash Flows
H.B. Fuller Company and Subsidiaries
(In thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------------------
November 27, November 28, November 29,
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $43,370 $15,990 $36,940
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 50,776 49,541 46,773
Pension costs 5,128 6,900 9,854
Nonrecurring charges 660 16,043 -
Gain on sale of assets/businesses in the restructuring plan (5,757) (8,981) -
Gain on sale of assets (366) (3,237) (5,199)
Other items 4,972 (6,483) (6,001)
Change in current assets and liabilities
(net of effect of acquisitions/divestitures):
Accounts receivable (10,949) (27,120) (24,105)
Inventory 9,426 (4,473) (2,485)
Other current assets 1,739 (79) (6,507)
Accounts payable 6,145 646 8,224
Accrued nonrecurring charges (4,453) 13,215 -
Accrued expense 2,443 (2,780) 13,711
Income taxes payable 10,570 2,790 (2,624)
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 113,704 51,972 68,581
Cash flows from investing activities:
Purchased property, plant and equipment (56,253) (62,327) (69,224)
Proceeds from sale of assets 10,916 9,019 14,382
Purchased businesses, net of cash acquired (4,483) (92,439) (9,618)
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (49,820) (145,747) (64,460)
Cash flows from financing activities:
Proceeds from long-term debt 41,207 255,138 68,255
Repayment of long-term debt (79,949) (161,636) (10,348)
Repayment/proceeds from notes payable, net (4,477) 18,461 (4,035)
Dividends paid (11,441) (10,947) (10,068)
Repurchase of common stock (572) (56) (15,524)
Contributions to fund pension and other employee benefit plans (4,411) (3,720) (25,741)
Other (3,036) (1,759) (6,999)
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (62,679) 95,481 (4,460)
Effect of exchange rate changes 11 189 (466)
- ---------------------------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents 1,216 1,895 (805)
Cash and cash equivalents at beginning of year 4,605 2,710 3,515
- ---------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $5,821 $4,605 $2,710
- ---------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid for interest $28,962 $24,277 $20,358
Cash paid for income taxes $11,194 $15,224 $33,996
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
Energized to Meet Tomorrow's Opportunities 43
<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 significant
accounting policies used to prepare H.B. Fuller Company's Consolidated Financial
Statements.
Nature of Operations: H.B. Fuller Company ("The Company") operates as one
of the world's leading manufacturers and marketers of adhesives, sealants,
coatings, paints and other specialty chemical products. The Company has
manufacturing operations in 23 countries in North America, Europe, Latin America
and the Asia/Pacific region. The Company's largest business category is
specialty chemicals and related products (adhesives, sealants and coatings).
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 generally markets its products
through a direct sales force and independent distributors in some markets.
Principles of Consolidation: The Consolidated Financial Statements include
the accounts of the Company and all subsidiaries. The Company's fiscal year ends
on the Saturday closest to November 30th. The three fiscal years ended November
27, 1999 represent 52-week years, respectively. All significant intercompany
items have been eliminated in consolidation. Certain prior years' amounts have
been reclassified to conform to the 1999 presentation.
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.
Revenue Recognition: The Company's general practice is to recognize
revenues from product sales as shipped. For certain products, the Company
maintains consigned inventory at customer locations. For these products, revenue
is recognized at the time the Company is notified the inventory has been used by
the customer.
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 recorded as a component of accumulated
other comprehensive income in 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 income.
Foreign currency losses, which are included in income before income taxes
and minority interests, were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Currency translation
gains, net $ 4,999 $ 837 $ 216
Flow-through
effect of inventory
valuation, net (226) (2,370) (1,479)
- --------------------------------------------------------------------------------
4,773 (1,533) (1,263)
Currency exchange
losses, net (7,855) (2,961) (2,739)
- --------------------------------------------------------------------------------
Total $(3,082) $(4,494) $(4,002)
- --------------------------------------------------------------------------------
</TABLE>
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 and Cash Equivalents: 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, representing approximately
38% of consolidated inventories, 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:
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 63,392 $ 73,126
Finished goods 94,579 95,862
LIFO reserve (9,382) (10,382)
- --------------------------------------------------------------------------------
Total $148,589 $158,606
- --------------------------------------------------------------------------------
</TABLE>
44 Energized to Meet Tomorrow's Opportunities
<PAGE>
Property, Plant and Equipment: The major classes are:
<TABLE>
<CAPTION>
Depreciable
Lives
(in years) 1999 1998
- ---------------------------------------------------------------
<S> <C> <C> <C>
Land $ 55,348 $ 56,737
Buildings and
improvements 20-40 227,073 226,174
Machinery and
equipment 5-15 442,458 433,407
Construction in
progress 42,424 41,663
- ---------------------------------------------------------------
Total, at cost 767,303 757,981
Accumulated
depreciation (354,779) (343,514)
- ---------------------------------------------------------------
Net property, plant
and equipment $ 412,524 $ 414,467
- ---------------------------------------------------------------
</TABLE>
Depreciation is generally computed on a straight-line basis over the
useful lives, noted above, of the assets, including assets acquired by capital
leases. Accelerated depreciation is used for income tax purposes where
permitted. Depreciation expense on property, plant and equipment was $43,079,
$42,317 and $40,412 in 1999, 1998 and 1997, respectively.
Amortization: Other intangible assets, primarily technology, are
amortized over the estimated lives of 3 to 20 years. The excess of cost over net
assets of businesses acquired is charged against income 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. Capitalized interest
costs were $441, $822, and $1,245 in 1999, 1998 and 1997, respectively.
Financial Instruments: The Company uses currency swap contracts to
manage its exposure to currency risk related to foreign currency intercompany
debt. Gains and losses on the contracts qualifying for hedges are recognized as
the contract is adjusted to fair market value which offsets foreign exchange
gains or losses on the hedged debt amount. Changes in the fair value of
contracts not qualifying for hedge accounting are recognized in other income
(expense).
Notional amounts outstanding were $14,947 and $17,097 in 1999 and
1998, respectively, and are not a measure of the Company's exposure. The swaps
mature with the underlying debt between October 20, 2000 and November 20, 2000.
Changes in market value are not material.
Counterparties to the currency swap contracts are major financial
institutions. Credit loss from counterparty nonperformance is not anticipated.
Concentrations of credit risk with respect to trade accounts
receivable are limited due to the large number of entities comprising the
Company's customer base and their dispersion across many different industries
and countries. As of November 27, 1999 and November 28, 1998, the Company had no
significant concentrations of credit risk.
Environmental Costs: Environmental expenditures that relate to current
operations are expensed or capitalized as appropriate. Expenditures that relate
to an existing condition caused by past operations, and which do not contribute
to current or future revenue generation, are expensed. Liabilities are recorded
when environmental assessments are made or remedial efforts are probable and the
costs can be reasonably estimated. The timing of these accruals is generally no
later than the completion of feasibility studies. The liabilities for
environmental costs at November 27, 1999 and November 28, 1998 were $4,004 and
$4,312, respectively. For further information on environmental matters, see Item
3 of the Company's 1999 Annual Report on Form 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.
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 is accrued during the years the employee renders the necessary
service.
Accounting Changes: In the fourth quarter, 1999 the Company adopted
early an accounting change which impacted income by $1.2 million pretax ($0.7
million after tax) or $0.05 per share. The AICPA Statement of Position No. 98-5,
"Reporting on the Costs of Start-up Activities" issued April 3, 1998, requires
the Company to expense as incurred all costs related to start-up and
organizational activities.
In 1997, an accounting change impacted fourth quarter income by
$3,368, or $0.24 per share, net of $2,321 income taxes
Energized to Meet Tomorrow's Opportunities 45
<PAGE>
related to Financial Accounting Standards Board (FASB) Emerging Issues Task
Force (EITF) on Issue No. 97-13, Business Process Reengineering.
Stock-Based Compensation: In 1999, the Company adopted the
disclosure-only provisions of Statement of Financial Accounting Standards (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.
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 1997 the Board of Directors authorized a stock
repurchase program under which up to 100,000 shares of H.B. Fuller Company
common stock could be repurchased by the Company in each of the next three
years. The shares of common stock repurchased would be available for
compensation plans of the Company. The Company repurchased 1,333 and 9,438
shares of common stock in 1998 and 1999, respectively.
Comprehensive Income: In 1999, the Company adopted SFAS No. 130
"Reporting Comprehensive Income" as required. This statement establishes
standards for reporting and display of comprehensive income and its components
in a full set of general-purpose financial statements. The Company is required
to report total comprehensive income, an amount that will include net income as
well as other comprehensive income. Other comprehensive income refers to
revenues, expenses, gains and losses that under generally accepted accounting
principles have previously been reported as separate components of equity in the
Company's consolidated financial statements.
New Accounting Standard: In June 1998, the FASB issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities." This statement,
which is required to be adopted for interim periods of fiscal years beginning
after June 15, 2000, establishes standards for recognition and measurement of
derivatives and hedging activities. The Company will implement this statement in
the first quarter of fiscal year 2001 as required.
The impact of adopting the aforementioned accounting standard is not
expected to have a material effect on the Company's financial position or
results of operations.
2 / Income Per Common Share
Basic income per share includes no dilution and is computed by dividing
net income available to common shareholders by the weighted-average number of
common shares outstanding for the period. Diluted income per share reflects the
potential dilution of stock options and restricted stock grants that could share
in the income. The difference between basic and diluted income per share data as
presented is due to the dilutive impact of stock options and restricted stock
grants whose exercise price or grant price was below the average common stock
price for the respective period presented. Net income used in the calculation is
reduced by the dividends paid to the preferred stockholder.
A reconciliation of the net income and share components for the basic
and diluted income per share calculations is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) $43,370 $15,990 $36,940
Dividends on preferred shares (15) (15) (15)
- ---------------------------------------------------------------
Income attributable to
common shares $43,355 $15,975 $36,925
- ---------------------------------------------------------------
Weighted-average
common shares - basic 13,808 13,721 13,843
Stock options 72 71 92
Restricted stock 98 52 53
- ---------------------------------------------------------------
Weighted-average
common shares - diluted 13,978 13,844 13,988
- ---------------------------------------------------------------
</TABLE>
46 Energized to Meet Tomorrow's Opportunities
<PAGE>
3 / Nonrecurring Charges
In the third quarter of 1998, the Company's Board of Directors
approved, and the Company announced, a restructuring plan that would streamline
the organizational structure worldwide. Over the last two quarters of 1998, and
throughout 1999, two businesses were sold, several manufacturing facilities were
closed or considerably scaled back, sales offices and warehouses were
consolidated and layers of management reduced. The Company incurred nonrecurring
charges (before tax) in 1998 of $26,747 and in 1999 of $17,204, for a total of
$43,951. Employee census reductions resulting from the restructuring plan were
142 in 1998 and 588 in 1999 for a total of 730. An additional census reduction
of 122 employees will be realized in 2000 relating to reductions announced and
communicated in 1999. Annual cost savings as a result of the plan are expected
to exceed $30,000 (before tax) upon full realization of the benefits of the
enacted plan. No additional charges related to the original
restructuring/reorganization plan are expected in periods beyond 1999.
Restructuring and reorganization costs include costs directly related
to the Company's plan of reorganization. EITF No. 94-3 provides specific
requirements as to the appropriate recognition of costs associated with employee
termination benefits and other exit costs.
Employee termination costs are recognized when benefit arrangements are
communicated to affected employees in sufficient detail to enable the employees
to determine the amount of benefits to be received upon termination.
Other exit costs resulting from an exit plan that are not associated
with or that do not benefit activities that will be continued are recognized at
the date of commitment to an exit plan subject to certain conditions. For the
cost to be accrued, the cost must not be associated with or incurred to generate
revenues after the commitment date, and it must be either i) incremental to
other costs incurred prior to the commitment date, or ii) represent amounts
under a contractual obligation that existed prior to the commitment date that
will either continue after the exit plan is completed with no economic benefit
or which will result in a penalty to cancel the obligation.
Other costs directly related to the reorganization of the Company which
were not eligible for recognition at the commitment date, such as relocation and
other integration costs, were expensed as incurred and were nonrecurring in
nature.
The Company, as part of the restructuring/reorganization plan,
identified certain property, plant and equipment and capitalized software costs
to be impaired. An impairment was recognized when the future undiscounted cash
flows of each asset was estimated to be insufficient to recover its related
carrying value. Where the asset was held for disposal, the carrying values of
these assets were written down to the Company's estimates of fair value. Fair
value was based on sales of similar assets, or other estimates of fair value
such as discounting estimated future cash flows. Where the asset was impaired
and used in operations, depreciation was adjusted for the remaining estimated
period of use.
During 1998 and 1999, the Company recorded the following amounts in the
income statement in connection with the restructuring/reorganization plan:
<TABLE>
<CAPTION>
North Latin Asia/
America Europe America Pacific Total
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999 Severance
(net of pension
curtailment) $ 1,943 $ 8,372 $ 1,114 $ 676 $12,105
Contracts/leases - 1,660 16 618 2,294
- -----------------------------------------------------------------------
Total restructuring 1,943 10,032 1,130 1,294 14,399
Impairment of
property, plant
and equipment 66 2,228 188 32 2,514
Consulting 243 685 192 15 1,135
Integration and
relocation costs/1/ 2,052 1,104 1,465 292 4,913
Less: Gain on the
sale of assets (1,811) (1,497) - (2,449) (5,757)
- -----------------------------------------------------------------------
Total $ 2,493 $ 12,552 $ 2,975 $ (816) $17,204
- -----------------------------------------------------------------------
</TABLE>
Energized to Meet Tomorrow's Opportunities 47
<PAGE>
<TABLE>
<CAPTION>
North Latin Asia/
America Europe America Pacific Total
- -------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 Severance
(net of pension
curtailment) $ 3,945 $ 8,526 $3,704 $278 $16,453
Contracts/leases 526 266 - 53 845
- -------------------------------------------------------------------
Total restructuring 4,471 8,792 3,704 331 17,298
Impairment of
property, plant
and equipment 9,481 4,063 3,564 - 17,108
Consulting 121 764 12 2 899
Integration and
relocation costs/1/ 193 - 126 104 423
Less: Gain on the
sale of businesses (1,387) (7,594) - - (8,981)
- -------------------------------------------------------------------
Total $12,879 $ 6,025 $7,406 $437 $26,747
- -------------------------------------------------------------------
</TABLE>
1. Integration and relocation costs consisted primarily of costs related to
the shutdown of facilities, relocation of employees and other related one-
time costs to carry out the restructuring/reorganization activities.
The 1999 charges, prior to the gain on sale of assets of $5,757,
included $22,301, of costs requiring cash outlays, $2,514 of non-cash costs and
a pension curtailment benefit of $1,854. In 1998, the charges before accounting
for the gain on the sale of businesses of $8,981, included $19,685 of costs
requiring cash outlays, $17,108 of non-cash charges and a pension curtailment
benefit of $1,065. Total costs requiring cash outlays since inception of the
plan in 1998, were $41,986.
In 1999, the North American charges related primarily to a plant
shutdown and severance associated with closing sales offices and warehouses.
These costs were partially offset by the gain on the sale of assets. In 1998,
the charges related to a manufacturing plant closing, reduced layers of
management and the impairment recognized on property, plant and equipment,
including machinery and previously capitalized software costs, due to the
reassessment of system benefits as a result of the restructuring. These costs
were partially offset by a gain on the sale of the hot melt glue stick and gun
business.
In Europe, the 1999 charges related primarily to severance and the
impairment of assets associated with the shutdown of three manufacturing
facilities, the reduction in the layers of management and the costs associated
with the relocation of the European area office. The 1998 charges in Europe
related to announced plant closings in two countries, including the associated
impairment of property, plant and equipment and severance associated with the
reduction in layers of management. These costs were partially offset by the gain
on the sale of the wax business in the fourth quarter of 1998.
Latin American charges in 1999 were mainly for the integration costs
associated with the closing of four of the five facilities that were announced
in 1998. In 1999, the Company decided to leave one of the five facilities in
operation due to a change in local import restrictions and related costs.
Severance costs provided in 1998 for this operation were reversed in 1999.
Severance related to the closing of three sales offices is included in the 1999
charges. Latin American charges in 1998 related primarily to severance and the
impairment of property, plant and equipment associated with the announced
closing of the five manufacturing plants mentioned above. Also included in the
1998 cost was severance related to reducing layers of management.
The Asia/Pacific charges in 1999, were mainly for severance and the
buyout of leases associated with closing warehouses and sales offices,
relocation costs related to moving the area office and severance due to reducing
layers of management. The charges were more than offset by the gain on sale of
assets of the one manufacturing facility that was closed in the region. The 1998
charges in the Asia/Pacific region related primarily to severance associated
with the closing of the one manufacturing facility that was sold in 1999. Sales
offices and warehouses were also closed in 1998.
Revenues and net operating income related to the businesses sold during
the fourth quarter of 1998 were approximately $11,000 and $600, respectively,
for the year ended November 28, 1998.
48 Energized to Meet Tomorrow's Opportunities
<PAGE>
The following table is a detailed reconciliation of the restructuring
reserve balance from November 29, 1997 to November 27, 1999:
Liability for nonrecurring charges:
North Latin Asia/
America Europe America Pacific Total
- ------------------------------------------------------------------------------
Balance
November 29, 1997 $ - $ - $ - $ - $ -
Provisions in 1998:
Severance 4,749 8,726 3,765 278 17,518
Contracts/leases 526 266 - 53 845
- ------------------------------------------------------------------------------
5,275 8,992 3,765 331 18,363
Payments in 1998:
Severance (2,757) (998) (624) (190) (4,569)
Contracts/leases (526) - - (53) (579)
- ------------------------------------------------------------------------------
(3,283) (998) (624) (243) (5,148)
- ------------------------------------------------------------------------------
Balance
November 28, 1998 1,992 7,994 3,141 88 13,215
Provisions in 1999:
Severance 3,057 8,952 1,022 668 13,699
Contracts/leases - 1,660 16 618 2,294
- ------------------------------------------------------------------------------
3,057 10,612 1,038 1,286 15,993
Adjustments to
1998 provisions (65) 225 92 8 260
Payments in 1999:
Severance (3,060) (13,482) (3,492) (82) (20,116)
Contracts/leases - (399) (16) (175) (590)
- ------------------------------------------------------------------------------
(3,060) (13,881) (3,508) (257) (20,706)
- ------------------------------------------------------------------------------
Balance
November 27, 1999 $ 1,924 $ 4,950 $ 763 $ 1,125 $ 8,762
- ------------------------------------------------------------------------------
4/Acquisitions
In 1999 the Company purchased a business for $4,483. In 1998 the Company
purchased a business and certain assets of two businesses for $92,439. In 1997
the Company purchased the assets of one business, with a total cash outlay in
1997 of $9,618. The acquisitions were accounted for as purchases and the
accompanying Consolidated Financial Statements include the results of these
businesses since the purchase date.
The fair values of assets and liabilities acquired at the dates of their
respective acquisition are shown below as supplemental disclosure for cash flow
purposes.
1999 1998 1997
- ------------------------------------------------------------------------------
Cash $ - $ 412 $ -
Receivables 1,329 15,848 -
Inventories 828 6,971 605
Other current assets - 829 -
Property, plant and
equipment 780 20,249 327
Miscellaneous assets - - 9,610
Other intangibles - 21,728 -
Excess cost 1,629 43,754 1,068
Current liabilities (83) (17,352) (1,992)
- ------------------------------------------------------------------------------
Net assets acquired $ 4,483 $ 92,439 $ 9,618
- ------------------------------------------------------------------------------
The historical results of operations on a pro forma basis are not presented
as the effects of the acquisitions were not material.
5/Divestitures
The Company sold its hot melt glue stick and gun business in North America,
its wax business in Europe, and its powder coatings operations in New Zealand
for $18,000 cash in 1998. The Company sold its construction product line in
Europe for $1,117 cash in 1997. The 1998 sales of the hot melt glue stick and
gun business and the wax business, with gains of $8,981, are included in
nonrecurring charges as an offset to these costs described in Note 3. The
historical results of operations on a pro forma basis are not presented as the
effects of the divestitures were not material.
In addition, gains on the sale of assets, resulted in before tax gains of
$366, $3,237 and $5,199, in 1999, 1998 and 1997, respectively. Such gains are
included in other income.
6/Research and Development Expenses
Research and development expenses charged against income were $21,340,
$22,255 and $24,830 in 1999, 1998 and 1997, respectively. These costs are
included as a component of selling, administrative and other expenses.
Energized to Meet Tomorrow's Opportunities 49
<PAGE>
7/Income Taxes
Income before income taxes, minority interests and cumulative effect of
accounting changes for each year is as follows:
1999 1998 1997
- --------------------------------------------------------------------------------
United States (U.S.) $ 55,943 $ 29,549 $ 49,081
Outside U.S. 18,483 3,237 16,239
- --------------------------------------------------------------------------------
Total $ 74,426 $ 32,786 $ 65,320
- --------------------------------------------------------------------------------
The components of the provision for income taxes excluding cumulative
effect of accounting changes are:
1999 1998 1997
- --------------------------------------------------------------------------------
Current:
U.S. federal $ 12,392 $ 5,971 $ 16,769
State 1,269 1,198 1,706
Outside U.S. 12,236 10,201 5,705
- --------------------------------------------------------------------------------
25,897 17,370 24,180
- --------------------------------------------------------------------------------
Deferred:
U.S. federal 5,171 1,179 498
State - (74) 195
Outside U.S. 739 351 1,778
- --------------------------------------------------------------------------------
5,910 1,456 2,471
- --------------------------------------------------------------------------------
Total $ 31,807 $ 18,826 $ 26,651
- --------------------------------------------------------------------------------
The difference between the statutory U.S. federal income tax rate and the
Company's effective income tax rate is explained below:
1999 1998 1997
- --------------------------------------------------------------------------------
Statutory U.S. federal
income tax rate 35.0% 35.0% 35.0%
State income taxes 1.0 2.4 1.7
U.S. federal income taxes on
dividends received from
non-U.S. subsidiaries, before
foreign tax credits 6.9 6.8 5.2
Foreign tax credits (3.2) (1.9) (1.7)
Non-U.S. taxes 6.3 23.9 1.3
Other tax credits (2.3) (6.8) (2.7)
Other (1.0) (2.0) 2.0
- --------------------------------------------------------------------------------
Total 42.7% 57.4% 40.8%
- --------------------------------------------------------------------------------
The effective tax rate in 1999 and 1998 was impacted by costs related to
the Company's restructuring plan. Some of these restructuring costs do not
provide a foreign tax benefit in certain foreign countries resulting in an
increase in the effective tax rate associated with non-U.S. taxes.
Deferred income tax balances at each year-end were related to:
1999 1998
- --------------------------------------------------------------------------------
Depreciation $ (22,717) $ (23,577)
Pension 17,431 17,957
Deferred compensation 5,582 5,168
Postretirement medical benefits 5,133 6,653
Tax loss carryforwards 19,138 11,377
Nonrecurring charges 1,103 2,067
Inventory 750 711
Provisions for expenses (10,964) (7,287)
Difference between assigned
value and tax basis of
acquisition (502) (1,488)
Currency gains/losses 1,011 1,326
Other 4,066 4,301
- --------------------------------------------------------------------------------
20,031 17,208
Valuation allowance (14,990) (5,097)
- --------------------------------------------------------------------------------
Net deferred tax assets $ 5,041 $ 12,111
- --------------------------------------------------------------------------------
Net deferred tax assets are presented on the consolidated balance sheet as
follows:
1999 1998
- --------------------------------------------------------------------------------
Deferred tax assets:
Current $ 12,698 $ 15,121
Non-current 3,070 4,295
Deferred tax liabilities:
Current (1,118) (1,579)
Non-current (9,609) (5,726)
- --------------------------------------------------------------------------------
Net deferred tax assets $ 5,041 $ 12,111
- --------------------------------------------------------------------------------
50 Energized to Meet Tomorrow's Opportunities
<PAGE>
Valuation allowances relate to tax loss carryforwards and other net
deductible temporary differences in non-U.S. operations where the future
potential benefits do not meet the more likely than not realization test.
U.S. income taxes have not been provided on approximately $65,124 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 may 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, excluding the nonrecurring
charge in 1999, have been profitable overall, cumulative tax losses of $54,239
are carried as net operating losses in 19 different countries. These losses can
be carried forward to offset income tax liability on future income in those
countries. Cumulative losses of $29,413 can be carried forward indefinitely,
while the remaining $24,826 must be used during the 2000-2005 period.
8 / Notes Payable
The primary component of notes payable relates to the Company's short-
term lines of credit with banks. This component totals $27,815. The amount of
unused available borrowings under these lines at November 27, 1999 was $125,727.
The weighted-average interest rates on notes payable were 8.1%, 9.0%
and 9.4% in 1999, 1998 and 1997, respectively.
Fair values of short-term financial instruments approximate their
carrying values due to their short maturity.
Energized to Meet Tomorrow's Opportunities 51
<PAGE>
9 / Long - Term Debt
Long-term debt, including obligations under capital leases, is
summarized as follows:
<TABLE>
<CAPTION>
Weighted Average
Interest Rate Maturity 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. dollar obligations:
Notes (a) $ 2,965 $ 21,921
Senior notes - A, B, C, D 8.57% 2001-2010 65,000 65,000
Senior note - B - 25,000
Senior notes 6.60 2008-2012 125,000 125,000
Industrial and commercial development bonds 5.60 2004-2016 7,100 7,100
Various other obligations 7.25 2004-2006 6,250 6,500
- -----------------------------------------------------------------------------------------------------------------------------------
206,315 250,521
- -----------------------------------------------------------------------------------------------------------------------------------
Foreign currency obligations:
Deutche mark note (a) 3,115 3,503
Pound sterling notes (a) 45,820 31,488
Japanese yen note (a) 2,020 1,788
Australian dollar - 4,433
Italian lira 10.81 2000 4,373 4,078
Japanese yen 2.80 2000-2009 10,277 5,204
Various other obligations 4.77 2000-2001 1,772 1,742
- -----------------------------------------------------------------------------------------------------------------------------------
67,377 52,236
Capital leases 2001-2005 1,355 1,745
- -----------------------------------------------------------------------------------------------------------------------------------
Total long-term debt 275,047 304,502
Less: current installments (11,332) (4,428)
- -----------------------------------------------------------------------------------------------------------------------------------
Total $ 263,715 $ 300,074
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The Company has revolving credit agreements with a group of major banks
which provide committed long-term lines of credit of $90,000 through
December 20, 2005 and $68,000 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.
52 Energized to Meet Tomorrow's Opportunities
<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 27, 1999 the Company exceeded minimum requirements for
all financial covenants.
Aggregate maturities of long-term debt, including obligations under
capital leases, amount to $11,332, $3,215, $35,254, $1,369 and $1,359 during the
five fiscal years 2000 through 2004 respectively.
The estimated fair value of long-term debt was $263,900 and $314,613
for 1999 and 1998, respectively.
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.
10/Lease Commitments
Assets under capital leases are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
- -------------------------------------------------------------------
<S> <C> <C>
Land $ 1,324 $ 2,194
Buildings and improvements 5,052 4,776
Machinery and equipment 237 -
- -------------------------------------------------------------------
6,613 6,970
Accumulated depreciation (3,881) (3,817)
- -------------------------------------------------------------------
Net assets under capital leases $ 2,732 $ 3,153
===================================================================
</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 27, 1999:
<TABLE>
<CAPTION>
Capital Operating
- -------------------------------------------------------------------
<S> <C> <C>
Fiscal year:
2000 $ 780 $ 7,285
2001 527 6,115
2002 614 4,504
2003 32 2,512
2004 - 1,992
Later years - 1,023
- -------------------------------------------------------------------
Total minimum
lease payments $1,953 $23,431
--------------
Amount representing interest (598)
- -------------------------------------------------
Present value of minimum
lease payments $1,355
- -------------------------------------------------
</TABLE>
Rental expense for all operating leases charged against income amounted
to $13,541, $14,818, and $14,166 in 1999, 1998 and 1997, respectively.
11 /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 Company's 1999 Annual Report on Form 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.
Energized to Meet Tomorrow's Opportunities 53
<PAGE>
12/Retirement and Postretirement Benefits
In 1999, the Company adopted SFAS No. 132 "Employers Disclosures about
Pensions and Other Postretirement Benefits" as required. This statement revises
employer's disclosures about pensions and other postretirement benefit 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.
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.
Sensitivity Information: The health-care trend rate assumption has a
significant effect on the amounts reported. A one percentage point change in the
health-care cost trend rate would have the following effects on the November 28,
1998 service and interest cost and the accumulated postretirement benefit
obligation at November 27, 1999:
<TABLE>
<CAPTION>
One Percentage Point
- ------------------------------------------------------------------
Increase Decrease
- ------------------------------------------------------------------
<S> <C> <C>
Effect on service and
interest cost components $1,013 $ (696)
Effect on accumulated
postretirement benefit
obligation $2,237 $(1,887)
- ------------------------------------------------------------------
<CAPTION>
Weighted-average of
assumptions, November 1999 1998 1997
- ------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate
(before retirement) 7.50% 6.75% 7.50%
Expected return on
plan assets -
pension benefits 10.50% 10.00% 10.00%
Expected return on
plan assets - other
postretirement benefits 9.50% 8.50% 8.50%
Rate of compensation increase 3.78% 3.78% 4.50%
Rate of increase in health care
cost levels:
Employees under age 65 5.68% 6.60% 7.36%
Employees age 65 and older 3.73% 4.56% 5.47%
- ------------------------------------------------------------------
</TABLE>
For fiscal 1999, the rate of increase in health care cost levels for employees
under age 65 was expected to decrease by 0.92% for one year, 0.51% for one year
to 4.25% in 2002 and remain at that level. For employees 65 and older, the rate
was expected to remain at 3.73%.
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 9.5 percent. The reduction from prior year in the postretirement
benefits obligation was due to management's decision to cap the Company's
subsidy toward postretirement medical benefits. Beginning in 2005, the Company's
dollar contribution for retiree medical coverage will remain fixed at the 2004
level for employees who retire in the year 2005 or later.
54 Energized to Meet Tomorrow's Opportunities
<PAGE>
<TABLE>
<CAPTION>
Pension Benefits
----------------------------------------------------------------------------------
U.S. Plans Non-U.S. Plans
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net periodic cost:
Service cost $ 5,987 $ 5,629 $ 4,633 $ 1,495 $ 1,692 $ 1,855
Interest cost 12,011 11,795 11,048 3,415 3,559 3,492
Expected return on assets (16,538) (14,837) (11,505) (1,789) (1,620) (429)
Prior service cost amortization 724 640 650 9 39 39
Actuarial (gain)/loss amortization (766) (1,349) (311) 24 25 24
Transition amount amortization (27) (27) (27) (281) 75 76
Curtailment (gain)/loss (1,780) - - (274) - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost $ (389) $ 1,851 $ 4,488 $ 2,599 $ 3,770 $ 5,057
====================================================================================================================================
Change in benefit obligation:
Benefit obligation, September 1
or prior year $ 174,231 $154,132 $ 49,606 $ 53,174
Service cost 5,987 5,629 1,495 1,692
Interest cost 12,011 11,795 3,415 3,559
Participant contributions - - 167 162
Plan amendments 1,451 - - -
Actuarial (gain)/loss (8,854) 8,478 2,448 (320)
Other events - - - (1,005)
Benefits paid (6,805) (5,802) (2,043) (2,082)
- ------------------------------------------------------------------------------------------------------------------------------------
Benefit obligation, August 31 $ 178,021 $174,232 $ 55,088 $ 55,180
====================================================================================================================================
Change in plan assets:
Fair value of plan assets,
September 1 of prior year $ 184,407 $186,911 $ 22,973 $ 21,051
Actual return on plan assets 69,470 3,044 6,396 4,219
Employer contributions 617 254 178 184
Participant contributions - - 167 162
Benefits paid (6,805) (5,802) (400) (338)
- ------------------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets,
August 31 $ 247,689 $184,407 $ 29,314 $ 25,278
====================================================================================================================================
Reconciliation of funded status
as of November:
Funded status $ 69,668 $ 10,176 $ (25,774) $(29,903)
Unrecognized actuarial loss (gain) (110,662) (51,500) 2 (281)
Unrecognized prior service cost
(benefit) 6,360 5,712 (29) (22)
Unrecognized net
transition obligation (124) (151) (5,582) (4,116)
Contributions between
measurement date
and fiscal year-end 140 116 - -
- ------------------------------------------------------------------------------------------------------------------------------------
Recognized amount $ (34,618) $(35,647) $ (31,383) $(34,322)
====================================================================================================================================
Statement of financial position
as of November:
Prepaid benefit cost $ 205 $ 227 $ 1,175 $ 1,191
Accrued benefit liability (34,823) (35,874) (32,559) (35,513)
Additional minimum liability (5,358) (5,353) - -
Intangible asset 4,263 4,103 - -
Accumulated other
comprehensive income 1,095 1,250 - -
- ------------------------------------------------------------------------------------------------------------------------------------
Recognized amount $ (34,618) $(35,647) $ (31,384) $(34,322)
====================================================================================================================================
<CAPTION>
Other
Postretirement Benefits
- -----------------------------------------------------------------------------------------
1999 1998 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net periodic cost:
Service cost $ 2,033 $ 1,833 $ 1,740
Interest cost 2,667 2,641 2,447
Expected return on assets (5,294) (3,911) (2,553)
Prior service cost amortization (828) (857) (878)
Actuarial (gain)/loss amortization (561) (183) -
Transition amount amortization - - -
Curtailment (gain)/loss (74) - -
- -----------------------------------------------------------------------------------------
Net periodic benefit cost $ (2,057) $ (477) $ 756
=========================================================================================
Change in benefit obligation:
Benefit obligation, September 1
or prior year $ 37,811 $ 34,199
Service cost 2,033 1,833
Interest cost 2,667 2,641
Participant contributions 114 -
Plan amendments (11,329) -
Actuarial (gain)/loss (1,004) 830
Other events - -
Benefits paid (2,076) (1,692)
- -----------------------------------------------------------------------------------------
Benefit obligation, August 31 $ 28,216 $ 37,811
=========================================================================================
Change in plan assets:
Fair value of plan assets,
September 1 of prior year $ 49,233 $ 45,891
Actual return on plan assets 19,016 3,478
Employer contributions 1,855 1,556
Participant contributions 114 -
Benefits paid (2,076) (1,692)
- -----------------------------------------------------------------------------------------
Fair value of plan assets,
August 31 $ 68,142 $ 49,233
=========================================================================================
Reconciliation of funded status
as of November:
Funded status $ 39,926 $ 11,422
Unrecognized actuarial loss (gain) (19,636) (5,470)
Unrecognized prior service cost
(benefit) (12,326) (1,899)
Unrecognized net
transition obligation - -
Contributions between
measurement date
and fiscal year-end 200 300
- -----------------------------------------------------------------------------------------
Recognized amount $ 8,164 $ 4,353
=========================================================================================
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for pension plans with accumulated benefit obligation in excess
of plan assets were $63,908, $56,986, and $22,723, respectively as of November
27, 1999 and $66,847, $59,719, and $22,694 as of November 28, 1998.
Energized to Meet Tomorrow's Opportunities 55
<PAGE>
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 27, 1999 and November 28,
1998. 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 shareholder 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 the holder of the Series A preferred shares by which the
Series B preferred shares would be exchanged for all Series A preferred shares
on the date the rights under the shareholder rights plan become exercisable. The
exchange of the Series A preferred shares for the new Series B preferred shares
is intended to preserve the holder'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 14,040,155 and 13,982,649 shares issued and outstanding at
November 27, 1999 and November 28, 1998, 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' Deferred Compensation Plan: The Directors' Deferred
Compensation 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 27, 1999, 26,577 shares remained available for
future allocation.
1998 Directors' Stock Incentive Plan: The 1998 Directors' Stock Incentive
Plan reserves 200,000 shares of common stock to offer nonemployee directors
incentives to put forth maximum efforts for the success of the Company's
business and to afford nonemployee directors an opportunity to acquire a
proprietary interest in the Company. In 1999 and 1998, respectively, 4,000 and
7,017 restricted shares were awarded with a market value of $281 and $441 being
charged to expense over the vesting periods. At November 27, 1999, 188,983
shares remained available for future award.
1992 Stock Incentive Plan: Under the 1992 Stock Incentive Plan 900,000
shares of the Company's common stock were made 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 1,031, 64,755 and 38,736 restricted shares of the Company's
common stock were granted to certain employees in 1999, 1998 and 1997,
respectively. The market value of shares awarded of $44, $3,734 and $2,108 has
been recorded as unearned compensation - restricted stock in 1999, 1998 and
1997, respec-
56 Energized to Meet Tomorrow's Opportunities
<PAGE>
tively and is shown as a separate component of stockholders' equity. Unearned
compensation is being amortized to expense over the vesting periods of generally
ten years and amounted to $2,122, $993 and $548 in 1999, 1998 and 1997,
respectively.
A total of 1,000, 19,900 and 21,850 restricted share units of the
Company's common stock were allocated to certain employees in 1999, 1998 and
1997, respectively. The market value of units allocated of $43, $1,104 and
$1,191 in 1999, 1998, and 1997, respectively, is generally being charged to
expense over the ten-year vesting period.
A total of 243,949 non-qualified stock options were granted in 1999 to
officers and key employees at prices not less than fair market value at date of
grant. These non-qualified options are generally exercisable beginning one year
from the date of grant in cumulative yearly amounts of 25 percent of the shares
under option and generally have a contractual term of 10 years.
At November 27, 1999, 277,422 shares remained available for future grants
or allocations.
1987 Stock Option Plan: 73,421 options were outstanding at November 27,
1999, under the Company's 1987 non-qualified plan. Options are exercisable until
April 27, 2000. At November 27, 1999, no shares remained available for grants
under this plan.
Energized to Meet Tomorrow's Opportunities 57
<PAGE>
A summary of non-qualified stock option transactions is as follows:
<TABLE>
<CAPTION>
Weighted-
Average
Number Exercise Price
- --------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at November 30, 1996 211,869 $14.50
Exercised (29,079) 14.33
- --------------------------------------------------------------------------------
Outstanding at November 29, 1997 182,790 14.53
Exercised (71,799) 14.83
- --------------------------------------------------------------------------------
Outstanding at November 28, 1998 110,991 14.33
Cancelled (10,297) 41.96
Granted 243,949 44.16
Exercised (37,194) 14.33
- --------------------------------------------------------------------------------
Outstanding at November 27, 1999 307,449 $37.07
================================================================================
Exercisable at November 27, 1999 73,421 $14.33
================================================================================
</TABLE>
A summary of non-qualified option transactions is as follows:
<TABLE>
<CAPTION>
Weighted-
Average
Remaining Weighted- Weighted-
Range of Years of Average Average
Exercise Contractual Exercise Exercise
Prices Outstanding Life Price Exercisable Price
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$14.33 73,421 .3 $14.33 73,421 $14.33
43.00-46.88 224,028 9.0 43.11 - -
68.63 10,000 9.6 68.63 - -
==================================================================================================
</TABLE>
If compensation expense had been determined for the Company's non-qualified
stock option plans based on the fair value at the grant dates consistent with
the method of SFAS No. 123, the Company's net income and income per share would
have been adjusted to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999
- --------------------------------------------------------------------
<S> <C> <C>
Net income As reported $43,370
Pro forma $42,830
Basic income per share As reported $3.14
Pro forma $3.10
Diluted income per share As reported $3.10
Pro forma $3.06
======================================================================
</TABLE>
Pro forma amounts for fiscal 1998 and 1997 are not presented as options granted
prior to 1996 are not considered for purposes of this table. The Company did not
grant stock options during fiscal 1998 and 1997 for purposes of calculating
adjusted pro forma amounts required to be disclosed under SFAS No. 123.
Compensation expense for pro forma purposes is reflected over the options'
vesting period.
58 Energized to Meet Tomorrow's Opportunities
<PAGE>
The weighted-average fair value per option at the grant date for
options granted in fiscal 1999 was $15.37. The fair value was estimated using
the Black-Scholes option pricing model with the following weighted-average
assumptions for fiscal 1999:
1999
- ------------------------------------------------------------
Risk-free interest rate 4.57%
Expected dividend yield 1.50%
Expected volatility factor 30.24%
Expected option term 7 years
- ------------------------------------------------------------
14/ Business Segment Information
During 1999, the Company adopted SFAS No. 131. The new standard changes the
information the Company reports about its operating segments. Operating segment
information for prior years has been restated and supplemented to conform to the
1999 presentation.
The Company's operating segments have generally similar products and
services and the Company is organized to manage its operations geographically.
Consequently, the Company's operating segments are based on four geographic
areas which represent its reportable segments. The North America segment
provides adhesives, sealants and coatings to the United States, Mexican, and
Canadian markets. The Europe segment provides adhesives, sealants and coatings
to the European countries. The Latin America segment provides adhesives,
sealants, coatings and paints to Puerto Rico, the Dominican Republic, Central
and South American markets. The Asia/Pacific segment provides adhesives,
sealants and coatings to the Pacific Rim countries. Each segment is served
commonly by an area group office which provides administrative support and
marketing services.
The segments use many common raw materials which are either petroleum-based
or of a nonsynthetic nature. These segments are not capital intensive and the
manufacturing facilities and raw materials are relatively interchangeable and
are not, in general, highly specialized.
Information on the customers, markets and products and services of each of
the Company's operating segments is included in the "H.B. Fuller At A Glance"
section of this Annual Report.
The accounting policies of the reportable segments are consistent with
generally accepted accounting principles and as described in "Summary of
Significant Accounting Policies" - Note 1 of these notes to the consolidated
financial statements. Management evaluates profitability of the Company's
operating segments based on operating income.
The following tables present information about the Company's reported
segments, which also are the Company's geographic segments for the years ended
November 27, 1999, November 28, 1998 and November 29, 1997.
<TABLE>
<CAPTION>
Sales to
unaffiliated
customers: 1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
North America $ 791,029 $ 779,499 $ 772,104
Europe 286,921 286,374 247,920
Latin America 188,919 197,577 192,530
Asia/Pacific 97,589 83,791 94,235
- -------------------------------------------------------------------------------
Total trade sales $1,364,458 $1,347,241 $1,306,789
===============================================================================
<CAPTION>
Inter-company
sales: 1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
North America $ 14,174 $ 12,558 $ 17,257
Europe 3,230 3,673 4,098
Latin America 974 15,221 14,398
Asia/Pacific 76 33 111
Eliminations (18,454) (31,485) (35,864)
- -------------------------------------------------------------------------------
Total intercompany sales - - -
===============================================================================
<CAPTION>
Net sales: 1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
North America $ 805,203 $ 792,057 $ 789,361
Europe 290,151 290,047 252,018
Latin America 189,893 212,798 206,928
Asia/Pacific 97,665 83,824 94,346
Eliminations (18,454) (31,485) (35,864)
- -------------------------------------------------------------------------------
Total net sales $1,364,458 $1,347,241 $1,306,789
===============================================================================
<CAPTION>
Operating income (losses): 1999 1998 1997
- -------------------------------------------------------------------------------
<S>
North America $ 67,884 $ 43,628 $ 59,940
Europe 15,103 11,602 11,112
Latin America 15,001 6,705 15,659
Asia/Pacific 5,759 (723) 541
- -------------------------------------------------------------------------------
Total operating income $ 103,747 $ 61,212 $ 87,252
===============================================================================
</TABLE>
Energized to Meet Tomorrow's Opportunities 59
<PAGE>
<TABLE>
<CAPTION>
Depreciation and
amortization 1999 1998 1997
- ---------------------------------------------------------------
North America $30,651 $30,762 $28,803
Europe 14,263 11,910 9,948
Latin America 3,918 5,178 5,298
Asia/Pacific 1,944 1,691 2,724
- ---------------------------------------------------------------
Total depreciation and
amortization $50,776 $49,541 $46,773
- ---------------------------------------------------------------
<CAPTION>
Identifiable assets: 1999 1998 1997
- ---------------------------------------------------------------
<S> <C> <C> <C>
North America $ 561,435 $ 553,627 $518,179
Europe 245,999 272,302 176,745
Latin America 133,779 150,867 150,138
Asia/Pacific 80,997 74,948 75,625
Eliminations (40,669) (47,283) (41,247)
General corporate assets 44,074 41,266 38,206
- ---------------------------------------------------------------
Total assets $1,025,615 $1,045,727 $917,646
- ---------------------------------------------------------------
</TABLE>
General corporate assets consist primarily of cash and cash
equivalents and long-term financial assets.
<TABLE>
<CAPTION>
Long lived assets: 1999 1998 1997
- ---------------------------------------------------------------
<S> <C> <C> <C>
North America $324,197 $312,172 $322,704
Europe 145,310 150,513 69,638
Latin America 46,902 47,559 52,300
Asia/Pacific 30,663 26,680 32,197
General corporate assets 40,233 38,952 36,390
- ---------------------------------------------------------------
Total long lived assets $587,305 $575,876 $513,229
- ---------------------------------------------------------------
<CAPTION>
Capital expenditures: 1999 1998 1997
- ---------------------------------------------------------------
<S> <C> <C> <C>
North America $28,996 $39,310 $39,656
Europe 19,857 14,233 19,298
Latin America 4,423 4,868 7,020
Asia/Pacific 2,977 3,916 3,250
- ---------------------------------------------------------------
Total capital expenditures $56,253 $62,327 $69,224
- ---------------------------------------------------------------
</TABLE>
15 / Quarterly Data (unaudited)
<TABLE>
<CAPTION>
Net sales: 1999 1998
- ---------------------------------------------------------------
<S> <C> <C>
First quarter $ 327,210 $ 310,656
Second quarter 348,198 341,970
Third quarter 331,916 333,518
Fourth quarter 357,134 361,097
- ---------------------------------------------------------------
Total year $1,364,458 $1,347,241
- ---------------------------------------------------------------
<CAPTION>
Gross profit: 1999 1998
- ---------------------------------------------------------------
<S> <C> <C>
First quarter $104,574 $ 97,633
Second quarter 112,490 108,693
Third quarter 108,711 103,095
Fourth quarter 117,347 112,450
- ---------------------------------------------------------------
Total year $443,122 $421,871
- ---------------------------------------------------------------
<CAPTION>
Operating income (losses): 1999 1998
- ---------------------------------------------------------------
<S> <C> <C>
First quarter $ 20,516 $15,437
Second quarter 24,622 24,720
Third quarter 27,279 (2,119)
Fourth quarter 31,330 23,174
- ---------------------------------------------------------------
Total year $103,747 $61,212
- ---------------------------------------------------------------
<CAPTION>
Net income (losses): 1999 1998
- ---------------------------------------------------------------
<S> <C> <C>
First quarter $7,599 $5,954
Second quarter 10,026 11,261
Third quarter 12,068 (10,263)
Fourth quarter 13,677* 9,038
- ---------------------------------------------------------------
Total year $43,370* $15,990
- ---------------------------------------------------------------
<CAPTION>
Basic net income (losses)
per share: 1999 1998
- ---------------------------------------------------------------
<S> <C> <C>
First quarter $0.55 $0.44
Second quarter 0.73 0.82
Third quarter 0.87 (0.75)
Fourth quarter 0.99* 0.65
Total year $3.14* $1.16
- ---------------------------------------------------------------
<CAPTION>
Diluted net income (losses)
per share 1999 1998
- ---------------------------------------------------------------
<S> <C> <C>
First quarter $0.55 $0.43
Second quarter 0.72 0.81
Third quarter 0.86 (0.75)
Fourth quarter 0.97* 0.65
Total year $3.10* $1.15
- ---------------------------------------------------------------
</TABLE>
* Fourth quarter income was $14,418 before an accounting change charge of
$(741) or $(0.05) per share. Year-to-date income was $44,111 or $3.19 per
share (basic) or $3.15 per share (diluted) before an accounting change charge
of $(741) or $(0.05) per share.
60 Energized to Meet Tomorrow's Opportunities
<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
controls 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.
/s/ Raymond A. Tucker
Raymond A. Tucker
Senior Vice President and
Chief Financial Officer
/s/ Albert P.L. Stroucken
Albert P.L. Stroucken
Chairman of the Board,
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 income, 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 27, 1999 and November 28, 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended November 27, 1999, in conformity with generally accepted
accounting principles in the United States. 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 in the United States 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 1999 the Company changed its accounting for start-up
costs to conform with AICPA Statement of Position 98-5. 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.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
January 10, 2000
Energized to Meet Tommorow's Opportunities 61
<PAGE>
1989-1999 In Review and Selected Financial Data
H.B. Fuller Company and Subsidiaries
<TABLE>
<CAPTION>
Annual Growth Rate
- ----------------------
1-yr 5-yr 10-yr
1998- 1994- 1989- (Dollars in thousands,
1999 1999 1999 except per share amounts) 1999 1998 1997 1996* 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
% % % Income Statement Data:
1.3 4.5 6.1 Net sales $1,364,458 1,347,241 1,306,789 1,275,716 1,243,818
69.5 9.5 8.5 Operating income $ 103,747 61,212 87,252 80,754 69,765
Income from
175.9 7.4 10.9 continuing operations $ 44,111 15,990 40,308 45,430 31,195
Percent of net sales 3.2 1.2 3.1 3.6 2.5
171.2 7.0 10.7 Net income $ 43,370 15,990 36,940 45,430 28,663
Percent of net sales 3.2 1.2 2.8 3.6 2.3
1.8 8.9 10.0 Depreciation $ 43,079 42,317 40,412 40,878 35,134
(0.6) 18.0 7.3 Interest expense $ 26,823 26,989 19,836 18,881 18,132
69.0 10.0 8.6 Income taxes $ 31,807 18,826 26,651 31,233 19,148
Balance Sheet Data:
(2.0) 6.7 8.5 Total assets $1,025,615 1,046,169 917,646 869,275 828,929
(0.9) 6.1 6.2 Working capital $ 174,223 172,740 171,607 141,617 142,056
Current ratio 1.7 1.6 1.7 1.6 1.6
Net property,
(0.5) 6.9 8.3 plant and equipment $ 412,524 $ 414,467 398,561 391,201 355,123
Long-term debt, excluding
(12.1) 15.2 10.1 current installments $ 263,714 $ 300,074 229,996 172,779 166,459
10.2 6.5 7.3 Stockholders' equity $ 376,380 $ 341,404 339,114 334,740 299,414
Stockholder Data:
Income from continuing
operations per common share:
175.0 7.5 1.2 Basic $ 3.19 $ 1.16 2.91 3.26 2.24
173.9 7.3 1.2 Diluted $ 3.15 $ 1.15 2.88 3.24 2.23
Net income per common share:
170.7 7.2 1.1 Basic $ 3.14 $ 1.16 2.67 3.26 2.06
169.6 7.0 1.0 Diluted $ 3.10 $ 1.15 2.64 3.24 2.05
Dividends paid:
3.8 7.2 7.9 Per common share $ 0.815 $ 0.785 0.72 0.655 0.625
Stockholders' equity:
9.8 6.3 7.3 Book value per common share $ 26.79 24.39 24.48 23.78 21.35
Return on average
stockholders' equity 12.1 4.7 11.0 14.3 10.0
Common stock price:
12.5 11.5 12.3 High $ 72.88 $ 64.81 60.25 47.75 39.75
12.1 5.6 10.7 Low $ 38.13 $ 34.00 44.50 29.50 27.75
Weighted-average common shares
outstanding (in thousands):
0.6 (0.1) (0.3) Basic 13,808 3,721 13,843 13,910 13,884
1.0 - (0.3) Diluted 13,978 13,844 13,988 14,008 13,977
(10.0) (3.3) (0.2) Number of employees 5,400 6,000 6,000 5,900 6,400
</TABLE>
* All years after 1995 are 52-week years. All other years are twelve months
ended November 30.
62 Energized to Meet Tomorrow's Opportunities
<PAGE>
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990 1989
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1,097,367 975,287 942,438 861,024 792,230 753,374
65,953 53,470 71,406 59,846 51,911 46,009
30,863 21,701 35,622 27,687 21,145 15,671
2.8 2.2 3.8 3.2 2.7 2.1
30,863 9,984 35,622 27,687 21,145 15,671
2.8 1.0 3.8 3.2 2.7 2.1
28,177 24,934 24,865 21,787 20,376 16,571
11,747 10,459 12,537 14,788 14,028 13,237
19,782 19,191 24,716 19,173 15,234 13,936
742,617 564,521 561,204 508,911 489,634 455,172
129,665 119,905 130,817 108,779 96,097 95,645
1.6 1.7 1.8 1.7 1.7 1.8
295,090 232,547 223,153 207,378 202,341 186,631
130,009 60,261 53,457 71,814 88,240 100,974
274,805 249,396 255,040 219,050 197,191 186,515
2.22 1.56 2.58 2.03 1.55 1.10
2.21 1.55 2.55 2.00 1.53 1.09
2.22 0.72 2.58 2.03 1.55 1.10
2.21 0.71 2.55 2.00 1.53 1.09
0.575 0.54 0.46 0.41 0.40 0.38
19.70 17.92 18.43 15.96 14.56 13.27
11.5 4.0 15.0 13.3 11.0 8.6
42.25 42.75 53.25 38.33 19.17 22.83
29.00 31.25 32.58 18.83 13.75 13.83
13,877 13,872 13,778 13,613 13,650 14,216
13,988 14,006 13,989 13,854 13,811 14,358
6,400 6,000 5,800 5,600 5,600 5,500
</TABLE>
Energized to Meet Tomorrow's Opportunities 63
<PAGE>
Investor Information
Exhibit 13 Page 64
STOCK PRICE Highs Lows
Q1F98 $58.00 $46.50
Q1F99 $48.38 $38.13
Q2F98 $64.81 $54.50
Q2F99 $69.25 $41.88
Q3F98 $63.06 $47.38
Q3F99 $72.88 $57.75
Q4F98 $50.63 $34.00
Q4F99 $65.38 $51.63
Exhibit 13 Page 64
DIVIDENDS
Q1F98 $0.185
Q1F99 $0.200
Q2F98 $0.200
Q2F99 $0.205
Q3F98 $0.200
Q3F99 $0.205
Q4F98 $0.200
Q4F99 $0.205
Exhibit 13 Page 64
SHAREHOLDER COMPOSITION
63% Institutions
18% Individuals
12% Employees
7% Directors & Officers
Annual Meeting
The annual meeting of shareholders will be held on Thursday, April 20, 2000, at
2 p.m. at the Touchstone Energy(R) Place at RiverCentre, 175 West Kellogg
Boulevard, St. Paul, Minn. All shareholders are cordially invited to attend.
Form 10-K
H.B. Fuller Company's Form 10-K annual report for the year ended Nov. 27, 1999,
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, MN 55164-0683. Or visit our Web site at www.hbfuller.com for complete 10-K
----------------
reports for the past three years.
Independent Accountants
PricewaterhouseCoopers LLP, Minneapolis, Minn.
Investor Contact
Richard Edwards
Director of Investor Relations
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.
Number of Common Shareholders
As of Nov. 27, 1999, there were approximately 4,125 common shareholders of
record.
Transfer Agent and Registrar
Norwest Bank Minnesota, N.A., P.O. Box 64856, St. Paul, MN 55164-0856,
1-800-468-9716 or 651-450-4064 (in Minnesota).
Web Site
http://www.hbfuller.com
- -----------------------
64 Energized to Meet Tomorrow's Opportunities
<PAGE>
Exhibit 21
H.B. FULLER COMPANY AND CONSOLIDATED SUBSIDIARIES
AS OF NOVEMBER 27, 1999
<TABLE>
<CAPTION>
PERCENTAGE
JURISDICTION OF OF VOTING
SUBSIDIARY ORGANIZATION SECURITIES
- -------------------------------------------------------------------- ----------------- ---------------
<S> <C> <C>
H.B. Fuller Company United States
Branches: Indonesia
H.B. Fuller Company Puerto Rico United States 100.0
H.B. Fuller International Inc. United States 100.0
Branches: Hong Kong, Singapore
F.A.I. Trading Company United States 100.0
Fiber-Resin Corp. 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
(also owned .1% directly by EFTEC North America, LLC)
Grupo Placosa EFTEC, S.A. de C.V. Mexico 33.3 note a
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 S.A. Spain 100.0
EFTEC GmbH Germany 100.0
EFTEC Asia Pte. Ltd. Singapore 60.0
(also owned 20% directly by H.B. Fuller Automotive Co.)
EFTEC (Thailand) Co., Ltd. Thailand 100.0
Changchun EFTEC Chemical Products Ltd. China 25.0
Shanghai EFTEC Chemical Products Ltd. China 60.0
Foster Products Corporation United States 100.0
TEC Specialty Products, Inc. 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 b
Kativo Chemical Industries, S.A. Panama 99.7
Branches: Costa Rica (Surcusal)
(See listing of subsidiaries on the following pages.)
Pinturas Ecuatorianas, S.A. Ecuador 100.0
Distribuidora Americana, S.A. Ecuador 100.0 note b
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 c
H.B. Fuller Deutschland GmbH Germany 99.9
Branches: Poland
Isar-Rakoll Chemie, GmbH Germany 100.0 note b
H.B. Fuller France S.A. France 99.9 note d
H.B. Fuller Schweiz AG Switzerland 100.0
Industrial Adhesives GmbH, Denzlingen Germany 100.0
Datac Klebstoffe GmbH, Hildesheim Germany 100.0
H.B. Fuller Italia s.r.l. Italy 97.0 note e
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
</TABLE>
Page 1 of 4
<PAGE>
Exhibit 21
H.B. FULLER COMPANY AND CONSOLIDATED SUBSIDIARIES
AS OF NOVEMBER 27, 1999
<TABLE>
<CAPTION>
PERCENTAGE
JURISDICTION OF OF VOTING
SUBSIDIARY ORGANIZATION SECURITIES
- -------------------------------------------------------------------- ----------------------- ------------------
<S> <C> <C>
H.B. Fuller Holdings Limited U.K. 100.0
H.B. Fuller U.K. Operations Ltd. U.K. 100.0
H.B. Fuller U.K. Limited U.K. 100.0
Industrial Adhesives Limited U.K. 100.0 note b
H.B. Fuller Coatings Limited U.K. 100.0
Branches: Dubai, UAE
H.B. Fuller Linear Products Limited U.K. 100.0
Datac Adhesives Ltd. U.K. 100.0 note b
Branches: Ireland, Netherlands
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 99.0
H.B. Fuller India Private Limited India 99.9 note b
H.B. Fuller Japan Company, Ltd. Japan 100.0
H.B. Fuller Korea Co., Ltd. Korea 100.0
H.B. Fuller (Malaysia) Sdn. Bhd. Malaysia 100.0
H.B. Fuller Company (N.Z.) Ltd. New Zealand 99.9
H.B. Fuller (Philippines), Inc. Philippines 93.0
HBF Realty Corporation Philippines 40.0
H.B. Fuller Taiwan Co., Ltd. Taiwan 100.0
H.B. Fuller (Thailand) Co., Ltd. Thailand 99.9
Multi-Clean Products Pty. Ltd. Australia 100.0 note b
Multi-Clean (Lebanon) S.A.R.L. Lebanon 100.0 note b
H.B. Fuller Lebanon S.A.R.L. Lebanon 100.0 note b
Nippon Tilement Company, Ltd. Japan 9.1
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes:
- -----
* inactive (to be liquidated)
a An additional 66.67% of the outstanding voting securities is owned
by 6 minority shareholders.
b Shell corporation
c An additional 0.2% of the outstanding voting securities is owned by
H.B. Fuller GmbH, Luneburg
d 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, Inc. 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
e An additional 3.0% of the outstanding voting securities is owned by
H.B. Fuller Nederland B.V.
Page 2 of 4
<PAGE>
KATIVO CHEMICAL INDUSTRIES, S.A. AND CONSOLIDATED SUBSIDIARIES
AS OF NOVEMBER 27, 1999
<TABLE>
<CAPTION>
PERCENTAGE
JURISDICTION OF OF VOTING
SUBSIDIARY OWNER OF VOTING SECURITIES ORGANIZATION SECURITIES
- --------------------------------------------- --------------------------------- ------------- ---------------
<S> <C> <C> <C>
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 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 Solventes, Ltda. Adhesivos H.B. Fuller (Sul) Ltda. Brazil 99.93 * note a
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 Centroamerica, 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
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
- ---------------------------------------------------------------------------------------------------------------------------------
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
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
- ---------------------------------------------------------------------------------------------------------------------------------
Kativo de Honduras, S.A. Kativo Chemical Industries, S.A. Honduras 69.31
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 99.88
H.B. Fuller Panama, S.A. 0.09
Minority 0.03
- ---------------------------------------------------------------------------------------------------------------------------------
Alfombras Canon, S.A. Kativo Chemical Industries, S.A. Honduras 80.00 * note b
H.B. Fuller Panama, S.A. 5.00
Kativo de Panama, S.A. 10.00
Fuller Istmena, S.A. 5.00
- ---------------------------------------------------------------------------------------------------------------------------------
* -- Inactive Entities a -- Liquidation process has begun. b -- To be liquidated.
</TABLE>
Page 3 of 4
<PAGE>
KATIVO CHEMICAL INDUSTRIES, S.A. AND CONSOLIDATED SUBSIDIARIES
AS OF NOVEMBER 27, 1999
<TABLE>
<CAPTION>
PERCENTAGE
JURISDICTION OF OF VOTING
SUBSIDIARY OWNER OF VOTING SECURITIES ORGANIZATION SECURITIES
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Comercial Punto de Viniles, S.A. Kativo Chemical Industries, S.A. Honduras 76.00 * note b
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 * note b
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 *
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 * note b
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 * note b
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 * note b
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 * note b
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 * note b
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 20.00 *
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
- ---------------------------------------------------------------------------------------------------------------------------------
Industrias Kativo de Nicaragua, S.A. Kativo Chemical Industries, S.A. Nicaragua 99.99
Minority 0.01
Distribuidora Industrial y Comercial, S.A. Reca Quimica, S.A. Nicaragua 86.00 * note 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. Fuller Panama, S.A. Panama 100.00 * note a
- ---------------------------------------------------------------------------------------------------------------------------------
Chemical Supply Peruana, S.A. Chemical Supply Corporation Peru 99.99 * note b
Minority 0.01
H.B. Fuller Peru, S.A. Kativo Chemical Industries, S.A. Peru 99.00
Minority (Peru atty) 1.00
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.
</TABLE>
Page 4 of 4
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Registration Nos. 33-50786, 33-16082, 2-73650, 333-
24703, 333-50005, 333-50827 and 333-89453) and Form S-3 (Registration No. 33-
53387) of H.B. Fuller Company of our report dated January 10, 2000 which appears
in the 1999 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 Schedule,
which appears in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
February 24, 2000
<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 27, 1999, hereby constitute and
appoint ALBERT P.L. STROUCKEN, RAYMOND A. TUCKER 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
1st day of December, 1999.
/s/ Anthony L. Andersen /s/ Walter Kissling
- ----------------------- --------------------------------------
ANTHONY L. ANDERSEN WALTER KISSLING
Director Director
/s/ Norbert R. Berg /s/ John J. Mauriel, Jr.
- ------------------- --------------------------------------
NORBERT R. BERG JOHN J. MAURIEL, JR.
Director Director
/s/ Edward L. Bronstien, Jr. /s/ Lee R. Mitau
- ---------------------------- --------------------------------------
EDWARD L. BRONSTIEN, JR. LEE R. MITAU
Director Director
/s/ Robert J. Carlson /s/ Rolf Schubert
- --------------------- --------------------------------------
ROBERT J. CARLSON ROLF SCHUBERT
Director Director
/s/ Freeman A. Ford /s/ Albert P.L. Stroucken
- ------------------- --------------------------------------
FREEMAN A. FORD ALBERT P.L. STROUCKEN
Director Chairman of the Board, President and
Chief Executive Officer and Director
/s/ Gail D. Fosler /s/ Lorne C. Webster
- ------------------ --------------------------------------
GAIL D. FOSLER LORNE C. WEBSTER
Director Director
/s/ Reatha Clark King
- ---------------------
REATHA CLARK KING
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> YEAR
<FISCAL-YEAR-END> NOV-27-1999
<PERIOD-START> NOV-28-1998
<PERIOD-END> NOV-27-1999
<CASH> 5,821
<SECURITIES> 0
<RECEIVABLES> 249,526
<ALLOWANCES> 4,871
<INVENTORY> 148,589
<CURRENT-ASSETS> 440,143
<PP&E> 767,303
<DEPRECIATION> 354,779
<TOTAL-ASSETS> 1,025,615
<CURRENT-LIABILITIES> 265,920
<BONDS> 263,714
0
306
<COMMON> 14,040
<OTHER-SE> 362,034
<TOTAL-LIABILITY-AND-EQUITY> 1,025,615
<SALES> 1,364,458
<TOTAL-REVENUES> 1,364,458
<CGS> 921,336
<TOTAL-COSTS> 339,375
<OTHER-EXPENSES> 2,498
<LOSS-PROVISION> 3,034
<INTEREST-EXPENSE> 26,823
<INCOME-PRETAX> 74,426
<INCOME-TAX> 31,807
<INCOME-CONTINUING> 44,111
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (741)
<NET-INCOME> 43,370
<EPS-BASIC> 3.14
<EPS-DILUTED> 3.10
</TABLE>
