<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
/ / FOR THE QUARTER ENDED APRIL 29, 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
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
----- -----
Number of shares of common stock outstanding as of April 29, 1995: 8,853,150
<PAGE> 2
FURON COMPANY
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
April 29, 1995 and January 28, 1995 3
Condensed Consolidated Statements of Income
Three months ended April 29, 1995 and April 30, 1994 5
Condensed Consolidated Statements of Cash Flows
Three months ended April 29, 1995 and April 30, 1994 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II - OTHER INFORMATION 13
- ---------------------------
</TABLE>
2
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
FURON COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
<TABLE>
<CAPTION>
April 29, January 28,
In thousands 1995 1995
- -----------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ -- $ 6,475
Accounts receivable, less allowance for
doubtful accounts of $813 at April 29, 1995
and $696 at January 28, 1995 52,131 48,955
Inventories 39,289 31,197
Deferred tax benefit 8,215 8,215
Prepaid expenses and other assets 5,710 6,843
-------- --------
Total current assets 105,345 101,685
Property, plant & equipment, at cost:
Land 904 456
Buildings and leasehold improvements 19,070 13,868
Machinery and equipment 106,149 99,718
-------- --------
126,123 114,042
Less accumulated depreciation and amortization (64,842) (61,981)
-------- --------
Net property, plant and equipment 61,281 52,061
Intangible assets, at cost less accumulated
amortization of $24,680 at April 29, 1995
and $23,739 at January 28, 1995 30,421 17,953
Other assets 8,189 8,174
-------- --------
$205,236 $179,873
======== ========
</TABLE>
See accompanying notes.
3
<PAGE> 4
FURON COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
April 29, January 28,
In thousands, except share data 1995 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current liabilities:
Cash, less checks outstanding $ 3,304 $ --
Accounts payable 18,528 19,093
Salaries, wages and related benefits payable 9,251 10,508
Current portion of long-term debt 8,004 8,004
Income taxes payable 1,421 770
Other current liabilities 9,186 8,585
-------- --------
Total current liabilities 49,694 46,960
Long-term debt due after one year 30,751 12,752
Other long-term liabilities 20,088 20,039
Deferred taxes 8,523 8,523
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,
8,853,150 shares issued and
outstanding at April 29, 1995 and
8,800,164 at January 28, 1995 36,872 36,280
Foreign currency translation adjustment 1,483 419
Unearned ESOP shares (3,112) (3,112)
Unearned compensation (784) (885)
Additional pension liability (379) (379)
Retained earnings 62,100 59,276
-------- --------
Total stockholders' equity 96,180 91,599
-------- --------
$205,236 $179,873
======== ========
</TABLE>
See accompanying notes.
4
<PAGE> 5
FURON COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
-------------------------------------------
April 29, April 30,
In thousands, except per share amounts 1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $88,442 $74,960
Cost of sales 62,881 53,000
------- -------
Gross profit 25,561 21,960
Selling, general and administrative expenses 20,380 17,821
Other (income), net (775) (336)
Interest expense 794 643
------- -------
Income before income taxes 5,162 3,832
Provision for income taxes 1,807 1,418
------- -------
Net income $ 3,355 $ 2,414
======= =======
Net income per share of Common Stock $ 0.37 $ 0.27
======= =======
</TABLE>
See accompanying notes.
5
<PAGE> 6
FURON COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
-----------------------------------------
April 29, April 30,
In thousands 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 3,355 $ 2,414
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation 2,510 2,188
Amortization 1,032 906
Provision for losses on accounts receivable 105 89
Increase in deferred income taxes -- 215
Loss on sale of assets and divestitures 11 (7)
Working capital changes:
Accounts receivable (1,231) (2,621)
Inventories (5,612) (805)
Cash, less checks outstanding 3,304 -
Accounts payable and accrued liabilities (4,096) (2,244)
Income taxes payable 651 (728)
Other current assets and liabilities, net 1,218 (1,647)
Changes in other long-term operating assets and
liabilities 25 444
-------- --------
Net cash provided by (used in) operating activities 1,272 (1,796)
INVESTING ACTIVITIES
Acquisition of business (23,763) --
Purchases of property, plant and equipment (3,342) (2,328)
Proceeds from sale of divestitures 567 --
Proceeds from sale of equipment 47 63
Proceeds from notes receivable -- 711
Decrease (increase) in notes receivable 9 (198)
-------- --------
Net cash used in investing activities (26,482) (1,752)
FINANCING ACTIVITIES
Proceeds from long-term debt 21,000 --
Principal payments on long-term debt (3,001) (1,504)
Proceeds from issuance of common stock 601 131
Dividends paid on common stock (531) (520)
--------- --------
Net cash provided by (used in) financing activities 18,069 (1,893)
EFFECT OF EXCHANGE RATE CHANGES ON CASH 666 117
--------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (6,475) (5,324)
--------- --------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,475 18,483
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ -- $ 13,159
========= ========
</TABLE>
See accompanying notes.
6
<PAGE> 7
FURON COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 29, 1995
(Unaudited)
1. GENERAL
The accompanying unaudited consolidated financial statements have been
condensed in certain respects and should therefore be read in
conjunction with the consolidated financial statements and related
notes thereto contained in the Company's Annual Report to Shareholders
on Form 10-K for the fiscal year ended January 28, 1995. Certain
reclassifications have been made to prior year amounts in order to be
consistent with the current year presentation.
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary
(consisting only of normal recurring adjustments) to present fairly
the financial position of the Company as of April 29, 1995, and the
results of operations and cash flows for the three months ended April
29, 1995 and April 30, 1994. Results of the Company's operations for
the three months ended April 29, 1995 are not necessarily indicative
of the results to be expected for the full year.
Income taxes paid for the three months ended April 29, 1995 and April
30, 1994 were $650,000 and $1,900,000, respectively.
2. INVENTORIES
Substantially all inventories are valued at the lower of cost
(first-in, first-out) or market, and are summarized as follows:
<TABLE>
<CAPTION>
April 29, January 28,
In thousands 1995 1995
----------------------------------------------------------------------
<S> <C> <C>
Raw materials and purchased parts $16,594 $12,482
Work-in-process 7,636 9,153
Finished goods 15,059 9,562
------- -------
$39,289 $31,197
======= =======
</TABLE>
7
<PAGE> 8
FURON COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 29, 1995
(Unaudited)
3. INTANGIBLES
Intangible assets acquired in business combinations are summarized as
follows:
<TABLE>
<CAPTION>
April 29, January 28,
In thousands 1995 1995
-------------------------------------------------------------------
<S> <C> <C>
Goodwill $13,657 $ 328
Other intangible assets 16,764 17,625
------- -------
$30,421 $17,953
======= =======
</TABLE>
4. LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
April 29, January 28,
In thousands 1995 1995
----------------------------------------------------------------------
<S> <C> <C>
Loans under bank credit agreements due
through fiscal 1998 $38,750 $20,750
Other 5 6
------- -------
Total long-term debt 38,755 20,756
Less current portion (8,004) (8,004)
------- -------
Due after one year $30,751 $12,752
======= =======
</TABLE>
At April 29, 1995, the weighted average interest rate on the loans
under bank credit agreements was 8.27%.
In August 1988, the Company entered into an 8-year Interest Rate Swap
agreement. The notional amount of the swap totaled $12 million at
April 29, 1995. The swap agreement effectively changes the Company's
interest rate exposure on the majority of its borrowings to a fixed
interest rate of 9.938% plus a .75% spread on the notional portion of
the facility.
Interest paid for the three months ended April 29, 1995 and April 30,
1994 was $628,000 and $623,000, respectively.
8
<PAGE> 9
FURON COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 29, 1995
(Unaudited)
5. BUSINESS ACQUISITION
On January 31, 1995, the Company acquired certain assets of Custom
Coating & Laminating Corporation ("CC&L"). 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 product sales over the next three fiscal years.
The results of operations of CC&L from February 1, 1995 have been
included in the condensed consolidated financial statements.
The following compares an unaudited summary of results of operations
for the three months ended April 29, 1995 with an unaudited pro forma
combined summary of results of operations of CC&L and the Company for
the three months ended April 30, 1994 assuming the acquisition had
been consummated on January 29, 1994.
<TABLE>
<CAPTION>
Three months ended
------------------------------
April 29, April 30,
(in thousands except per share data) 1995 1994
--------------- ----------
<S> <C> <C>
Net sales $88,442 $80,863
Net income 3,355 2,905
Net income per share of Common Stock 0.37 0.32
</TABLE>
6. CONTINGENCIES
At April 29, 1995, the Company has approximately $1.5 million of
foreign currency hedge contracts outstanding which consist 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 losses from hedging activities totaled $122,000 at
April 29,1995.
At April 29, 1995, the Company is obligated under irrevocable letters
of credit totaling $3,275,000.
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 April 29, 1995, the Company's reserves for
environmental matters totaled approximately $2,500,000. 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.
9
<PAGE> 10
FURON COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 29, 1995
(Unaudited)
6. CONTINGENCIES (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
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.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Consolidated sales for the three months ended April 29, 1995 of $88 million
represent an 18% increase over the same period of the prior year. After
removing the effect of acquisition and business held for sale, sales increased
13%.
The Company has benefited from continued strength in the industrial economy.
Sales into the electronics and truck markets were particularly strong. Sales
to the commercial aircraft, aerospace, and industrial equipment markets also
increased. Sales into the chemical processing markets were down from last year
as the result of significant export sales included in last year's sales that
were not repeated in this year's first quarter. Sales of the Company's
European operations were up 34% (14% after removing the effect of foreign
currency exchange rate changes) over last year.
Gross profit as a percentage of sales for the three months ended April 29, 1995
was down 0.4% from the same period in the prior year to 28.9%. After removing
the effects of acquisition and business held for sale, the gross profit margin
was up 0.5% from 29.6% to 30.1%. The operating leverage effect of sales
increasing at a greater rate than fixed manufacturing costs, and continued
productivity improvements, more than offset the impact of increased raw
material prices. In addition, gross profit earned by the Company's foreign
operations from U.S. manufactured products were positively impacted by
favorable foreign currency rate changes during the quarter.
Selling, general and administrative expenses as a percentage of sales was
23.0%, down from 23.8% in the same period a year ago. After removing the
effect of acquisition and business held for sale, operating expenses were 23.7%
of sales, down from 24.3% in the first quarter of the prior year. Excluding
the acquisition and business held for sale, the 11% increase in selling,
general and administrative expenses over the prior year reflects relocation,
travel and professional fees associated with the implementation of the
Company's new operating structure and new management information systems.
Product development expenses were up in the first quarter over the same prior
year period, reflecting the Company's continued commitment to new products and
materials development.
Other income, net increased due to higher licensee fees and a decrease in other
expense attributable to the elimination of income related to business held for
sale which was higher in the prior year. Offsetting these increases was lower
interest income resulting from a reduction in cash balances available for
investing due to the acquisition.
Interest expense for the three months ended April 29, 1995 was up 23.5% from
the same period in the prior year. The increase is due to the acquisition of
the assets of Custom Coating and Laminating Corporation ("CC&L") on January 31,
1995 for $24 million, of which $18 million was borrowed.
Pretax results of operations improved 35% to $5.2 million from $3.8 million for
the three months ended April 29, 1995 and April 30, 1994, respectively. After
removing the effects of acquisition and business held for sale, pretax results
of operations were up 38% from the same period last year. The improvement is
generally the result of higher sales, stable manufacturing costs, and continued
productivity improvements, offset by slightly higher operating expenses.
11
<PAGE> 12
The Company's effective tax rate for the three months ended April 29, 1995 was
35% as compared to 37% for the same period in the prior year. The lower
effective tax rate in the period as compared to the same period in the prior
year was primarily due to lower state and foreign income taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition remained strong at April 29, 1995. The
Company's ratio of current assets to current liabilities was 2.1 to 1.0, down
from 2.2 to 1 at the beginning of the period. Net working capital increased
$0.9 million during the first quarter to a total of $56 million. Cash provided
by operations during the quarter was $1.3 million while operations used $1.8
million cash in the same period last year. Excluding the balances related to
CC&L, accounts receivable increased $0.6 million, and inventories increased
$5.1 million over the three months ended April 29, 1995. Capital expenditures
totaled $3.3 million and were primarily for operating systems and system
development associated with the new operating structure, leasehold
improvements, and replacement of existing equipment.
Cash and cash equivalents decreased $6.5 million primarily as a result of cash
used in the acquisition and to fund capital expenditures and working capital
requirements. Long-term debt increased $18 million as a result of funds
borrowed to complete the acquisition of CC&L. The Company's debt to equity
ratio is currently .40 to 1.0, an increase from .23 to 1.0 at the beginning of
the period.
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.
The Company continually reviews possible acquisitions and should the Company
make a substantial acquisition, it would require the utilization of the
remaining $12 million available from its existing credit facility or financing
from other sources.
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 clean up 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.
12
<PAGE> 13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits: PAGE NUMBER
-----------
The exhibits listed in the accompanying index
are filed as part of this quarterly report.
Exhibit 11. Statement re: Computation of
Net Income Per Share.
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K.
During the three months ended April 29, 1995, the
Registrant filed with the Commission a Form 8-K and two
Form 8-KA's, each dated January 31, 1995, reporting an
Item 2 acquisition of certain assets of Custom Coating &
Laminating Corporation and containing the financial
statements required by Item 7, comprised of audited
financial statements of the business acquired at and for
the twelve month period ended January 31, 1995, and a pro
forma balance sheet at, and pro forma statement of income
for the year ended, January 28, 1995.
13
<PAGE> 14
PART II (CONTINUED)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FURON COMPANY
------------------------------
REGISTRANT
<TABLE>
<S> <C>
/S/ MONTY A. HOUDESHELL /S/ KOICHI HOSOKAWA
- --------------------------------------- ---------------------------------
Monty A. Houdeshell, Vice President, Koichi Hosokawa
Chief Financial Officer and Treasurer Controller
</TABLE>
June 1, 1995
14
<PAGE> 1
EXHIBIT 11
FURON COMPANY
Computation of Net Income Per Share
<TABLE>
<CAPTION> April 29, April 30,
Three months ended 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C>
PRIMARY INCOME PER SHARE
Earnings
Net income $3,355,000 $2,414,000
========== ==========
Shares
Weighted average number
of common shares
outstanding 8,831,000 8,655,000
Shares issuable from
assumed exercise of stock
options 251,000 286,000
---------- ----------
Average shares as adjusted 9,082,000 8,941,000
========== ==========
Primary income per share $ .37 $ .27
========== ==========
FULLY DILUTED INCOME PER SHARE
Earnings
Net income $3,355,000 $2,414,000
========== ==========
Shares
Weighted average
number of common shares
outstanding 8,831,000 8,655,000
Shares issuable from assumed
exercise of stock options 251,000 286,000
---------- ----------
Average shares as adjusted
for full dilution 9,082,000 8,941,000
========== ==========
Fully diluted income per share $ .37 $ .27
========== ==========
</TABLE>
15
<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-Q
for the three months ended April 29, 1995.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-03-1996
<PERIOD-END> APR-29-1995
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 52,944
<ALLOWANCES> 813
<INVENTORY> 39,289
<CURRENT-ASSETS> 105,345
<PP&E> 126,123
<DEPRECIATION> 64,842
<TOTAL-ASSETS> 205,236
<CURRENT-LIABILITIES> 49,694
<BONDS> 0
<COMMON> 36,872
0
0
<OTHER-SE> 59,308
<TOTAL-LIABILITY-AND-EQUITY> 205,236
<SALES> 88,442
<TOTAL-REVENUES> 88,442
<CGS> 62,881
<TOTAL-COSTS> 62,881
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 105
<INTEREST-EXPENSE> 794
<INCOME-PRETAX> 5,162
<INCOME-TAX> 1,807
<INCOME-CONTINUING> 3,355
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> .37
<EPS-DILUTED> .37
</TABLE>
