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 February 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, Vadnais Heights, Minnesota 55110-5101
(Address of principal executive offices) (Zip Code)
(651) 236-5900
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
par value $1.00 per share
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
The number of shares outstanding of the Registrant's Common Stock, par value
$1.00 per share, was 14,010,644 as of March 31, 1999.
-1-
H.B. FULLER COMPANY AND CONSOLIDATED SUBSIDIARIES
Consolidated Condensed Statements of Earnings
(Unaudited)
(In thousands except per share amounts)
Thirteen Weeks Ended
-----------------------------------------
February 27, February 28, %
1999 1998 Change
------------ ------------ ------
Net sales $ 327,210 $ 310,656 5.3%
Cost of sales (222,636) (213,022) 4.5%
--------- ---------
Gross profit 104,574 97,634 7.1%
Selling, administrative and other expenses (81,949) (82,197) -0.3%
Non-recurring items (2,109) - *
--------- ---------
Operating earnings 20,516 15,437 32.9%
Interest expense (6,867) (5,209) 31.8%
Other income (expense), net (1,004) (829) 21.1%
--------- ---------
Earnings before income taxes and minority interests 12,645 9,399 34.5%
Income taxes (5,481) (3,835) 42.9%
Net earnings of consolidated subsidiaries
applicable to minority interests (78) 80 *
Earnings from equity investments 513 310 65.5%
--------- ---------
Net earnings 7,599 5,954 27.6%
Dividends on preferred stock (4) (4)
--------- ---------
Net earnings applicable to common stock $ 7,595 $ 5,950 27.6%
========= =========
Average number of common and common
equivalent shares outstanding:
Basic 13,772 13,675 0.7%
========= =========
Diluted 13,852 13,812 0.3%
========= =========
Net earnings per common share:
Basic $ 0.55 $ 0.44 25.0%
========= =========
Diluted $ 0.55 $ 0.43 27.9%
========= =========
Cash dividend per common share $ 0.200 $ 0.185 8.1%
========= =========
* Change of 100% or more.
-2-
H.B. FULLER COMPANY AND CONSOLIDATED SUBSIDIARIES
Consolidated Condensed Balance Sheets
(In thousands)
(Unaudited)
February 27, November 28,
1999 1998
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 5,792 $ 4,605
Trade receivables 230,113 247,952
Allowance for doubtful accounts (4,745) (5,073)
Inventories 160,869 158,606
Other current assets 54,716 51,810
----------- -----------
Total current assets 446,745 457,900
Property, plant and equipment, net of
accumulated depreciation of $346,096
in 1999 and $343,514 in 1998 415,281 414,467
Deposits and miscellaneous assets 71,896 70,673
Other intangibles 33,373 34,717
Excess cost 67,736 68,412
----------- -----------
Total assets $ 1,035,031 $ 1,046,169
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 52,734 $ 59,282
Current installments of long-term debt 6,676 4,428
Accounts payable 122,702 129,694
Accrued expenses 62,959 71,725
Accrued non-recurring charges 9,953 13,215
Income taxes payable 2,094 6,816
----------- -----------
Total current liabilities 257,118 285,160
Long-term debt,
excluding current installments 313,631 300,074
Accrued pension cost 79,966 83,500
Deferred income taxes and other liabilities 22,508 19,833
Minority interest 16,360 16,198
Stockholders' equity:
Preferred stock 306 306
Common stock 14,002 13,983
Additional paid-in capital 31,768 31,140
Retained earnings 314,052 309,275
Accumulated other comprehensive income (6,981) (5,306)
Unearned compensation (7,699) (7,994)
----------- -----------
Total stockholders' equity 345,448 341,404
----------- -----------
Total liabilities and stockholders' equity $ 1,035,031 $ 1,046,169
=========== ===========
See accompanying Notes to Consolidated Condensed Financial Statements.
-3-
H.B. FULLER COMPANY AND CONSOLIDATED SUBSIDIARIES
Consolidated Condensed Statement of Cash Flows
(Unaudited)
(In thousands)
Thirteen Weeks Ended
-------------------------
February 27, February 28,
1999 1998
------------ ------------
Cash flows from operating activities:
Net earnings $ 7,599 $ 5,954
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 12,536 11,070
Pension costs 1,901 2,238
Deferred income tax (973) 2,997
Non-recurring expenses (1,847) --
Gain on sale of businesses in the
restructuring plan (2,401) --
Other items (3,084) (4,468)
Change in current assets and liabilities:
Accounts receivable 11,059 5,202
Inventory (2,461) (12,198)
Prepaid assets (2,437) (4,612)
Accounts payable (4,617) (7,459)
Accrued expense (3,005) (12,295)
Accrued non-recurring charges (3,262) --
Income taxes payable 3,618 (1,841)
-------- --------
Net cash provided by(used by)
operating activities 12,626 (15,412)
Cash flows from investing activities:
Purchased property, plant and equipment (14,367) (12,922)
Purchased business, net of cash acquired (4,483) (35,139)
-------- --------
Net cash used in investing activities (18,850) (48,061)
Cash flows from financing activities:
Increase in long-term debt 56,130 50,338
Current installments and payments of
long-term debt (38,389) (14,861)
Notes payable (6,201) 32,883
Dividends paid (2,803) (2,564)
Other (1,276) (1,417)
-------- --------
Net cash provided by financing activities 7,461 64,379
Effect of exchange rate changes on cash (50) (70)
-------- --------
Net change in cash and cash equivalents 1,187 836
Cash and cash equivalents at beginning of year 4,605 2,710
-------- --------
Cash and cash equivalents at end of period $ 5,792 $ 3,546
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest expense (net of amount capitalized) $ 12,089 $ 9,218
Income taxes $ 1,777 $ 2,730
For purposes of this statement, the Company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents.
-4-
H.B. FULLER COMPANY AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Amounts in Thousands)
(Unaudited)
1. In the opinion of the Company, the accompanying unaudited Consolidated
Condensed Financial Statements include all adjustments necessary to present
fairly the financial position as of February 27, 1999 and November 28,
1998, the results of its operations for the thirteen weeks ended February
27, 1999 and February 28, 1998 and its cash flows for the thirteen weeks
ended February 27, 1999 and February 28, 1998.
2. The results of operations for the thirteen week period ended February 27,
1999 are not necessarily indicative of the results to be expected for the
full year.
3. The composition of inventories is presented below:
February 27, 1999 November 28, 1998
----------------- -----------------
Raw materials $ 69,923 $ 73,126
Finished goods 101,349 95,862
LIFO reserve (10,403) (10,382)
--------- --------
$ 160,869 $158,606
========= ========
4. The difference between basic and diluted earnings 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.
5. The Company enters into foreign exchange forward contracts as a hedge
against firm commitment foreign currency intercompany accounts receivable,
payable or debt. Market value gains and losses are recognized, and the
resulting credit or debit offsets foreign exchange gains or losses on those
receivables, payables or debt. At February 27, 1999, the aggregate contract
value of instruments used to sell 4,219 pound sterling, 4,320 deutsche
marks, and $4,264 to buy foreign currency (primarily 25,437 Dutch guilders
and 2,800 deutsche marks) was $14,305. The contracts mature between March
23, 1999 and November 20, 2000.
6. The carrying amounts and estimated fair values of the Company's significant
other financial instruments at February 27, 1999, are as follows:
Carrying Fair
Amount Value
-------- --------
Cash and short-term investments $ 5,792 $ 5,792
Notes payable 52,734 52,734
Long-term debt 320,307 325,980
Fair values of short-term financial instruments approximate their carrying
values due to their short maturity.
The fair value of long-term debt is based on quoted market prices for the
same or similar issues or on the current rates offered to the Company for
debt of similar maturities. The estimates presented above on long-term
financial instruments are not necessarily indicative of the amounts that
would be realized in a current market exchange.
-5-
7. During the first quarter, the Company acquired an adhesive product line in
Australia for $4,483 in cash. Assets acquired include the excess of cost
over net assets acquired of $1,629. The acquisition was accounted for as a
purchase and the accompanying Consolidated Financial Statements include the
results of this product line since the purchase date. The historical
results of operations on a pro forma basis are not presented as the effects
of the acquisition was not material.
8. As required, the Company adopted Financial Accounting Standard No. 130
"Reporting Comprehensive Income" during the first quarter. Other
comprehensive income:
Foreign currency translation adjustment ($ 1,675)
--------
Other comprehensive income ($ 1,675)
========
9. During the first quarter of 1999, the Company recorded the following
amounts in the income statement in connection with the restructuring plan
implemented in 1998 and discussed in the 1998 Form 10-K.
North Latin Asia/
America Europe America Pacific Total
------- ------ ------- ------- -------
Severance (net of
pension curtailment) $ 9 $2,931 $ 17 $ 20 $ 2,977
Impairment of
property, plant and
equipment -- -- -- 7 7
Contracts/leases -- 433 13 84 530
Consulting 243 191 20 -- 454
Other 174 201 133 34 542
---- ------ ---- ------- -------
Subtotal 426 3,756 183 145 4,510
Less: Gain on the
sale of property and
plant -- -- -- (2,401) (2,401)
---- ------ ---- ------- -------
Total $426 $3,756 $183 $(2,256) $ 2,109
==== ====== ==== ======= =======
Included in the $4,510 restructuring charge for the quarter are $6,357 of
cash costs, $7 non-cash related costs and a $1,854 pension curtailment
benefit.
North America charges relate to a manufacturing plant closing in the
quarter and reduced layers of management. Latin American charges relate to
two manufacturing plants closed in the quarter (three plants will be closed
during the balance of 1999). The European charges relate to announced plant
closures in three countries (one announced in the first quarter of 1999 and
all to be closed in the second quarter of 1999) and to severance cost
associated with the reduction in layers in management. In Asia/Pacific, the
costs are related to a manufacturing plant closure, sales offices and
warehouses closed, the group office relocation and layers of management
which are being reduced. These costs in Asia/Pacific were more than offset
by a gain on the sale of the property and plant of the closed plant.
There was a reduction of census of 227 employees in the first quarter of
1999 as a result of the restructuring plan. An additional 299 employees
have been notified of severance over the balance of 1999 with severance
costs accrued.
The following table is a detailed reconciliation of the restructuring
reserve balance from November 28, 1998 to February 27, 1999. The
reconciliation reflects the accruals recorded and payments applied during
the quarter.
-6-
Non-recurring charge reserve:
North Latin Asia/
America Europe America Pacific Total
------- ------ ------- ------- -------
Balance:
November 28, 1998 $1,992 $7,994 $3,141 $ 88 $13,215
Accruals in first qtr.,
1999:
Severance 1,058 3,736 17 20 4,831
Contracts/leases -- 433 13 84 530
Consulting 243 191 20 -- 454
Other 174 201 133 34 542
Payments in first
qtr., 1999:
Severance (703) (5,600) (2,082) (108) (8,493)
Contracts/leases -- (33) (13) (84) (130)
Consulting (243) (191) (20) -- (454)
Other (174) (201) (133) (34) (542)
------ ------- ------- ----- -------
Balance:
February 27, 1999 $2,347 $ 6,530 $ 1,076 $ -- $ 9,953
====== ======= ======= ===== =======
-7-
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Thousands)
The following discussion includes comments and data related to the Company's
financial condition and results of operations during the periods included in the
accompanying Consolidated Condensed Financial Statements.
Results of Operations
Net sales for the first quarter of 1999 increased $16,554 or 5.3 percent, when
compared to 1998. The sales increase was the result of 3.1 percentage points
from increased volume and product mix, a net increase of 3.1 percentage points
from acquisitions and divestitures, an increase of 0.6 percentage points
resulting from a weakening of the U.S. dollar and a negative 1.5 percentage
points from reduced pricing.
A comparison of sales increases by operating area is as follows:
Thirteen Weeks Ended
February 27, 1999
February 28, 1998
--------------------
Operating Area
- --------------
North America $3,059 2%
Latin America 895 2%
Europe 10,462 18%
Asia/Pacific 2,138 10%
-----
Total $16,554 5%
=======
Net earnings for the quarter increased from $5,954 in 1998 to $7,599 in 1999.
The earnings in 1999 were impacted by a $2,109 ($1,689 after tax) non-recurring
charge.
During the first quarter of 1999, the Company recorded the following amounts in
the income statement in connection with the restructuring plan implemented in
1998 and discussed in the 1998 Form 10-K.
North Latin Asia/
America Europe America Pacific Total
------- ------ ------- ------- -------
Severance (net of pension
curtailment) $ 9 $2,931 $ 17 $ 20 $ 2,977
Impairment of property,
plant and equipment -- -- -- 7 7
Contracts/leases -- 433 13 84 530
Consulting 243 191 20 -- 454
Other 174 201 133 34 542
---- ------ ---- ------- -------
Subtotal 426 3,756 183 145 4,510
Less: Gain on the sale of
property and plant -- -- -- (2,401) (2,401)
---- ------ ---- ------- -------
Total $426 $3,756 $183 $(2,256) $ 2,109
==== ====== ==== ======= =======
Included in the $4,510 restructuring charge for the quarter are $6,357 of cash
costs, $7 non-cash related costs and a $1,854 pension curtailment benefit.
-8-
North America charges relate to a manufacturing plant closing in the quarter and
reduced layers of management. Latin American charges relate to two manufacturing
plants closed in the quarter (three plants will be closed during the balance of
1999). The European charges relate to announced plant closures in three
countries (one announced in the first quarter of 1999 and all to be closed in
the second quarter of 1999) and to severance cost associated with the reduction
in layers in management. In Asia/Pacific, the costs are related to a
manufacturing plant closure, sales offices and warehouses closed, the group
office relocation and layers of management which are being reduced. These costs
in Asia/Pacific were more than offset by a gain on the sale of the property and
plant of the closed plant.
There was a reduction of census of 227 employees in the first quarter of 1999 as
a result of the restructuring plan. An additional 299 employees have been
notified of severance over the balance of 1999 with severance costs accrued.
The following table is a detailed reconciliation of the restructuring reserve
balance from November 28, 1998 to February 27, 1999. The reconciliation reflects
the accruals recorded and payments applied during the quarter.
Non-recurring charge reserve:
North Latin Asia/
America Europe America Pacific Total
------- ------ ------- ------- -------
Balance:
November 28, 1998 $ 1,992 $ 7,994 $ 3,141 $ 88 $13,215
Accruals in first qtr.,
1999:
Severance 1,058 3,736 17 20 4,831
Contracts/leases -- 433 13 84 530
Consulting 243 191 20 -- 454
Other 174 201 133 34 542
Payments in first qtr.,
1999:
Severance (703) (5,600) (2,082) (108) (8,493)
Contracts/leases -- (33) (13) (84) (130)
Consulting (243) (191) (20) -- (454)
Other (174) (201) (133) (34) (542)
-------- -------- ------- ----- -------
Balance:
February 27, 1999 $ 2,347 $ 6,530 $ 1,076 $ -- $ 9,953
======== ======== ======= ===== =======
In North America, the 2% first quarter sales increase was composed of 3
percentage points relating to increased volume and changes in product mix and a
negative one percentage point from pricing and currency. The Adhesives, Sealants
and Coatings Group had a one percentage point increase in sales with a 4
percentage point increase from volume and mix being partially offset by a
combined negative 3 percentage point decrease resulting from pricing, currency
and divestiture of the glue gun and stick business. Paper converting sales
continue to be depressed from the prior year due to reduced exports by the
Company's customers (primarily to Asia/Pacific area). In the Specialty Group,
sales increased 4% from the same period in the prior year. The primary growth in
sales occurred in TEC Specialty Products, Inc., where significant growth
occurred and Linear Products, Inc., with strong sales. Foster Products
Corporation had sales that approximated the sales of 1998 and Global Coatings
Division experienced a moderate decrease in sales from the prior year. The
Automotive Group had a 2% increase over prior year sales. North American
operating earnings, before the non-recurring charge, grew at a rate of 15.7%
increasing from $10,428 to $12,064.
-9-
Latin American first quarter 1999 sales increased 2% from 1998. The increase in
sales is composed of 6 percentage points relating to increased volume and
changes in product mix partially offset by a 4 percentage point decrease in
pricing. Latin American operating earnings, before the non-recurring charge,
increased when compared to 1998 from $4,306 to $4,412. The increase in operating
income was the result of reduced operating expenses from tight spending controls
and the restructuring efforts in the region. Gross profits were lower than the
previous year from the impact of both currency devaluations and recession in
various countries, particularly Brazil and Ecuador, and the continuing impact of
Hurricane Mitch in Central America.
In Europe, the 18% first quarter 1999 sales increase was primarily the result of
a combined impact of 18 percentage points resulting from first and second
quarter 1998 United Kingdom acquisitions and the divestiture of the wax business
in the fourth quarter of 1998. A negative 5 percentage point impact of decreased
volume and mix was offset by a positive 5 percentage point impact of the
weakening of the U.S. dollar and pricing. Operating income, before the
non-recurring charge, increased from $1,348 in 1998 to $4,770 in 1999. The
improvement was the result of the two acquisitions, improved gross margins,
operating expense control and restructuring.
Asia/Pacific sales increased 10% from the same period last year. The increase
was the result of a 15 percentage point increase in volume and mix and a one
percentage point increase from a weakening of the U.S. dollar. The increase was
offset by a negative 4 percentage points pricing and a combined negative 2
percentage point impact of a fourth quarter 1998 acquisition in New Zealand, a
first quarter 1999 acquisition in Australia and a second quarter 1998
divestiture in New Zealand. Operating results, before the non-recurring charge
(benefit), improved from an operating loss of ($645) in 1998 to operating income
of $1,379 in 1999. The improvement is primarily the result of the restructuring
efforts in the area.
Cost of sales for the first quarter increased 4.5% ($9,614) over the same
quarter in 1998. Consolidated gross profits, as a percent of sales, increased
from 31.43% in 1998 to 31.96% in 1999. The improvement in gross profit was a
result of lower raw material costs and the restructuring effort. Improvement in
gross profit was particularly strong in the European and Asia/Pacific areas.
Selling, administrative and other expenses for the quarter were down 0.3% ($248)
when compared to the prior year. This category of expense, as a percent of
sales, decreased from 26.46% in 1998 to 25.05% in 1999. The restructuring effort
and tight expense control were the reasons for this decrease in expense.
Interest expense of $6,867 increased $1,658 from the expense of the first
quarter of 1998. This was mainly the result of higher overall debt levels to
fund acquisitions.
Income taxes for the first quarter of 1999 increased $1,646 (42.9%) when
compared to the first quarter of 1998 primarily as a result of increased
earnings. The effective tax rate is expected to be reduced to 40.0 percent in
1999 compared to 40.8 percent in 1998, excluding the low tax benefit provided
for a portion of the non-recurring charges incurred in countries where no tax
benefit is available.
Liquidity and Capital Resources
The cash flows as presented in this section have been calculated by comparison
of the Consolidated Condensed Balance Sheet at February 27, 1999 and November
28, 1998 and February 28, 1998 and November 29, 1997.
During the first quarter of 1999, the Company generated $12,626 of cash to
finance operations as compared to a use of $15,412 of cash in the first quarter
of 1998. Compared to last year, operating working capital decreased as a result
of reduced inventory, reduced accounts receivable and less of a reduction in
accrued expense, primarily due to profit-sharing paid in the first quarter of
1998.
-10-
Working capital was $189,627 at February 27, 1999 compared to $172,740 at
November 28, 1998. The current ratio at February 27, 1999 was 1.7 compared to
1.6 at November 28, 1998. The number of days sales in trade accounts receivable
was 62 days at February 27, 1999 compared to 59 days sales at February 28, 1998.
The average days sales in inventory on hand was at 63 days equal to 63 days
sales at February 28, 1998.
The Company's long-term debt to total capitalization ratio was 47.6% at February
27, 1999 compared to 46.8% at November 28, 1998. The primary reason for the
increase in this ratio was the funding of a European second quarter 1998
acquisition.
Capital expenditures for property, plant and equipment of $14,367 in first
quarter 1999 were primarily for construction of manufacturing capacity in Europe
to support the restructuring effort, the investment in Information Technology,
for general improvements in manufacturing productivity and operating efficiency
and for environmental projects. Environmental capital expenditures, less than
10% of total expenditures, are not a material portion of overall Company
expenditures.
Impact of the Year 2000 Issue
The Company's Year 2000 Project Office (consisting of information technology
("IT") personnel) has established a three-phase program to address the Year 2000
Issue. The three phases consist of (a) an assessment phase, (b) an analysis and
resolution strategy phase and (c) a remediation and testing phase. The readiness
program focuses on the Company's IT as well as non-IT systems (which systems
contain embedded technology in manufacturing or process control equipment
containing microprocessors or similar circuitry).
The assessment phase, during which the Year 2000 Project Office attempted to
identify all hardware and software that affect the Company's operations, has
been completed with respect to most of the Company's operations. Based on the
results of the assessment phase, the Company has determined that its primary
hardware and operating system software used in North American operations is Year
2000 ready. In addition, the Company's internal laboratory, regulatory,
financial and enterprise resource planning systems for North America are
compliant. The Company's Year 2000 Project Office has determined that the
Company will need to update or replace certain other hardware and software so
that its computer systems will properly utilize dates after December 31, 1999.
Outside the United States, the Company is addressing readiness issues on a
region-by-region basis. The Company is in the analysis and resolution strategy
phase in certain locations and in the remediation and testing phase in other
locations. The Company has a timeline for completing all internal Year 2000
remediation projects. The Company currently anticipates the majority of these
projects will be completed prior to June 30, 1999. Remediation projects in
certain smaller international locations may not be completed until September,
1999.
The Company has also begun assessing Year 2000 readiness issues relating to
companies with which it has third-party outsourcing relationships on a global
basis, such as a financial institution administering employee benefit plans,
telecommunications providers and health care providers. The Company has
requested assurances from its significant suppliers that they are addressing the
Year 2000 Issue and that products purchased by the Company from such suppliers
will be functioning properly in the Year 2000. The Company will continue to
assess supplier readiness issues. In addition, the Company is communicating with
its major customers regarding the Company's Year 2000 readiness efforts.
However, it is impossible to fully assess the potential consequences in the
event service interruptions from suppliers occur or in the event that there are
disruptions in such infrastructure areas as utilities, communications,
transportation, banking and government.
In October of 1998, the Company 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 address internal and external Year 2000
Issues.
-11-
The Company incurred Year 2000 readiness costs of approximately $2,000 over a
two-year period ending November 28, 1998. The current total estimated costs to
complete Year 2000 readiness efforts in 1999 is $1,200 to $1,500. In recent
years, the Company has replaced certain of its financial and operating systems.
These systems have not required modifications to address the Year 2000 Issue,
and, as a result, the Company's Year 2000 costs have been relatively low.
Estimates of Year 2000 costs are based on numerous assumptions, and there can be
no assurance that the estimates are correct or that the actual costs will not be
greater than anticipated.
The Company's most reasonably likely worst case Year 2000 Issue scenario is a
potential inability to obtain raw materials from suppliers in a timely manner,
due either to a supplier's inability to manufacture the product or ship it. In
such event, the Company many experience a delay in its ability to manufacture
and deliver products when ordered by customers. The Company is currently
evaluating its alternatives to mitigate the effect of such a scenario, if it
occurs.
The Company is developing contingency plans to address other potential failures
or delays due to the Year 2000 Issue. The Company is in the process of
developing a plan for the "Y2K transition". This will be a comprehensive plan
for managing the actual transition over the last week of December, 1999 and the
first week of January, 2000.
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. However, if certain
third-party providers, such as providers of electricity, water or telephone
service, experience difficulties resulting in disruption of service to the
Company, a shutdown of the Company's operations at individual facilities could
occur for the duration of the disruption. Assuming no major disruption in
service from utility companies or other critical third-party providers, the
Company believes that it will be able to manage its total Year 2000 transition
without any material effect on the Company's results of operations or financial
condition.
Safe Harbor Statement under the Private Securities Litigation Act of 1995
Certain statements in this document are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements are subject to various risks and uncertainties, including but not
limited to the following: The Asian economic crisis and other political 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 it major customers and suppliers; changes in tax laws and tariffs; patent
rights that could provide significant advantage to a competitor; foreign
exchange rate fluctuations (particularly with respect to the German mark and the
Japanese yen); the regulatory and trade environment; the Year 2000 computer
issue; the conversion to the Euro currency by European Community member states;
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.
-12-
PART II. OTHER INFORMATION
Item 6.
Exhibits and reports on Form 8-K
(a) Exhibits to Part I
27 Financial Data Schedule
Exhibits to Part II
10(a) Performance Unit Plan
10(b) Directors' Deferred Compensation Plan as Amended February 10, 1999
(b) Reports on Form 8-K. No reports on Form 8-K were filed for the thirteen
weeks ended February 27, 1999.
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 12, 1999 /s/ Jorge Walter Bolanos
------------------------------------
Jorge Walter Bolanos
Senior Vice President, Treasurer and
Chief Financial Officer
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EXHIBIT INDEX
Exhibit Number
10(a) Performance Unit Plan
10(b) Directors' Deferred Compensation Plan as Amended February 10, 1999
27 Financial Data Schedule