<PAGE> 1
UNITED STATES
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 MAY 4, 1996
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)
California 95-1947155
- ---------------------------------------- -------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
29982 Ivy Glenn Drive
Laguna Niguel, CA 92677
- ---------------------------------------- -------------------------
(Address of principal executive offices) (Zip Code)
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 May 4, 1996: 8,957,875.
1
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FURON COMPANY
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
May 4, 1996 and February 3, 1996 3
Condensed Consolidated Statements of Income
Three months ended May 4, 1996 and April 29, 1995 5
Condensed Consolidated Statements of Cash Flows
Three months ended May 4, 1996 and April 29, 1995 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 14
- ---------------------------
</TABLE>
2
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
FURON COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
<TABLE>
<CAPTION>
May 4, February 3,
In thousands 1996 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ - $ -
Accounts receivable, less allowance for
doubtful accounts of $1,505 at May 4, 1996
and $1,367 at February 3, 1996 55,004 51,681
Inventories 44,842 39,827
Deferred income taxes 5,102 5,178
Prepaid expenses and other assets 5,085 5,367
-------- --------
Total current assets 110,033 102,053
Property, plant & equipment, at cost:
Land 1,302 1,305
Buildings and leasehold improvements 18,956 18,044
Machinery and equipment 131,540 128,396
-------- --------
151,798 147,745
Less accumulated depreciation and amortization (70,943) (68,093)
-------- --------
Net property, plant and equipment 80,855 79,652
Intangible assets, at cost less accumulated
amortization of $27,282 at May 4, 1996 and
$26,612 at February 3, 1996 26,637 23,543
Other assets 6,220 6,236
-------- --------
$223,745 $211,484
======== ========
</TABLE>
See accompanying notes.
3
<PAGE> 4
FURON COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
May 4, February 3,
In thousands, except share data 1996 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Current liabilities:
Cash, less checks outstanding $ 2,045 $ 1,052
Accounts payable 21,681 18,851
Salaries, wages and related benefits payable 8,371 11,101
Current portion of long-term debt 1,522 278
Other current liabilities 10,510 10,345
-------- --------
Total current liabilities 44,129 41,627
Long-term debt 42,046 38,443
Other long-term liabilities 22,473 20,807
Deferred income taxes 7,839 7,725
Commitments and contingencies
Stockholders' equity:
Preferred stock without par value,
2,000,000 shares authorized, none issued or
outstanding - -
Common stock without par value, 15,000,000
shares authorized, 8,957,875 shares
issued and outstanding at May 4, 1996 and
8,906,905 at February 3, 1996 38,229 37,575
Foreign currency translation adjustment 309 403
Unearned ESOP shares (3,528) (3,205)
Unearned compensation (437) (556)
Additional pension liability (1,649) (1,649)
Retained earnings 74,334 70,314
-------- --------
Total stockholders' equity 107,258 102,882
-------- --------
$223,745 $211,484
======== ========
</TABLE>
See accompanying notes.
4
<PAGE> 5
FURON COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
-------------------------------
May 4, April 29,
In thousands, except per share amounts 1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $94,763 $88,453
Cost of sales 68,266 62,893
------- -------
Gross profit 26,497 25,560
Selling, general and administrative
expenses 20,005 20,380
Other (income), net (1,090) (776)
Interest expense 676 794
------- -------
Income before income taxes 6,906 5,162
Provision for income taxes 2,348 1,807
------- -------
Net income $ 4,558 $ 3,355
======= =======
Net income per share of Common Stock $ 0.50 $ 0.37
======= =======
</TABLE>
See accompanying notes.
5
<PAGE> 6
FURON COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
------------------------
May 4, April 29,
In thousands 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,558 $ 3,355
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation 3,202 2,510
Amortization 778 1,032
Provision for losses on accounts receivable 105 105
Increase in deferred income taxes 76 -
Loss on sale of assets - 11
Working capital changes, net of acquisitions
and disposals:
Accounts receivable 22 (1,231)
Inventories (2,438) (5,612)
Accounts payable and accrued liabilities (1,567) (792)
Income taxes payable 558 651
Other current assets and liabilities, net 235 1,218
Changes in other long-term operating assets
and liabilities (1,429) 25
------- -------
Net cash provided by operating activities 4,100 1,272
INVESTING ACTIVITIES
Acquisition of business (3,294) (23,763)
Purchases of property, plant and equipment (4,505) (3,342)
Proceeds from sale of divestitures 406 567
Proceeds from sale of equipment 260 47
Proceeds from notes receivable 4 9
------- -------
Net cash used in investing activities (7,129) (26,482)
FINANCING ACTIVITIES
Proceeds from long-term debt 7,000 21,000
Principal payments on long-term debt (4,000) (3,001)
Proceeds from issuance of common stock 697 601
Loan to ESOP (323) -
Dividends paid on common stock (538) (531)
------- -------
Net cash provided by financing activities 2,836 18,069
EFFECT OF EXCHANGE RATE CHANGES ON CASH 193 666
------- -------
DECREASE IN CASH AND CASH EQUIVALENTS - (6,475)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD - 6,475
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ - $ -
======= =======
</TABLE>
See accompanying notes.
6
<PAGE> 7
FURON COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 4, 1996
(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 February 3, 1996.
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 May 4, 1996, and the
results of operations and cash flows for the three months ended May 4,
1996 and April 29, 1995. Results of the Company's operations for the
three months ended May 4, 1996 are not necessarily indicative of the
results to be expected for the full year.
2. INVENTORIES
Inventories, stated at the lower of cost (first-in, first-out) or
market, are summarized as follows:
<TABLE>
<CAPTION>
May 4, February 3,
In thousands 1996 1996
--------------------------------------------------------------------------------
<S> <C> <C>
Raw materials and purchased parts $15,868 $13,604
Work-in-process 12,896 11,503
Finished goods 16,078 14,720
------- -------
$44,842 $39,827
======= =======
</TABLE>
3. INTANGIBLES
Intangible assets, primarily acquired in business combinations, net of
accumulated amortization, are summarized as follows:
<TABLE>
<CAPTION>
May 4, February 3,
In thousands 1996 1996
---------------------------------------------------------------------------------
<S> <C> <C>
Goodwill $12,119 $ 9,113
Other intangible assets 14,518 14,430
------- -------
$26,637 $23,543
======= =======
</TABLE>
7
<PAGE> 8
FURON COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 4, 1996
(Unaudited)
4. LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
May 4, February 3,
In thousands 1996 1996
-------------------------------------------------------------------------------------
<S> <C> <C>
Loans under bank credit agreements due
through fiscal year 2000 $41,000 $38,000
Other 2,568 721
------- -------
Total long-term debt 43,568 38,721
Less current portion 1,522 278
------- -------
Due after one year $42,046 $38,443
======= =======
</TABLE>
For the three months ended May 4, 1996, the weighted average interest
rate on the loans under bank credit agreements was 6.4%.
In August 1988, the Company entered into an 8-year Interest Rate Swap
agreement. The notional amount of the swap totaled $4.0 million at
May 4, 1996. The swap agreement effectively changes the Company's
interest rate on $4.0 million of its variable borrowings to a fixed
interest rate of 9.938%.
Interest paid for the three months ended May 4, 1996 and April 29,
1995 was $775,000 and $628,000, respectively.
5. STOCKHOLDERS' EQUITY
During the first quarter of 1996, the Company advanced $323,000 to the
Employee Stock Ownership Plan (ESOP) which has been presented as
unearned ESOP shares in the accompanying condensed consolidated
balance sheet. The ESOP used the funds to acquire 15,000 shares of
the Company's common stock from a Director of the Company.
8
<PAGE> 9
FURON COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 4, 1996
(Unaudited)
6. INCOME TAXES
The Company's effective tax rate for the first quarter ended May 4,
1996 was 34% as compared to 35% for the same period last year. The
lower effective tax rate in the current quarter as compared to the
same period in the prior year was primarily due to lower state income
taxes.
Income taxes paid for the three months ended May 4, 1996 and April 29,
1995 were $500,000 and $650,000, respectively.
7. CONTINGENCIES
At May 4, 1996, the Company had approximately $2,100,000 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 from hedging activities totaled $106,000 as of May 4,
1996.
At May 4, 1996, the Company is obligated under irrevocable letters of
credit totaling $2,171,000.
The Company is currently involved in various litigation. Management
of the Company is of the opinion that the ultimate resolution of such
litigation should not have a material adverse effect on the Company's
consolidated financial position or results of operations.
Compliance with environmental laws and regulations designed to
regulate the discharge of materials into the environment or otherwise
protect the environment requires continuing management effort and
expenditures by the Company. The Company does not believe that the
operating costs incurred in the ordinary course of business to satisfy
air and other permit requirements, properly dispose of hazardous
wastes and otherwise comply with these laws and regulations form or
will form a material component of its operating costs or have or will
have a material adverse effect on its competitive or consolidated
financial positions.
9
<PAGE> 10
FURON COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 4, 1996
(Unaudited)
7. CONTINGENCIES (CONTINUED)
The Company or one of its subsidiaries is currently involved in
environmental remediation at six former manufacturing sites. In
addition, one of the Company's subsidiaries is involved as an
EPA-named potentially responsible party or private cost
recovery/contribution action defendant in connection with
environmental remediation at the following "superfund" waste disposal
sites: Solvents Recovery Service of New England site in Southington,
Connecticut; Gallups Quarry site in Plainfield, Connecticut; and the
Davis Liquid Waste and Picillo Superfund sites in Coventry, Rhode
Island.
As of May 4, 1996 the Company's reserves for environmental matters
totaled approximately $2.0 million. While neither the timing nor the
amount of the ultimate costs associated with the remediation matters
described above can be determined with certainty, based on
investigations to determine the nature of the potential liability at
each site, the estimated amount of investigation and remedial costs
expected to be necessary to complete the remediation and other
factors, the Company presently believes that these reserves should be
sufficient to cover the Company's aggregate liability for these
matters and, accordingly, does not expect them to have a material
adverse effect on its consolidated financial position or results of
operations. The actual costs to be incurred by the Company at each
site will depend on a number of factors, including one or more of the
following: the final delineation of contamination; the final
determination of the remedial action required; negotiations with
governmental agencies with respect to cleanup levels; changes in
regulatory requirements; innovations in investigatory and remedial
technology; effectiveness of remedial technologies employed; and the
ultimate ability to pay of any other responsible parties.
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 May 4, 1996 of $95 million
represented a 7% increase over the same period of the prior year. Net of
acquisitions and divestitures over the same period, sales were up slightly.
Effective April 1, 1996 the Company completed the acquisition of all the assets
of Econocruise Ltd. based in Rugby, England. Econocruise had sales of
approximately $18 million for its year ended March 31, 1996. Econocruise
manufactures state of the art electronic control products such as speed control
systems, electronic foot pedals, and drive-by-wire systems for mobile equipment
and major truck manufacturers in Europe. Furon manufactures a number of
complementary polymer based and mechanical control products for these markets
in the United States.
Along with the net effect of acquisitions, the Company has benefited from
continued strength in specific industrial markets. Sales to the electronics
and industrial equipment markets were particularly strong. Sales to the
aircraft, agriculture and construction, and medical markets also increased.
Sales to the chemical processing market were flat, while sales to the heavy
duty truck market began to soften, consistent with industry expectations. Sales
for the three months ended May 4, 1996 of the Company's European operations
were up 13% (18% after removing the effect of foreign currency exchange rate
changes) over the same period of the prior year.
Gross profit as a percentage of sales for the first quarter ended May 4, 1996
was down 0.9% from the same period of the prior year to 28%. After removing the
effects of acquisitions and divestitures, gross profit margin was down 0.7% from
29.1% to 28.4% for the same periods. The operating leverage effect of sales
increasing at a greater rate than fixed manufacturing costs, and continued
productivity improvements was not enough to offset the impact of increased raw
material prices, experienced last year subsequent to the first quarter.
Selling, general and administrative expenses as a percentage of sales were
21.1% for the quarter ended May 4, 1996, down from 23.0% in the same period a
year ago. After removing the effect of acquisitions and divestitures, these
same operating expenses were 22.3%, down from 23.9% in the first quarter of the
prior year and down from the 23.9% incurred in the fourth quarter of the prior
year. The decline in selling, general and administrative expense as a
percentage of sales from last year is mainly the result of fewer costs incurred
related to reduced travel and professional fees. Product development expenses
were up in the first quarter over the same period prior year as a percentage of
sales by 0.2% to 2.7%, reflecting the Company's continued commitment to new
products and materials development.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
Other income and expense net, reflected increased income from the Company's
investments, as well as decreased other expense attributable to the elimination
of higher income related to businesses previously held for sale in the same
period last year.
Interest expense for the three months ended May 4, 1996 was down 15% from the
same period in the prior year. Although there has been an increase in the
amount of debt as a result of acquisitions of the assets of Fluorglas and
Econocruise, higher interest rate portions of long-term debt have been paid
off, resulting in lower expense.
Pretax results of operations improved 34% to $6.9 million from $5.2 million
for the three months ended May 4, 1996 and April 29, 1995, respectively. Net
of acquisitions and divestitures, pretax results of operations were up 26% from
the same period last year. The improvement is generally the result of higher
sales, continued productivity improvements and lower operating expenses,
somewhat offset by higher material costs.
The Company's effective tax rate for the first quarter ended May 4, 1996 was
34% compared to 35% in the same period last year. The lower effective tax rate
in the current quarter as compared to the same period in the prior year was
primarily due to lower state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition remained strong at May 4, 1996. The Company's
ratio of current assets to current liabilities was 2.5 to 1.0, unchanged from
the beginning of the period. Net working capital increased $5.5 million during
the first quarter to a total of $65.9 million. Cash provided by operations
during the quarter was $4.1 million, approximately $2.8 million higher than
the same period last year. Net of the Econocruise acquisition, accounts
receivable decreased less than $0.1 million, inventories increased $2.4 million
and accounts payable and accrued liabilities decreased $1.6 million from the
prior year end. Capital expenditures totaled $4.5 million and were primarily
for renovating existing facilities, leasehold improvements, or replacement of
existing equipment in addition to implementation of the operating systems to
support the Company's new structure.
Cash and cash equivalents (cash, less checks outstanding) decreased $1 million
primarily as a result of cash used in the Econocruise acquisition and to fund
capital expenditures and working capital requirements. Long-term debt increased
approximately $4 million as a result of funds borrowed to complete the
acquisition of Econocruise. The Company's debt to equity ratio is currently .41
to 1.0, an increase from .38 to 1.0 at the beginning of the period.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
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 loans payable to
banks. 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 could require the utilization of the
remaining $59 million available on its existing credit facility or financing
from other sources.
ENVIRONMENTAL MATTERS
For information regarding environmental matters and other contingencies, see
note 7 to the Notes to Condensed Consolidated Financial Statements.
13
<PAGE> 14
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
-----------
11 Statement re: Computation of Net
Income Per Share 16
27 Financial Data Schedule 17
(b) Reports on Form 8-K:
There were no reports on Form 8-K for the three months ended May
4, 1996.
14
<PAGE> 15
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
/s/ MONTY A. HOUDESHELL
- --------------------------------
Monty A. Houdeshell
Vice President,
Chief Financial Officer
and Treasurer
May 30, 1996
15
<PAGE> 1
EXHIBIT 11
FURON COMPANY
Computation of Net Income Per Share
<TABLE>
<CAPTION>
Three months ended
--------------------------------
May 4, April 29,
1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C>
PRIMARY INCOME PER SHARE
Earnings:
Net income $4,558,000 $3,355,000
========== ==========
Shares:
Weighted average number of
common shares outstanding 8,862,000 8,831,000
Shares issuable from
assumed exercise of stock
options 218,000 251,000
---------- ----------
Average shares as adjusted 9,080,000 9,082,000
========== ==========
Primary income per share $ 0.50 $ 0.37
========== ==========
FULLY DILUTED INCOME PER SHARE
Earnings:
Net income $4,558,000 $3,355,000
========== ==========
Shares:
Weighted average number of
common shares outstanding 8,862,000 8,831,000
Shares issuable from
assumed exercise of stock
options 252,000 251,000
---------- ----------
Average shares as adjusted
for full dilution 9,114,000 9,082,000
=========== ==========
Fully diluted income per share $ 0.50 $ 0.37
=========== ==========
</TABLE>
16
<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 MAY 4, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> MAY-04-1996
<EXCHANGE-RATE> 1,000
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 56,509
<ALLOWANCES> 1,505
<INVENTORY> 44,842
<CURRENT-ASSETS> 110,033
<PP&E> 151,798
<DEPRECIATION> 70,943
<TOTAL-ASSETS> 223,745
<CURRENT-LIABILITIES> 44,129
<BONDS> 0
0
0
<COMMON> 38,229
<OTHER-SE> 69,029
<TOTAL-LIABILITY-AND-EQUITY> 223,745
<SALES> 94,763
<TOTAL-REVENUES> 94,763
<CGS> 68,266
<TOTAL-COSTS> 88,271
<OTHER-EXPENSES> (1,090)
<LOSS-PROVISION> 105
<INTEREST-EXPENSE> 676
<INCOME-PRETAX> 6,906
<INCOME-TAX> 2,348
<INCOME-CONTINUING> 4,558
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,558
<EPS-PRIMARY> 0.50
<EPS-DILUTED> 0.50
</TABLE>
