<PAGE> 1
UNITED STATES
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
FEBRUARY 1, 1997
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 incorporation or organization) (I.R.S. Employer
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 the 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 [ ]
As of February 5, 1997, the aggregate market value of voting stock
held by non-affiliates of the registrant was approximately $206,167,000. As of
March 25, 1997, the number of outstanding shares of Common Stock of the
registrant was 9,003,240.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement for the 1997
Annual Meeting of Shareholders (to be held on June 3, 1997) have been
incorporated by reference into Part III of this report.
1
<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 health care industries.
The Company has expanded its operations through the acquisition and further
development of complementary businesses. In January 1997, the Company
completed the acquisition of Medex(R), Inc. and its subsidiaries (collectively,
"Medex"), with approximately $100 million in health care product sales, as part
of its strategy to penetrate further the higher margin health care market.
Medex offers a broad range of polymer- based critical care accessories and
infusion systems for the diagnosis and treatment of patients receiving care in
hospitals, alternative health care facilities and the home health care
environment. In February 1996, the Company acquired the Fluorglas(R) business
of AlliedSignal Inc. Fluorglas' principal product offerings are
pressure-sensitive adhesive tapes, PTFE flexible composites and fabrications,
and PTFE films. This acquisition, coupled with the acquisition in January 1995
of Custom Coating & Laminating Corporation's business devoted to the
manufacture and sale of release liners and other specialty engineered products
incorporating surface chemistry technology, enabled the Company to expand and
complement its CHR(R) brand of products. (See Note 2 of the "Notes to
Consolidated Financial Statements" for additional information concerning these
acquisitions.)
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.
Approximately 27% of the Company's sales (excluding Medex) were generated by
"new products" during fiscal 1997, as compared to 15% in fiscal 1996. The
Company defines a "new product" as one that has been introduced into the market
place and either uses new material, is substantially different from an existing
product based upon performance levels or satisfies new markets or applications
for current products that require different specifications or standards.
Through its new organizational structure described below and its World Class
Performance program, the Company continually strives to improve its operations
with 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's technology center continues to pursue the development of proprietary
polymer compounds that can be used to produce high margin, differentiated
polymer products.
During fiscal 1997, the Company sold three peripheral businesses: the Fluorglas
metal clad PTFE/glass laminates (August 1996) and yarn (January 1997) product
lines; and the Company's structural bearings business (November 1996).
Furon was incorporated in California in 1957. 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, Medex, Fluorglas and CHR are registered trademarks of the Company.
2
<PAGE> 3
OPERATIONS
Prior to fiscal 1995, the Company 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. 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 health care industries. The Company
believes that its current organizational structure enables 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 health care industries, offering the
following FURON(R) brand products: fabricated and extruded high performance
plastic and silicone components, fluid handling products, release liners, and
custom fabricated composite, urethane and polyimide foam components; CHR(R) and
FLUORGLAS(R) pressure sensitive tapes and PTFE and silicone coated fabrics;
CHR(R) solid and sponge silicone rubber; DEKORON(R) instrument and control wire
and cable and self-regulating heating and fiber optics cable; FELSTED(R) cables
and electronic and mechanical control systems; OMNISEAL(R) spring energized
PTFE seals, lip seals, hydraulic seals, and metallic O-rings and C-rings;
RULON(R) and MELDIN(R) high performance polymer materials and molded and
machined bearings and other components made from those materials; SYNFLEX(R)
hydraulic hose, specialty hose, tubing, couplings and accessories; UNITHERM(R)
heated hose and steam traced, preinsulated and electrical traced tubing; and
MEDEX(R) critical care accessories and infusion systems.
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 for its industrial products are original equipment manufacturers,
commercial or industrial construction companies or firms servicing the
maintenance and replacement parts market or distributors to these markets,
while those for its MEDEX health care products are hospitals and other end
users or independent hospital supply dealers. 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 10 of the "Notes to
Consolidated Financial Statements").
- ------------
(R)FURON, CHR, FLUORGLAS, DEKORON, FELSTED, OMNISEAL, RULON, MELDIN,
SYNFLEX, UNITHERM and MEDEX are registered 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's industrial products are materials
capability, engineering, design and process technology, quality, reliability
and the ability to meet delivery dates, while those for its health care
products are price, scope of product line, service and quality. 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 February 1, 1997 was $66.4 million. This
is a 22% increase over the February 3, 1996 backlog amount of $54.2 million.
Excluding the effects of acquisitions and divestitures, Furon's backlog
increased 11.8%. It is estimated that substantially all of Furon's backlog of
orders at February 1, 1997 will be filled during the next 12 months, with
approximately $2.0 million of the backlog scheduled to be filled in the
subsequent 12 month period. The lead time between receipt of orders and
shipment of products, other than products to 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 ELF
Atochem 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 February 1, 1997, Furon employed 3,456 persons. Furon considers its
employee relations to be good.
- ------------
(R)Rilsan is a registered trademark of ELF Atochem.
4
<PAGE> 5
GOVERNMENTAL REGULATION
FDA
The manufacture and sale of health care products like the MEDEX critical care
accessories and infusion systems are subject to regulation by the U.S. Food and
Drug Administration ("FDA") and certain foreign agencies. These regulations
range from prescribing "good manufacturing practices" to generally requiring
FDA clearance of new health care products before they can be marketed. Medex
has historically been able to seek this clearance for its products through the
FDA's "510(k)" pre-market notification program which, as compared to the FDA's
pre-market approval process, requires less time and the submission of limited
clinical and supporting information. The Company expects any new Medex
products to continue to qualify for the 510(k) pre-market notification program.
The FDA routinely conducts inspections to confirm compliance with its
regulations and failure to comply with them can, among other things, result in
product recalls and bans, operating restrictions, and civil and criminal
penalties. The Company believes that Medex is currently in compliance with
these governmental regulations.
Environmental Matters
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.
As of February 1, 1997, the Company's reserves for environmental matters
totaled approximately $1.6 million. The Company or one or more of its
subsidiaries is currently involved in environmental investigation or
remediation directly or as an EPA-named potentially responsible party or
private cost recovery/contribution action defendant at various sites, including
the following "superfund" waste disposal sites: Solvents Recovery Service of
New England in Southington, Connecticut; Gallup's Quarry in Plainfield,
Connecticut; Davis Liquid Waste and Picillo in Coventry, Rhode Island; Malvern
in Malvern, Pennsylvania; and Granville in Granville, Ohio. While neither the
timing nor the amount of the ultimate costs associated with these matters can
be determined with certainty, based on information currently available to the
Company, including investigations to determine the nature of the potential
liability, the estimated amount of investigation and remedial costs expected to
be incurred and other factors, the Company presently believes that its
environmental 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.
5
<PAGE> 6
ITEM 2. PROPERTIES
Furon has organized its domestic manufacturing facilities according to the
principal process used by each facility in the production of Furon's products.
These domestic "Centers of Excellence" and the Company's foreign manufacturing
facilities are identified below. Furon believes that these and its other
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. For
further information regarding the Company's lease commitments, see Note 6 of
the "Notes to Consolidated Financial Statements."
<TABLE>
<CAPTION>
EXPIRATION OF
SQUARE MAXIMUM
CENTERS OF EXCELLENCE FOOTAGE LEASE TERM
--------------------- ------- ----------
<S> <C> <C>
Machining:
Anaheim, CA 91,000 7/31/10
Los Alamitos, CA 63,000 12/14/03
Molding:
Bristol, RI 106,000 8/31/32
Mundelein, IL 60,000 8/31/00
Extrusion:
Mantua, OH 151,000 8/31/32
Aurora, OH 148,000 8/31/32
Mickleton, NJ 86,000 8/31/32
Mt. Pleasant, TX 67,000 8/31/32
Cape Coral, FL 30,000 5/31/06
Plastic Forming:
Seattle, WA 116,000 2/28/02
Coating/Films:
New Haven, CT 110,000 8/31/32
Hoosick Falls, NY 109,000 Owned
Worcester, MA 76,000 Owned
Clean Room
Manufacturing:
Hilliard, OH 150,000 Owned
Dublin, OH 100,000 Owned
Duluth, GA 52,000 Owned
Fremont, CA 30,000 7/01/03
</TABLE>
6
<PAGE> 7
ITEM 2. PROPERTIES (CONTINUED)
<TABLE>
<S> <C> <C>
Assembly & Metal
Fabrication:
Kent, OH 50,000 1/06/01
Holmesville, OH 28,000 Owned
Compounding:
Aurora, OH 30,000 Owned
Foreign:
Rossendale, England 93,000 Owned
Gembloux, Belgium 49,000 Owned
Rugby, England 37,000 12/07/04
Kontich, Belgium 30,000 11/30/99
</TABLE>
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. While the outcome of pending proceedings
cannot be predicted with certainty, the Company believes that the ultimate
resolution of the actions currently pending should not have a material adverse
effect on its consolidated financial condition.
Medex has been named as a defendant in McBrayer, et al. v. Laidlaw
Environmental Services (WT), Inc., et al., which was commenced in the United
States District Court for the Southern District of Ohio (Eastern Division) in
October 1996 and in the Franklin County, Ohio Common Pleas Court in January
1997. The plaintiffs are two former students of a local elementary school and
their parents. In addition to Laidlaw, which operates an industrial waste
treatment facility near the school, the named defendants include two
neighboring manufacturers, Beaver Adhesives, Inc. and OSF America, Inc., and
the City of Hilliard, Ohio and the Board of Education of the Hilliard City
School District. The plaintiffs seek compensatory damages of $15 million and
punitive damages of $100 million from the defendants for the alleged release of
allegedly hazardous substances, pollutants and contaminants (ethylene oxide and
freon gas in the case of Medex) into the elementary school's environment, which
allegedly resulted in personal injuries to the two former students. Based upon
the Company's preliminary investigation, the Company believes that Medex has
substantial defenses to the claims and that the prayer for punitive damages
against Medex is without substantial legal or factual basis.
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 February 1, 1997.
7
<PAGE> 8
OFFICERS OF FURON
Furon's executive and other officers are as follows:
Name Age Position/Business Experience
- ----- --- ----------------------------
EXECUTIVE OFFICERS
J. Michael Hagan 57 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 59 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 48 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.
Dominick A. Arena 54 Vice President - Health Care and
President of Medex, Inc.
Mr. Arena joined the Company's
Operating Team in January 1997 to
manage its health care business,
having served as the Company's
health care consultant since
February 1996. He was elected
President of Medex following the
acquisition of that subsidiary in
January 1997 and an executive
officer of the Company in March
1997. Previously, Mr. Arena was the
President of three medical device
manufacturers, AnaMed International
from 1993 to 1996, Hudson
Respiratory Care, Inc. from 1989 to
1993 and Respiratory Care, Inc. (a
subsidiary of The Kendall Company)
from 1986 to 1989, when it was
acquired by Hudson.
Joseph R. Grewe 48 Vice President - Operations
Mr. Grewe joined the Company's
Operating Team in March 1996 to
manage its manufacturing operations
and was elected an executive officer
of the Company in March 1997. He
came to the Company from MascoTech
Inc., where he had been the
President of MascoTech Sintered
Components, a manufacturer of
automotive industrial components
and assemblies since 1988.
Previously, he held a wide range of
manufacturing
8
<PAGE> 9
OFFICERS OF FURON (CONTINUED)
Joseph R. Grewe 48 Vice President - Operations
(continued)
positions since 1968 with General
Motors Corporation, Rockwell
International and a start-up company
in which he was a principal.
OTHER OFFICERS
David L. Mascarin 42 Controller
Mr. Mascarin joined the Company in
August 1996 as Controller. Prior to
joining the Company, Mr. Mascarin
served for more than five years as a
Site Controller for the Power Train
Operations of Ford Motor Company,
with which he had been employed for
18 years.
Donald D. Bradley 41 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.
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.
STATEMENT REGARDING FORWARD LOOKING DISCLOSURE
Except for the historical information contained in this report, certain matters
discussed herein, including (without limitation) "Business - Governmental
Regulation" (Item 1) and "Legal Proceedings" (Item 3) in Part I and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" (Item 7) in Part II, are forward looking statements. These
statements involve risks and uncertainties, including (without limitation) the
matters identified in those sections and the following: the effect of economic
and market conditions and raw material price increases; the impact of costs,
insurance recoveries and governmental, judicial and other third party
interpretations and determinations in connection with legal and environmental
proceedings; and the impact of current or pending legislation regulation; and
also in the case of the Company's health care business, pricing pressures and
further industry consolidation.
9
<PAGE> 10
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 ("NYSE")
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
25, 1997, the Company had approximately 1,100 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 the NYSE since March 8, 1995 and by NASDAQ prior to that date and (ii) the
amount per share of cash dividends paid by the Company with respect to its
Common Stock.
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------------------------------------------------------------------
FEBRUARY 1, 1997 FEBRUARY 3, 1996
----------------------------- -----------------------------
QUARTER HIGH LOW DIVIDEND HIGH LOW DIVIDEND
- ------- ---- --- -------- ---- --- --------
<S> <C> <C> <C> <C> <C> <C> <C>
First $22- 3/8 $18- 3/4 $0.06 $22- 1/2 $18- 7/8 $0.06
Second 26- 7/8 20- 1/2 0.06 23- 1/4 20 0.06
Third 25- 1/2 20- 1/2 0.06 21 16- 1/2 0.06
Fourth 24- 5/8 19- 3/8 0.06 20- 1/2 15- 1/2 0.06
</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.
10
<PAGE> 11
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data for the five years in the
period ended February 1, 1997 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."
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------------------------------------------------------------
IN THOUSANDS, EXCEPT FEBRUARY 1, FEBRUARY 3, JANUARY 28, JANUARY 29, JANUARY 30,
SHARE AND PER SHARE AMOUNTS 1997 (a) 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 390,105 $344,886 $312,060 $ 285,194 $ 300,107
Cost of sales 281,581 249,102 217,827 204,727 213,932
--------- -------- -------- --------- ---------
Gross profit 108,524 95,784 94,233 80,467 86,175
Selling, general and administrative
expenses 84,325 78,337 77,368 66,458 71,782
Write-off of acquired in-process
research and development 53,700 - - - -
Nonrecurring charges 4,329 - - - -
Other (income) expense (4,940) (3,866) (3,126) (2,296) (2,363)
Interest expense 3,344 2,899 2,394 3,337 4,243
---------- -------- -------- --------- ---------
Income (loss) before income taxes (32,234) 18,414 17,597 12,968 12,513
Provision for income taxes 7,517 5,245 6,159 4,798 5,256
---------- -------- -------- --------- ---------
Net income (loss) $ (39,751) $ 13,169 $ 11,438 $ 8,170 $ 7,257
========== ======== ======== ========= =========
Net income (loss) per share $ (4.47) $ 1.46 $ 1.27 $ 0.92 $ 0.84
========== ======== ======== ========= =========
Weighted average number of common
shares and equivalents outstanding 8,885,769 9,040,262 8,992,926 8,859,200 8,681,606
Cash dividends per share $ 0.24 $ 0.24 $ 0.24 $ 0.24 $ 0.24
At year end:
Total assets $344,343 $211,484 $179,873 $175,224 $174,229
Total long-term obligations 198,916 59,250 32,791 38,795 43,488
Total stockholders' equity 61,344 102,882 91,599 80,815 75,247
</TABLE>
- ------------------
(a) Includes the acquisition of Medex effective January 2, 1997.
11
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Analyzing Furon from a statistical perspective, sales for fiscal 1997 rose 13%
over the prior year. There were a number of divestitures during the course of
fiscal 1997 that had the effect of lowering sales. There also were
contributions from companies that were acquired during the year, which
accounted for a net 12% sales increase over fiscal 1996.
Domestically, sales increases were achieved in several of the markets Furon
serves, including semiconductors, commercial aircraft, mobile equipment and
appliances. In the truck market, the Company was able to maintain
approximately the same sales level as it did in the prior year, even though
that industry was down approximately 15-20%. Furon's sales to the general
industrial and electronic assembly markets declined from last year.
Excluding Medex, European sales improved 18% for fiscal 1997. Before the
impact of a stronger U.S. dollar, the improvement in sales was 26%. The gain
principally reflected contributions from Econocruise, which was acquired in
April, 1996. Without Medex and Econocruise, European sales were down 7%, or 1%
before the impact of exchange rates.
For fiscal 1996, consolidated sales were 11% higher than in fiscal 1995.
However, when removing the effect of acquisitions and divestitures, sales
improved 7%.
On January 2, 1997, Furon completed a tender offer for the outstanding shares
of Medex, Inc., based in Hilliard, Ohio. With sales of $99.3 million for its
fiscal year ended June 30, 1996, Medex manufactures polymer-based critical care
products and infusion systems for medical and surgical applications. Medex
products are sold in more than 50 countries, primarily to hospitals and
alternate care facilities and to a lesser extent, to original equipment
manufacturers serving the health care industry worldwide. For the period from
January 2 through February 1, 1997, Medex sales were $9.4 million and accounted
for 2.4% of Furon's consolidated sales for the year ended February 1, 1997.
The gross profit percentage for fiscal 1997 was 27.8%, which was the same as in
fiscal 1996. When the impact of acquisitions and divestitures is removed, the
gross profit percentage declined from 28.5% in fiscal 1996 to 28.2% in fiscal
1997. Higher raw material costs as a percentage of sales were experienced over
the prior year, partially offset by cost reductions in manufacturing labor and
overhead, productivity gains and price increases. The gross profit percentage
declined from 30.2% in fiscal 1995 to 27.8% in fiscal 1996. This decrease was
primarily attributable to higher raw material costs, a change in the sales mix
compared with the prior year and expenses related to the Company's new
operating structure.
Selling, general and administrative expenses as a percentage of sales declined
to 21.6% in fiscal 1997, compared with 22.7% for fiscal 1996 and 24.8% for
fiscal 1995. After removing the effect of acquisitions and divestitures,
operating expenses were 22.9%, 23.1% and 24.8% for fiscal years 1997, 1996 and
1995, respectively. In terms of dollars, operating expenses increased in
fiscal 1997 from the prior fiscal year, primarily as a result of acquisitions.
Selling expenses also increased as part of Furon's intensified new customer and
market focus structure. Offsetting the higher selling expenses were lower
general and administrative expenses, reflecting lower costs incurred related to
the implementation of the Company's new operating structure. Cost reductions
were achieved in several categories, including professional fees in connection
with various consulting projects, travel, and relocation. Investments in
research and development were up, as the Company continued to increase its
focus on new product development. New products accounted for approximately 27%
of sales in fiscal 1997 compared with 15% a year earlier.
12
<PAGE> 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
During fiscal 1997, Furon incurred approximately $58.0 million of nonrecurring
charges to income. These charges included $53.7 million relating to the
write-off of in-process research and development at Medex. In addition, as a
result of the acquisition, Furon incurred $4.3 million of charges consisting of
severance and facilities rationalization.
Other (income) expense, for fiscal 1997, increased 27.8% over fiscal 1996,
primarily as a result of foreign exchange transaction gains. For fiscal 1996,
other (income) expense, increased 23.7% over fiscal 1995, mostly from higher
licensee fees and a decrease in expenses attributable to the elimination of
income related to businesses held for sale. Included in other (income)
expense, was the elimination of $0 from fiscal 1997 and $0.2 million of pretax
loss and $0.5 million of pretax profit from fiscal years 1996 and 1995,
respectively, for the divested businesses.
Interest expense increased by 15.4% in fiscal 1997 over the prior fiscal year.
As a result of the Medex acquisition, amounts owing under the Company's bank
credit facility increased by approximately $140 million. Interest expense
increased 21% in fiscal 1996 compared with fiscal 1995. This increase reflects
amounts owing under the Company's bank credit facility that rose by
approximately $17 million due to the acquisition of the Custom Coating &
Laminating Corporation (CC&L) and Fluorglas businesses.
Operating results on a pre-tax basis decreased from a profit of $18.4 million
in fiscal 1996 to a loss of $32.2 million in fiscal 1997. If the impact of the
nonrecurring charges is removed, the Company would have had a pretax profit of
$25.8 million in fiscal 1997, which would represent a 40% increase from the
prior fiscal year. The improvement in profitability reflects higher sales
volumes that were more than sufficient to offset increased operating expenses
and higher interest expense, resulting from acquisitions and the implementation
of the new customer focused structure and strategy. Pre-tax results of
operations improved 5% from a profit of $17.6 million in fiscal 1995 to a
profit of $18.4 million in fiscal 1996.
The results of operations for Medex are included in the Company's consolidated
financial statements for the period from January 2, 1997 through February 1,
1997. During this period, Medex recorded sales of $9.4 million, gross profit
of $4.0 million (42.5% of sales) and operating expenses of $3.3 million (35.1%
of sales), resulting in operating profit of $0.8 million (8.5% of sales).
Interest expense attributable to the acquisition for the period was
approximately $0.8 million.
The Company's effective tax rate for fiscal year 1997 was 23.3% on the loss
before income taxes for the year as compared to 28.5% on income before income
taxes in fiscal 1996 and 35.0% in fiscal 1995. For fiscal 1997, the effective
tax rate before the one time charge for in-process research and development was
35.0% for combined Furon and Medex income. For Furon, the effective tax rate
was 34.0%, which was 1.0% below the combined tax rate due to goodwill
amortization and higher foreign taxes included in the Medex results. The lower
effective tax rate in 1996, as compared to fiscal 1995, resulted from the
realization of certain reserves and tax credits of approximately $1.2 million,
due to the completion of IRS audit cycles and closure of earlier fiscal years.
13
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1997, cash provided by operations increased 73% over fiscal 1996,
to approximately $44.0 million. Included in fiscal 1997 was a source of cash
from the change in working capital of $7.5 million versus $5.1 million used in
fiscal 1996. The most significant component is the favorable change in
inventory as a result of various inventory improvement programs implemented
throughout the year. Additionally, a favorable change in income taxes payable,
primarily the result of refunds received during the year and deferral of tax
payments, further contributed to the improvement.
At February 1, 1997 the Company's working capital was $78.8 million, an increase
of $18.4 million from the prior year. At February 1, 1997, the Company's ratio
of current assets to current liabilities was approximately 2.2:1. Capital
expenditures totaled $18.9 million and were primarily for renovating existing
facilities, leasehold improvements or replacement of existing equipment, in
addition to implementation of the Company's new operating structure.
Furon 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 it make a
substantial acquisition, it would require utilization of the remaining $31.0
million available at February 1, 1997 from its existing credit facility or
financing from other sources. Effective March 27, 1997, the aggregate
principal amount of the existing credit facility was increased from $200.0
million to $250.0 million. (For additional information concerning the credit
facility, see Note 5 of the "Notes to Consolidated Financial Statements.")
CONTINGENCIES
For information regarding environmental matters and other contingencies, see
the sections entitled "Business - Governmental Regulation" and "Legal
Proceedings" in Part I.
14
<PAGE> 15
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 February 1, 1997 and February 3, 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended February 1, 1997. 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 February 1, 1997 and February 3, 1996, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended February 1, 1997, 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 10, 1997
15
<PAGE> 16
FURON COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------------------------------------
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 390,105 $ 344,886 $ 312,060
Cost of sales 281,581 249,102 217,827
---------- ---------- ----------
Gross profit 108,524 95,784 94,233
Selling, general and administrative
expenses 84,325 78,337 77,368
Write-off of acquired in-process
research and development 53,700 - -
Nonrecurring charges 4,329 - -
Other (income) expense (4,940) (3,866) (3,126)
Interest expense 3,344 2,899 2,394
---------- ---------- ----------
Income (loss) before income taxes (32,234) 18,414 17,597
Provision for income taxes 7,517 5,245 6,159
---------- ---------- ---------
Net income (loss) $ (39,751) $ 13,169 $ 11,438
=========== ========== =========
Net income (loss) per share of
common stock $ (4.47) $ 1.46 $ 1.27
=========== ========== =========
</TABLE>
See accompanying notes.
16
<PAGE> 17
FURON COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3,
IN THOUSANDS 1997 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ - $ -
Accounts receivable, less allowance for
doubtful accounts of $2,093 in 1997
and $1,367 in 1996 72,315 51,681
Inventories 58,611 39,827
Deferred income taxes 10,411 5,178
Prepaid expenses and other assets 5,389 5,367
---------- ----------
Total current assets 146,726 102,053
Property, plant and equipment, at cost:
Land 7,096 1,305
Buildings and leasehold improvements 30,712 18,044
Machinery and equipment 152,998 128,396
---------- ----------
190,806 147,745
Less accumulated depreciation and
amortization (76,214) (68,093)
---------- ----------
Net property, plant and equipment 114,592 79,652
Intangible assets, at cost, less accumulated
amortization of $29,971 in 1997 and $26,612
in 1996 74,640 23,543
Other assets 8,385 6,236
---------- ----------
TOTAL ASSETS $ 344,343 $ 211,484
========== ==========
</TABLE>
See accompanying notes.
17
<PAGE> 18
FURON COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3,
IN THOUSANDS, EXCEPT SHARE DATA 1997 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Cash, less checks outstanding $ 1,665 $ 1,052
Accounts payable 24,319 18,851
Salaries, wages and related benefits payable 14,141 11,101
Current portion of long-term debt 1,001 278
Facility rationalization and severance 10,369 -
Other current liabilities 16,407 10,345
--------- ---------
Total current liabilities 67,902 41,627
Long-term debt 176,983 38,443
Other long-term liabilities 21,933 20,807
Deferred income taxes 16,181 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, 9,003,140 and 8,906,905
shares issued and outstanding in 1997 and
1996, respectively 38,787 37,575
Foreign currency translation adjustment (977) 403
Unearned ESOP shares (3,224) (3,205)
Unearned compensation (238) (556)
Additional pension liability (1,413) (1,649)
Retained earnings 28,409 70,314
--------- ---------
Total stockholders' equity 61,344 102,882
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 344,343 $ 211,484
========= =========
</TABLE>
See accompanying notes.
18
<PAGE> 19
FURON COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
IN THOUSANDS, EXCEPT SHARE AMOUNTS
YEARS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 28, 1995
<TABLE>
<CAPTION>
Foreign Total
Common Stock Currency Unearned Unearned Additional Stock-
--------------------- Translation ESOP Compen- Pension Retained holders'
Shares Amount Adjustment Shares sation Liability Earnings Equity
- --------------------------------- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE AT JANUARY 29, 1994 8,625,706 $35,320 $(1,034) $(2,688) $ (709) $ - $49,926 $80,815
- --------------------------------- -----------------------------------------------------------------------------------------------
Cash dividends - - - - - - (2,088) (2,088)
Exercise of stock options 349,272 5,018 - - - - - 5,018
Retired shares (218,529) (4,763) - - - - - (4,763)
Grant of restricted shares, net of
cancellations 43,715 705 - - (705) - - -
Amortization of unearned
compensation - - - - 529 - - 529
Foreign currency translation
adjustment - - 1,453 - - - - 1,453
Loan to ESOP, net - - - (424) - - - (424)
Minimum pension liability
adjustment - - - - - (379) - (379)
Net income - - - - - - 11,438 11,438
- --------------------------------- -----------------------------------------------------------------------------------------------
BALANCE AT JANUARY 28, 1995 8,800,164 36,280 419 (3,112) (885) (379) 59,276 91,599
- --------------------------------- -----------------------------------------------------------------------------------------------
Cash dividends - - - - - - (2,131) (2,131)
Exercise of stock options 90,312 1,133 - - - - - 1,133
Retired shares (11,852) (251) - - - - - (251)
Grant of restricted shares 10,610 215 - - (215) - - -
Cancellations of restricted shares (13,420) (212) - - 112 - - (100)
Stock issued under Employee
Stock Purchase Plan 31,091 410 - - - - - 410
Amortization of unearned
compensation - - - - 432 - - 432
Foreign currency translation
adjustment - - (16) - - - - (16)
Loan to ESOP, net - - - (93) - - - (93)
Minimum pension liability
adjustment - - - - - (1,270) - (1,270)
Net income - - - - - - 13,169 13,169
- --------------------------------- -----------------------------------------------------------------------------------------------
BALANCE AT FEBRUARY 3, 1996 8,906,905 37,575 403 (3,205) (556) (1,649) 70,314 102,882
- --------------------------------- -----------------------------------------------------------------------------------------------
Cash dividends - - - - - - (2,154) (2,154)
Exercise of stock options 109,304 1,690 - - - - - 1,690
Retired shares (38,750) (836) - - - - - (836)
Grant of restricted shares 4,278 102 - - (102) - - -
Cancellations of restricted shares (12,835) (206) - - 67 - - (139)
Stock issued under Employee
Stock Purchase Plan 34,238 462 - - - - - 462
Amortization of unearned
compensation - - - - 353 - - 353
Foreign currency translation
adjustment - - (1,380) - - - - (1,380)
Loan to ESOP, net - - - (19) - - - (19)
Minimum pension liability
adjustment - - - - - 236 - 236
Net loss - - - - - - (39,751) (39,751)
- --------------------------------- ------------------------------------------------------------------------------------------------
BALANCE AT FEBRUARY 1, 1997 9,003,140 $ 38,787 $ (977) $(3,224) $ (238) $ (1,413) $ 28,409 $ 61,344
- --------------------------------- -----------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
19
<PAGE> 20
FURON COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------------------
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
IN THOUSANDS 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $(39,751) $ 13,169 $ 11,438
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation 13,615 11,292 9,540
Amortization 3,544 3,783 3,961
Provision for losses on accounts receivable 364 724 303
Increase (decrease) in deferred income taxes (1,417) 2,239 46
Write-off of acquired in-process research and development 53,700 - -
Nonrecurring charges 4,329 - -
(Gain) loss on sale of assets and divestitures 46 (2,385) 15
Working capital changes, net of acquisitions and disposals:
Accounts receivable 2,288 2,467 (11,173)
Inventories 5,294 (2,059) (4,918)
Accounts payable and accrued liabilities (2,977) (3,663) 4,063
Income taxes payable 4,276 (1,790) (3,704)
Other current assets and liabilities, net 474 (43) (2,561)
--------- --------- ----------
9,355 (5,088) (18,293)
Changes in other long-term operating assets and liabilities 238 1,783 842
--------- --------- ----------
Net cash provided by operating activities 44,023 25,517 7,852
INVESTING ACTIVITIES
Acquisition of businesses, net of cash acquired (157,752) (43,497) -
Purchases of property, plant and equipment (18,936) (13,570) (12,912)
Proceeds from sale of businesses 4,204 8,517 543
Proceeds from sale of equipment 1,563 334 185
Proceeds from notes receivable 286 844 429
Increase in notes receivable (444) (242) (810)
--------- --------- ----------
Net cash used in investing activities (171,079) (47,614) (12,565)
FINANCING ACTIVITIES
Proceeds from long-term debt 182,000 46,756 8
Principal payments on long-term debt (51,430) (29,506) (6,015)
Deferred debt costs (1,326) - -
Proceeds from issuance of common stock 715 782 255
Principal payments received from ESOP 458 384 384
Dividends paid on common stock (2,154) (2,131) (2,088)
Loan to ESOP (566) (579) (808)
--------- --------- ----------
Net cash provided by (used in) financing activities 127,697 15,706 (8,264)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (641) (84) 969
--------- --------- ----------
DECREASE IN CASH AND CASH EQUIVALENTS - (6,475) (12,008)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR - 6,475 18,483
--------- --------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ - $ - $ 6,475
========= ========= ==========
</TABLE>
See accompanying notes.
20
<PAGE> 21
FURON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 1, 1997
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.
Fiscal Year
The Company's fiscal year ends on the Saturday closest to January 31. The
fiscal year refers to the year in which the period ends (e.g. fiscal 1997 ended
February 1, 1997). Fiscal year 1997 consists of 52 weeks and fiscal years 1996
and 1995 consisted of 53 weeks and 52 weeks, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
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) expense in the consolidated statements of operations is interest
and dividend income from investments of $0.8 million, $0.1 million, and $0.7
million in fiscal 1997, 1996 and 1995, respectively.
Interest paid in fiscal 1997, 1996 and 1995 was $3.2 million, $2.9 million, and
$2.5 million, respectively.
Income taxes paid in fiscal 1997, 1996 and 1995 were $3.5 million, $4.1 million
and $8.5 million, respectively.
21
<PAGE> 22
FURON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 1, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Inventories
Inventories, stated at the lower of cost (first-in, first-out) or market, are
summarized as follows:
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3,
IN THOUSANDS 1997 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials and purchased parts $ 22,841 $ 13,604
Work-in-process 14,121 11,503
Finished goods 21,649 14,720
---------- ----------
$ 58,611 $ 39,827
========= =========
</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>
Concentrations 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 February 1,
1997, 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 1997, 1996
and 1995 was $12.5 million, $8.5 million and $7.1 million, respectively, and is
included in selling, general and administrative expenses in the consolidated
statements of operations. Continuous research and development is necessary for
the Company to maintain its competitive position.
22
<PAGE> 23
FURON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 1, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Intangible Assets
Intangible assets acquired in business combinations, net of accumulated
amortization, are summarized as follows:
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3,
IN THOUSANDS 1997 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Goodwill $ 42,016 $ 9,113
Other intangible assets 32,624 14,430
--------- --------
$ 74,640 $ 23,543
========= ========
</TABLE>
Goodwill is amortized over 25 years. Other intangible assets are amortized
over periods ranging from 7 to 25 years.
Translation of Foreign Currencies
Foreign subsidiary financial statements are translated into U.S. dollars in
accordance with Statement of Financial Accounting Standards ("SFAS") 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 1997, 1996 and 1995. The functional currency of the
Company's foreign operations is the respective local currency.
Net Income (Loss) Per Share
Net income (loss) per share is based on the weighted average number of common
shares outstanding and common share equivalents resulting from dilutive stock
options, if any, outstanding in each of the three years in the period ended
February 1, 1997. The number of shares used in the computation was 8,885,769,
9,040,262 and 8,992,926, respectively.
Long-Lived Assets
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of." In accordance with SFAS No. 121, management evaluates the
recoverability of the long-lived assets on an ongoing basis taking into
consideration such factors as recent operating results, projected cash flows
and plans for future operations. The implementation of SFAS No. 121 did not
have an impact on the Company's consolidated financial statements.
23
<PAGE> 24
FURON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 1, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock-Based Compensation
The Company accounts for stock-based employee compensation in accordance with
the provisions of APB Opinion No. 25, "Accounting for Stock Issued to
Employees" and related Interpretations as permitted by SFAS No. 123,
"Accounting for Stock-Based Compensation."
2. ACQUISITIONS AND DISPOSITIONS
Acquisitions
On January 2, 1997, the Company completed a tender offer for the outstanding
shares of Medex, Inc., ("Medex"). The aggregate purchase price of $159.4
million, plus $5.6 million of costs directly attributable to the completion of
the acquisition, has been preliminarily allocated to the assets and liabilities
acquired, including $6.1 million related to facilities rationalization and
severance, using the purchase method of accounting. Management believes that
any resulting adjustments will not have a material effect on the Company's
financial position or results of operations. Of the total purchase price, $53.7
million represented the value of in-process research and development which was
expensed at the time of acquisition. The remainder of the purchase price in
excess of the estimated fair value of net assets acquired was $30.0 million and
is being amortized using the straight-line method over 25 years. Medex is
engaged in the business of manufacturing polymer-based critical care products
and infusion systems for medical and surgical applications. Medex's results of
operations have been included in the consolidated financial statements since
January 2, 1997.
Effective April 1, 1996, the Company completed the acquisition of the net
assets of Econocruise Ltd. based in Rugby, England. Econocruise manufactures
electronic control systems for mobile equipment and major truck manufacturers
in Europe. This acquisition has been recorded using the purchase method of
accounting and the results of operations have been included since the date of
acquisition. The purchase price of $4.6 million has been allocated to the net
assets acquired based on their estimated fair values with no goodwill being
recorded.
On February 2, 1996, the Company acquired certain assets and assumed certain
liabilities of the Fluorglas business ("Fluorglas") from AlliedSignal Inc., for
$19.0 million in cash. Fluorglas manufactures a broad line of pressure
sensitive adhesive tapes and PTFE flexible composites and fabrications in
facilities located in Hoosick Falls, New York. On January 31, 1995 the Company
acquired certain assets of Custom Coating & Laminating Corporation ("CC&L") for
a cash purchase price of $24.0 million. In addition, the Company assumed
certain liabilities approximating $2.4 million, and may pay up to an additional
$4.0 million based upon future product sales over the next two fiscal years.
The business manufactures release liners and other specialty engineered
products incorporating surface chemistry technology. Its manufacturing
facilities are located in Worcester, Massachusetts. These acquisitions have
been recorded using the purchase method of accounting, and their results of
operations have been included in the consolidated financial statements since
the respective dates of acquisition. The excess purchase price over the
estimated fair value of net assets acquired for Fluorglas of approximately $2.3
million and CC&L of approximately $9.3 million is being amortized using the
straight-line method over 25 years.
24
<PAGE> 25
FURON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 1, 1997
2. ACQUISITIONS AND DISPOSITIONS (CONTINUED)
Summarized below are the unaudited consolidated results of operations of the
Company, including the Medex, Fluorglas and Econocruise businesses on a pro
forma basis, as though the acquisitions had occurred at the beginning of each
respective fiscal year, after giving effect to certain adjustments, including
amortization of intangible assets, increased interest expense as a result of the
incremental debt, decrease in depreciation and amortization resulting from the
write-down of tangible assets to fair value and related income tax effects.
Excluded from these adjustments is the Company's write-off of in-process
research and development of $53.7 million. The Company's nonrecurring charges of
$4.3 million are reflected in the fiscal 1996 pro forma amounts. The pro forma
financial information is presented for informational purposes only and may not
be indicative of the results of operations had the transactions been effected,
nor is it necessarily indicative of the results of operations which may occur in
the future. In addition, the pro forma information is not intended to be a
projection of future results and does not reflect synergies or cost reductions
expected to result from the combined operations.
<TABLE>
<CAPTION>
YEARS ENDED
FEBRUARY 1, FEBRUARY 3,
IN THOUSANDS, EXCEPT PER SHARE DATA 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 488,766 $ 494,075
Net income 8,035 6,800
Net income per share of common stock 0.88 0.75
</TABLE>
Dispositions
During fiscal year ended February 1, 1997 the Company sold three businesses for
$4.2 million in cash. No gain or loss resulted from these sales.
During the fiscal year ended February 3, 1996 the Company sold two businesses
for a net pre-tax gain of $2.7 million and accrued approximately $0.7 million
for insurance reserves relative to one of the businesses. These amounts are
included in other (income) expense in the accompanying consolidated statements
of operations.
3. NONRECURRING CHARGES
In conjunction with the acquisitions and divestitures made during fiscal years
ended February 1, 1997 and February 3, 1996, the Company has developed plans to
close and consolidate certain businesses. Operating income for fiscal year
1997 includes total nonrecurring charges of $4.3 million. The charges include
$1.5 million for severance and $2.8 million for facilities rationalization.
25
<PAGE> 26
FURON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 1, 1997
4. INCOME TAXES
The provision (benefit) for income taxes for the three years ended February 1,
1997, consists of the following:
<TABLE>
<CAPTION>
IN THOUSANDS CURRENT DEFERRED TOTAL
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997:
Federal $ 7,535 $ (1,730) $ 5,805
Foreign 969 - 969
State 529 214 743
--------- --------- --------
$ 9,033 $ (1,516) $ 7,517
========= ========= ========
1996:
Federal $ 954 $ 2,300 $ 3,254
Foreign 1,197 - 1,197
State 855 (61) 794
--------- --------- --------
$ 3,006 $ 2,239 $ 5,245
========= ========= ========
1995:
Federal $ 4,714 $ (79) $ 4,635
Foreign 848 - 848
State 551 125 676
--------- --------- --------
$ 6,113 $ 46 $ 6,159
========= ========= ========
</TABLE>
26
<PAGE> 27
FURON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 1, 1997
4. 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>
FEBRUARY 1, 1997 FEBRUARY 3, 1996 JANUARY 28, 1995
IN THOUSANDS AMOUNT % AMOUNT % AMOUNT %
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Statutory federal provision $ (11,282) (35.0) $6,445 35.0 $6,159 35.0
Acquired in-process research
and development 18,795 58.3 - - - -
State and local taxes,
net of federal tax benefits 667 2.1 801 4.4 1,076 6.1
Effect of foreign taxes 103 0.3 (164) (0.9) (145) (0.8)
Research and experimental credit (230) (0.7) (195) (1.1) (424) (2.4)
Export sales corporation benefit (456) (1.4) (376) (2.0) (393) (2.2)
Realization of reserves due
to completed audit
cycles and closure of
earlier fiscal years - - (1,200) (6.5) - -
Other (80) (0.3) (66) (0.4) (114) (0.7)
-------- ------- ------ ------ ------ ------
$ 7,517 23.3 $5,245 28.5 $6,159 35.0
======== ======= ====== ====== ====== ======
</TABLE>
27
<PAGE> 28
FURON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 1, 1997
4. INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax liabilities and assets are
as follows:
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3,
IN THOUSANDS 1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation $ (7,172) $ (5,844)
Intangible assets (7,656) -
----------- --------
Total liabilities (14,828) (5,844)
---------- ---------
Deferred tax assets:
Inventories 3,897 923
Net operating losses 860 -
Nonrecurring charges 2,281 -
Accruals recognized in
different periods for tax than
financial reporting 3,759 4,113
---------- --------
Total assets 10,797 5,036
Valuation allowance for realization of
and payment for reserves (1,739) (1,739)
--------- -------
Net deferred tax assets 9,058 3,297
---------- --------
Total deferred taxes $ (5,770) $ (2,547)
========== ========
</TABLE>
Applicable U.S. income and foreign withholding taxes have not been provided on
undistributed earnings of certain foreign subsidiaries and affiliates
aggregating $6.0 million at February 1, 1997. 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 $0.3 million, may be recoverable as foreign tax credits in
the United States.
28
<PAGE> 29
FURON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 1, 1997
4. 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.
A subsidiary of the Company has federal net operating loss carryforwards
available against its taxable income of approximately $2.4 million that expire
from fiscal 2000 through fiscal 2004.
5. LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3,
IN THOUSANDS 1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Loans under bank credit agreements $ 169,000 $ 38,000
Industrial Revenue Bonds 6,775 -
Other 2,209 721
----------- ----------
Total long-term debt 177,984 38,721
Less current portion 1,001 278
----------- ----------
Due after one year $ 176,983 $ 38,443
=========== ==========
</TABLE>
Under a Credit Agreement, dated as of November 12, 1996 (the "Credit
Agreement"), by and among Furon, the lenders party thereto (the "Lenders") and
The Bank of New York ("BNY"), as Swing Line Lender and as Administrative Agent,
Furon may borrow up to an aggregate principal amount not to exceed $200.0
million (the "Facility") (such amount subject to increase to $250.0 million in
aggregate principal amount upon request of Furon and the agreement of Lenders
to provide such additional amounts). Effective March 27, 1997, the aggregate
principal amount was increased to $250.0 million.
Amounts borrowed under the Credit Agreement will mature November 12, 2001 and
may be prepaid by Furon at any time in whole, or from time to time in part.
Borrowings under the Credit Agreement will bear interest, at Furon's option, at
a rate per annum equal to either: (i) the greater of (a) BNY's prime commercial
lending rate as publicly announced to be in effect from time to time and (b)
1/2% plus the federal funds rate (as published by Federal Reserve Bank of New
York); or (ii) LIBOR (adjusted for reserves) plus an applicable margin subject
to performance grid pricing for interest periods of one, two, three or six
months or (iii) with respect to swing line loans a rate negotiated between BNY
and Furon. Any amounts not paid when due bear interest at the rate otherwise
applicable plus two percent.
29
<PAGE> 30
FURON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 1, 1997
5. LONG-TERM DEBT (CONTINUED)
The Credit Agreement provides for the payment of a commitment fee of a certain
rate per annum subject to performance grid pricing on the average daily unused
amount of the Facility. At February 1, 1997, the unused portion of the credit
facility was $31.0 million ($81.0 million as of March 27, 1997). Borrowing
rates during the year ranged from 5.7% to 8.3% (6.3% at February 1, 1997).
At February 1, 1997, the outstanding principal balance of the Industrial Revenue
Bonds consisted of two separate bond issues. The first outstanding issue is at
approximately $2.8 million with varying annual principal payments due June 1998
through June 2002 and annual interest at an average rate of 6.18%. The issue is
secured by a $3.0 million bank letter of credit. Any borrowings made under the
letter of credit bear interest at the bank's prime rate plus two percent and are
secured by land and buildings with an approximate net book value of $3.2
million. The letter of credit agreement automatically renews every month
through the maturity of the bond, subject to a 13-month notification from the
issuer of their intention not to renew the letter. The second outstanding issue
is at $4.0 million with annual principal payments of $0.2 million due July 1997
through July 2016 and bears interest at a weekly competitive adjustable rate.
The issue is secured by a $4.0 million bank letter of credit. Any borrowings
under the letter of credit bear interest at a weekly adjustable rate. The
letter of credit is unsecured and expires in July 2001.
6. COMMITMENTS AND CONTINGENCIES
At February 1, 1997, 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>
1998 $ 8,751
1999 7,255
2000 5,624
2001 4,586
2002 4,025
Thereafter 19,352
</TABLE>
30
<PAGE> 31
FURON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 1, 1997
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Certain leases contain escalation provisions for periodic adjustments based on
certain indices. Rental expense for operating leases for the three years in
the period ended February 1, 1997 was $8.7 million, $8.6 million and $8.0
million, respectively.
At February 1, 1997, the Company is obligated under irrevocable letters of
credit totaling $9.1 million, including those related to the Industrial
Revenue Bonds as described in Note 5.
At February 1, 1997, the Company had approximately $1.6 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 February 1, 1997.
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.
The manufacture and sale of health care products like the MEDEX critical care
accessories and infusion systems are subject to regulation by the U.S. Food and
Drug Administration ("FDA") and certain foreign agencies. These regulations
range from prescribing "good manufacturing practices" to generally requiring
FDA clearance of new health care products before they can be marketed. Medex
has historically been able to seek this clearance for its products through the
FDA's "510(k)" pre-market notification program which, as compared to the FDA's
pre-market approval process, requires less time and the submission of limited
clinical and supporting information. The Company expects any new Medex products
to continue to qualify for the 510(k) pre-market notification program. The FDA
routinely conducts inspections to confirm compliance with its regulations and
failure to comply with them can, among other things, result in product recalls
and bans, operating restrictions, and civil and criminal penalties. The Company
believes that Medex is currently in compliance with these governmental
regulations.
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.
As of February 1, 1997, the Company's reserves for environmental matters
totaled approximately $1.6 million. The Company or one or more of its
subsidiaries is currently involved in environmental investigation or
remediation directly or as an EPA-named potentially responsible party or
private cost recovery/contribution action defendant at various sites, including
the following "superfund" waste disposal sites: Solvents Recovery Service of New
England in Southington, Connecticut; Gallup's Quarry in Plainfield,
Connecticut; Davis Liquid Waste and Picillo in Coventry, Rhode Island; Malvern
in Malvern, Pennsylvania; and Granville in Granville, Ohio. While neither the
timing nor the amount of the ultimate costs associated with these matters can
be determined with certainty, based on information currently available to the
Company, including investigations to determine the nature of the potential
liability, the estimated amount of investigation and remedial costs expected to
be incurred and other factors, the Company presently believes that its
environmental 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.
7. STOCKHOLDERS' EQUITY
STOCK COMPENSATION PLANS
At February 1, 1997, the Company has three stock-based compensation plans (two
stock incentive plans and an Employee Stock Purchase Plan), which are described
below. The Company has elected to follow APB Opinion No. 25, "Accounting for
Stock Issued to Employees" and related Interpretations in accounting for its
plans. Accordingly, no compensation expense has been recognized for its stock
option awards and its stock purchase plan because the exercise price of the
Company's stock options equals the market price of the underlying stock on the
date of grant. Had compensation expense for the Company's stock option awards
under its stock incentive plans and its stock purchase plan been determined
based on the fair value at the grant dates for awards under those plans
consistent with the method of SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's net income (loss) and earnings (loss) per share
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C> <C>
Net income (loss) As reported $(39,751) $13,169
Pro forma (40,236) 13,005
Earnings (loss) per share As reported $(4.47) $1.46
Pro forma (4.53) 1.44
</TABLE>
The stock based compensation for fiscal 1997 and 1996 reflected in the above
pro forma information may not be indicative of such compensation in future
periods as it only reflects options granted in fiscal 1997 and 1996.
31
<PAGE> 32
FURON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 1, 1997
7. STOCKHOLDERS' EQUITY (CONTINUED)
Stock Incentive Plans
The Company has a 1995 Stock Incentive Plan and a 1982 Stock Incentive Plan.
Under both plans, 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), and performance
share awards. The 1995 Stock Incentive Plan does not provide for depreciation
rights and tax-offset bonuses which are components of the 1982 Stock Incentive
Plan. The 1995 Stock Incentive Plan provides for the annual grant of awards in
a maximum number of shares of common stock of 1.8% of the Company's issued and
outstanding shares as of the last day of the preceding fiscal year, commencing
with the fiscal year beginning February 4, 1996. 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 February 1, 1997, 158,053 RSAs have been granted (of which 41,155 have been
canceled) under the Stock Incentive Plans. The issuance of these RSAs resulted
in $1.8 million (net of cancellations) of unearned compensation which is being
amortized over the five year period in which the awards vest.
The fair value of each stock option grant is estimated at the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in fiscal years 1997 and 1996,
respectively: dividend yield of 1.2% for both years; expected volatility of
38% and 37%; risk-free interest rates of 6.3% and 7.1%; and expected lives of 6
years for both option grants.
A summary of the status of the Company's non-qualified stock option plans as of
February 1, 1997 and February 3, 1996, and changes during the years ending on
those dates is presented below:
<TABLE>
<CAPTION>
1997 1996
--------------------------------- ---------------------------------
SHARES WEIGHTED-AVERAGE SHARES WEIGHTED-AVERAGE
(000) EXERCISE PRICE (000) EXERCISE PRICE
----- ----------------- ------- ----------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 750,516 $ 14.153 729,328 $ 12.793
Granted 136,500 19.750 118,000 19.375
Exercised (109,304) 11.896 (90,312) 9.617
Forfeited (9,000) 19.479 (6,500) 19.375
-------- --------
Outstanding at end of year 768,712 15.406 750,516 14.153
======== ========
Options exercisable at year-end 506,274 531,516
======== ========
Weighted-average fair value of
options granted during the year $ 8.27 $ 8.32
======== ========
</TABLE>
32
<PAGE> 33
FURON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 1, 1997
7. STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about stock options outstanding at
February 1, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------------------------------- --------------------------------
WEIGHTED
RANGE OF AVERAGE WEIGHTED WEIGHTED
EXERCISE NUMBER REMAINING AVERAGE NUMBER AVERAGE
PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
---------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 9.75 - $ 13.50 386,837 3.1 years $12.190 385,712 $12.197
16.25 - 19.75 381,875 7.9 years 18.664 120,562 17.738
9.75 - 19.75 768,712 5.5 years 15.406 506,274 13.516
</TABLE>
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 Employee Stock Purchase Plan expires on
October 31, 2004. A total of 200,000 shares are available for purchase under
the plan. There were 34,238 and 31,091 shares issued under the plan during
fiscal years 1997 and 1996, respectively. Compensation expense is recognized
for the fair value of the employee's purchase rights, estimated using the
Black-Scholes model, with the following assumptions for fiscal years 1997 and
1996, respectively: dividend yield of 1.1% and 1.5%; expected life of 1 year
for both years; expected volatility of 33% and 31%; and risk-free interest
rates of 5.4% and 5.3%. The weighted-average fair value of those purchase
rights granted in fiscal years 1997 and 1996 was $5.76 and $4.22, respectively.
33
<PAGE> 34
FURON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 1, 1997
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.
8. 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 as described in Note 7. 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 employee's 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
fiscal 1997, 1996 and 1995 were $2.2 million, $1.9 million and $1.5 million,
respectively.
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 $3.7 million ($1.6
million outstanding at February 1, 1997) 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. The plan subsequently entered
into loan agreements with the Company according to the table below. The
proceeds of the loans were used to purchase shares of stock from a former
officer and director of the Company. 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.
34
<PAGE> 35
FURON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 1, 1997
8. EMPLOYEE BENEFIT PLANS (CONTINUED)
Employee Stock Ownership Plan (continued)
<TABLE>
<CAPTION>
Interest Original Outstanding
Loan Date Rate Loan Amount at Feb. 1, 1997 Shares Purchased
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
June 9, 1994 7.52 % $ 217,500 $ 187,436 15,000
August 26, 1994 7.67 268,125 235,243 15,000
November 23, 1994 7.45 322,500 289,240 15,000
June 14, 1995 7.31 231,250 216,744 10,000
September 5, 1995 6.91 206,250 196,475 10,000
December 14, 1995 6.36 141,563 137,570 7,500
March 26, 1996 6.07 322,500 320,162 15,000
June 11, 1996 7.04 243,750 243,750 10,000
---------- ---------- ------
$1,953,438 $1,826,620 97,500
========== ========== =======
</TABLE>
In fiscal 1995, the Company adopted the provisions of AICPA Statement of
Position No. 93-6 ("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, 135,241 and 134,428 are
allocated and unallocated, respectively, at February 1, 1997. Of the leveraged
shares acquired beginning in fiscal 1994, there were 6,654 allocated shares,
14,796 committed-to-be-released shares, and 76,050 unallocated shares at
February 1, 1997. The fair value of unallocated shares was $1.8 million at
February 1, 1997. Total compensation cost recognized by the Company during
fiscal 1997, 1996 and 1995, which consists of the annual contribution and plan
administrative costs, net of dividend income on unallocated and forfeited
shares, totaled $0.8 million, $0.7 million and $0.5 million, respectively.
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 SFAS No. 87, "Employers' Accounting for Pensions," the
Company has recorded an additional liability of $2.0 million and $2.3 million
in fiscal 1997 and 1996, respectively, which represents the excess of the
accumulated benefit obligation over previously recognized accrued pension
costs. In 1997 and 1996, the excess of additional pension liability
35
<PAGE> 36
FURON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 1, 1997
8. EMPLOYEE BENEFIT PLANS (CONTINUED)
Supplemental Executive Retirement Plan (continued)
over the unrecognized net transition obligation has been recorded as a
component of stockholders' equity.
Actuarial present value of benefit obligations:
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3,
IN THOUSANDS 1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Vested benefit obligation $ 8,364 $ 8,200
========== ==========
Accumulated benefit obligation $ 8,527 $ 8,345
========== ==========
Unfunded projected benefit obligation $ 8,781 $ 8,652
Unrecognized net loss (1,667) (1,956)
Unrecognized net transition obligation (608) (693)
---------- ----------
6,506 6,003
Additional minimum liability 2,021 2,342
---------- ----------
Accrued pension cost $ 8,527 $ 8,345
========== ==========
Assumptions:
Discount rate 7.75% 7.50%
Salary increase rate 5.00% 5.00%
</TABLE>
Net periodic pension costs for fiscal 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------------------------
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
IN THOUSANDS 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 41 $ 37 $ 44
Interest cost 638 618 609
Net amortization and deferral 192 211 212
------ ------ ------
$ 871 $ 866 $ 865
====== ====== ======
</TABLE>
36
<PAGE> 37
FURON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 1, 1997
9. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT INCOME (LOSS) NET INCOME (LOSS)
PER SHARE DATA NET SALES GROSS PROFIT BEFORE TAXES NET INCOME (LOSS) PER SHARE (a)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED FEBRUARY 1, 1997
1st Quarter $ 94,763 $ 26,497 $ 6,906 $ 4,558 $ 0.50
2nd Quarter 96,216 26,046 5,901 3,895 0.43
3rd Quarter 96,227 25,668 6,144 4,055 0.44
4th Quarter 102,899 30,313 (51,185)(b) (52,259) (5.86)
YEAR ENDED FEBRUARY 3, 1996
1st Quarter $ 88,453 $ 25,560 $ 5,162 $ 3,355 $ 0.37
2nd Quarter 82,300 22,343 4,169 2,710 0.30
3rd Quarter 85,401 23,065 4,457 3,797 0.42
4th Quarter 88,732 24,816 4,626 (c) 3,307 0.37
</TABLE>
(a) Net income (loss) per share is computed independently for each of the
quarters based on the weighted average number of shares outstanding
for each period, and the sum of the quarters may not necessarily be
equal to the full year net income (loss) per share amount.
(b) The fourth quarter of fiscal year ended February 1, 1997 includes the
write-off of acquired in-process research and development of $53.7
million and nonrecurring charges of $4.3 million as described in Notes
2 and 3.
(c) The fourth quarter of fiscal year ended February 3, 1996 includes a
gain on sale of businesses of approximately $2.7 million, a charge of
approximately $1.4 million relative to various compensation plans and
a charge of approximately $1.3 million in connection with the closing
of certain facilities.
37
<PAGE> 38
FURON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 1, 1997
10. SEGMENT INFORMATION
The Company designs, develops and manufactures highly engineered components
made primarily from specially formulated high performance polymer materials, a
single business segment. Most of Furon's products are designed and engineered
to meet specific requirements of customers in the industrial process,
transportation, industrial equipment, electronics and health care industries.
The following table provides information as to the significant geographic areas
in which the Company has operations.
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------------------------------------------
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
IN THOUSANDS 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales to outside customers:
United States $ 344,727 $ 309,683 $ 283,006
Europe 45,378 35,203 29,054
---------- --------- ---------
$ 390,105 $ 344,886 $ 312,060
=========== ========= =========
Income (loss) before income taxes:
United States $ (33,690) $ 15,333 $ 15,096
Europe 1,456 3,081 2,501
----------- --------- ---------
$ (32,234) $ 18,414 $ 17,597
=========== ========= =========
Identifiable assets:
United States $ 295,737 $ 190,463 $ 160,848
Europe 48,606 21,021 19,025
---------- --------- ---------
$ 344,343 $ 211,484 $ 179,873
=========== ========= =========
Export sales $ 42,529 $ 35,967 $ 38,145
========== ========= =========
</TABLE>
38
<PAGE> 39
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
PART III
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 3, 1997. 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 3, 1997.
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 3, 1997.
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 3, 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
(a) 1. Index to Financial Statements
Report of Independent Auditors 15
Consolidated Statements of Operations
Years ended February 1, 1997,
February 3, 1996 and January 28, 1995 16
</TABLE>
39
<PAGE> 40
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
February 1, 1997 and February 3, 1996 17
Consolidated Statements of Stockholders' Equity
Years ended February 1, 1997, February 3, 1996
and January 28, 1995 19
Consolidated Statements of Cash Flows
Years ended February 1, 1997, February 3, 1996
and January 28, 1995 20
Notes to Consolidated Financial Statements
February 1, 1997 21
2. Index to Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts 41
</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:
On January 17, 1997, the Registrant filed with the
Commission a Form 8-K dated that date, which reported
the acquisition of Medex, Inc. in Item 2 and included
Medex's consolidated financial statements for its
fiscal year ended June 30, 1996 (audited) and fiscal
quarter ended September 30, 1996 (unaudited).
40
<PAGE> 41
FURON COMPANY
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 28, 1995
<TABLE>
<CAPTION>
DEDUCTIONS/
BALANCE AT ADDITIONS ACCOUNTS WRITTEN
BEGINNING CHARGED TO COSTS OFF NET OF BALANCE AT
OF YEAR AND EXPENSES RECOVERIES OTHER END OF YEAR
----------- ------------ --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL
RECEIVABLES:
1997 $ 1,366,935 $ 364,164 $ (453,421) $ 815,633 (a) $ 2,093,311
=========== ============ ========== ========== ===========
1996 $ 695,750 $ 724,147 $ (256,851) $ 203,889 (a) $ 1,366,935
=========== ============ ========== ========== ===========
1995 $ 631,540 $ 302,954 $ (238,744) $ - $ 695,750
=========== ============ ========== ========== ===========
</TABLE>
(a) Relates to opening balances of acquisitions.
41
<PAGE> 42
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 Agreement and Plan of Merger, dated November 12, 1996, by and among the Registrant, FCY, Inc.
and Medex, Inc. (Incorporated by reference to Exhibit 99.10 to the Registrant's Schedule 14D-1
filed on November 15, 1996, Commission File No. 0-8088).
</TABLE>
* A management contract or compensatory plan or arrangement.
42
<PAGE> 43
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 1997 (Incorporated by reference to
Exhibit 10.9 to the Registrant's Annual Report on Form 10-K filed on March 25, 1996,
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).
</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>
10.11 1993 Non-Employee Directors' Stock Compensation Plan, as amended (Incorporated by reference to
Exhibit 10.12 to the Registrant's Quarterly Report on Form 10-Q filed on June 2, 1994 and
Exhibit 10.12A to the Registrant's Quarterly Report on Form 10-Q filed on August 24, 1995,
Commission File No. 0-8088).
10.12* 1995 Stock Incentive Plan (Incorporated by reference to Exhibit A to the Registrant's
definitive Proxy Statement filed May 1, 1995, Commission File No. 0-8088).
10.12A* Amendment 1996-1 to 1995 Stock Incentive Plan.
10.13 Credit Agreement, dated as of November 12, 1996, between the Registrant, the Lenders party
thereto, the Bank of New York, as swing line lender and administrative agent, and BNY Capital
Markets, Inc., as arranging agent (Incorporated by reference to Exhibit 99.9 to the
Registrant's Schedule 14D-1 filed on November 15, 1996, Commission File No. 0-8088).
10.14 Asset Purchase Agreement, dated November 9, 1995, by and among the Registrant, as Purchaser,
AlliedSignal Laminate Systems, Inc., as Seller, and AlliedSignal Inc., as Parent
(Incorporated by reference to Exhibit 10.14 to the Registrant's Annual Report on Form 10-K
filed on March 25, 1996, Commission File No. 0-8088).
11 Statement re: Computation of Net Income (Loss) Per Share
21 Subsidiaries of the Registrant
23 Consent of Independent Auditors
27 Financial Data Schedule
</TABLE>
* A management contract or compensatory plan or arrangement.
44
<PAGE> 45
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 25, 1997 by the undersigned, thereunto duly authorized.
FURON COMPANY
<TABLE>
<S> <C> <C>
By: /s/ MONTY A. HOUDESHELL /s/ DAVID L. MASCARIN
------------------------- ----------------------------------
Monty A. Houdeshell David L. Mascarin
Vice President, Chief Financial Controller
Officer and Treasurer
</TABLE>
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.
<TABLE>
<S> <C>
/s/ J. MICHAEL HAGAN /s/ COCHRANE CHASE
------------------------------------------- ----------------------------------
J. Michael Hagan Cochrane Chase
Chairman of the Board Director, March 25, 1997
(Principal Executive Officer),
March 25, 1997
/s/ TERRENCE A. NOONAN /s/ H. DAVID BRIGHT
---------------------------------- ----------------------------------
Terrence A. Noonan H. David Bright
President and Director, March 25, 1997 Director, March 25, 1997
/s/ PETER CHURM /s/ WILLIAM D. CVENGROS
---------------------------------- -------------------------
Peter Churm William D. Cvengros
Chairman Emeritus, March 25, 1997 Director, March 25, 1997
/s/ MONTY A. HOUDESHELL /s/ R. DAVID THRESHIE
---------------------------------- ----------------------------------
Monty A. Houdeshell R. David Threshie
Vice President, Chief Financial Director, March 25, 1997
Officer and Treasurer, March 25, 1997
/s/ BRUCE E. RANCK
----------------------------------
/s/ DAVID L. MASCARIN Bruce E. Ranck
---------------------------------- Director, March 25, 1997
David L. Mascarin
Controller, March 25, 1997
/s/ WILLIAM C. SHEPHERD
-------------------------
William C. Shepherd
Director, March 25, 1997
</TABLE>
45
<PAGE> 46
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 Agreement and Plan of Merger, dated November 12, 1996, by and among the Registrant, FCY, Inc.
and Medex, Inc. (Incorporated by reference to Exhibit 99.10 to the Registrant's Schedule 14D-1
filed on November 15, 1996, Commission File No. 0-8088).
</TABLE>
* A management contract or compensatory plan or arrangement.
46
<PAGE> 47
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 1997 (Incorporated by reference to
Exhibit 10.9 to the Registrant's Annual Report on Form 10-K filed on March 25, 1996,
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).
</TABLE>
* A management contract or compensatory plan or arrangement.
47
<PAGE> 48
FURON COMPANY
INDEX TO EXHIBITS
(CONTINUED)
<TABLE>
<CAPTION>
REGULATION S-K SEQUENTIAL
ITEM NUMBER PAGE NUMBER
----------- -----------
<S> <C> <C>
10.11 1993 Non-Employee Directors' Stock Compensation Plan, as amended (Incorporated by reference to
Exhibit 10.12 to the Registrant's Quarterly Report on Form 10-Q filed on June 2, 1994, and
Exhibit 10.12A to the Registrant's Quarterly Report on Form 10-Q filed on August 24, 1995,
Commission File No. 0-8088).
10.12* 1995 Stock Incentive Plan (Incorporated by reference to Exhibit A to the Registrant's
definitive Proxy Statement filed May 1, 1995, Commission File No. 0-8088).
10.12A* Amendment 1996-1 to 1995 Stock Incentive Plan.
10.13 Credit Agreement, dated as of November 12, 1996, between the Registrant, the Lenders party
thereto, the Bank of New York, as swing line lender and administrative agent, and BNY Capital
Markets, Inc., as arranging agent (Incorporated by reference to Exhibit 99.9 to the
Registrant's Schedule 14D-1 filed on November 15, 1996, Commission File No. 0-8088).
10.14 Asset Purchase Agreement, dated November 9, 1995, by and among the Registrant, as Purchaser,
AlliedSignal Laminate Systems, Inc., as Seller, and AlliedSignal Inc., as Parent
(Incorporated by reference to Exhibit 10.14 to the Registrant's Annual Report on Form 10-K
filed on March 25, 1996, Commission File No. 0-8088).
11 Statement re: Computation of Net Income (Loss) Per Share.
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
</TABLE>
* A management contract or compensatory plan or arrangement.
48
<PAGE> 1
EXHIBIT 10.12A
AMENDMENT 1996-1
FURON COMPANY
1995 STOCK INCENTIVE PLAN
WHEREAS, Furon Company (the "Company") maintains the Furon Company 1995 Stock
Incentive Plan (the "Plan"); and
WHEREAS, the Company has the right to amend the Plan, and the Company desires
to amend the Plan to reflect recent resolutions adopted by the Board of
Directors;
NOW, THEREFORE, the Plan is hereby amended, effective as of November 1, 1996,
as follows:
1. Section 1.9 of the Plan is amended in its entirety to
read as follows:
"1.9 No Transferability: Limited Exception to Transfer
Restrictions.
(a) Limit On Exercise and Transfer. Unless
otherwise expressly provided in (or pursuant
to) this Section 1.9, by applicable law and
by the Award Agreement, as the same may be
amended, (i) all Awards are non-transferable
and shall not be subject in any manner to
sale, transfer, anticipation, alienation,
assignment, pledge, encumbrance or charge;
Awards shall be exercised only by the
Participant; and (ii) amounts payable or
shares issuable pursuant to an Award shall be
delivered only to (or for the account of) the
Participant.
(b) Exceptions. The Committee may permit Awards
to be exercised by and paid to certain
persons or entities related to the
Participant, including but not limited to
members of the Participant's immediate
family, charitable institutions, or trusts or
other entities whose beneficiaries or
beneficial owners are members of the
Participant's immediate family and/or
charitable institutions, pursuant to such
conditions and procedures as the Committee
may establish. Any permitted transfer shall
be subject to the condition that the
Committee receive evidence satisfactory to it
that the transfer is being made for estate
and/or tax planning purposes on a gratuitous
or donative basis and without consideration
(other than nominal consideration).
Notwithstanding the foregoing, Incentive
Stock Options and Restricted Stock Awards
shall be subject to any and all additional
transfer restrictions under the Code.
(c) Further Exceptions to Limits On Transfer.
The exercise and transfer restrictions in
Section 1.9(a) shall not apply to:
(i) transfers to the Corporation,
(ii) the designation of a beneficiary to
receive benefits in the event of a
Participant's death or, if the
Participant has died, transfers to or
exercise by the Participant's
beneficiary, or, in the absence of a
validly designated beneficiary,
transfers by will or the laws of descent
and distribution,
49
<PAGE> 2
(iii) transfers pursuant to a QDRO order if
approved or ratified by the Committee,
(iv) if the Participant has suffered a
disability, permitted transfer or
exercises on behalf of the Participant
by his or her legal representative, or
(v) the authorization by the Committee of
"cashless exercise" procedures with
third parties who provide financing for
the purpose of (or who otherwise
facilitate) the exercise of Awards
consistent with applicable laws and the
express authorization of the Committee.
Notwithstanding the foregoing, Incentive Stock Options and Restricted Stock
Awards shall be subject to any and all additional transfer restrictions under
the Code."
5. Section 6.6 of the Plan should be amended in its entirety to
read as follows:
"a) Shareholder Approval. Any amendment that would
(i) materially increase the benefits accruing
to Participants under this Plan, (ii)
materially increase the aggregate number of
securities that may be issued under this Plan,
or (iii) materially modify the requirements as
to eligibility for participation in this Plan,
shall be subject to stockholder approval only
to the extent then required by section 422 of
the Code or applicable law, or deemed necessary
or advisable by the Board."
6. Section 6.9(d) of the Plan is deleted in its entirety.
7. The definition of "Committee" contained in Section 7.1(h) of
the Plan is amended in its entirety to read as follows:
"(h) 'Committee' shall mean the Board or the
committee appointed by the Board to
administer this Plan, which committee shall
be comprised only of two or more directors or
such greater number of directors as may be
required under applicable law, each of whom,
(i) during such time as one or more
Participants may be subject to section 16 of
the Exchange Act shall be a "Non-Employee
Director" within the meaning of Rule
16b-3(b), and (ii) during such time as one or
more Participants may be subject to Code
section 162(m), shall be an "outside
director" (as such term is defined in section
162(m) of the Code)."
8. Section 7.1(I) of the Plan should be amended in its entirety
to read as follows:
"(i) 'Reserved'."
IN WITNESS WHEREOF, the Company has caused its duly authorized officer to
execute this amendment to the Plan on this 21st day of November, 1996.
FURON COMPANY
By:_____________________________________________
Its:____________________________________________
50
<PAGE> 1
EXHIBIT 11
FURON COMPANY
COMPUTATION OF NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------------------------------
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PRIMARY INCOME (LOSS) PER SHARE
Earnings:
Net income (loss) $(39,751,000) $13,169,000 $11,438,000
=========== =========== ===========
Shares:
Weighted average number of
common shares outstanding 8,885,769 8,821,297 8,674,135
Shares issuable from assumed
exercise of stock options - 218,965 318,791
----------- ----------- -----------
Average shares as adjusted 8,885,769 9,040,262 8,992,926
=========== =========== ===========
Primary income (loss) per share $(4.47) $1.46 $1.27
=========== =========== ===========
FULLY DILUTED INCOME (LOSS) PER SHARE
Earnings
Net income (loss) $(39,751,000) $13,169,000 $11,438,000
=========== =========== ===========
Shares
Weighted average number of
common shares outstanding 8,885,769 8,821,297 8,674,135
Shares issuable from assumed
exercise of stock options - 220,961 443,300
----------- ----------- -----------
Average shares as adjusted
for full dilution 8,885,769 9,042,258 9,117,435
=========== =========== ===========
Fully diluted income (loss) per share $(4.47) $1.46 $1.25
=========== =========== ===========
</TABLE>
51
<PAGE> 1
EXHIBIT 21
Furon Company Significant and Certain Other Subsidiaries
February 1, 1997
<TABLE>
<CAPTION>
State or Other Jurisdiction of
Name of Subsidiary Incorporation or Organization
------------------ -----------------------------
<S> <C>
MEDEX, INC. AND SUBSIDIARIES:
Medex, Inc. Ohio
Ashfield Medical Systems Limited United Kingdom
Medex Exports, Inc. Virgin Islands
Medex Medical France SARL France
Medex Medical GmbH Germany
Medex Medical S.r.l. Italy
Medex Medical, Inc. Ohio
Medex Medical Limited United Kingdom
Medex Medical Instrumentation, Inc. Ohio
OTHER:
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
Sepco Corporation* California
</TABLE>
_____
* 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 10, 1997, with respect to the consolidated financial
statements and schedule of Furon Company included in the Annual Report (Form
10-K) for the year ended February 1, 1997.
ERNST & YOUNG LLP
-------------------------
Orange County, California
March 27, 1997
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 FEBRUARY 1, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> FEB-01-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 74,408
<ALLOWANCES> 2,093
<INVENTORY> 58,611
<CURRENT-ASSETS> 146,726
<PP&E> 190,806
<DEPRECIATION> 76,214
<TOTAL-ASSETS> 344,343
<CURRENT-LIABILITIES> 67,902
<BONDS> 6,775
0
0
<COMMON> 38,787
<OTHER-SE> 22,557
<TOTAL-LIABILITY-AND-EQUITY> 344,343
<SALES> 390,105
<TOTAL-REVENUES> 390,105
<CGS> 281,581
<TOTAL-COSTS> 365,906
<OTHER-EXPENSES> 53,089
<LOSS-PROVISION> 364
<INTEREST-EXPENSE> 3,344
<INCOME-PRETAX> (32,234)
<INCOME-TAX> 7,517
<INCOME-CONTINUING> (39,751)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (39,751)
<EPS-PRIMARY> (4.47)
<EPS-DILUTED> (4.47)
</TABLE>
