<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 28, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-8088
FURON COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
California 95-1947155
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
29982 Ivy Glenn Drive, Laguna Niguel, CA 92677
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (714) 831-5350
Securities registered pursuant to Section 12(b) of the Act
on the NEW YORK STOCK EXCHANGE:
COMMON STOCK, WITHOUT PAR VALUE
COMMON STOCK PURCHASE RIGHTS
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 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. X
-----
As of January 31, 1995, the aggregate market value of voting stock
held by nonaffiliates of the registrant was approximately $184,500,000. As of
March 20, 1995, the number of outstanding shares of Common Stock of the
registrant was 8,848,014.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement for the 1995
Annual Meeting of Shareholders (to be held on June 6, 1995) have been
incorporated by reference into Part III of this report.
<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
Furon(R) designs, develops and manufactures highly engineered components made
primarily from specially formulated high performance polymer materials. Most
of Furon's products are designed and engineered to meet specific requirements
of customers in the industrial process, transportation, industrial equipment,
electronics and healthcare industries.
The Company has historically expanded its operations through the acquisition
and further development of businesses which manufacture and sell components to
original equipment manufacturers and which possess similar technologies and
serve similar markets. On January 31, 1995 the Company complemented the
CHR(TM) brand of products that it acquired in 1989 with the acquisition of
Custom Coating & Laminating Corporation's business devoted to the manufacture
and sale of customized and standard specialty engineered products which rely on
surface chemistry technology. (See Note 10 of the "Notes to Consolidated
Financial Statements" for additional information concerning this acquisition.)
In addition to its acquisition activities, the Company has developed its
business through the introduction of new product lines and improvements in its
existing products and capabilities and operational methodologies. For example,
in addition to the reorganization of its operations described below, the
Company believes that its World Class Performance program continues to improve
its operations through improved product quality and performance features,
improved customer service, minimization of waste, manufacturing costs and
inventories, reduced cycle times and increased employee productivity and
involvement. Further, the Company continues to focus its technology center on
the development of proprietary polymer compounds that can be used to produce
high margin, differentiated polymer products.
In January 1992, the Company announced a restructuring program designed to
improve profitability and sharpen the Company's focus on its higher margin
materials technology operations and other primary objectives and strengths. An
integral component of the restructuring was the divestiture of six businesses
which were determined to no longer fit the Company's long-term strategic
objectives. The Company sold two of the businesses in fiscal 1993 and three in
fiscal 1994 and is pursuing the sale of the remaining business. For additional
information concerning the restructuring program, see Note 2 of the "Notes to
Consolidated Financial Statements."
Furon was incorporated in California in 1957 and changed its name from "The
Fluorocarbon Company" to "Furon Company" in January 1990. Unless the context
otherwise requires, the terms "Furon" and the "Company" are used in this report
to refer to Furon Company and its subsidiaries.
- ------------------
(R)Furon is a registered trademark and (TM) CHR is a trademark of the Company.
2
<PAGE> 3
OPERATIONS
Historically, the Company has conducted its operations in independent business
units developed and organized around manufacturing capabilities and products
and grouped from time to time based on varying product, market or other
criteria. As part of the restructuring program, the Company began reorganizing
its operations around its customers and strategic industries, rather than
products, by introducing a new organizational structure that provided a flatter
organization. This eliminated certain levels of operating group management and
established a more market oriented focus by combining businesses to maximize
the synergies of business units with complementary products and manufacturing
capabilities. In fiscal 1995, the Company consolidated the diverse
independent business unit operations into one Furon operating unit that is
organized around customers in the industrial process, transportation,
industrial equipment, electronics and healthcare industries. The Company
believes that its current organizational structure will enable it to better
serve its customers and grow its customer base, eliminate redundancies and
other inefficiencies, and more fully leverage its technologies and other
capabilities.
MARKETS AND PRODUCTS
The Company principally serves the industrial process, transportation,
industrial equipment, electronics and healthcare industries, offering the
following FURON(R) brand products: CHR(TM) pressure sensitive tapes, solid and
sponge silicone rubber, PTFE and silicone coated fabrics, and release liners;
DEKORON(R) control and instrumentation cable and wire, self-regulating heating
and fiber optics cable; FELSTED(R) cables, control cables, and control systems;
FLEXSEAL(TM) spiral wound and heat exchange metallic gaskets; FLOMED(TM)
silicone rubber molded and extruded healthcare products; OMNISEAL(R) spring
energized PTFE seals, lip seals, hydraulic seals, and metallic O-rings and
C-rings; RULON(R) high performance polymer materials and molded, extruded and
machined bearings and other components made from those materials; SYNFLEX(R)
hydraulic hose, specialty hose, and tubing, couplings and accessories;
UNITHERM(R) heated hose and steam traced, preinsulated and electrical traced
tubing; and FURON(R) generic fabricated and extruded high performance plastic
components, fluid handling products, and custom fabricated composite, urethane
and polyimide foam components.
Furon's sales are generated primarily by its own salespersons located in most
major industrial areas. The remaining sales are made by independent
manufacturers' representatives and distributors. Most of the Company's
customers are original equipment manufacturers, commercial or industrial
construction companies or firms servicing the maintenance and replacement parts
market or distributors to these markets. The Company's business is not
dependent upon a single customer, or a few customers, and no single customer
accounted for more than 5% of Furon's sales volume during any of the last three
fiscal years. (For certain financial information concerning the Company's
foreign and domestic operations and export sales, see Note 9 of the "Notes to
Consolidated Financial Statements.")
- ------------------
(R)FURON, DEKORON, FELSTED, OMNISEAL, RULON, SYNFLEX and UNITHERM are
registered trademarks, and (TM)CHR, FLEXSEAL and FLOMED are trademarks, of
the Company.
3
<PAGE> 4
COMPETITION
The Company competes with a large number of companies, some of which have
greater financial resources, but none of which competes with the Company in
more than a limited number of products. Depending on the product, the
principal competitive factors for Furon are materials capability, engineering,
design and process technology, quality, reliability and the ability to meet
delivery dates. The Company believes that trade secrets are important to its
proprietary products. To protect its trade secrets, the Company requires all
salaried employees to enter into confidentiality agreements. While the Company
holds many patents and trademarks with varying degrees of significance to its
operations, the Company's business is not dependent upon any particular one.
BACKLOG OF ORDERS
Furon's backlog of unfilled orders at January 28, 1995 was $50,629,000 and
$49,798,000 at January 29, 1994, a 2% increase. The backlog for continuing
operations increased 5% to $49,785,000 at the end of fiscal 1995, from
$47,450,000 the prior year. The increases in backlog reflect demand from most
all industry groups served with the exception of the aerospace and commercial
aircraft marketplace, whose orders were virtually flat. The most significant
increases in orders resulted from strong demand in chemical processing,
transportation and mobile equipment markets.
It is estimated that substantially all of Furon's backlog of orders at January
28, 1995 will be filled during the next 12 months, except for approximately
$35,000 of backlog which is scheduled to be filled during the subsequent
12-month period. The lead time between receipt of orders and shipment of
products, other than products for commercial aircraft, is typically a matter of
weeks. Although many of Furon's orders contain cancellation clauses, Furon has
seldom experienced significant cancellations of orders.
RAW MATERIALS
Furon purchases its raw materials, ranging from polymer resins to component
parts, from numerous suppliers. The top resins used by the Company are PTFE
and related resins, Nylon 11 sold under the trade name Rilsan(R), and silicone
polymers. The Company purchases its requirements for PTFE and related resins
and silicone polymers from the major suppliers of those resins, while Atochem
Polymers is the Company's sole source for Rilsan. Rilsan is used primarily in
the production of heavy duty air brake tubing. Alternative sources of material
which can be substituted for Rilsan are available in the event a shortage of
Rilsan develops.
RESEARCH AND DEVELOPMENT
For information concerning the amounts spent by the Company during the last
three fiscal years on research and development activities, see Note 1 of the
"Notes to Consolidated Financial Statements."
EMPLOYEES
At January 28, 1995, Furon employed 2,217 persons. Furon considers its
employee relations to be good.
- ------------------
(R)Rilsan is a registered trademark of Atochem Polymers.
4
<PAGE> 5
ENVIRONMENTAL LAWS
The Company from time to time incurs investigation, remedial response,
voluntary clean-up and other costs associated with environmental matters. As
of January 28, 1995, the Company's reserves for environmental matters totaled
approximately $2,400,000. These reserves primarily relate to environmental
costs associated with facilities that have been sold or closed. While neither
the timing nor the amount of the ultimate costs associated with environmental
matters can be determined, management does not expect those matters to have a
material adverse effect on the capital expenditures, earnings or competitive
position of the Company.
One of the Company's subsidiaries has been notified by the Environmental
Protection Agency that it has been named as a potentially responsible party in
connection with the cleanup of hazardous wastes at two sites, the Solvents
Recovery Service of New England site in Southington, Connecticut (notified in
June 1992), and the Gallups Quarry site in Plainfield, Connecticut (notified in
April 1993). Since these matters are in their preliminary stages, no assurance
can be given at this time concerning the ultimate outcome. However, based on
preliminary investigations to determine the nature of the subsidiary's
potential liability and the estimated amount of remedial costs necessary to
clean up the sites, the Company presently does not expect these matters to have
a material adverse effect on its consolidated financial position or results of
operations. For information concerning an additional environmental proceeding
in which the subsidiary is involved, see "Legal Proceedings" at Item 3 (Part I)
of this report.
5
<PAGE> 6
ITEM 2. PROPERTIES
The Company currently manufactures its products at 23 plants of which 20 are in
the United States, 2 in Belgium and 1 in England. Furon believes that its
facilities are suitable for its business and adequate for its present needs,
and that appropriate additional or substitute space is available, if needed, to
accommodate physical expansion of the business in the foreseeable future.
Certain information regarding the Company's plants is set forth below.
<TABLE>
<CAPTION>
EXPIRATION
SQUARE OF LEASE
LOCATION FOOTAGE TERM(1)
-------- ------- ----------
<S> <C> <C>
Mantua, OH 151,000 8/31/32
Aurora, OH 148,000 8/31/32
Seattle, WA 116,000 1/31/97
New Haven, CT 110,000 8/31/32
Bristol, RI 106,000 8/31/32
Anaheim, CA 91,000 7/31/10
Mickleton, NJ 86,000 8/31/32
Worcester, MA 76,000 (2)
Los Alamitos, CA 74,000 12/14/03
Mt. Pleasant, TX 67,000 8/31/32
Houston, TX 65,000 4/30/02
Mundelein, IL 60,000 8/31/00
Kent, OH 50,000 1/06/01
Gembloux, Belgium 49,000 (2)
Sunnyvale, CA 27,000 10/1/95
Fremont, CA 30,000 7/30/96
Cape Coral, FL 30,000 5/31/06
Aurora, OH 30,000 (2)
Kontich, Belgium 30,000 11/30/99
Holmesville, OH 28,000 (2)
Rolling Meadows, IL 26,000 (2)
Maxey, England 14,000 8/31/96
North Bennington, VT 13,000 10/31/96
</TABLE>
(1) Assumes that existing renewal options are exercised. For further
information concerning the Company's lease commitments, see Note 5
of the "Notes to Consolidated Financial Statements."
(2) Plants owned by the Company; all other plants listed above are
leased.
6
<PAGE> 7
ITEM 3. LEGAL PROCEEDINGS
The Company is from time to time named as a defendant in various lawsuits. The
Company vigorously defends all lawsuits brought against it, unless a reasonable
settlement appears appropriate. The Company believes that the ultimate
resolution of the actions currently pending should not have a material adverse
effect on its consolidated financial condition.
On January 18, 1995, the Company and CHR Industries, Inc., a wholly owned
subsidiary of the Company ("CHR"), were served with a civil complaint filed in
the Superior Court of the State of Connecticut by the State's Commissioner of
Environmental Protection. The plaintiff alleges that certain aspects of CHR's
container management, discharges, record keeping and training violated the
State's water pollution control laws and hazardous waste laws. The complaint
seeks substantial penalties and injunctive relief from further violations of
these laws. CHR is pursuing settlement negotiations with the State and expects
to resolve this matter for an amount between $75,000 and $140,000 and
appropriate injunctive relief.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth
quarter of the year ended January 28, 1995.
OFFICERS OF FURON
Furon's executive and other officers are as follows:
<TABLE>
<CAPTION>
Name Age Position/Business Experience
- ---- --- ----------------------------
<S> <C> <C>
EXECUTIVE OFFICERS
J. Michael Hagan 55 Chairman of the Board
Mr. Hagan has been employed by the
Company since 1967 and was promoted
to Division Manager in 1969, elected
Vice President in 1975, and served
as a director and President from
1980 to June 1991 when he was
appointed Chairman of the Board.
Terrence A. Noonan 57 President and Director
Mr. Noonan has been the President of
Furon since June 1991 and was elected
as a director in August 1991. From
1989 to June 1991, he served as an
Executive Vice President in charge of
various operations. He joined Furon
in 1987 as a Vice President, having
previously served since 1980 as a
Group General Manager of Eaton
Corporation, a diversified
manufacturing company.
Monty A. Houdeshell 46 Vice President, Chief Financial
Officer and Treasurer
Mr. Houdeshell joined the Company in
1988 as Vice President, Chief Financial
Officer and Treasurer and also served
as Secretary from 1988 to February 1991.
From 1985 to 1988, Mr. Houdeshell served
as Vice President, Chief Financial
Officer and Treasurer of Oak Industries,
Inc., a manufacturer of electronic
components and controls.
</TABLE>
7
<PAGE> 8
OTHER OFFICERS
<TABLE>
<S> <C> <C>
Koichi Hosokawa 46 Controller
Mr. Hosokawa joined the Company in 1988 as
Controller. From 1982 to 1988, Mr. Hosokawa
was Corporate Controller of Acme Holding,
Inc., a hardware manufacturing subsidiary of
The Stanley Works.
Donald D. Bradley 39 General Counsel and Secretary
Mr. Bradley joined the Company in June 1990
as Senior Attorney and Assistant Secretary
and was named Corporate Secretary in February
1991 and General Counsel in February 1992.
Previously, he was a Special Counsel with
O'Melveny & Myers, an international law firm
with which he had been associated since 1982.
</TABLE>
All officers of the Company are elected annually by and serve at the pleasure
of the Board of Directors. There are no family relationships among any of
Furon's officers.
8
<PAGE> 9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has traded on the New York Stock Exchange under the
trading symbol "FCY" since March 8, 1995. Previously, it traded on the NASDAQ
National Market System under the trading symbol "FCBN." As of March 20, 1995,
the Company had approximately 1,211 holders of record of its Common Stock. The
following table sets forth for the periods indicated (i) the high and low
closing sale prices per share of the Company's Common Stock as reported by
NASDAQ and (ii) the amount per share of cash dividends paid by the Company with
respect to its Common Stock.
<TABLE>
<CAPTION>
YEARS ENDED
---------------------------------------------------------------------
JANUARY 28, 1995 JANUARY 29, 1994
--------------------------------- --------------------------------
QUARTER HIGH LOW DIVIDEND HIGH LOW DIVIDEND
- ------- ---- --- -------- ---- --- --------
<S> <C> <C> <C> <C> <C> <C>
First $ 18-1/2 $ 15-1/4 $.06 $ 18-1/2 $ 15-1/4 $.06
Second 18-1/2 14-1/4 .06 17-1/4 14 .06
Third 21 15-3/4 .06 15 14-1/4 .06
Fourth 23 19-1/4 .06 17-1/4 14 .06
</TABLE>
Future dividends will be considered by the Board of Directors taking into
account the Company's profit levels and capital requirements as well as
financial and other conditions existing at the time.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data for the five years in the
period ended January 28, 1995 should be read in conjunction with, and is
qualified by, the more detailed information and consolidated financial
statements included in Item 8 (Part II), "Consolidated Financial Statements and
Supplementary Data."
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<PAGE> 10
ITEM 6. SELECTED FINANCIAL DATA (CONTINUED)
<TABLE>
<CAPTION>
Years ended
---------------------------------------------------------------------------
IN THOUSANDS, EXCEPT January 28, January 29, January 30, February 1, February 2,
SHARE AND PER SHARE AMOUNTS 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 312,060 $ 285,194 $ 300,107 $ 306,170 $ 326,920
Cost of sales 217,827 204,727 213,932 224,781 231,768
---------- ---------- ---------- ---------- ----------
Gross profit 94,233 80,467 86,175 81,389 95,152
Selling, general and administrative
expenses 77,368 66,458 71,782 73,491 72,970
Restructuring charge - - - 23,650 -
Unusual and nonrecurring charges - - - 8,371 -
Other (income), net (3,126) (2,296) (2,363) (2,104) (2,640)
Interest expense 2,394 3,337 4,243 5,824 9,420
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes 17,597 12,968 12,513 (27,843) 15,402
Provision (benefit) for income taxes 6,159 4,798 5,256 (5,501) 6,309
---------- ---------- ---------- ---------- ----------
Net income (loss) $ 11,438 $ 8,170 $ 7,257 $ (22,342) $ 9,093
========== ========== ========== ========== ==========
Net income (loss) per share:
Primary $ 1.27 $ 0.92 $ 0.84 $ (2.65) $ 1.17
========== ========== ========== ========== ==========
Fully diluted N/A N/A N/A N/A $ 1.11
==========
Weighted average number of common
shares and equivalents outstanding:
Primary 8,992,926 8,859,200 8,681,606 8,439,121 7,803,022
Fully diluted N/A N/A N/A N/A 8,655,347
Cash dividends per share $ 0.24 $ 0.24 $ 0.24 $ 0.24 $ 0.24
At year end:
Total assets $ 179,873 $ 175,224 $ 174,229 $ 181,021 $ 207,197
Total long-term obligations $ 32,791 $ 38,795 $ 43,488 $ 54,088 $ 64,295
Total stockholders' equity $ 91,599 $ 80,815 $ 75,247 $ 71,017 $ 97,412
</TABLE>
10
<PAGE> 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales during fiscal year 1995 were 9% higher than in fiscal year 1994.
When removing the effect of the businesses held for sale, sales increased 14%.
The increases came from most all industry groups served with the exception of
the aerospace and commercial aircraft marketplace, whose sales were virtually
flat. The most significant increases in revenue resulted from strong demand in
chemical processing, transportation and mobile equipment markets.
Thermoplastic wire and cable, as well as truck controls and brake hose,
hydraulic, pneumatic and paint hose, bearing and seals and tubing products were
particularly strong. European operations also contributed with improved sales.
A healthier economy in Europe provided improved demand across all product
lines, and coupled with stronger foreign currency rates resulted in increased
dollar sales.
When comparing fiscal 1994, consolidated sales were 5% lower than in fiscal
1993. However, when removing the effect of the divested businesses, sales
increased slightly.
The gross profit percentage for fiscal year 1995 has improved from 28.2% to
30.2% as compared to the prior fiscal year. The improvement in gross margin is
primarily attributable to the Company's focus on increasing productivity and
cost reduction. All components of cost of sales benefited this improved
margin. When removing the impact of the business held for sale, the gross
profit percentage improved from 29.2% to 30.7%. Most of this improvement is
attributable to lower material and overhead costs as a percentage of sales.
The gross profit percentage decreased from 28.7% in fiscal year 1993 to 28.2%
in fiscal year 1994. This decrease was the result of increased material usage
offset somewhat by reductions in variable overhead. When removing the effect
of the divested business gross profit decreased from 30.4% in fiscal year 1993
to 29.2% in fiscal year 1994.
Selling, general and administrative expenses as a percentage of sales were
24.8%, 23.3% and 23.9% for fiscal years 1995, 1994 and 1993, respectively. A
portion of the increase is due to increased selling expense as the Company put
forth significant efforts to improve its customer and market focus. General
and administrative expenses have increased over the prior year mainly as a
result of the implementation of the new operating structure, as discussed in
Item 1 under "Operations". Significant expenditures include professional fees
incurred in connection with various consulting projects, travel, communications
and early phase out of information systems impacted by implementing the new
strategy. Additionally, general and administrative expense was affected by
costs associated with the search and evaluation of potential acquisition
candidates. Research and development costs were up as the Company increased
its focus on new product development.
Interest expense decreased by 28% in fiscal year 1995 as compared to fiscal
year 1994. Lower expense is due to a $6 million decrease in amounts owing
under the Company's bank credit facility. Interest expense decreased 21% in
fiscal year 1994 as compared to fiscal year 1993 for the same reason.
Pretax results of operations improved 36% from a profit of $13.0 million in
fiscal year 1994 to a profit of $17.6 million in fiscal year 1995. This
significant improvement in profitability is the result of higher sales volumes
and substantially lower manufacturing cost as a percentage of sales. This
combination, and a sustained reduction of interest expense, was more than
enough to offset increased operating expenses incurred with implementing the
new operating structure and strategy.
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<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
Sales from divested businesses represent 3%, 7%, and 12% of the revenue for
fiscal years 1995, 1994 and 1993, respectively. Included in other expense
(income) net, is the elimination of $500,000 and $363,000 of pretax profit from
fiscal year 1995 and 1994, respectively, and $162,000 pretax loss from fiscal
year 1993 for the divested businesses.
The Company's effective tax rate for fiscal year 1995 was 35% as compared to
37% in fiscal year 1994 and 42% in fiscal year 1993. The lower effective tax
rate in fiscal 1995, as compared to fiscal year 1994, was primarily due to a
reduction of the effect of foreign taxes as well as increased tax benefits from
the Company's export sales corporation. The lower effective tax rate for the
fiscal year 1994, as compared to fiscal year 1993, was primarily due to an
increase in tax benefits realized from the amortization of certain intangibles,
acquired in 1990, as a result of a resolution of an Internal Revenue Service
audit.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal year 1995, cash provided by operations decreased 62% over fiscal
year 1994, to approximately $7.9 million. The decrease is primarily due to
cash used to fund noncash working capital increases of $18.3 million ($2.8
million source of cash in fiscal 1994). The significant components of this
change was the growth of both accounts receivable and inventory over the
respective prior years. Heavy volume of shipments in late January and a build
up of stock to improve response time are primarily responsible. Additionally,
income taxes payable decreased as a result of cash settlements for various
prior years' (1988-1991) Internal Revenue Service audits.
On January 28, 1995 the Company's working capital was $54.7 million, an
increase of $3.1 million from the prior year. The Company's ratio of current
assets to current liabilities was approximately 2.2:1. Capital expenditures
totaled $12.9 million and were primarily for renovating existing facilities,
leasehold improvements or replacement of existing equipment in addition to
implementation of the new operating systems to support the structure referred
to above. Bank borrowings were further reduced during the year by $6 million.
The Company continues to believe that it generates sufficient cash flow from
its operations to finance near and long-term internal growth, capital
expenditures and the principal and interest payments on its long-term debt.
The Company will continue to evaluate its employment of capital resources
including asset management and other sources of financing.
On January 31, 1995 the Company acquired certain assets of Custom Coating &
Laminating Corporation. The Company paid $24 million ($18 million of which was
borrowed under the Company's unsecured revolving facility), assumed certain
liabilities approximating $2.4 million, and may pay up to an additional $4
million based on product sales over the next three fiscal years.
The Company continually reviews possible acquisitions and should the Company
make a substantial acquisition, it would require the utilization of the
remaining $30 million (as of January 28, 1995, and $12 million after the
acquisition noted above) available from its existing credit facility or
financing from other sources.
12
<PAGE> 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
One of the Company's subsidiaries has been notified by the Environmental
Protection Agency that it has been named as a potentially responsible party in
connection with the cleanup of hazardous wastes at two sites, the Solvents
Recovery Service of New England site in Southington, Connecticut (notified in
June 1992), and the Gallups Quarry site in Plainfield, Connecticut (notified in
April 1993). Since these matters are in their preliminary stages, no assurance
can be given at this time concerning the ultimate outcome. However, based on
preliminary investigations to determine the nature of the subsidiary's
potential liability and the estimated amount of remedial costs necessary to
clean up the sites, the Company presently does not expect these or other known
matters to have a material adverse effect on its consolidated financial
position, results of operations or liquidity.
13
<PAGE> 14
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Furon Company
We have audited the accompanying consolidated balance sheets of Furon Company
as of January 28, 1995 and January 29, 1994, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the
three years in the period ended January 28, 1995. Our audits also included the
financial statement schedule listed in the index at Item 14(a). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Furon
Company at January 28, 1995 and January 29, 1994, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended January 28, 1995, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Orange County, California
March 8, 1995
14
<PAGE> 15
FURON COMPANY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------------------------
JANUARY 28, JANUARY 29, JANUARY 30,
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 312,060 $ 285,194 $ 300,107
Cost of sales 217,827 204,727 213,932
--------- --------- ---------
Gross profit 94,233 80,467 86,175
Selling, general and administrative
expenses 77,368 66,458 71,782
Other (income), net (3,126) (2,296) (2,363)
Interest expense 2,394 3,337 4,243
--------- --------- ---------
Income before income taxes 17,597 12,968 12,513
Provision for income taxes 6,159 4,798 5,256
--------- --------- ---------
Net income $ 11,438 $ 8,170 $ 7,257
========= ========= =========
Net income per share of
Common Stock $ 1.27 $ 0.92 $ 0.84
========= ========= =========
</TABLE>
See accompanying notes.
15
<PAGE> 16
FURON COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JANUARY 28, JANUARY 29,
IN THOUSANDS 1995 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,475 $ 18,483
Accounts receivable, less allowance for
doubtful accounts of $696 in 1995
and $632 in 1994 48,955 38,085
Inventories 31,197 26,279
Deferred tax benefit 8,215 9,154
Prepaid expenses and other assets 6,843 5,836
--------- ---------
Total current assets 101,685 97,837
Property, plant and equipment, at cost:
Land 456 448
Buildings and leasehold improvements 13,868 13,048
Machinery and equipment 99,718 87,599
--------- ---------
114,042 101,095
Less accumulated depreciation and amortization (61,981) (52,664)
---------- ----------
Net property, plant and equipment 52,061 48,431
Intangible assets, at cost, less accumulated amortization
of $23,739 in 1995 and $20,308 in 1994 17,953 21,359
Other assets 8,174 7,597
--------- ---------
$ 179,873 $ 175,224
========= ==========
</TABLE>
See accompanying notes.
16
<PAGE> 17
FURON COMPANY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JANUARY 28, JANUARY 29,
IN THOUSANDS, EXCEPT SHARE DATA 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 19,093 $ 15,465
Salaries, wages and related benefits payable 10,508 10,073
Current portion of long-term debt 8,004 6,013
Income taxes payable 770 4,474
Other current liabilities 8,585 10,173
--------- ---------
Total current liabilities 46,960 46,198
Long-term debt due after one year 12,752 20,750
Other long-term liabilities 20,039 18,045
Deferred taxes 8,523 9,416
Commitments and contingencies
Stockholders' equity:
Capital stock:
Preferred stock without par value,
2,000,000 shares authorized, none
issued or outstanding - -
Common stock without par value,
15,000,000 shares authorized,
8,800,164 and 8,625,706 shares
issued and outstanding in 1995 and
1994, respectively. 36,280 35,320
Foreign currency translation adjustment 419 (1,034)
Unearned ESOP shares (3,112) (2,688)
Unearned compensation (885) (709)
Additional pension liability (379) -
Retained earnings 59,276 49,926
--------- ---------
Total stockholders' equity 91,599 80,815
--------- ---------
$ 179,873 $ 175,224
========= =========
</TABLE>
See accompany notes.
17
<PAGE> 18
FURON COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
IN THOUSANDS, EXCEPT SHARE AMOUNTS
- -------------------------------------------------------------------
YEARS ENDED JANUARY 28, 1995, JANUARY 29, 1994 AND JANUARY 30, 1993
<TABLE>
<CAPTION>
Foreign
Common Stock Currency Unearned
-------------------------- Translation ESOP
Shares Amount Adjustment Shares
- --------------------------- ------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE AT FEBRUARY 1, 1992 8,446,029 $33,803 $ 976 $(2,065)
- --------------------------- ------------------------------------------------------------
Cash dividends - - - -
Exercise of stock options 99,147 668 - -
Retired shares (22,432) (329) - -
Grant of restricted shares, net of
cancellations 40,700 486 - -
Amortization of unearned
compensation - - - -
Foreign currency translation
adjustment - - (465) -
Loan to ESOP - - - (1,391)
Principal payment from ESOP - - - 384
Net income - - - -
- --------------------------- ------------------------------------------------------------
BALANCE AT JANUARY 30, 1993 8,563,444 34,628 511 (3,072)
- --------------------------- ------------------------------------------------------------
Cash dividends - - - -
Exercise of stock options 56,774 539 - -
Retired shares (10,412) (172) - -
Grant of restricted shares, net of
cancellations 15,900 325 - -
Amortization of unearned
compensation - - - -
Foreign currency translation
adjustment - - (1,545) -
Principal payment from ESOP - - - 384
Net income - - - -
- --------------------------- ------------------------------------------------------------
BALANCE AT JANUARY 29, 1994 8,625,706 35,320 (1,034) (2,688)
- --------------------------- ------------------------------------------------------------
Cash dividends - - - -
Exercise of stock options 349,272 5,018 - -
Retired shares (218,529) (4,763) - -
Grant of restricted shares, net of
cancellations 43,715 705 - -
Amortization of unearned
compensation - - - -
Foreign currency translation
adjustment - - 1,453 -
Loan to ESOP - - - (808)
Principal payment from ESOP - - - 384
Excess of additional pension liability
over unrecognized net transition
obligation - - - -
Net income - - - -
- --------------------------- ------------------------------------------------------------
BALANCE AT JANUARY 28, 1995 8,800,164 $36,280 $ 419 $(3,112)
- --------------------------- ------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Total
Unearned Additional Stock-
Compen- Pension Retained holders'
sation Liability Earnings Equity
- --------------------------- -------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE AT FEBRUARY 1, 1992 $(313) - $38,616 $71,017
- --------------------------- ------------------------------------------------------
Cash dividends - - (2,049) (2,049)
Exercise of stock options - - - 668
Retired shares - - - (329)
Grant of restricted shares, net of
cancellations (486) - - -
Amortization of unearned
compensation 155 - - 155
Foreign currency translation
adjustment - - - (465)
Loan to ESOP - - - (1,391)
Principal payment from ESOP - - - 384
Net income - - 7,257 7,257
- --------------------------- -------------------------------------------------------
BALANCE AT JANUARY 30, 1993 (644) - 43,824 75,247
- --------------------------- -------------------------------------------------------
Cash dividends - - (2,068) (2,068)
Exercise of stock options - - - 539
Retired shares - - - (172)
Grant of restricted shares, net of
cancellations (325) - - -
Amortization of unearned
compensation 260 - - 260
Foreign currency translation
adjustment - - - (1,545)
Principal payment from ESOP - - - 384
Net income - - 8,170 8,170
- --------------------------- ------------------------------------------------------
BALANCE AT JANUARY 29, 1994 (709) - 49,926 80,815
- --------------------------- ------------------------------------------------------
Cash dividends - - (2,088) (2,088)
Exercise of stock options - - - 5,018
Retired shares - - - (4,763)
Grant of restricted shares, net of
cancellations (705) - - -
Amortization of unearned
compensation 529 - - 529
Foreign currency translation
adjustment - - - 1,453
Loan to ESOP - - - (808)
Principal payment from ESOP - - - 384
Excess of additional pension liability
over unrecognized net transition
obligation - (379) - (379)
Net income - - 11,438 11,438
- --------------------------- ------------------------------------------------------
BALANCE AT JANUARY 28, 1995 $(885) $(379) $59,276 $91,599
- --------------------------- ------------------------------------------------------
</TABLE>
See accompanying notes.
18
<PAGE> 19
FURON COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------------
JANUARY 28, JANUARY 29, JANUARY 30,
IN THOUSANDS 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 11,438 $ 8,170 $ 7,257
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation 9,540 8,547 8,412
Amortization 3,961 3,660 3,742
Provision for losses on accounts receivable 303 254 352
Increase in deferred income taxes 46 65 1,414
Loss on sale of assets and divestitures 15 390 290
Working capital changes:
Accounts receivable (11,173) (4,525) 1,569
Inventories (4,918) 1,129 2,755
Accounts payable and accrued liabilities 4,063 3,964 (279)
Income taxes payable (3,704) 2,913 1,343
Other current assets and liabilities, net (2,561) (653) 463
--------- -------- ---------
(18,293) 2,828 5,851
Changes in other long-term operating assets and liabilities 842 (3,091) 4,531
--------- -------- ---------
Net cash provided by operating activities 7,852 20,823 31,849
INVESTING ACTIVITIES
Purchases of property, plant and equipment (12,912) (8,458) (6,728)
Proceeds from sale of divestitures 543 9,772 1,290
Proceeds from sale of equipment 185 618 219
Proceeds from notes receivable 429 2,416 67
Increase in notes receivable (810) (4,933) (1,013)
--------- -------- ---------
Net cash used in investing activities (12,565) (585) (6,165)
FINANCING ACTIVITIES
Proceeds from long-term debt 8 27 -
Principal payments on long-term debt (6,015) (8,471) (13,524)
Proceeds from issuance of common stock 255 367 339
Principal payments received from ESOP 384 384 384
Dividends paid on common stock (2,088) (2,068) (2,049)
Loan to ESOP (808) - (1,391)
--------- -------- ---------
Net cash used in financing activities (8,264) (9,761) (16,241)
EFFECT OF EXCHANGE RATE CHANGES ON CASH 969 (1,441) (478)
--------- -------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (12,008) 9,036 8,965
--------- -------- ---------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 18,483 9,447 482
--------- -------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 6,475 $ 18,483 $ 9,447
========= ======== =========
</TABLE>
See accompanying notes.
19
<PAGE> 20
FURON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 28, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of Furon Company and
its subsidiaries, all of which are wholly owned. All significant intercompany
transactions have been eliminated. Certain reclassifications have been made to
prior year amounts in order to be consistent with the current year
presentation.
Consolidated Statements of Cash Flows
Excess cash is invested in income-producing investments including commercial
paper, money market accounts, overnight repurchase agreements and short-term
certificates of deposit with original maturities of less than three months.
These investments are stated at cost which approximates market. Included in
other income is interest and dividend income from investments of $677,000,
$490,000, and $198,000 in fiscal 1995, 1994 and 1993, respectively.
Interest paid in fiscal 1995, 1994 and 1993 was $2,451,000, $3,536,000, and
$4,170,000, respectively.
Income taxes paid in fiscal 1995, 1994 and 1993 was $8,500,000, $1,800,000, and
$2,700,000, respectively.
Inventories
Inventories, stated at the lower of cost (first-in, first-out) or market, are
summarized as follows:
<TABLE>
<CAPTION>
JANUARY 28, JANUARY 29,
IN THOUSANDS 1995 1994
- -------------------------------------------------------------------------
<S> <C> <C>
Raw materials and purchased parts $ 12,482 $ 11,333
Work-in-process 9,153 6,865
Finished goods 9,562 8,081
-------- --------
$ 31,197 $ 26,279
======== ========
</TABLE>
Property, Plant and Equipment
Depreciation is provided on the straight-line method over the following
estimated useful lives:
<TABLE>
<S> <C>
Buildings 25-45 years
Machinery and equipment 3-18 years
Leasehold improvements Term of the lease (including options)
</TABLE>
20
<PAGE> 21
FURON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 28, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Concentration of Credit Risk
Concentrations of credit risk with respect to trade receivables are limited due
to the large number of customers comprising the Company's customer base, and
their dispersion across many different geographical regions. At January 28,
1995, the Company had no significant concentrations of credit risk.
Research and Development Costs
Research and development costs are expensed as incurred. Total research and
development expense, including application engineering, for fiscal 1995, 1994
and 1993 was $7,125,000, $6,103,000, and $6,259,000, respectively, and is
included in selling, general and administrative expenses in the consolidated
statements of income. Continuous research and development is necessary for the
Company to maintain its competitive position.
Intangible Assets
Intangible assets acquired in business combinations, net of accumulated
amortization, are summarized as follows:
<TABLE>
<CAPTION>
JANUARY 28, JANUARY 29,
IN THOUSANDS 1995 1994
- ---------------------------------------------------------------------------
<S> <C> <C>
Goodwill $ 328 $ 351
Other intangible assets 17,625 21,008
-------- --------
$ 17,953 $ 21,359
======== ========
</TABLE>
Goodwill is amortized over periods ranging from 25 to 40 years. Other
intangible assets are amortized over periods ranging from 5 to 25 years.
Generally, goodwill is not deductible for income tax purposes, while the
Company does receive a tax benefit for amortization of other intangible assets.
Translation of Foreign Currencies
Foreign subsidiary financial statements are translated into U.S. dollars in
accordance with FASB Statement No. 52, "Foreign Currency Translations." The
resulting cumulative foreign currency translation adjustment is reported
separately in stockholders' equity. Transaction gains and losses included in
results of operations were not significant in fiscal 1995, 1994 and 1993. The
functional currency of the Company's foreign operations is the respective local
currency.
Net Income Per Share
Net income per share is based on the weighted average number of common shares
outstanding and common share equivalents resulting from dilutive stock options
outstanding in each of the three years in the period ended January 28, 1995.
The number of shares used in the computation was 8,992,926, 8,859,200 and
8,681,606, respectively.
21
<PAGE> 22
FURON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 28, 1995
2. RESTRUCTURING CHARGES
During fiscal 1992, the Company implemented a comprehensive restructuring
program designed to improve profitability and improve the Company's focus on
its primary objectives and strengths. Accordingly, a pretax charge of $23.7
million, primarily related to the estimated loss on the disposal of six of the
Company's businesses which did not meet its long-term strategy and product line
divestitures, was recorded. Two of the businesses were sold in fiscal 1993,
three were sold in fiscal 1994, and one business continues to be held for sale.
As of January 28, 1995, the remaining reserve was approximately $5.2 million
($7.9 million at January 29, 1994). The change in the reserve during fiscal
1995 was primarily attributable to payments on consulting and non-compete
agreements and abandoned leases related to the divested businesses. These
payments have been offset by $500,000 of income earned from the business held
for sale which has been deferred until the ultimate disposal of the business.
The remaining reserve relates primarily to the expected loss on the sale of the
remaining business, environmental remediation contingencies, consulting and
non-compete obligations, and lease commitments from unutilized facilities
related to the divested businesses.
The net assets of the business held for sale, carried at their estimated net
realizable value, are included in other current and long-term assets and the
other remaining reserves are included in other current and long-term
liabilities in the accompanying consolidated balance sheet.
22
<PAGE> 23
FURON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 28, 1995
3. INCOME TAXES
The provision (benefit) for income taxes for the three years ended January 28,
1995 consists of the following:
<TABLE>
<CAPTION>
IN THOUSANDS CURRENT DEFERRED TOTAL
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995:
Federal $ 4,714 $ (79) $ 4,635
Foreign 848 - 848
State 551 125 676
-------- -------- --------
$ 6,113 $ 46 $ 6,159
======== ======== ========
1994:
Federal $ 3,810 $ (368) $ 3,442
Foreign 472 - 472
State 451 433 884
-------- -------- --------
$ 4,733 $ 65 $ 4,798
======== ======== ========
1993:
Federal $ 2,124 $ 1,625 $ 3,749
Foreign 1,054 - 1,054
State 664 (211) 453
-------- -------- --------
$ 3,842 $ 1,414 $ 5,256
======== ======== ========
</TABLE>
23
<PAGE> 24
FURON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 28, 1995
3. INCOME TAXES (CONTINUED)
The provision (benefit) for income taxes differs from the amount computed by
applying the statutory income tax rate for the following reasons:
<TABLE>
<CAPTION>
JANUARY 28, 1995 JANUARY 29, 1994 JANUARY 30, 1993
DOLLARS IN THOUSANDS AMOUNT % AMOUNT % AMOUNT %
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Statutory federal
provision $ 6,159 35.0 $ 4,539 35.0 $ 4,254 34.0
Realization of restruct-
uring reserves - - - - (248) (2.0)
State and local taxes,
net of federal tax
benefit 1,076 6.1 832 6.4 640 5.1
Realization of depreciable
and amortizable assets 25 0.1 34 0.3 446 3.6
Effect of foreign taxes (145) (0.8) 104 0.8 289 2.3
Research and
experimental credit (424) (2.4) (303) (2.3) (65) (0.5)
Export sales corporation
benefit (393) (2.2) (243) (1.9) (114) (0.9)
Other (139) (0.8) (165) (1.3) 54 0.4
-------- -------- -------- -------- -------- --------
$ 6,159 35.0 $ 4,798 37.0 $ 5,256 42.0
======== ======== ======== ======== ======== ========
</TABLE>
24
<PAGE> 25
FURON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 28, 1995
3. INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax liabilities and assets are
as follows:
<TABLE>
<CAPTION>
JANUARY 28, JANUARY 29,
IN THOUSANDS 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation $ (4,923) $ (6,095)
Deferred tax assets:
Inventories 1,007 856
Restructuring reserves 5,510 7,008
Accruals recognized in
different periods for tax
than financial reporting 1,320 1,952
--------- --------
Total assets 7,837 9,816
Valuation allowance for realization
of and payment for restructuring
reserves and depreciable assets (3,222) (3,983)
--------- ---------
Net deferred assets 4,615 5,833
--------- ---------
Total deferred taxes $ (308) $ (262)
========= =========
</TABLE>
Applicable U.S. income and foreign withholding taxes have not been provided on
undistributed earnings of certain foreign subsidiaries and affiliates
aggregating $6,000,000 at January 28, 1995. Management's intention is to
reinvest such undistributed earnings outside the United States for an
indefinite period except for distributions upon which incremental U.S. income
taxes would not be material. Any withholding taxes ultimately paid, which
could approximate $300,000, may be recoverable as foreign tax credits in the
United States.
25
<PAGE> 26
FURON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 28, 1995
3. INCOME TAXES (CONTINUED)
During the fourth quarter of fiscal 1995 the Company resolved the Internal
Revenue Service audit for fiscal years 1988 and 1989 relating to the purchase
price allocation of an acquisition made in fiscal 1988. This resolution did
not have a material effect on the Company's financial position or results of
operations.
During the fourth quarter of fiscal 1994 the Company resolved the Internal
Revenue Service audit for fiscal years 1990 and 1991. It was determined that
the Company had provided sufficient income tax expense for the resolution of
the 1990 and 1991 audits as of fiscal 1993, and beginning with fourth quarter
fiscal 1994, the Company has decreased the taxes provided for the issues
resolved in this audit.
4. LONG-TERM DEBT
On January 28, 1994, the Company amended and restated its loan agreement with a
syndicate of banks. The amended agreement provides the Company with a 364-day
$30,000,000 unsecured revolving facility and a four-year $26,750,000 unsecured
term facility. Under the terms of the agreement, the Company may borrow at the
prevailing prime rate or at a rate based on the LIBOR rate. Any amount which
may be outstanding on the revolving facility at the end of the Company's fiscal
year will convert to a term loan payable in equal installments over two years.
In addition, the Company pays a commitment fee of 1/4% on the unused portion of
the revolving facility, and is subject to performance grid pricing based upon a
Fixed Charge Coverage Ratio.
At January 28, 1995, the balance of the term facility totaled $20,750,000.
There were no borrowings outstanding under the revolving facility. Borrowing
rates during the year ranged from 3.88% to 6.69% (6.69% at January 28, 1995).
The commitment under the term facility reduces by $2,000,000 each quarter and
expires on August 29, 1997.
In order to reduce the impact of changes in interest rates on its variable rate
borrowings, the Company entered into an 8-year Interest Rate Swap agreement
with a commercial bank in August 1988. The notional amount of the swap, which
decreases $2,000,000 each quarter, totaled $14,000,000 at January 28, 1995.
The swap agreement effectively changes the Company's interest rate on the
majority of its variable borrowings to a fixed interest rate of 9.938% plus a
3/4% spread.
Due to the fact that the swap agreement increases the effective rate of the
Company's borrowings, the Company is not exposed to credit risk in the event of
nonperformance by the other parties to the interest rate swap agreement. The
fair market value of this off balance sheet instrument as determined by an
independent third party at January 28, 1995 is $407,000.
26
<PAGE> 27
FURON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 28, 1995
4. LONG-TERM DEBT (CONTINUED)
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
JANUARY 28, JANUARY 29,
IN THOUSANDS 1995 1994
- -------------------------------------------------------------------------
<S> <C> <C>
Loans under bank credit agreements $ 20,750 $ 26,750
Other 6 13
-------- --------
Total 20,756 26,763
Less current portion (8,004) (6,013)
-------- --------
Due after one year $ 12,752 $ 20,750
======== ========
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
At January 28, 1995, the Company is obligated under non-cancelable leases of
real property and equipment used in its operations for minimum annual rentals
plus insurance and taxes. Amounts payable under these obligations are as
follows:
<TABLE>
<CAPTION>
Fiscal years ended In thousands
------------------ ------------
<S> <C>
1996 $ 8,156
1997 6,984
1998 5,881
1999 5,210
2000 4,205
2001 to 2005 16,575
2006 to 2010 6,885
</TABLE>
Certain leases contain escalation provisions for periodic adjustments based on
certain indices. Rental expense for the three years in the period ended
January 28, 1995 was $7,956,000, $7,952,000, and $7,924,000, respectively.
At January 28, 1995, the Company is obligated under irrevocable letters of
credit totaling $3,225,000.
27
<PAGE> 28
FURON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 28, 1995
5. COMMITMENTS AND CONTINGENCIES (CONTINUED)
At January 28, 1995, the Company had approximately $1.5 million of foreign
currency hedge contracts outstanding consisting of over-the-counter forward
contracts. The contracts reflect the selective hedging of the Belgium Franc
with varying maturities up to six months. Net unrealized gains/losses from
hedging activities were not material as of January 28, 1995.
The Company is currently involved in litigation arising in the normal course of
business. Management of the Company is of the opinion that such litigation
will not have a material effect on the Company's consolidated financial
position or results of operations.
The Company from time to time incurs investigation, remedial response,
voluntary clean-up and other costs associated with environmental matters. As
of January 28, 1995, the Company's reserves for environmental matters totaled
approximately $2,400,000. These reserves primarily relate to environmental
costs associated with facilities that have been sold or closed. While neither
the timing nor the amount of the ultimate costs associated with environmental
matters can be determined, management does not expect those matters to have a
material adverse effect on the Company's consolidated financial position or
results of operations.
One of the Company's subsidiaries has been notified by the Environmental
Protection Agency that it has been named as a potentially responsible party in
connection with the cleanup of hazardous wastes at two sites, the Solvents
Recovery Service of New England site in Southington, Connecticut (notified in
June 1992), and the Gallups Quarry site in Plainfield, Connecticut (notified in
April 1993). Since these matters are in their preliminary stages, no assurance
can be given at this time concerning the ultimate outcome. However, based on
preliminary investigations to determine the subsidiary's potential liability
and the estimated amount of remedial costs necessary to clean up the sites, the
Company presently does not expect these matters to have a material adverse
effect on its consolidated financial position or results of operations.
28
<PAGE> 29
FURON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 28, 1995
6. STOCKHOLDERS' EQUITY
Stock Incentive Plan
Under the Company's 1982 Stock Incentive Plan, the Compensation Committee,
appointed by the Board of Directors, is authorized to grant awards to any
officer or key employee of the Company. Awards granted can take the form of
non-qualified stock options, stock appreciation rights, restricted stock awards
(RSAs), performance share awards, stock depreciation rights and tax-offset
bonuses. A maximum of 1,650,000 shares of common stock may be issued under the
plan. Options are granted at a price equal to 100% of the fair market value at
the date of grant and become exercisable not earlier than six months after the
award date and vest at a rate of 25% per year. The options shall remain
exercisable until the expiration date but not later than ten years after the
award date.
At January 28, 1995, 143,165 RSAs have been granted (of which 14,900 have been
canceled). The issuance of these RSAs resulted in $1,892,000 (net of
cancellations) of unearned compensation which is being amortized over the five
year period in which the awards vest.
The following summarizes stock option transactions under the Stock Incentive
Plan for the year ended January 28, 1995:
<TABLE>
<CAPTION>
NUMBER PER SHARE
OF SHARES OPTION PRICE
--------- ------------
<S> <C> <C>
Options outstanding at January 29, 1994 1,008,600 $ 8.17-18.00
Granted 70,000 16.25
Exercised (349,272) 8.17-13.50
--------- ------------
Options outstanding at January 28, 1995 729,328 $ 8.17-18.00
========= ============
Exercisable at January 28, 1995 552,353 $ 8.17-18.00
========= ============
Shares available for grant:
January 29, 1994 1,400,950
=========
January 28, 1995 1,506,835
=========
</TABLE>
29
<PAGE> 30
FURON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 28, 1995
6. STOCKHOLDERS' EQUITY (CONTINUED)
Shareholders' Rights Plan
On March 21, 1989, the Board of Directors authorized the distribution of one
right for each outstanding share of common stock under the Shareholders' Rights
Plan. The rights which were distributed on May 23, 1989, become exercisable
ten business days after (i) a person has acquired or obtained the right to
acquire 20% or more of the Company's general voting power without approval by
the Board of Directors, or (ii) a tender or exchange offer which would make a
person the beneficial owner of 30% or more of the Company's general voting
power, whichever is earlier. When exercisable, each right entitles the
shareholder to purchase one-fourth of a share of common stock at a price of
$13.75, subject to adjustment. In the event the Company engages in certain
business combinations or a 20% shareholder engages in certain transactions with
the Company, each holder of a right (other than those of the acquiring person)
shall have the right to receive, upon the exercise thereof and payment of four
times the then current exercise price, that number of shares of Common Stock of
the surviving Company's common stock which at the time of such transaction
would have a market value of two times such price paid.
7. EMPLOYEE BENEFIT PLANS
The Company and its subsidiaries sponsor various qualified plans which cover
substantially all of its domestic employees including a profit-
sharing/retirement plan, an employee stock ownership plan, and an employee
stock purchase plan. The Company also sponsors a nonqualified defined benefit
plan covering certain employees.
Profit-Sharing/Retirement Plan
The trusteed profit-sharing/retirement plan provides for an employee salary
deferral contribution, a company matching contribution and a company primary
contribution. Under the deferral provisions (401K), eligible employees are
permitted to contribute up to 10% of gross compensation to the
profit-sharing/retirement plan. For amounts up to 8% of the employees' gross
compensation the Company will match the employee's contribution at a rate
determined by the Board of Directors. Under the company primary contribution
provision, each eligible employee will receive a contribution to the
profit-sharing/retirement plan based on a percentage of qualified wages as
determined based on the Company's performance. Total Company contributions for
the years ended January 28, 1995, January 29, 1994 and January 30, 1993 were
$1,528,000, $1,336,000, and $1,356,000, respectively.
30
<PAGE> 31
FURON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 28, 1995
7. EMPLOYEE BENEFIT PLANS (CONTINUED)
Employee Stock Ownership Plan
The Company sponsors an Employee Stock Ownership Plan (ESOP) covering
substantially all of its employees (subject to certain limitations). The
Company annually contributes amounts sufficient to cover principal and interest
on loans made to the ESOP as determined by the Board of Directors.
Prior to December 31, 1992, the Company loaned the ESOP $3,666,000 ($2,304,000
outstanding at January 28, 1995) to purchase 311,000 shares of stock, at
interest rates ranging from 7.83% to 9.12%. The loans are payable in ten
annual installments of principal and interest. In fiscal 1995 the Company
loaned the ESOP $808,125 to purchase 45,000 shares of stock from a former
officer and director of the Company, at interest rates ranging from 7.45% to
7.67%. These loans are payable in ten annual installments of principal and
interest, beginning in fiscal 1996. Shares are released and allocated to
participant accounts annually as loan repayments are made.
In fiscal 1995, the Company adopted the provisions of AICPA Statement of
Position No. 93-6 (the SOP) which requires that compensation expense be
measured based on the fair value of the shares over the period the shares are
earned. In addition, the SOP requires that dividends paid on unallocated
shares held by the ESOP are reported as a reduction of accrued interest or as
compensation expense rather than a charge to retained earnings, and shares not
yet committed to be released are not considered outstanding in the calculation
of earnings per share. As allowed by the SOP, the Company has elected not to
apply the SOP's provisions to shares acquired prior to fiscal 1994. As such,
compensation expense related to such shares is measured based on the historical
cost of the shares, dividends have been deducted as a charge to retained
earnings and the unallocated shares are considered outstanding in the
calculation of earnings per share. The adoption of the SOP did not have a
material impact on the consolidated financial statements.
Of the leveraged shares acquired prior to fiscal 1994, 94,465 and 195,160 are
allocated and unallocated, respectively, at January 28, 1995. Of the leveraged
shares acquired in fiscal 1995, there were no allocated shares, 1,883
committed-to-be-released shares, and 43,117 unallocated shares at January 28,
1995. The fair value of unallocated shares acquired in fiscal 1995 was
$949,000 at January 28, 1995. Total compensation cost recognized by the
Company during fiscal 1995, 1994 and 1993, which consists of the annual
contribution and plan administrative costs, net of dividend income on
unallocated and forfeited shares, totaled $528,000, $339,000, and $423,000,
respectively.
31
<PAGE> 32
FURON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 28, 1995
7. EMPLOYEE BENEFIT PLANS (CONTINUED)
Employee Stock Purchase Plan
Effective November 1, 1994 the Company adopted an Employee Stock Purchase Plan
to provide substantially all employees who have completed one year of service
an opportunity to purchase shares of its common stock through payroll
deductions, up to 10% of eligible compensation. Annually, on October 31,
participant account balances are used to purchase shares of stock at the lesser
of 85 percent of the fair market value of shares on November 1 (grant date) or
October 31 (exercise date). The aggregate number of shares purchased by an
employee may not exceed 5,000 shares annually (subject to limitations imposed
by the Internal Revenue Code). The stock purchase plan expires on October 31,
2004. A total of 200,000 shares are available for purchase under the plan.
There were no shares issued under the plan during fiscal 1995.
Supplemental Executive Retirement Plan
In fiscal 1987, the Company adopted an unfunded executive defined benefit
retirement plan for certain key officers of the Company, which provides for
benefits which supplement those provided by the Company's other retirement
plans. Benefits payable under the plan are based upon compensation levels and
length of service of the participants.
In accordance with FASB Statement No. 87, "Employers' Accounting for Pensions,"
the Company has recorded an additional liability of $1,156,000 and $862,000 in
fiscal 1995 and 1994, respectively, which represents the excess of the
accumulated benefit obligation over previously recognized accrued pension
costs. In 1994 the Company recorded an intangible asset to reflect the
additional liability. In 1995, the excess of additional pension liability
over the unrecognized net transition obligation has been recorded as a
component of stockholders' equity.
32
<PAGE> 33
FURON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 28, 1995
7. EMPLOYEE BENEFIT PLANS (CONTINUED)
Actuarial present value of benefit obligations:
<TABLE>
<CAPTION>
JANUARY 28, JANUARY 29,
IN THOUSANDS 1995 1994
---------------------------------------------------------------------------
<S> <C> <C>
Vested benefit obligation $ 6,574 $ 5,909
======= =======
Accumulated benefit obligation $ 6,662 $ 5,993
======= =======
Unfunded projected benefit obligation $ 7,419 $ 8,253
Unrecognized net loss (1,136) (2,260)
Unrecognized net transition obligation (777) (862)
------- -------
5,506 5,131
Additional minimum liability 1,156 862
------- -------
Accrued pension cost $ 6,662 $ 5,993
======= =======
Assumptions: Discount rate 8.5% 7.5%
Salary increase rate 5.0% 5.0%
</TABLE>
Net periodic pension costs for fiscal 1995, 1994 and 1993 were as
follows:
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------------------
JANUARY 28, JANUARY 29, JANUARY 30,
IN THOUSANDS 1995 1994 1993
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 44 $ 41 $ 26
Interest cost 609 605 487
Net amortization and deferral 212 184 158
----- ----- -----
$ 865 $ 830 $ 671
===== ===== =====
</TABLE>
33
<PAGE> 34
FURON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 28, 1995
8. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT INCOME NET INCOME
PER SHARE DATA NET SALES GROSS PROFIT BEFORE TAXES NET INCOME PER SHARE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JANUARY 28, 1995
1st Quarter $ 74,960 $ 21,960 $ 3,832 $ 2,414 $ .27
2nd Quarter 75,127 22,580 4,234 2,667 .30
3rd Quarter 81,071 25,092 5,119 3,357 .37
4th Quarter 80,902 24,601 4,412 3,000 .33
YEAR ENDED JANUARY 29, 1994
1st Quarter $ 77,173 $ 21,095 $ 2,978 $ 1,757 $ .20
2nd Quarter 70,211 19,661 2,664 1,582 .18
3rd Quarter 70,034 20,209 3,623 2,220 .25
4th Quarter 67,776 19,502 3,703 2,611 .29
</TABLE>
34
<PAGE> 35
FURON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 28, 1995
9. SEGMENT INFORMATION
The Company designs, develops and manufactures highly engineered components
made primarily from specially formulated high performance polymer materials, a
single business segment.
The following table provides information as to the geographic areas in which
the Company does business.
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------------------
JANUARY 28, JANUARY 29, JANUARY 30,
IN THOUSANDS 1995 1994 1993
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales to outside customers:
United States $ 283,006 $ 261,424 $ 274,661
Europe 29,054 23,770 25,446
--------- --------- ---------
$ 312,060 $ 285,194 $ 300,107
========= ========= =========
Income before income taxes:
United States $ 15,096 $ 11,407 $ 9,934
Europe 2,501 1,561 2,579
--------- --------- ---------
$ 17,597 $ 12,968 $ 12,513
========= ========= =========
Identifiable assets:
United States $ 160,848 $ 160,905 $ 157,757
Europe 19,025 14,319 16,472
--------- --------- ---------
$ 179,873 $ 175,224 $ 174,229
========= ========= =========
Export sales $ 38,145 $ 27,536 $ 24,761
========= ========= =========
</TABLE>
10. SUBSEQUENT EVENTS
On January 31, 1995, the Company acquired certain assets of Custom Coating &
Laminating Corporation. The Company paid $24 million ($18 million of which was
borrowed under the Company's unsecured revolving facility), assumed certain
liabilities approximating $2.4 million, and may pay up to an additional $4
million based upon future product sales over the next three fiscal years.
35
<PAGE> 36
PART III
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information in response to this Item is incorporated herein by reference from
the Company's definitive Proxy Statement for the Annual Meeting of Shareholders
to be held on June 6, 1995. Information concerning the Company's executive
officers is included in Part I.
ITEM 11. EXECUTIVE COMPENSATION
Information in response to this Item is incorporated herein by reference from
the Company's definitive Proxy Statement for the Annual Meeting of Shareholders
to be held on June 6, 1995.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information in response to this Item is incorporated herein by reference from
the Company's definitive Proxy Statement for the Annual Meeting of Shareholders
to be held on June 6, 1995.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information in response to this Item is incorporated herein by reference from
the Company's definitive Proxy Statement for the Annual Meeting of Shareholders
to be held on June 6, 1995.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
(a) 1. Index to Financial Statements Page
----
<S> <C>
Report of Independent Auditors 14
Consolidated Statements of Income
Years ended January 28, 1995,
January 29, 1994 and January 30, 1993 15
</TABLE>
36
<PAGE> 37
PART IV (CONTINUED)
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(CONTINUED)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Consolidated Balance Sheets
January 28, 1995 and January 29, 1994 16
Consolidated Statements of Stockholders' Equity
Years ended January 28, 1995, January 29, 1994
and January 30, 1993 18
Consolidated Statements of Cash Flows
Years ended January 28, 1995, January 29, 1994
and January 30, 1993 19
Notes to Consolidated Financial Statements
January 28, 1995 20
2. Index to Financial Statement Schedules
Schedule VIII - Valuation and Qualifying Accounts 38
</TABLE>
All other schedules have been omitted since the
required information is not present or not present in
amounts sufficient to require the submission of the
schedules, or because the information required is
included in the consolidated financial statements or
the notes thereto.
3. Exhibits:
The exhibits listed in the accompanying Index to
Exhibits are filed as part of this annual report.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the last
quarter of the period covered by this report.
37
<PAGE> 38
FURON COMPANY
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JANUARY 28, 1995, JANUARY 29, 1994 AND JANUARY 30, 1993
<TABLE>
<CAPTION>
DEDUCTIONS/
BALANCE AT ADDITIONS ACCOUNTS WRITTEN
BEGINNING CHARGED TO OFF NET OF BALANCE AT
OF YEAR COSTS AND EXPENSES RECOVERIES OTHER END OF YEAR
---------- ------------------ ---------------- --------- -----------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL
RECEIVABLES:
1995 $ 631,540 $ 302,954 $ 238,744 $ - $ 695,750
========= ========= ========= ========= =========
1994 $ 740,700 $ 253,770 $ 362,930 $ - $ 631,540
========= ========= ========= ========= =========
1993 $ 659,705 $ 351,604 $ 270,609 $ - $ 740,700
========= ========= ========= ========= =========
</TABLE>
38
<PAGE> 39
FURON COMPANY
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
REGULATION S-K SEQUENTIAL
ITEM NUMBER PAGE NUMBER
----------- -----------
<S> <C> <C>
3 Restated Articles of Incorporation (Incorporated by reference to
Exhibit 3 to the Registrant's Annual Report on Form 10-K filed on
April 7, 1994, Commission File No. 0-8088)
3.1 Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.1
to the Registrant's Annual Report on Form 10-K filed on April 7, 1994
and Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q filed
on September 13, 1994, Commission File 0-8088)
4 Rights Agreement as amended (Incorporated by reference to Exhibit 2.1
to the Registrant's Registration Statement on Form 8-A filed March 22,
1989, and Exhibit 4.1 to the Registrant's Annual Report on Form 10-K
filed on April 28, 1992, Commission File No. 0-8088)
10.1* 1982 Stock Incentive Plan (as Amended and Restated as of March 22,
1994) (Incorporated by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q filed on September 13, 1994, Commission
File No. 0-8088)
10.2* Employee Relocation Assistance Plan as amended (Incorporated by
reference to Exhibit 10.2 to the Registrant's Annual Report on Form
10-K filed on March 21, 1990, Commission File No. 0-8088)
10.3* Supplemental Executive Retirement Plan as presently in effect
(Incorporated by reference to Exhibit 10.5 to the Registrant's Annual
Report on Form 10-K filed on March 28, 1991, Exhibit 10.4 to the
Registrant's Annual Report on Form 10-K filed on March 29, 1993, and
Exhibit 10.4A to the Registrant's Quarterly Report on Form 10-Q filed
on September 13, 1994, Commission File No. 0-8088)
10.4 Asset Purchase Agreement, dated as of January 31, 1995, by and between
the Registrant and Custom Coating & Laminating Corporation
(Incorporated by reference to Exhibit 2 to the Registrant's Current
Report on Form 8-K/A filed on February 17, 1995, Commission File
No. 0-8088)
</TABLE>
* A management contract or compensatory plan or arrangement.
39
<PAGE> 40
FURON COMPANY
INDEX TO EXHIBITS
(CONTINUED)
<TABLE>
<CAPTION>
REGULATION S-K SEQUENTIAL
ITEM NUMBER PAGE NUMBER
----------- -----------
<S> <C> <C>
10.5* Form of Indemnity Agreement with each of the directors and officers of
the Registrant (Incorporated by reference to Exhibit C to the
Registrant's definitive Proxy Statement filed May 2, 1988, Commission
File No. 0-8088)
10.6* Form of Change-in-Control Agreement between the Registrant and each of
its executive officers (Incorporated by reference to Exhibit 10.7 to
the Registrant's Annual Report on Form 10-K filed on March 28, 1991,
Commission File No. 0-8088)
10.7* Deferred Compensation Plan (Incorporated by reference to Exhibit 10.7
to the Registrant's Annual Report on Form 10-K filed on March 29, 1993,
Commission File No. 0-8088)
10.8* Economic Value Added (EVA) Incentive Compensation Plan, as Amended and
Restated (Incorporated by reference to Exhibit 10.8 to the Registrant's
Annual Report on Form 10-K filed on April 7, 1994, Commission File No.
0-8088)
10.9* Consulting agreement with Peter Churm for fiscal year 1996 46
10.9A* Consulting agreement with Peter Churm for fiscal year 1995
(Incorporated by reference to Exhibit 10.9A to the Registrant's Annual
Report on Form 10-K filed on April 7, 1994, Commission File No. 0-8088)
10.10* Promissory note and subordination agreement for Terrence A. Noonan
relocation (Incorporated by reference to Exhibit 10.10 to the
Registrant's Annual Report on Form 10-K filed on April 7, 1994,
Commission File No. 0-8088)
10.11 Second Amended and Restated Loan Agreement and the First Amendment
thereto (the "Loan Agreement") (Incorporated by reference to Exhibit
10.11 to the Registrant's Annual Report on Form 10-K filed on April 7,
1994, Commission File No. 0-8088)
10.11A Second Amendment to the Loan Agreement 47
</TABLE>
* A management contract or compensatory plan or arrangement.
40
<PAGE> 41
w FURON COMPANY
INDEX TO EXHIBITS
(CONTINUED)
<TABLE>
<CAPTION>
REGULATION S-K SEQUENTIAL
ITEM NUMBER PAGE NUMBER
----------- -----------
<S> <C> <C>
10.12 1993 Non-Employee Directors' Stock Compensation Plan (Incorporated by
reference to Exhibit 10.12 to the Registrant's Quarterly Report on Form
10-Q filed on June 2, 1994, Commission File No. 0-8088)
11 Statement re Computation of Net Income Per Share 51
22 Subsidiaries of the Registrant 52
23 Consent of Independent Auditors 53
27 Financial Data Schedule 54
</TABLE>
41
<PAGE> 42
SIGNATURES AND POWER OF ATTORNEY
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 on March 21, 1995 by the undersigned, thereunto duly authorized.
FURON COMPANY
By: /S/ MONTY A. HOUDESHELL /S/ KOICHI HOSOKAWA
-------------------------------- ------------------------------------
Monty A. Houdeshell Koichi Hosokawa
Vice President, Chief Financial Controller
Officer and Treasurer
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. Each person whose
signature appears below hereby authorizes and appoints J. Michael Hagan,
Terrence A. Noonan, and Monty A. Houdeshell as attorneys-in-fact and agents,
each acting alone, to execute and file with the applicable regulatory
authorities any amendment to this report on his behalf individually and in each
capacity stated below.
/S/ J. MICHAEL HAGAN /S/ COCHRANE CHASE
- ------------------------------------- ------------------------------------
J. Michael Hagan Cochrane Chase
Chairman of the Board Director, March 21, 1995
(Principal Executive Officer),
March 21, 1995
/S/ TERRENCE A. NOONAN /S/ H. DAVID BRIGHT
- ------------------------------------- ------------------------------------
Terrence A. Noonan H. David Bright
President and Director, March 21, 1995 Director, March 21, 1995
/S/ PETER CHURM /S/ WILLIAM D. CVENGROS
- ------------------------------------- ------------------------------------
Peter Churm William D. Cvengros
Chairman Emeritus, March 21, 1995 Director, March 21, 1995
/S/ MONTY A. HOUDESHELL
- ------------------------------------- ------------------------------------
Monty A. Houdeshell William E. Eckhardt
Vice President, Chief Financial Director, March 21, 1995
Officer and Treasurer, March 21, 1995
/S/ KOICHI HOSOKAWA /S/ R. DAVID THRESHIE
- ------------------------------------- ------------------------------------
Koichi Hosokawa R. David Threshie
Controller, March 21, 1995 Director, March 21, 1995
/S/ BRUCE E. RANCK
------------------------------------
Bruce E. Ranck
Director, March 21, 1995
42
<PAGE> 43
FURON COMPANY
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
REGULATION S-K SEQUENTIAL
ITEM NUMBER PAGE NUMBER
----------- -----------
<S> <C> <C>
3 Restated Articles of Incorporation (Incorporated by reference to
Exhibit 3 to the Registrant's Annual Report on Form 10-K filed on April
7, 1994, Commission File No. 0-8088)
3.1 Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.1
to the Registrant's Annual Report on Form 10-K filed on April 7, 1994
and Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q filed
on September 13, 1994, Commission File 0-8088)
4 Rights Agreement as amended (Incorporated by reference to Exhibit 2.1
to the Registrant's Registration Statement on Form 8-A filed March 22,
1989, and Exhibit 4.1 to the Registrant's Annual Report on Form 10-K
filed on April 28, 1992, Commission File No. 0-8088)
10.1* 1982 Stock Incentive Plan (as Amended and Restated as of March 22,
1994) (Incorporated by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q filed on September 13, 1994, Commission
File No. 0-8088)
10.2* Employee Relocation Assistance Plan as amended (Incorporated by
reference to Exhibit 10.2 to the Registrant's Annual Report on Form
10-K filed on March 21, 1990, Commission File No. 0-8088)
10.3* Supplemental Executive Retirement Plan as presently in effect
(Incorporated by reference to Exhibit 10.5 to the Registrant's Annual
Report on Form 10-K filed on March 28, 1991, Exhibit 10.4 to the
Registrant's Annual Report on Form 10-K filed on March 29, 1993, and
Exhibit 10.4A to the Registrant's Quarterly Report on Form 10-Q filed
on September 13, 1994, Commission File No. 0-8088)
10.4 Asset Purchase Agreement, dated as of January 31, 1995, by and between
the Registrant and Custom Coating & Laminating Corporation
(Incorporated by reference to Exhibit 2 to the Registrant's Current
Report on Form 8-K/A filed on February 17, 1995, Commission File No.
0-8088)
</TABLE>
* A management contract or compensatory plan or arrangement.
43
<PAGE> 44
FURON COMPANY
INDEX TO EXHIBITS
(CONTINUED)
<TABLE>
<CAPTION>
REGULATION S-K SEQUENTIAL
ITEM NUMBER PAGE NUMBER
----------- -----------
<S> <C> <C>
10.5* Form of Indemnity Agreement with each of the directors and officers of
the Registrant (Incorporated by reference to Exhibit C to the
Registrant's definitive Proxy Statement filed May 2, 1988, Commission
File No. 0-8088)
10.6* Form of Change-in-Control Agreement between the Registrant and each of
its executive officers (Incorporated by reference to Exhibit 10.7 to
the Registrant's Annual Report on Form 10-K filed on March 28, 1991,
Commission File No. 0-8088)
10.7* Deferred Compensation Plan (Incorporated by reference to Exhibit 10.7
to the Registrant's Annual Report on Form 10-K filed on March 29, 1993,
Commission File No. 0-8088)
10.8* Economic Value Added (EVA) Incentive Compensation Plan, as Amended and
Restated (Incorporated by reference to Exhibit 10.8 to the Registrant's
Annual Report on Form 10-K filed on April 7, 1994, Commission File No.
0-8088)
10.9* Consulting agreement with Peter Churm for fiscal year 1996 46
10.9A* Consulting agreement with Peter Churm for fiscal year 1995
(Incorporated by reference to Exhibit 10.9A to the Registrant's Annual
Report on Form 10-K filed on April 7, 1994, Commission File No. 0-8088)
10.10* Promissory note and subordination agreement for Terrence A. Noonan
relocation (Incorporated by reference to Exhibit 10.10 to the
Registrant's Annual Report on Form 10-K filed on April 7, 1994,
Commission File No. 0-8088)
10.11 Second Amended and Restated Loan Agreement and the First Amendment
thereto (the "Loan Agreement") (Incorporated by reference to Exhibit
10.11 to the Registrant's Annual Report on Form 10-K filed on April 7,
1994, Commission File No. 0-8088)
10.11A Second Amendment to the Loan Agreement 47
</TABLE>
* A management contract or compensatory plan or arrangement.
44
<PAGE> 45
FURON COMPANY
INDEX TO EXHIBITS
(CONTINUED)
<TABLE>
<CAPTION>
REGULATION S-K SEQUENTIAL
ITEM NUMBER PAGE NUMBER
----------- -----------
<S> <C> <C>
10.12 1993 Non-Employee Directors' Stock Compensation Plan (Incorporated by
reference to Exhibit 10.12 to the Registrant's Quarterly Report on Form
10-Q filed on June 2, 1994, Commission File No. 0-8088)
11 Statement re Computation of Net Income Per Share 51
22 Subsidiaries of the Registrant 52
23 Consent of Independent Auditors 53
27 Financial Data Schedule 54
</TABLE>
45
<PAGE> 1
March 21, 1995
Mr. Peter Churm
67 Monarch Bay
Dana Point, CA 92629-3459
Re: Consulting Agreement
Dear Pete:
This will confirm that:
1. Effective January 29, 1995, Furon retained you to provide
management consulting services for Furon's fiscal year ending
February 3, 1996. You will be paid $90,000 and will be
reimbursed for business related expenses incurred in the
performance of those services. As part of this arrangement,
you are entitled to, and Furon has purchased, general medical
insurance coverage for your spouse, as well as medical
insurance to supplement Medicare coverage maintained by you,
at an aggregate cost to Furon of approximately $600 per month,
and Furon will reimburse you and your spouse for any uninsured
out-of-pocket medical expenses. It is contemplated that the
consulting arrangement will require the commitment of
approximately 50% of your business time.
2. In performing your services as a consultant pursuant to that
arrangement, you have been and will continue to be an
independent contractor, and not an employee of Furon.
3. This consulting arrangement is subject to the annual review
and approval of Furon's Board of Directors.
If the foregoing accurately sets forth the terms of your
consulting agreement with Furon, please so indicate by signing the
extra-enclosed copy of this letter at the place provided for your
signature and returning it to me.
Cordially,
/s/ J. MICHAEL HAGAN
Chairman of the Board
APPROVED AND AGREED
EFFECTIVE AS OF JANUARY 29, 1995
/s/ PETER CHURM
-------------------
Peter Churm
EXHIBIT 10.9
46
<PAGE> 1
SECOND AMENDMENT TO
SECOND AMENDED AND RESTATED LOAN AGREEMENT
THIS SECOND AMENDMENT TO SECOND AMENDED AND RESTATED LOAN
AGREEMENT (The "Second Amendment") is made and dated as of the 28 day of
December, 1994 by and among BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, a national banking association, each other bank signatory
hereto set forth on the signature pages of this Second Amendment and any
such other banks as from time to time may be party hereto (collectively
referred to herein as the "Banks" and, individually, a "Bank"), BANK OF
AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, a national banking
association, as agent (in such capacity, the "Agent") and FURON COMPANY, a
California corporation ("Borrower").
RECITALS
A. Pursuant to that certain Second Amended and Restated
Loan Agreement, dated as of January 28, 1994, among the Banks and Borrower
(as amended from time to time, the "Agreement"), the Banks agreed to extend
credit to Borrower on the terms and subject to the conditions set forth
therein. All capitalized terms not otherwise defined herein shall have the
meanings given such terms in the Agreement.
B. Borrower and the Banks desire to amend the Agreement
in certain respects, all as set forth more particularly below.
NOW, THEREFORE, in consideration of the foregoing Recitals and
for other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereto hereby agree as follows:
AGREEMENT
1. Amendments. The Agreement is amended as follows:
1.1 Amendment to Consolidated Tangible Effective
Net Worth. Section 5.7 of the Agreement is hereby deleted in its entirety
and is replaced with the following:
"5.7 Consolidated Tangible Effective Net Worth.
Borrower shall maintain a Consolidated Tangible Effective Net
Worth of at least (i) the amount of the Borrower's Consolidate
Tangible Effective Net Worth as of October 29, 1994 minus (ii)
$8,000,000 plus (iii) 50% of all positive Consolidate Net Income of
Borrower earned since October 29, 1994 plus (iv) 100% of the net
proceeds from the issuance of equity securities (other than equity
securities issued pursuant to any of Borrower's employee benefit
plans) minus (v) incremental goodwill attributable to the purchase of
Custom Coating and Laminating, which is not to exceed $22,300,000."
1.2 Amendment to Successor Agent Paragraph. Section
8.7 of the Agreement is hereby amended to add to the end thereof the following:
"Upon resignation of the Agent, the rights of the Agent under Sections 8.4,
8.5, 8.6, 9.3 and 9.10 shall inure to the benefit of the resigning Agent with
respect to the actions taken prior to resignation."
2. Extension of Line A Commitment Termination Date. In
accordance with Section 2.5(c) of the Agreement, each of the Banks by its
signature below agrees that on the Effective Date of this Second Amendment
the Line A Commitment Termination date is extended until January 26, 1996.
3. Effective Date. This Second Amendment shall become
effective as of the date that it is fully executed by each of the parties
hereto and the Agent shall have received such evidence as it shall
reasonably request at the request of the Banks that each of the
representations and warranties contained in the Second Amendment are true
and correct.
EXHIBIT 10.11A
47
<PAGE> 2
4. No Other Amendment. Except as expressly amended
herein, the Agreement and all other Loan Documents shall remain in full
force and effect as currently written.
5. Counterparts. This Second Amendment may be executed
in any number of counterparts, each of which when so executed shall be
deemed to be an original and all of which when taken together shall
constitute one and the same agreement.
6. Representations and Warranties. Borrower hereby
represents and warrants to the parties hereto as follows:
6.1 Borrower has all corporate power and
corporate authority to execute and deliver, and to perform all of its
obligations under this Second Amendment.
6.2 The execution and delivery by Borrower and
the performance by Borrower of each of its obligations under the Second
Amendment have been duly authorized by all necessary corporate action and
do not:
(a) require any consent or approval not
heretofore obtained of any shareholder, security holder or creditor of
Borrower;
(b) violate any provision of the
articles of incorporation or the bylaws of Borrower;
(c) result in or require the creation or
imposition of any Lien (other than under the Loan Documents) upon or with
respect to Property now owned or leased or hereafter acquired by Borrower;
(d) violate any provision of any Law,
order, writ, judgment, injunction, decree, determination or award presently
in effect having applicability to Borrower which would reasonably be
expected to have a materially adverse effect on the Property or business
condition (financial or otherwise) of Borrower and its Subsidiaries taken
as a whole; or
(e) result in a breach of or constitute
a default under, or cause or permit the acceleration of any obligation owed
under, any indenture or loan or credit agreement or any other material
agreement, lease or instrument to which Borrower is a party or by which
Borrower or any Property of Borrower is bound or affected.
6.3 Borrower and each of its Subsidiaries is not
in default under or in violation of any Law, orders, writ, judgment
injunction, decree, determination, award, indenture, agreement, lease or
instrument in any respect that is materially adverse to the interests of
the Banks under this Second Amendment or that could materially impair the
ability of the Borrower to perform its obligations under this Second
Amendment.
6.4 No authorization, consent, approval, order,
license, permit or exemption from, or filing, registration or qualification
with, any Governmental Agency is or will be required under applicable law
to authorize or permit the execution and delivery by the Borrower of this
Second Amendment, and the payment by Borrower of all amounts due under the
Loan Documents.
6.5 This Second Amendment, when executed and
delivered, will constitute legal, valid and binding obligations of Borrower
and is enforceable against Borrower in accordance with its terms except
enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or limiting creditors' rights
generally.
6.6 At and as of the date of execution hereof and
at and as of the effective date of this Second Amendment (1) the
representations and warranties of the Borrower contained in the Agreement
are accurate and complete in all material respects, and (2) no event has
occurred and is continuing that is a Default or an Event of Default.
48
<PAGE> 3
In WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be executed as of the day and year first above written.
FURON COMPANY, a California
corporation
By:_________________________________
Name: J. Michael Hagan
Title: Chairman of the Board of
Directors
By:_________________________________
Name: Monty A. Houdeshell
Title: Vice President and Chief
Financial Officer
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Agent
By: _____________________________
Name: _____________________________
Title: _____________________________
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Agent
By: _____________________________
Name: _____________________________
Title: _____________________________
THE BANK OF NEW YORK
By: _____________________________
Name: _____________________________
Title: _____________________________
49
<PAGE> 4
BANK ONE, COLUMBUS, NATIONAL
ASSOCIATION
By: _____________________________
Name: _____________________________
Title: _____________________________
BANK OF AMERICA ILLINOIS
By: _____________________________
Name: _____________________________
Title: _____________________________
50
<PAGE> 1
EXHIBIT 11
FURON COMPANY
COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
YEARS ENDED
---------------------------------------------
JANUARY 28, JANUARY 29, JANUARY 30,
1995 1994 1993
---------------------------------------------
<S> <C> <C> <C>
PRIMARY INCOME PER SHARE
- ------------------------
Earnings
Net income $ 11,438,000 $ 8,170,000 $ 7,257,000
============ =========== ===========
Shares
Weighted average
number of common
shares outstanding 8,674,135 8,615,289 8,519,774
Shares issuable from
assumed exercise of stock
options 318,791 243,911 161,832
------------ ----------- -----------
Average shares as adjusted 8,992,926 8,859,200 8,681,606
============ =========== ===========
Primary income per share $ 1.27 $ .92 $ .84
============ =========== ===========
FULLY DILUTED INCOME PER SHARE
- ------------------------------
Earnings
Net income $ 11,438,000 $ 8,170,000 $ 7,257,000
============ =========== ===========
Shares
Weighted average
number of common shares
outstanding 8,674,135 8,615,289 8,519,774
Shares issuable from
assumed exercise of stock
options 443,300 243,911 161,832
------------ ----------- -----------
Average shares as adjusted
for full dilution 9,117,435 8,859,200 8,681,606
============ =========== ===========
Fully diluted income
per share $ 1.25 $ .92 $ .84
============ =========== ===========
</TABLE>
51
<PAGE> 1
EXHIBIT 22
Furon Company Significant and Certain Other Subsidiaries
January 28, 1995
<TABLE>
<CAPTION>
State or Other Jurisdiction of
Name of Subsidiary* Incorporation or Organization
- ------------------ ------------------------------
<S> <C>
Bunnell Plastics, Inc. New Jersey
CHR Industries, Inc. Connecticut
Dixon Industries Corporation Rhode Island
Fluorocarbon Components, Inc. New York
Fluorocarbon Foreign Sales Corporation Barbados
Furon B.V. Netherlands
Furon Europe, S.A. Belgium
Furon Limited England
Furon Seals N.V./S.A. Belgium
Furon S.A. Belgium
Furon S.A.R.L. France
Sepco Corporation California
</TABLE>
- ------------------
* Each of Furon Company's domestic subsidiaries is a general business
corporation with a wholly owned domestic subsidiary.
52
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement, as
amended (Form S-8 No. 33-54031), pertaining to the Furon Company 1982 Stock
Incentive Plan and related Prospectus and in the Registration Statement, as
amended (Form S-8 No. 2-93028), pertaining to the Furon Company Employees'
Profit-Sharing/Retirement Plan and related Prospectus and in the Registration
Statement, as amended (Form S-8 No. 33-55535), pertaining to the Furon Company
Employee Stock Purchase Plan and related Prospectus and in the Registration
Statement, as amended (Form S-8 No. 33-53987), pertaining to the Furon Company
1993 Non-Employee Directors' Stock Compensation Plan and related Prospectus of
our report dated March 8, 1995, with respect to the consolidated financial
statements and schedule of Furon Company included in the Annual Report (Form
10-K) for the year ended January 28, 1995.
ERNST & YOUNG LLP
Orange County, California
March 21, 1995
53
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's consolidated statements of income, consolidated balance sheets and
consolidated statements of cash flows and is qualified in its entirety by
reference to such financial statements contained within the Company's Form 10-K
for the year ended January 28, 1995.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-28-1995
<PERIOD-END> JAN-28-1995
<EXCHANGE-RATE> 1
<CASH> 6,475
<SECURITIES> 0
<RECEIVABLES> 49,651
<ALLOWANCES> 696
<INVENTORY> 31,197
<CURRENT-ASSETS> 101,685
<PP&E> 114,042
<DEPRECIATION> 61,981
<TOTAL-ASSETS> 179,873
<CURRENT-LIABILITIES> 46,960
<BONDS> 0
<COMMON> 36,280
0
0
<OTHER-SE> 55,319
<TOTAL-LIABILITY-AND-EQUITY> 179,873
<SALES> 312,060
<TOTAL-REVENUES> 312,060
<CGS> 217,827
<TOTAL-COSTS> 217,827
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 303
<INTEREST-EXPENSE> 2,394
<INCOME-PRETAX> 17,597
<INCOME-TAX> 6,159
<INCOME-CONTINUING> 11,438
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,438
<EPS-PRIMARY> 1.27
<EPS-DILUTED> 0
</TABLE>
