UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 2, 2002
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. 001-09225
H.B. FULLER COMPANY
(Exact name of registrant as specified in its charter)
Minnesota 41-0268370
(State or other jurisdiction of (I.R.S. Employer
incorporation ororganization) (Identification No.)
1200 Willow Lake Boulevard, Vadnais Heights, Minnesota 55110-5101
(Address of principal executive offices) (Zip Code)
(651) 236-5900
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1.00 per share
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
The number of shares outstanding of the Registrant's Common Stock, par value
$1.00 per share, was 28,314,400 as of March 31, 2002.
- 1 -
PART 1 FINANCIAL INFORMATION
- ----------------------------
Item 1. Financial Statements
- -----------------------------
H.B. FULLER COMPANY AND SUBSIDIARIES
Consolidated Statements Of Income
(In thousands, except per share amounts)
(Unaudited)
Thirteen Weeks Ended
-------------------------------
March 2, 2002 March 3, 2001
-------------------------------
Net revenue ............................................... $ 293,240 $ 306,934
Cost of sales ............................................. (218,062) (224,359)
-------------------------------
Gross profit .............................................. 75,178 82,575
Selling, administrative and other expenses ................ (68,832) (68,291)
Interest expense .......................................... (4,716) (5,663)
Other income (expense), net ............................... (626) (521)
-------------------------------
Income before income taxes, minority interests, equity
investments and accounting change ....................... 1,004 8,100
Income taxes .............................................. (442) (2,997)
Minority interests in consolidated income ................. (279) (15)
Income from equity investments ............................ 383 462
-------------------------------
Income before cumulative effect of accounting change ...... 666 5,550
Cumulative effect of accounting change .................... - (501)
-------------------------------
Net income ................................................ $ 666 $ 5,049
===============================
Basic income per common share:
Income before accounting change ........................... $ 0.02 $0.20
Accounting change ......................................... - (0.02)
-------------------------------
Net income ................................................ $ 0.02 $ 0.18
===============================
Diluted income per common share:
Income before accounting change ........................... $ 0.02 $ 0.20
Accounting change ......................................... - (0.02)
-------------------------------
Net income ................................................ $ 0.02 $ 0.18
===============================
Weighted-average common shares outstanding:
Basic ..................................................... 28,006 27,932
Diluted ................................................... 28,437 28,252
Dividends per share ....................................... $ 0.108 $ 0.104
See accompanying notes to consolidated financial statements.
- 2 -
H.B. FULLER COMPANY AND SUBSIDIARIES
Consolidated Balance Sheet
(Dollars in thousands)
(Unaudited)
March 2, December 1,
2002 2001
------------------ ------------------
Assets
Current Assets:
Cash and cash equivalents $ 5,498 $ 11,454
Trade receivables 213,563 219,711
Allowance for Doubtful Accounts (8,017) (8,121)
Inventories 144,593 141,210
Other current assets 48,879 39,619
------------------ ------------------
Total current assets 404,516 403,873
Net property, plant and equipment 358,714 371,113
Other assets 109,360 107,432
Goodwill 61,813 62,037
Other intangibles, net 21,077 21,718
------------------ ------------------
Total assets $955,480 $966,173
================== ==================
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable $ 27,090 $ 27,601
Current installments of long-term debt 2,203 3,479
Trade payables 107,844 114,155
Accrued payroll and employee benefits 28,773 30,659
Other accrued expenses 32,025 19,714
Income taxes payable 7,481 8,555
------------------ ------------------
Total current liabilities 205,416 204,163
Long-term debt, excluding current installments 196,774 203,001
Accrued pensions 63,157 66,012
Other liabilities 38,587 39,413
Minority interests in consolidated subsidiaries 19,841 19,558
Commitments and contingencies
Stockholders' Equity:
Series A preferred stock, par value $6.67 per share 306 306
Common stock, par value $1.00 per share 28,298 28,281
Shares outstanding March 2, 2002 were 28,297,846
and December 1, 2001 were 28,280,896
Additional paid-in capital 38,294 37,830
Retained earnings 393,669 396,048
Accumulated other comprehensive loss (26,012) (25,150)
Unearned compensation - restricted stock (2,850) (3,289)
------------------ ------------------
Total stockholders' equity 431,705 434,026
------------------ ------------------
Total liabilities and stockholders' equity $955,480 $966,173
================== ==================
See accompanying notes to consolidated financial statements.
- 3 -
H.B. FULLER COMPANY AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
Thirteen Weeks Ended
------------------------
March 2, March 3,
2002 2001
------------------------
Cash flows from operating activities:
Net income $ 666 $ 5,049
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 14,283 12,969
Change in assets and liabilities:
Accounts receivables, net (2,025) 13,557
Inventories (4,335) (6,750)
Other assets (6,196) (2,019)
Trade payables (1,631) (9,836)
Accrued payroll and employee benefits and
other accrued expenses 1,510 (7,974)
Restructuring Liability 4,988 (389)
Income taxes payable (154) 1,528
Accrued pensions (1,213) (3,506)
Other liabilities 1,623 (803)
Other 217 1,073
------------------------
Net cash provided by operating activities 7,733 2,899
Cash flows from investing activities:
Purchased property, plant and equipment (4,367) (8,004)
Proceeds from sale of property, plant and equipment 744 51
------------------------
Net cash used in investing activities (3,623) (7,953)
Cash flows from financing activities:
Proceeds from long-term debt 21,578 10,100
Repayment of long-term debt (27,152) (10,996)
Proceeds (payments) from/on notes payable (1,612) 5,947
Dividends paid (3,045) (2,969)
Other 317 (155)
------------------------
Net cash (used in) provided by financing activities (9,914) 1,927
Effect of exchange rate changes (152) 84
------------------------
Net change in cash and cash equivalents (5,956) (3,043)
Cash and cash equivalents at beginning of period 11,454 10,489
------------------------
Cash and cash equivalents at end of period $ 5,498 $ 7,446
========================
See accompanying notes to consolidated financial statements.
-4-
H.B. FULLER COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands)
1. Accounting Policies: The accompanying unaudited consolidated financial
statements have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial
information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information
necessary for a fair presentation of results of operations, financial
position, and cash flows in conformity with accounting principles generally
accepted in the United States of America. In the opinion of management, the
interim consolidated financial statements reflect all adjustments of a
normal recurring nature considered necessary for a fair presentation of the
Company's results for the periods presented. Operating results for interim
periods are not necessarily indicative of results that may be expected for
the fiscal year as a whole. The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues,
expenses, and related disclosures at the date of the financial statements
and during the reporting period. Actual results could differ from these
estimates. These unaudited interim consolidated financial statements should
be read in conjunction with the consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year
ended December 1, 2001 as filed with the Securities and Exchange
Commission.
2. Net Income per Common Share: A reconciliation of the net income and common
share components for the basic and diluted net income per common share
calculations is as follows:
Thirteen Weeks Ended
--------------------
March 2, March 3,
2002 2001
--------------------
Net income $ 666 $ 5,049
Dividends on preferred shares (4) (4)
--------------------
Income attributable to common shares $ 662 $ 5,045
====================
Weighted-average common shares - basic 28,006 27,933
Equivalent shares from stock compensation plans 431 319
--------------------
Weighted-average common shares - diluted 28,437 28,252
====================
The computations of diluted income per common share do not include 13 and
48 stock options with exercise prices greater than the average market price
of the common shares for the first quarter of 2002 and 2001, respectively,
as the results would have been anti-dilutive.
3. Comprehensive Income: The components of total comprehensive income
follows:
Thirteen Weeks Ended
--------------------
March 2, March 3,
2002 2001
--------------------
Net income $ 666 $ 5,049
Other comprehensive income (loss)
Foreign currency translation, net (862) 3,009
--------------------
Total comprehensive income (loss) $ (196) $ 8,058
====================
4. Inventories: The composition of inventories follows:
March 2, December 1,
2002 2001
----------------------
Raw materials $ 57,758 $ 57,226
Finished goods 97,693 95,149
LIFO reserve (10,858) (11,165)
----------------------
$144,593 $ 141,210
======================
-5-
5. Restructuring and Other Related Costs: During the first quarter of 2002,
the Company recorded pretax charges of $7,675 ($4,929 after tax) in the
income statement in connection with its restructuring plan that was
announced on January 15, 2002. The plan, which was contemplated in 2001,
but approved and implemented throughout 2002, calls for the elimination of
approximately 20 percent of the Company's current manufacturing capacity.
The Company is streamlining facilities and operations in Latin America,
Europe and North America. By reducing capacity and eliminating other cost
structures management estimates that upon completion, costs will be reduced
$10 to $12 million annually. Implementation of the plan will result in the
elimination of approximately 250 positions, primarily in manufacturing, of
which approximately 200 have been reflected in the first quarter severance
charge.
In connection with the 2002 restructuring initiative, the Company expects
to record pretax charges in the range of $30 to $35 million, inclusive of
the $1.6 million of accelerated depreciation charges recorded in the fourth
quarter of 2001. These charges will include employee severance and other
separation costs, accelerated depreciation on assets held and used until
disposal, lease/contract termination costs and other costs directly related
to the restructuring plan. Cash costs of the plan are expected to be $20 to
$25 million. The charges will be incurred throughout the 2002 fiscal year.
The following table summarizes the restructuring charges and the related
restructuring liability:
Employee Severance Accelerated
(Dollars in thousands) and Benefits Depreciation Other Total
----------------------------------------------------------
Balance at December 2, 2001 $ 349 $ - $ 176 $ 525
2002 charges
First quarter 4,784 1,637 1,254 7,675
Non-cash (279) (1,637) - (1,916)
Cash payments (161) (161) (322)
------------------ --------------------
Total liability at March 2, 2002 4,693 1,269 5,962
Long-term portion of liability - (490) (490)
------------------ --------------------
Current liability at March 2, 2002 $ 4,693 $ 779 $ 5,472
================== ====================
The total charges of $7,675 were recorded in the income statement as: $6,254 in
costs of sales and $1,421 in selling, administrative and other expenses (SG&A).
The $6,254 in cost of sales consisted of $3,444 of employee severance and
benefits, $1,628 of accelerated depreciation, $1,178 of adverse lease
termination costs and $4 of other related costs. The $1,421 in SG&A expenses
consisted of $1,340 of employee severance and benefits, $9 of accelerated
depreciation and $72 of other related costs. Non-cash amounts attributed to
employee severance and benefits is related to the granting of accelerated
vesting on restricted stock held by certain employees subject to the
restructuring. The long-term portion of the restructuring liability relates to
adverse lease commitments that are expected to be paid beyond one year.
The beginning balance of $525 in the restructuring liability relates to a prior
restructuring plan.
6. Derivatives: Derivatives consisted primarily of forward currency contracts
(primarily to receive euros) used to manage foreign currency denominated
liabilities. Because contracts outstanding were not designated as hedges,
the gains and losses are recognized in the income statement of the same
period as the remeasurement of the related foreign currency denominated
liabilities.
Notional amounts outstanding at March 2, 2002 were $117,266, however,
notional amounts are not a measure of the Company's exposure. As of March 2,
2002, the Company had forward contracts maturing between March 6, 2002 and
August 15, 2002. In the opinion of management, the impact of recording the
changes in market value during the quarter were not material.
7. Operating Segments: Effective for the first quarter of 2002, the Company's
new internal management structure has caused a change in its segment
reporting. The change has resulted in the reporting of two operating
segments: Global Adhesives and Full-Valu/Specialty. The global adhesives
operating segment is comprised of the Company's industrial adhesives and
automotive adhesives product lines. Markets served in the global adhesives
operating segment include packaging, graphic arts, nonwoven, assembly
(woodworking, appliances, etc.), converting, automotive and footwear. These
product lines and markets were previously reported on a geographic segment
basis.
-6-
The Full-Valu/Specialty operating segment represents the Company's specialty
product lines including TEC, Foster, Global Coatings, liquid paints and
other product lines that constitute "Full-Valu".
Trade Inter-Segment Operating
Thirteen Weeks Ended March 2, 2002 Revenue Revenue Income
---------------------------------- ------------------------------------
Global Adhesives $ 200,939 $ 1,498 $ 9,323
Full-Valu/Specialty 92,301 188 4,698
Corporate and Unallocated - (1,686) -
------------------------------------
Total $ 293,240 - $14,021
====================================
Trade Inter-Segment Operating
Thirteen Weeks Ended March 3, 2001 Revenue Revenue Income
---------------------------------- ------------------------------------
Global Adhesives $ 210,415 $ 1,975 $ 8,339
Full-Valu/Specialty 96,519 272 5,945
Corporate and Unallocated - (2,247) -
------------------------------------
Total $ 306,934 - $14,284
====================================
Reconciliation of Operating Income to Income before Income Taxes:
Thirteen Weeks Ended
-----------------------------
March 2, 2002 March 3, 2001
------------- -------------
Operating income $ 14,021 $14,284
Restructuring and other related costs (7,675) -
Interest expense (4,716) (5,663)
Other income/(expense), net (626) (521)
-----------------------------
Income before income taxes $ 1,004 $ 8,100
=============================
8. Adopted Accounting Standards: In June 2001 the Financial Accounting Standards
Board (FASB) issued Statements of Financial Accounting Standards (SFAS) No. 141,
"Business Combinations", and No. 142, "Goodwill and Other Intangible Assets".
These Statements eliminated the pooling-of-interests method of accounting for
business combinations and the systematic amortization of goodwill. SFAS No. 141
applies to all business combinations with a closing date after June 30, 2001, of
which the Company had no such activity. Effective December 2, 2002, the Company
early adopted SFAS No. 142. Under the new standard, purchased goodwill is no
longer amortized over its useful life. Therefore, the Company did not incur any
goodwill amortization expense during the first quarter of 2002. Goodwill
amortization expense recorded in the first quarter of 2001 was $1,027, which had
a negative impact of $0.02 per diluted share. Based on the Company's preliminary
assessment of any potential impairment associated with the adoption of FAS No.
142, management does not expect to record any impairment charges.
9. Recently Issued Accounting Standard: In August 2001, FASB issued SFAS No.
144, "Accounting for the Impairment or Disposal of Long-lived Assets", which
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. SFAS No. 144 supersedes SFAS No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of",
and the accounting and reporting provisions of APB Opinion No. 30, "Reporting
the Results of Operations for a disposal of a segment of a business". SFAS No.
144 is effective for fiscal years beginning after December 15, 2001, with
earlier application encouraged. The Company will adopt this standard for its
fiscal year beginning December 1, 2002. The impact of adopting this accounting
standard is not expected to have a material effect on the Company's financial
position and results of operations.
-7-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
- ---------------------
Net sales in the first quarter of 2002 of $293.2 million were $13.7 million or
4.5 percent less than the net sales of $306.9 million reported in the first
quarter of 2001. The sales performance continued to be affected by the overall
weakness in the global economy as evidenced by the sales volume decrease of 2.7
percent as compared to the first quarter of 2001. Weakness of foreign
currencies, primarily the euro, Australian dollar and Japanese yen, versus the
U.S. dollar resulted in a 1.4 percent sales decrease in the first quarter of
2002. Average selling prices decreased 0.4 percent in the quarter as compared to
the same period last year.
Net sales in the Global Adhesives operating segment of $200.9 million decreased
4.5 percent from the $210.4 million posted in the first quarter of 2001. Sales
volume was down 3.0 percent from a year ago and weaker foreign currencies had a
negative 1.8 percent impact on first quarter net sales. Average selling prices
showed a slight increase over last year of 0.3 percent. One bright spot in the
Global Adhesives segment was the automotive market, which reported a 13.5
percent increase in first quarter sales as compared to last year. This was
primarily due to an increase in vehicle production in North America of
approximately 6 percent on a year-over-year basis. The nonwoven market was
another area of strength in the first quarter with a 5.5 percent sales increase
over the first quarter of 2001. Two markets that continue to be impacted by the
overall slowdown in economic activity are assembly (appliances, woodworking,
etc.) and converting. Both of these markets reported sales decreases in the
first quarter of 10.3 percent as compared to the first quarter of 2001.
Net sales in the Full-Valu/Specialty operating segment of $92.3 million were
$4.2 million or 4.4 percent less than the first quarter of 2001. Sales volume
decreased 1.9 percent, currency effects were a negative 0.5 percent and average
selling prices decreased 2.0 percent. The decrease in selling prices was
attributed primarily to the liquid paints market in Central America, which has
seen a high level of price competition as a reaction to the slowdown in overall
economic activity. The powder coatings market, which also has a high correlation
to the strength of the economy, reported a first quarter sales decrease of 13.7
percent as compared to the first quarter of 2001.
The first quarter income statement includes pretax charges of $7.7 million
related to the Company's restructuring plan announced on January 15, 2002. The
plan calls for streamlining operations including the elimination of
approximately 20 percent of current manufacturing capacity. Approximately 250
positions, primarily in manufacturing, will be eliminated in Europe, Latin
America and North America, of which approximately 200 have been reflected in the
first quarter severance charge. Pretax charges related to the plan are expected
to be $30 to $35 million, inclusive of the $1.6 million of accelerated
depreciation charges recorded in the fourth quarter of 2001. These charges will
include employee severance and other separation costs, accelerated depreciation
on assets held and used until disposal, lease/contract termination costs and
other costs directly related to the restructuring plan. Cash costs of the plan
are expected to be $20 to $25 million. The charges will be incurred throughout
the 2002 fiscal year. By reducing the installed capacity and removing other cost
structures, management estimates that upon completion, costs will be reduced
approximately $10 to $12 million annually.
The first quarter charges were recorded in the income statement as follows: $6.3
million in cost of sales and $1.4 million in selling, administrative and other
expenses. In addition, a credit of $0.15 million was recorded in minority
interests. The total impact of the restructuring plan on the first quarter net
income was a negative $4.9 million or approximately $0.18 per diluted share.
-8-
The following table summarizes the restructuring charges and the related
restructuring liability:
Employee Severance Accelerated
(Dollars in thousands) and Benefits Depreciation Other Total
----------------------------------------------------------
Balance at December 2, 2001 $ 349 $ - $ 176 $ 525
2002 charges
First quarter 4,784 1,637 1,254 7,675
Non-cash (279) (1,637) - (1,916)
Cash payments (161) (161) (322)
----------------- --------------------
Total liability at March 2, 2002 4,693 1,269 5,962
Long-term portion of liability - (490) (490)
----------------- --------------------
Current liability at March 2, 2002 $4,693 $ 779 $ 5,472
================= ====================
Of the $7,675 of first quarter charges, $6,254 was recorded in cost of sales and
consisted of $3,444 of employee severance and benefits, $1,628 of accelerated
depreciation, $1,178 of adverse lease termination costs and $4 of other related
costs. The remaining $1,421 was recorded in SG&A expenses and consisted of
$1,340 of employee severance and benefits, $9 of accelerated depreciation and
$72 of other related costs. Non-cash amounts attributed to employee severance
and benefits is related to the granting of accelerated vesting on restricted
stock held by certain employees subject to the restructuring. The long-term
portion of the restructuring liability relates to adverse lease commitments that
are expected to be paid beyond one year.
The beginning balance of $525 in the restructuring liability relates to a prior
restructuring plan.
Following is Supplemental Unaudited Consolidated Statement of Income
information.
13 Weeks Ended - March 2, 2002
------------------------------
(Dollars in thousands, except per share amounts) Restructuring and Excluding 13 Weeks Ended
As Reported Related Costs Restructuring March 3, 2001
----------- ----------------- ------------- --------------
Net sales $ 293,240 $ - $ 293,240 $ 306,934
Cost of sales (218,062) (6,254) (211,808) (224,359)
---------------------------------------------------------------
Gross profit 75,178 (6,254) 81,432 82,575
Selling, administrative and other expenses (68,832) (1,421) (67,411) (68,291)
Interest expense (4,716) - (4,716) (5,663)
Other income/(expense), net (626) - (626) (521)
---------------------------------------------------------------
Income before tax and minority interests 1,004 (7,675) 8,679 8,100
Income taxes (442) 2,596 (3,038) (2,997)
Minority interests (279) 150 (429) (15)
Income from equity investments 383 - 383 462
---------------------------------------------------------------
Income before cumulative effect of
accounting change 666 (4,929) 5,595 5,550
Cumulative effect of accounting change - - - (501)
---------------------------------------------------------------
Net income $ 666 $ (4,929) $ 5,595 $ 5,049
===============================================================
Income per diluted share:
Before cumulative effect of
accounting change $ 0.02 $ (0.18) $ 0.20 $ 0.20
Cumulative effect of accounting change - - - (0.02)
---------------------------------------------------------------
Net Income $ 0.02 $ (0.18) $ 0.20 $ 0.18
===============================================================
The following discussion excludes the impact of the restructuring plan on the
first quarter results.
The consolidated gross profit margin in the first quarter of 2002 of 27.8
percent was 0.9 percentage points higher than the first quarter of 2001.
Favorable raw material prices as compared to last year were the main reason for
the margin improvement.
Selling, administrative and other expenses (SG&A) of $67.4 million in the
first quarter of 2002 were 1.3 percent less than the $68.3 million of SG&A
expenses recorded in the first quarter of 2001. Included in the 2002 expenses as
compared to 2001 is a decrease of approximately $2.3 million in U.S. pension and
other postretirement income. The $2.3 million represents 75 percent of the total
decrease in U.S. pension and other postretirement income of nearly $3.0 million.
The remaining decrease of $0.7 million was included in cost of sales. SG&A
expenses were reduced from last year because of tight spending controls and a
reduction in employee census. The total Company census at March 2, 2002 was
4,845 as compared to 4,994
-9-
at March 3, 2001. Of the reduction of 149 employees, 77 were included in SG&A
and 72 were included in cost of sales. As a percent of sales, SG&A expenses were
23.0 percent in 2002 as compared to 22.2 percent in 2001.
Interest expense of $4.7 million was $0.9 million less than last year. Lower
average debt levels, combined with lower interest rates, resulted in the lower
interest expense.
Other income/expense, net was an expense of $0.6 million as compared to an
expense of $0.5 million in the first quarter of 2001. Included in the other
expenses was an increase in foreign currency losses of nearly $1.0 million.
Approximately $0.7 million of the increase in foreign currency losses was due to
currency devaluations in Argentina. Offsetting the impact from foreign currency
was the elimination of the amortization of goodwill resulting from the adoption
of the Financial Accounting Standards Board's Statement of Financial
Accounting Standard No. 142, "Goodwill and Other Intangible Assets". The
standard eliminated the systematic amortization of goodwill. In the first
quarter of 2001 the Company recorded goodwill amortization expense of
approximately $1.0 million.
The income tax rate in the first quarter of 2002 was 35 percent. This compares
to a rate of 37 percent in the first quarter of 2001. The rate for the total
year 2001 was 35 percent.
Net income before the cumulative effect of accounting change related to revenue
recognition was $5.6 million, or $0.20 per diluted share, in the first quarter
of both 2002 and 2001. The cumulative effect of an accounting change reduced the
2001 net income to $5.0 million, or $0.18 per diluted share.
Operating Segment Results
- -------------------------
Effective for the first quarter of 2002, the Company's new internal management
structure has caused a change in its segment reporting. The change has resulted
in the reporting of two operating segments: Global Adhesives and
Full-Valu/Specialty. The global adhesives operating segment is comprised of the
Company's industrial adhesives and automotive adhesives product lines. Markets
served in the global adhesives operating segment include packaging, graphic
arts, nonwoven, assembly (woodworking, appliances, etc.), converting, automotive
and footwear. These product lines and markets were previously reported on a
geographic segment basis.
The Full-Valu/Specialty operating segment represents the Company's specialty
product lines including TEC, Foster, Global Coatings, liquid paints and other
product lines that constitute "Full-Valu".
Management evaluates the performance of its operating segments based on
operating income, which is defined as gross profit minus SG&A expenses.
Corporate expenses are fully allocated to the operating segments.
Operating income of $9.3 million for the Global Adhesives operating segment
in the first quarter of 2002 was $1.0 million or 11.8 percent more than the
first quarter of 2001. Although the gross profit in dollars was approximately
the same as 2001 at $50.0 million, the gross profit margin increased 1.5
percentage points to 25.2 percent primarily as a result of lower raw material
costs. SG&A expenses in 2002 were less than 2001 due to reduced census and tight
spending controls. Operating income as a percent of sales in the first quarter
of 2002 was 4.6 percent as compared to 2.7 percent in 2001.
Operating income of $4.7 million for the Full-Valu/Specialty operating
segment in the first quarter of 2002 was $1.2 million or 21 percent less than
the first quarter of 2001. The earnings shortfall was driven by reduced gross
profit, which resulted primarily from the lower sales in the liquid paints and
powder coatings markets. The gross profit in total for Full-Valu/Specialty
decreased $2.2 million and liquid paints and powder coatings combined, decreased
$2.7 million. These decreases were partially offset by gross profit increases in
the Foster products and window markets. Consistent with Global Adhesives, SG&A
expenses in Full-Valu/Specialty decreased in 2002 due to reduced census and
tight spending controls. Operating income as a percent of sales in the first
quarter of 2002 was 5.1 percent as compared to 6.2 percent in 2001.
-10-
Liquidity and Capital Resources
- -------------------------------
Note: Cash flow and balance sheet discussion includes the impact from the
Company's restructuring and other related costs.
Net cash provided from operations in the first quarter of 2002 of $7.7 million
was $4.8 million more than in the same period last year. Lower net income in
2002, including the restructuring charges, was more than offset by favorable
changes in operating working capital, which is defined as current assets
excluding cash less current liabilities excluding short-term debt. In the first
quarter of 2002, operating working capital increased $3.6 million as compared
to an increase of $11.4 million in the first quarter of 2001. The increase in
the current portion of the restructuring liability accounted for an operating
working capital reduction of $4.9 million in the first quarter of 2002. Trade
accounts receivable days sales outstanding were 63 days at March 2, 2002 as
compared to 59 days at December 1, 2001 and 63 days at March 3, 2001. Average
inventory days on hand of 61 days was equal to the days on hand at both December
1, 2001 and March 3, 2001.
Total debt of $226.1 million at quarter-end was $8.0 million or 3.4 percent less
than total debt at December 1, 2001 and $70 million or 23.7 percent less than
the total debt level at March 3, 2001. The Company's capitalization ratio
(defined as total debt divided by total debt plus stockholders' equity) was 34.4
percent at March 2, 2002 as compared to 35.0 percent at December 1, 2001 and
41.9 percent at March 3, 2001.
Capital expenditures for property, plant and equipment in the first quarter of
2002 were $4.4 million as compared to $8.0 million in the first quarter of 2001.
Euro Currency Conversion
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There were no significant developments in the first quarter, 2002 as the Company
changed its functional currency for its European adhesives operations to the
euro.
Safe Harbor for Forward-Looking Statements
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Certain statements in this document are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements are subject to various risks and uncertainties, including but not
limited to the following: political and economic conditions; product demand and
industry capacity; competitive products and pricing; manufacturing efficiencies;
new product development; product mix; availability and price of raw materials
and critical manufacturing equipment; new plant startups; accounts receivable
collection; the Company's relationships with its major customers and suppliers;
changes in tax laws and tariffs; patent rights that could provide significant
advantage to a competitor; devaluations and other foreign exchange rate
fluctuations (particularly with respect to the euro, the British pound, the
Japanese yen, the Australian dollar, the Argentine peso and the Brazilian real);
the regulatory and trade environment; and other risks as indicated from time to
time in the Company's filings with the Securities and Exchange Commission. All
forward-looking information represents management's best judgment as of this
date based on information currently available that in the future may prove to
have been inaccurate. Additionally, the variety of products sold by the Company
and the regions where the Company does business makes it difficult to determine
with certainty the increases or decreases in sales resulting from changes in the
volume of products sold, currency impact, changes in product mix and selling
prices. However, management's best estimates of these changes as well as changes
in other factors have been included. References to volume changes include volume
and product mix changes, combined.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
- -------------------------------------------------------------------
See Note 6 to consolidated financial statements.
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PART II. OTHER INFORMATION
Item 6.
Exhibits and Reports on Form 8-K
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(a) Exhibits
None
(b) Reports on Form 8-K.
One report on Form 8-K was filed during the quarter ended March 2, 2002
reporting the Company's financial results for the fourth quarter of
2001.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
H.B. Fuller Company
Dated: April 16, 2002 /S/ Raymond A. Tucker
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Raymond A. Tucker
Senior Vice President and
Chief Financial Officer
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