-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BzN4vptIuo60qLHj2upJEwlBII+h1m7DysWb6CFmSc24GYQecWoojmnDvs4i/4Z1 +8B84jlnxr1UQOptCioTqA== 0001045969-00-000151.txt : 20000225 0001045969-00-000151.hdr.sgml : 20000225 ACCESSION NUMBER: 0001045969-00-000151 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19991127 FILED AS OF DATE: 20000224 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FULLER H B CO CENTRAL INDEX KEY: 0000039368 STANDARD INDUSTRIAL CLASSIFICATION: ADHESIVES & SEALANTS [2891] IRS NUMBER: 410268370 STATE OF INCORPORATION: MN FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-09225 FILM NUMBER: 552451 BUSINESS ADDRESS: STREET 1: 1200 WILLOW LAKE BLVD CITY: ST PAUL STATE: MN ZIP: 55110-5132 BUSINESS PHONE: 6126453401 10-K 1 FORM 10-K 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) 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)
(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- H.B. FULLER COMPANY 1999 Form 10-K Annual Report Table of Contents
PART I Page ------ ---- 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
-2- 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:
Class of Product Sales ---------------- ------------------------------------- 1999 1998 1997 ------ ------ ------ Adhesives, sealants and coatings 92% 91% 90% Paints 8 8 7 Other - 1 3 ----- ----- ------ 100% 100% 100% ===== ===== ======
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- 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- 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:
U.S. Locations Other Locations - -------------- --------------- 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
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- 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.
Name Age Position Period Served - ---- --- -------- ------------- 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
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Name Age Position Period Served - ---- --- -------- ------------- 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
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Name Age Position Period Served - ---- --- -------- ------------- Matthew Critchley 50 Group President, General Manager Asia/Pacific October, 1998-Present Managing Director, Australia/New Zealand 1994-1998
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:
Annual Report to Shareholders Page -------- 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
Item 9. Changes in and Disagreements with Accountants - --------------------------------------------- on Accounting and Financial Disclosure -------------------------------------- None -8- 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 - --------------------------------------------------------------
Reference -------------------------- Form 10-K Annual Report Annual Report to Shareholders Page Page ------ ------ (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
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Form 10-K Annual Report Annual Report to Shareholders Page Page ----- ------ 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
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- *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- *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- 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- 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)
Allowance for doubtful receivables ------------------------------------------ November 27, November 28, November 29, 1999 1998 1997 ---- ---- ---- 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 ======= ======= =======
-14- 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 *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 EX-10.P 2 MANAGING DIRECTOR AGREEMENT 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 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 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 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 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 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 EX-10.Q 3 CHANGE IN CONTROL AGREEMENT 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- 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- 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- (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- 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- 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- 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- 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- EX-10.V 4 RETIREMENT PLAN FOR DIRECTORS 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- 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- (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- EX-10.W 5 DIRECTORS BENEFIT TRUST 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 (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- 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- .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- 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- 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- 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- (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- 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- 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- 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- EX-11 6 COMPUTATION OF NET EARNINGS PER SHARE 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)
1999 1998 1997 ---------------- ---------------- ---------------- 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 =============== =============== ===============
EX-13 7 PAGES 31-64 OF THE 1999 ANNUAL REPORT 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 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 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:
North Latin Asia/ America Europe America Pacific Total - ----------------------------------------------------------------------------- 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 - -----------------------------------------------------------------------------
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
North Latin Asia/ America Europe America Pacific Total - ---------------------------------------------------------------------------- 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 - ----------------------------------------------------------------------------
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 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 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 - -------------------------------------------------------------------------------
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 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 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 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 Consolidated Statements of Income H.B. Fuller Company and Subsidiaries (In thousands, except share amounts)
Fiscal Year Ended --------------------------------------------------------- November 27, November 28, November 29, 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------------------- 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 - --------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements. 40 Energized to Meet Tomorrow's Opportunities Consolidated Balance Sheets H.B. Fuller Company and Subsidiaries (In thousands)
November 27, November 28, 1999 1998 - ------------------------------------------------------------------------------------------------------------------------ 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 - ------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements. Energized to Meet Tomorrow's Opportunities 41 Consolidated Statements of Stockholders' Equity H.B. Fuller Company and Subsidiaries (In thousands) Fiscal Years 1999, 1998 and 1997
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 - ----------------------------------------------------------------------------------------------------------------------------------- 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 - ----------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements. 42 Energized to Meet Tomorrow's Opportunities Consolidated Statements of Cash Flows H.B. Fuller Company and Subsidiaries (In thousands)
Fiscal Year Ended -------------------------------------------------------- November 27, November 28, November 29, 1999 1998 1997 - --------------------------------------------------------------------------------------------------------------------------------- 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
See accompanying Notes to Consolidated Financial Statements. Energized to Meet Tomorrow's Opportunities 43 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:
1999 1998 1997 - -------------------------------------------------------------------------------- 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) - --------------------------------------------------------------------------------
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:
1999 1998 - -------------------------------------------------------------------------------- Raw materials $ 63,392 $ 73,126 Finished goods 94,579 95,862 LIFO reserve (9,382) (10,382) - -------------------------------------------------------------------------------- Total $148,589 $158,606 - --------------------------------------------------------------------------------
44 Energized to Meet Tomorrow's Opportunities Property, Plant and Equipment: The major classes are:
Depreciable Lives (in years) 1999 1998 - --------------------------------------------------------------- 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 - ---------------------------------------------------------------
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 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:
1999 1998 1997 - --------------------------------------------------------------- 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 - ---------------------------------------------------------------
46 Energized to Meet Tomorrow's Opportunities 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:
North Latin Asia/ America Europe America Pacific Total - ----------------------------------------------------------------------- 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 - -----------------------------------------------------------------------
Energized to Meet Tomorrow's Opportunities 47
North Latin Asia/ America Europe America Pacific Total - ------------------------------------------------------------------- 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 - -------------------------------------------------------------------
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 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 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 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 9 / Long - Term Debt Long-term debt, including obligations under capital leases, is summarized as follows:
Weighted Average Interest Rate Maturity 1999 1998 - ----------------------------------------------------------------------------------------------------------------------------------- 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 - -----------------------------------------------------------------------------------------------------------------------------------
(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 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:
1999 1998 - ------------------------------------------------------------------- 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 ===================================================================
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:
Capital Operating - ------------------------------------------------------------------- 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 - -------------------------------------------------
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 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:
One Percentage Point - ------------------------------------------------------------------ Increase Decrease - ------------------------------------------------------------------ Effect on service and interest cost components $1,013 $ (696) Effect on accumulated postretirement benefit obligation $2,237 $(1,887) - ------------------------------------------------------------------ Weighted-average of assumptions, November 1999 1998 1997 - ------------------------------------------------------------------ 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% - ------------------------------------------------------------------
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
Pension Benefits ---------------------------------------------------------------------------------- U.S. Plans Non-U.S. Plans - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------------ 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) ==================================================================================================================================== Other Postretirement Benefits - ----------------------------------------------------------------------------------------- 1999 1998 1997 - ----------------------------------------------------------------------------------------- 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 =========================================================================================
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 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 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 A summary of non-qualified stock option transactions is as follows:
Weighted- Average Number Exercise Price - -------------------------------------------------------------------------------- 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 ================================================================================
A summary of non-qualified option transactions is as follows:
Weighted- Average Remaining Weighted- Weighted- Range of Years of Average Average Exercise Contractual Exercise Exercise Prices Outstanding Life Price Exercisable Price - -------------------------------------------------------------------------------------------------- $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 - - ==================================================================================================
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:
1999 - -------------------------------------------------------------------- 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 ======================================================================
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 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.
Sales to unaffiliated customers: 1999 1998 1997 - ------------------------------------------------------------------------------- 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 =============================================================================== Inter-company sales: 1999 1998 1997 - ------------------------------------------------------------------------------- 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 - - - =============================================================================== Net sales: 1999 1998 1997 - ------------------------------------------------------------------------------- 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 =============================================================================== Operating income (losses): 1999 1998 1997 - ------------------------------------------------------------------------------- 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 ===============================================================================
Energized to Meet Tomorrow's Opportunities 59
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 - --------------------------------------------------------------- Identifiable assets: 1999 1998 1997 - --------------------------------------------------------------- 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 - ---------------------------------------------------------------
General corporate assets consist primarily of cash and cash equivalents and long-term financial assets.
Long lived assets: 1999 1998 1997 - --------------------------------------------------------------- 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 - --------------------------------------------------------------- Capital expenditures: 1999 1998 1997 - --------------------------------------------------------------- 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 - ---------------------------------------------------------------
15 / Quarterly Data (unaudited)
Net sales: 1999 1998 - --------------------------------------------------------------- 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 - --------------------------------------------------------------- Gross profit: 1999 1998 - --------------------------------------------------------------- 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 - --------------------------------------------------------------- Operating income (losses): 1999 1998 - --------------------------------------------------------------- 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 - --------------------------------------------------------------- Net income (losses): 1999 1998 - --------------------------------------------------------------- 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 - --------------------------------------------------------------- Basic net income (losses) per share: 1999 1998 - --------------------------------------------------------------- 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 - --------------------------------------------------------------- Diluted net income (losses) per share 1999 1998 - --------------------------------------------------------------- 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 - ---------------------------------------------------------------
* 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 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 1989-1999 In Review and Selected Financial Data H.B. Fuller Company and Subsidiaries
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 - ------------------------------------------------------------------------------------------------------------------------------- % % % 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
* All years after 1995 are 52-week years. All other years are twelve months ended November 30. 62 Energized to Meet Tomorrow's Opportunities
1994 1993 1992 1991 1990 1989 - ---------------------------------------------------------------------------------------------------------- 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
Energized to Meet Tomorrow's Opportunities 63 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 EX-21 8 SUBSIDIARIES OF THE REGISTRANT Exhibit 21 H.B. FULLER COMPANY AND CONSOLIDATED SUBSIDIARIES AS OF NOVEMBER 27, 1999
PERCENTAGE JURISDICTION OF OF VOTING SUBSIDIARY ORGANIZATION SECURITIES - -------------------------------------------------------------------- ----------------- --------------- 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
Page 1 of 4 Exhibit 21 H.B. FULLER COMPANY AND CONSOLIDATED SUBSIDIARIES AS OF NOVEMBER 27, 1999
PERCENTAGE JURISDICTION OF OF VOTING SUBSIDIARY ORGANIZATION SECURITIES - -------------------------------------------------------------------- ----------------------- ------------------ 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 - ------------------------------------------------------------------------------------------------------------------------------------
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 KATIVO CHEMICAL INDUSTRIES, S.A. AND CONSOLIDATED SUBSIDIARIES AS OF NOVEMBER 27, 1999
PERCENTAGE JURISDICTION OF OF VOTING SUBSIDIARY OWNER OF VOTING SECURITIES ORGANIZATION SECURITIES - --------------------------------------------- --------------------------------- ------------- --------------- Chemical Supply, S.A. Chemical Supply Corporation Argentina 100.00 * note b H.B. Fuller Argentina, S.A. Kativo Chemical Industries, S.A. Argentina 99.99 H.B. Fuller Company 0.01 - --------------------------------------------------------------------------------------------------------------------------------- H.B. Fuller 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.
Page 3 of 4 KATIVO CHEMICAL INDUSTRIES, S.A. AND CONSOLIDATED SUBSIDIARIES AS OF NOVEMBER 27, 1999
PERCENTAGE JURISDICTION OF OF VOTING SUBSIDIARY OWNER OF VOTING SECURITIES ORGANIZATION SECURITIES - --------------------------------------------------------------------------------------------------------------------------------- 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.
Page 4 of 4 EX-23 9 CONSENT OF PRICE WATERHOUSECOOPERS LLP 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 EX-24 10 POWERS OF ATTORNEY 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 EX-27 11 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE SHEET, INCOME STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR NOV-27-1999 NOV-28-1998 NOV-27-1999 5,821 0 249,526 4,871 148,589 440,143 767,303 354,779 1,025,615 265,920 263,714 0 306 14,040 362,034 1,025,615 1,364,458 1,364,458 921,336 339,375 2,498 3,034 26,823 74,426 31,807 44,111 0 0 (741) 43,370 3.14 3.10
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