<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED AUGUST 1, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 000-8088
FURON COMPANY
(Exact name of registrant as specified in its charter)
California 95-1947155
- ---------------------------- ----------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
29982 Ivy Glenn Drive
Laguna Niguel, CA 92677
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (949) 831-5350
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Number of shares of common stock outstanding as of September 4, 1998: 18,297,619
<PAGE> 2
FURON COMPANY
INDEX
PART I - FINANCIAL INFORMATION
- ------------------------------
PAGE NO.
--------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
August 1, 1998 and January 31, 1998 3
Condensed Consolidated Statements of Income
Three and six months ended August 1, 1998 and
August 2, 1997 5
Condensed Consolidated Statements of Cash Flows
Three and six months ended August 1, 1998 and
August 2, 1997 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
PART II - OTHER INFORMATION 21
- ---------------------------
2
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
FURON COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
August 1, January 31,
In thousands 1998 1998
- -------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,877 $ --
Accounts receivable, less allowance for
doubtful accounts of $1,813 at August 1, 1998
and $1,741 at January 31, 1998 75,252 75,661
Inventories, net 58,299 54,704
Deferred income taxes 11,356 11,052
Prepaid expenses and other current assets 5,840 4,959
--------- ---------
Total current assets 154,624 146,376
Property, plant & equipment, at cost:
Land 6,780 6,976
Buildings and leasehold improvements 31,108 31,493
Machinery and equipment 167,555 158,999
--------- ---------
205,443 197,468
Less accumulated depreciation and amortization (95,487) (87,832)
--------- ---------
Net property, plant and equipment 109,956 109,636
Intangible assets, at cost less accumulated
amortization of $36,015 at August 1, 1998
and $35,354 at January 31, 1998 93,227 83,129
Other assets 10,891 7,208
--------- ---------
TOTAL ASSETS $ 368,698 $ 346,349
========= =========
</TABLE>
See accompanying notes.
3
<PAGE> 4
FURON COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
August 1, January 31,
In thousands, except share data 1998 1998
- -------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash, less checks outstanding $ -- $ 1,025
Accounts payable 24,595 25,384
Salaries, wages and related benefits payable 13,722 18,203
Income taxes payable 4,780 4,228
Current portion of long-term debt 1,419 966
Facility rationalization and severance 7,374 10,091
Other current liabilities 21,997 14,035
--------- ---------
Total current liabilities 73,887 73,932
Long-term debt 158,798 148,657
Other long-term liabilities 26,088 23,883
Deferred income taxes 18,739 18,738
Commitments and contingencies -- --
Shareholders' equity:
Preferred stock without par value, 2,000,000 shares
authorized, none issued or outstanding -- --
Common stock without par value, 30,000,000 shares
authorized, 18,297,619 shares issued and
outstanding at August 1, 1998 and 18,227,898
at January 31, 1998 41,084 40,864
Employee Benefit Trust shares (1,345) --
Accumulated other comprehensive income (3,660) (4,236)
Unearned ESOP shares (2,630) (3,229)
Unearned compensation (174) (232)
Retained earnings 57,911 47,972
--------- ---------
Total shareholders' equity 91,186 81,139
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 368,698 $ 346,349
========= =========
</TABLE>
See accompanying notes.
4
<PAGE> 5
FURON COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
-------------------------- --------------------------
August 1, August 2, August 1, August 2,
In thousands, except per share amounts 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 125,046 $ 118,696 $ 244,851 $ 238,345
Cost of sales 84,849 80,214 167,388 161,544
--------- --------- --------- ---------
Gross profit 40,197 38,482 77,463 76,801
Selling, general and administrative
expenses 29,271 28,625 56,832 56,764
Nonrecurring charges and facilities
rationalization -- -- (417) --
Other (income), expense (971) (175) (1,692) (422)
Interest expense, net 3,262 2,681 6,194 5,567
--------- --------- --------- ---------
Income before income taxes 8,635 7,351 16,546 14,892
Provision for income taxes 2,720 2,127 5,212 4,691
--------- --------- --------- ---------
Net income $ 5,915 $ 5,224 $ 11,334 $ 10,201
========= ========= ========= =========
Basic income per share $ 0.33 $ 0.29 $ 0.63 $ 0.57
========= ========= ========= =========
Diluted income per share $ 0.32 $ 0.28 $ 0.61 $ 0.55
========= ========= ========= =========
Cash dividends per share $ 0.03 $ 0.03 $ 0.06 $ 0.06
========= ========= ========= =========
</TABLE>
See accompanying notes.
5
<PAGE> 6
FURON COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
------------------------- --------------------------
August 1, August 2, August 1, August 2,
In thousands 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 5,915 $ 5,224 $ 11,334 $ 10,201
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation 4,331 4,070 8,604 8,301
Amortization 1,633 1,379 3,161 2,785
Provision for losses on accounts
receivable 70 (6) 140 149
Deferred income taxes (5) 2 (374) (27)
Nonrecurring charges and facilities
rationalization -- -- (417) --
(Gain) loss on sale of assets 40 (11) 102 8
Working capital changes, net of
acquisitions and disposals:
Accounts receivable (267) 83 1,523 2,146
Inventories 1,386 3,420 (1,678) 4,060
Accounts payable and accrued liabilities (431) 2,643 (4,844) (1,267)
Income taxes payable 412 (762) (152) 2,787
Other current assets and liabilities,
net 3,907 1,494 3,047 (247)
Changes in other long-term operating
assets and liabilities (412) (37) (324) 732
-------- -------- --------- --------
Net cash provided by operating
activities 16,579 17,499 20,122 29,628
INVESTING ACTIVITIES
Acquisition of businesses, net of cash
acquired (14,339) -- (11,417) --
Purchases of property, plant and equipment (4,744) (2,625) (9,910) (5,477)
Proceeds from sale of businesses 276 170 281 419
Proceeds from sale of equipment 70 16 110 33
Decrease in notes receivable 776 -- 170 --
-------- -------- --------- --------
Net cash used in investing
activities (17,961) (2,439) (20,766) (5,025)
FINANCING ACTIVITIES
Proceeds from long-term debt 14,000 -- 148,194 4,081
Principal payments on long-term debt (13,672) (19,736) (138,013) (26,805)
Deferred debt costs (246) -- (4,164) --
Employee benefit trust funding (342) -- (1,642) --
Proceeds, net of cancellations, from
issuance of common stock 16 672 153 647
Loan to ESOP -- (266) -- (266)
Principal payments received from loan to
ESOP 599 529 599 529
Dividends paid on common stock (549) (544) (1,098) (1,084)
-------- -------- --------- --------
Net cash provided by (used in)
financing activities (194) (19,345) 4,029 (22,898)
EFFECT OF EXCHANGE RATE CHANGES ON CASH 48 (811) 492 (1,541)
-------- -------- --------- --------
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (1,528) (5,096) 3,877 164
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 5,405 5,260 -- --
-------- -------- --------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,877 $ 164 $ 3,877 $ 164
======== ======== ========= ========
</TABLE>
See accompanying notes.
6
<PAGE> 7
FURON COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
August 1, 1998
(Unaudited)
1. GENERAL
The accompanying unaudited consolidated financial statements have been
condensed in certain respects and should, therefore, be read in
conjunction with the consolidated financial statements and related notes
thereto, contained in the Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1998. Certain reclassifications have been
made to prior year amounts in order to be consistent with the current
year presentation.
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary
(consisting only of normal recurring adjustments) to present fairly the
financial position of the Company as of August 1, 1998, and the results
of operations and cash flows for the three and six months ended August
1, 1998 and August 2, 1997. Results of the Company's operations for the
three and six months ended August 1, 1998 are not necessarily indicative
of the results to be expected for the full year.
2. INVENTORIES
Inventories, stated at the lower of cost (first-in, first-out) or
market, are summarized as follows:
<TABLE>
<CAPTION>
August 1, January 31,
In thousands 1998 1998
----------------------------------------------------------------
<S> <C> <C>
Raw materials and purchased parts $25,523 $24,781
Work-in-process 11,064 11,538
Finished goods 21,712 18,385
------- -------
$58,299 $54,704
======= =======
</TABLE>
3. INTANGIBLES
Intangible assets, primarily acquired in business combinations, net of
accumulated amortization, are summarized as follows:
<TABLE>
<CAPTION>
August 1, January 31,
In thousands 1998 1998
------------------------------------------------------
<S> <C> <C>
Goodwill $65,917 $54,476
Other intangible assets 27,310 28,653
------- -------
$93,227 $83,129
======= =======
</TABLE>
7
<PAGE> 8
FURON COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
August 1, 1998
(Unaudited)
4. LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
August 1, January 31,
In thousands 1998 1998
------------------------------------------------------------------
<S> <C> <C>
Senior Subordinated Notes $125,000 $ --
Loans under bank credit agreements
due through fiscal year 2002 30,000 142,000
Industrial Revenue Bonds 3,600 6,175
Other 1,617 1,448
-------- --------
Total long-term debt 160,217 149,623
Less current portion 1,419 966
-------- --------
Due after one year $158,798 $148,657
======== ========
</TABLE>
Effective February 3, 1998, the Company amended and restated its credit
facility agreement to decrease the aggregate credit facility from $250.0
million to $200.0 million.
On March 4, 1998 the Company issued $125.0 million of 8.125% Senior
Subordinated Notes (the "Notes") due March 1, 2008 (the "Offering"). The
Company used the net proceeds of the Offering to repay a portion of
existing indebtedness under the Company's amended credit facility
agreement. Interest on the Notes is payable semi-annually on March 1 and
September 1 of each year.
During the three months ended August 1, 1998, the Company retired
approximately $2.6 million of the Industrial Revenue Bonds.
For the three and six months ended August 1, 1998, the weighted average
interest rate on the loans under the credit facility agreement was 6.2%
and 6.3%, respectively.
Interest paid for the three and six months ended August 1, 1998 was $0.6
million and $2.6 million, respectively. Interest paid for the three and
six months ended August 2, 1997 was $2.7 million and $5.0 million,
respectively.
5. INCOME TAXES
The Company's effective tax rate for the three and six months ended
August 1, 1998 was 31.5% as compared with 28.9% and 31.5% for the same
periods in the prior year. The lower effective tax rate was primarily
due to increases in research and experimental credits and foreign tax
credits.
8
<PAGE> 9
FURON COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
August 1, 1998
(Unaudited)
5. INCOME TAXES (CONTINUED)
Income taxes paid for the three and six months ended August 1, 1998 were
$2.8 million and $4.9 million, respectively. Income taxes paid for the
three and six months ended August 2, 1997 were $2.7 million and $2.2
million, respectively.
6. CONTINGENCIES
At August 1, 1998, the Company had approximately $1.0 million of foreign
currency hedge contracts outstanding consisting of over-the-counter
forward contracts. Net unrealized losses from hedging activities were
not material as of August 1, 1998.
At August 1, 1998, the Company is obligated under irrevocable letters of
credit totaling $4.9 million.
The Company is currently involved in various litigation. While no
assurance can be given, management of the Company is of the opinion that
the ultimate resolution of such litigation should not have a material
adverse effect on the Company's consolidated financial position or
results of operations.
Compliance with environmental laws and regulations designed to regulate
the discharge of materials into the environment or otherwise protect the
environment requires continuing management effort and expenditures by
the Company. While no assurance can be given, 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 are reasonably likely to form a material component of its
operating costs or have or are reasonably likely to have a material
adverse effect on its competitive or consolidated financial positions.
9
<PAGE> 10
FURON COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
August 1, 1998
(Unaudited)
6. CONTINGENCIES (CONTINUED)
As of August 1, 1998 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 certain "superfund" waste disposal sites. 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, while no assurance can be given, it does not expect them to have a
material adverse effect on its consolidated financial position or
results of operations. The actual costs to be incurred by the Company at
each site will depend on a number of factors, including one or more of
the following: the final delineation of contamination; the final
determination of the remedial action required; negotiations with
governmental agencies with respect to cleanup levels; changes in
regulatory requirements; innovations in investigatory and remedial
technology; effectiveness of remedial technologies employed; and the
ultimate ability to pay of any other responsible parties.
10
<PAGE> 11
FURON COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
August 1, 1998
(Unaudited)
7. SHAREHOLDERS' EQUITY
Earnings Per Share
On November 20, 1997, the Company's Board of Directors approved a
two-for-one stock split. One share of the Company's common stock for
each full share of common stock outstanding to holders of record on
December 2, 1997 was distributed on December 16, 1997. Accordingly, all
numbers of Common Shares, and all per share data have been restated to
reflect this stock split.
The calculation of earnings per share is presented below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------- ----------------------------
IN THOUSANDS, EXCEPT SHARE AND PER AUGUST 1, AUGUST 2, AUGUST 1, AUGUST 2,
SHARE AMOUNTS 1998 1997 1998 1997
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 5,915 $ 5,224 $ 11,334 $ 10,201
=========== =========== =========== ===========
Weighted average shares
outstanding for basic income
per share 18,013,968 17,839,938 18,023,521 17,804,048
----------- ----------- ----------- -----------
Effect of dilutive securities:
Employee stock options and awards 545,999 788,048 603,771 681,152
----------- ----------- ----------- -----------
Weighted average shares
outstanding for diluted
income per share 18,559,967 18,627,986 18,627,292 18,485,200
----------- ----------- ----------- -----------
Basic income per share $ 0.33 $ 0.29 $ 0.63 $ 0.57
=========== =========== =========== ===========
Diluted income per share $ 0.32 $ 0.28 $ 0.61 $ 0.55
=========== =========== =========== ===========
</TABLE>
Employee Benefits Trust
On March 24, 1998, the Company entered into an Employee Benefits Trust
(the "Trust") with Wachovia Bank, N.A., Trustee. The Trust was
established to provide a source of funds to assist the Company in
meeting obligations under various employee benefit plans. During the six
months ended August 1, 1998, the Company contributed approximately $1.6
million to the Trust to purchase shares of the Company's common stock on
the open market. During the first six months of fiscal year 1999, the
Trust purchased 75,779 shares of common stock at an average cost of
$21.73 per share (75,779 shares held at August 1, 1998).
11
<PAGE> 12
FURON COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
August 1, 1998
(Unaudited)
7. SHAREHOLDERS' EQUITY (CONTINUED)
For financial reporting purposes, the Trust is consolidated with the
Company. The shares are accounted for by the treasury stock method. The
fair market value of the shares held by the Trust is shown as a
reduction to shareholders' equity in the Company's consolidated balance
sheet. Any dividend transactions between the Company and the Trust are
eliminated. Shares will be released from the Trust as granted to
participants in connection with various benefit plans. Common stock held
in the Trust is not considered outstanding for earnings per share
calculations until they are granted to participants. The Trustee is
responsible for voting the shares of common stock held in the Trust.
8. COMPREHENSIVE INCOME
As of February 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income".
SFAS No. 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this
Statement had no impact on the Company's net income or shareholders'
equity. SFAS No. 130 requires the change in the minimum pension
liability and the foreign currency translation adjustments, which prior
to adoption were reported separately in shareholders' equity, to be
included in other comprehensive income. Prior years' financial
statements have been reclassified to conform to these requirements.
The components of comprehensive income, net of related tax, are as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------ -----------------------
AUGUST 1, AUGUST 2, AUGUST 1, AUGUST 2,
IN THOUSANDS 1998 1997 1998 1997
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 5,915 $ 5,224 $ 11,334 $ 10,201
Foreign currency translation
adjustments (190) (951) 576 (1,797)
-------- -------- -------- --------
Comprehensive income $ 5,725 $ 4,273 $ 11,910 $ 8,404
======== ======== ======== ========
</TABLE>
12
<PAGE> 13
FURON COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
August 1, 1998
(Unaudited)
9. SEGMENT INFORMATION
The Company operates in two business segments: Industrial Products,
including highly engineered seals and bearings, fluid handling,
components, tapes, films and coated fabrics, hose and tubing, wire and
cable, and plastic formed components; and Medical Device Products,
including critical care products and infusion systems for medical and
surgical applications.
The factors impacting the Company's basis for reportable segments
include separate management teams, infrastructures, and discrete
financial information about each. Additionally, the long-term financial
performance of the Medical Device Products segment is affected by an
environment governed by regulatory standards.
Sales, operating profit, interest expense, net and identifiable assets
are set forth in the following table:
<TABLE>
<CAPTION>
INDUSTRIAL MEDICAL
IN THOUSANDS PRODUCTS DEVICE PRODUCTS ADJUSTMENT CONSOLIDATED
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Three months ended August 1, 1998:
- ----------------------------------
Sales to unaffiliated customers $ 96,544 $ 28,502 $125,046
Operating profit 8,731 2,195 10,926
Interest expense, net -- -- $ 3,262 3,262
Identifiable assets 216,710 151,988 368,698
Six months ended August 1, 1998:
- --------------------------------
Sales to unaffiliated customers $194,518 $ 50,333 $244,851
Operating profit 18,740 2,308 21,048
Interest expense, net -- -- $ 6,194 6,194
Identifiable assets 216,710 151,988 368,698
Three months ended August 2, 1997:
- ----------------------------------
Sales to unaffiliated customers $ 91,852 $ 26,844 $118,696
Operating profit 5,849 4,008 9,857
Interest expense, net -- -- $ 2,681 2,681
Identifiable assets 204,791 126,014 330,805
Six months ended August 2, 1997:
- --------------------------------
Sales to unaffiliated customers $184,298 $ 54,047 $238,345
Operating profit 12,352 7,685 20,037
Interest expense, net -- -- $ 5,567 5,567
Identifiable assets 204,791 126,014 330,805
</TABLE>
13
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following discussion and analysis is based upon and should be read in
conjunction with the historical consolidated financial statements of the Company
and related notes thereto. The Company's fiscal 1999 second quarter ended August
1, 1998 and fiscal 1998 second quarter ended August 2, 1997. The fiscal 1999 and
1998 quarters each consisted of 13 weeks.
RESULTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED AUGUST 1, 1998 COMPARED WITH THREE MONTHS AND
SIX MONTHS ENDED AUGUST 2, 1997
Net Sales. Net sales of $125.0 million for the three months ended August 1, 1998
("Q2 1999 Period") increased $6.3 million, or 5.3%, from $118.7 million for the
three months ended August 2, 1997 ("Q2 1998 Period"). Net sales of $244.9
million for the six months ended August 1, 1998 ("YTD Q2 1999 Period") increased
$6.6 million, or 2.7%, from $238.3 million for the six months ended August 2,
1997 ("YTD Q2 1998 Period"). The increase in net sales was the result of
increased demand for both industrial and medical device products. Net of
acquisitions and divestitures, sales for the Q2 1999 Period and YTD Q2 1999
Period increased 2.9% and 2.0%, respectively, over the same periods of the prior
year.
Gross Profit. Gross Profit of $40.2 million for the Q2 1999 Period increased
$1.7 million, or 4.5%, from $38.5 million in the Q2 1998 Period. Gross Profit of
$77.5 million for the YTD Q2 1999 Period increased $0.7 million, or 0.9% from
$76.8 million for the YTD Q2 1998 Period. The gross profit margin decreased to
32.1% for the Q2 1999 Period and to 31.6% for the YTD Q2 1999 Period from 32.4%
and 32.2% in the same periods of the prior year. The decrease in gross profit
margin was due to lower margins achieved by the Medical Device Products Segment
caused by lower volume and changes in product mix, which more than offset the
higher volumes and continued productivity improvements and cost containment
achieved by the Industrial Products Segment.
Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses of $29.3 million in the Q2 1999 Period
increased $0.7 million, or 2.3%, from $28.6 million in the Q2 1998 Period. This
increase was primarily due to SG&A expenses incurred as a result of
acquisitions. SG&A expenses of $56.8 million in the YTD Q2 1999 Period remained
flat compared to $56.8 million in the YTD Q2 1998 Period. SG&A expenses as a
percentage of sales decreased to 23.4% in the Q2 1999 Period and 23.2% in the
YTD Q2 1999 Period from 24.1% and 23.8%, respectively, in the same periods of
the prior year. The decline in SG&A expenses as a percentage of sales was
primarily due to an increase in sales volume and a relatively small increase in
expenses. Research and development expenses of $3.5 million for the Q2 1999
Period and $7.2 million for the YTD Q2 1999 Period increased $0.1 million and
$0.5 million, or 1.6% and 7.2%, respectively, from the same periods of the prior
year. This increase reflects the Company's continued commitment to new products
and materials development.
Other Income. Other income of $1.0 million for the Q2 1999 Period increased $0.8
million from $0.2 million for the Q2 1998 Period. Other income of $1.7 million
for the YTD Q2 1999 Period increased $1.3 million from $0.4 million for the YTD
Q2 1998 Period. The increase resulted primarily from the settlement of a lawsuit
in the Q2 1999 Period and a reduction in losses from foreign exchange
transactions compared to the prior periods.
14
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Interest Expense, Net. Interest expense, net of $3.3 million for the Q2 1999
Period and $6.2 million for the YTD Q2 1999 Period both increased $0.6 million
from the same periods of the prior year. The increase in the Company's interest
expense was primarily the result of the higher interest rates attributable to
the Company's subordinated debt, as compared to its previous financing vehicle.
Income Before Income Taxes. Income before income taxes of $8.6 million in the Q2
1999 Period increased $1.2 million, or 17.5%, from $7.4 million in the Q2 1998
Period. Income before incomes taxes of $16.5 million in the YTD Q2 1999 Period
increased $1.6 million, or 11.1%, from $14.9 million in the YTD Q2 1998 Period.
Net of acquisitions and divestitures, pretax results of operations were up 20.0%
from the Q2 1998 Period and 16.0% from the YTD Q2 1998 Period. This improvement
was generally the result of increased volume and continued productivity
improvements and cost containment in the Industrial Products Segment, offset
partially by lower margins in the Medical Device Products Segment caused by
changes in product mix and lower volume. Additionally, small increases in
operating and interest expense were offset by an increase in other income.
Provision for Income Taxes. The Company's effective tax rate for the Q2 and YTD
Q2 1999 Periods was 31.5%, compared with 28.9% and 31.5% for the same respective
periods of the prior year. The lower effective tax rate was primarily due to
increases in research and experimental credits and foreign tax credits.
SEGMENT RESULTS
A discussion of the operations of the business segments follows. The Company
operates in two business segments: Industrial Products, including highly
engineered seals and bearings, fluid handling components, tapes, films and
coated fabrics, hose and tubing, wire and cable, and plastic formed components;
and Medical Device Products, including critical care products, infusion systems
for medical and surgical applications. For additional financial information
about industry segments, see Note 9 of the "Notes to Condensed Consolidated
Financial Statements."
INDUSTRIAL PRODUCTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------- -------------------------
AUGUST 1, AUGUST 2, AUGUST 1, AUGUST 2,
IN THOUSANDS 1998 1997 1998 1997
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 96,544 $ 91,852 $194,518 $184,298
Operating profit 8,731 5,849 18,740 12,352
Operating profit before
nonrecurring charges and
facilities rationalization 8,731 5,849 18,323 12,352
</TABLE>
15
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Net Sales. Industrial net sales for the Q2 1999 Period and YTD Q2 1999 Period
increased $4.7 million, or 5% and $10.2 million or 6% over the same periods of
the prior year. Net of acquisitions and divestitures, Industrial Products Q2
1999 Period net sales increased 7% compared to the Q2 1998 Period. Domestically,
the Company benefited from continued strength in certain markets. Sales to
commercial aircraft, truck, off-shore oil exploration, food and beverage and
business equipment markets were particularly strong compared to the same period
of the prior year. Continued softness in the electronics and semiconductor
markets contributed to lower sales for the Q2 1999 Period and YTD Q2 1999 Period
over the same periods of the prior year. Sustained demand in Europe across most
product lines during the Q2 1999 Period and an acquisition resulted in increased
net sales over the same period of the prior year of 36% (a 36.5% increase after
removing the effect of foreign currency exchange rate changes and 17% after
excluding the acquisition).
Gross Profit. The gross profit margin for the Q2 1999 Period and YTD Q2 1999
Period was 29.8%, an increase from 29.2% and 28.9%, respectively, over the same
periods of the prior year. This increase was the net result of spending controls
in variable and fixed overhead plus increased sales volume, partially offset by
additional sales with higher material content, as a percentage of net sales.
Selling, General and Administrative Expenses. SG&A expenses as a percentage of
net sales decreased 2.1% to 20.8% and 1.8% to 20.4% for the Q2 1999 Period and
YTD Q2 1999 Period from the same periods of the prior year. Lower general and
administrative expenses in several categories, including lower insurance, legal,
recruiting, and travel expenses, were partially offset by higher performance
based incentive compensation and rental expense.
Operating Profit, before Nonrecurring Charges and Facilities Rationalization.
Operating profit, before nonrecurring charges and facilities rationalization,
increased 49% to $8.7 million and 48% to $18.3 million for the Q2 1999 Period
and YTD Q2 1999 Period from the same periods of the prior year. The improvement
in profitability reflects higher net sales volumes, improved margins, and
reduced operating expenses.
MEDICAL DEVICE PRODUCTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------ ------------------------
AUGUST 1, AUGUST 2, AUGUST 1, AUGUST 2,
IN THOUSANDS 1998 1997 1998 1997
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $28,502 $26,844 $50,333 $54,047
Operating profit 2,195 4,008 2,308 7,685
Operating profit before
nonrecurring charges and
facilities rationalization 2,195 4,008 2,308 7,685
</TABLE>
Net Sales. Net sales for the Q2 1999 Period and YTD Q2 1999 Period increased
$1.7 million, or 6.2% and decreased $3.7 million or 6.9% over the same periods
of the prior year. The sales increase in the Q2 1999 Period was the net result
of a 41% increase in European sales, partially offset by a decline in domestic
sales. Contributing factors to the lower domestic sales in the Q2 1999 Period
included lower volume in the fluid and drug and infusion systems product lines.
The YTD Q2 1998 Period included unusually strong sales of infusion systems. Q2
1999 Period sales in Europe increased 41%, primarily due to an acquisition. The
impact on sales of unfavorable foreign exchange fluctuation was 0.8% and 1.8%
for the Q2 1999 Period and YTD Q2 1999 Period, respectively.
16
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Gross Profit. The gross profit as a percentage of sales for the Q2 1999 Period
was 40.0% compared to 43.3% for the Q2 1998 Period. The lower margin was the
result of lower domestic volume impact on overhead expense and unfavorable
product mix. In addition, gross margins were negatively impacted by costs
associated with the relocation of two manufacturing facilities in California to
Dublin, Ohio. Gross margins were also negatively impacted by an acquisition of a
business during the quarter with lower gross margins. Gross profit margin for
the YTD Q2 1999 Period was 38.8% as compared to 43.7% for the same period of the
prior year.
Selling, General and Administrative Expenses. SG&A expenses as a percentage of
net sales for the Q2 1999 Period and YTD Q2 1999 Period, were 32.3% and 34.2%,
compared to 28.4% and 29.4% in the same periods of the prior year. This is the
result of lower domestic sales, increased product development expenses and costs
associated with the integration of a European acquisition.
Operating Profit, before Nonrecurring Charges and Facilities Rationalization.
Operating profit, before nonrecurring charges and facilities rationalization,
decreased 45% to $2.2 million and 70% to $2.3 million for the Q2 1999 Period and
YTD Q2 1999 Period, from the same periods of the prior year. This reflects the
impact of lower domestic volumes on fixed overhead, unfavorable product mix and
increased operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
On March 4, 1998, the Company completed the Offering of its 8.125% Senior
Subordinated Notes (see Note 4 of the "Notes to Condensed Consolidated Financial
Statements"). The net proceeds from the Offering were approximately $121.0
million. In conjunction with the Offering, the Company amended the credit
facility agreement to, among other things, reduce the maximum principal amount
available from $250.0 million to $200.0 million (the "Credit Facility"). The
Company used the net proceeds of the Offering to repay a portion of existing
indebtedness under the Credit Facility. Amounts borrowed under the Credit
Facility mature November 12, 2001. The Notes mature March 1, 2008.
Cash provided by operating activities. Cash provided by operating activities for
the Q2 FY 1999 Period decreased $0.9 million from $17.5 million in the same
period last year to $16.6 million. This decrease is primarily due to working
capital changes in inventory, accounts payable and accrued liabilities, income
taxes payable and other current assets and other current liabilities, net from a
$6.8 million source, to a $5.3 million source of cash for the Q2 FY 1998 Period
and Q2 FY 1999 Period, respectively.
Cash used in investing activities. During the Q2 FY 1999 Period, the Company
completed the acquisition of Corotec GmbH, a medical device supplier based in
Mainz, Germany. Purchase price payments were made during the Q2 FY 1999 Period.
During the Q2 FY 1999 Period, the Company invested $4.7 million in renovation of
existing facilities, leasehold improvements and the replacement of existing
equipment, an increase of $2.1 million from the same period of the prior year.
The Company believes that it generates sufficient cash flow from its operations
to finance near and long-term internal growth, capital expenditures and
principal and interest payments on its loans payable to banks and the Notes. The
Company continually evaluates its employment of capital resources, including
asset management and other sources of financing.
17
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
CONTINGENCIES
For information regarding environmental matters and other contingencies, see the
sections entitled "Business - Governmental Regulation" and "Legal Proceedings"
in Part I of the Company's 1998 Annual Report on Form 10-K and Note 6 of the
"Notes to Condensed Consolidated Financial Statements" in this 10-Q.
Year 2000 Problem and the Company's Readiness Program
The Year 2000 ("Y2K") Problem in computers arises from the common industry
practice of using two digits to represent a date in computer software code and
databases to enhance both processing time and save storage space. Therefore,
when dates in the year 2000 and beyond are indicated and computer programs read
date "00," the computer may default to the year "1900" rather than the correct
"2000." This could result in incorrect calculations, faulty data and computer
shutdowns, potentially impairing the conduct of business.
The Company has instituted a Y2K readiness program (the "Program") to address
these issues as they relate to the Company. The Company's Program is divided
into two phases and is being conducted in three areas. The two phases of the
Program are: (i) identifying potentially non-complaint areas and (ii) addressing
those areas to make them Y2K ready. This two phase process is being conducted
across three areas. The three areas include: (i) Information Technology Systems
and Equipment; (ii) Non-Information Technology Systems and Equipment, and (iii)
compliance of third party vendors and suppliers with which the Company has
material relationships.
The Company believes it has made a great deal of progress in Phase I of the
Program. With respect to Information Technology Systems and Equipment, the
Company has identified applications systems, hardware/networks, personal
computers and telecommunications equipment that is potentially Y2K sensitive.
With respect to Non-Information Technology Systems and Equipment, the Company is
in the process of identifying manufacturing equipment that is potentially Y2K
sensitive. The Company has already completed a survey of its complete product
line across both the Industrial Products and Medical Device Products Segments
and believes its product offering addresses material Y2K issues.
Phase II of the Company's Program is in process. The majority of application
systems and personal computers were replaced with Y2K ready systems, and the
Company expects the remaining systems to be Y2K ready by the end of 1998. The
Company believes a majority of its hardware/networks and telecommunications
systems are Y2K ready. With respect to Non-Information Technology Systems and
Equipment, the Company is currently in the process of identifying manufacturing
equipment that potentially has Y2K issues. The Company is contacting the
suppliers of its manufacturing equipment to determine whether the equipment is
Y2K ready. Large scale testing to verify that the Company's Y2K ready
Information Technology and Non-Information Technology Systems and Equipment are
operational is expected to begin the first quarter of 1999 and is expected to
be completed by mid-year 1999.
18
<PAGE> 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Year 2000 Problem and the Company's Readiness Program (continued)
The Company has identified its key third party vendors and suppliers and has
asked them to disclose their state of Y2K readiness. The Company expects to
identify and audit selected "critical" suppliers, and develop strategies for
working with them through Y2K issues and develop contingency plans in the event
of a problem with obtaining materials from these "critical" suppliers. The
Company intends to survey its key customers to determine their state of Y2K
readiness. For the six months ended August 1, 1998, no single customer accounted
for more than 4% of the Company's net sales of Industrial Products or more than
7% of the Company's net sales of Medical Device Products.
The Company expended approximately $9 million between 1994 and 1997 replacing
Information Technology Systems and Equipment with systems and equipment that is
Y2K ready. The Company has expended approximately $1 million and expects to have
recurring operating costs of approximately $1.2 million per year to lease
upgraded personal computers. The system and equipment replacements that have
been made were scheduled to occur without regard for the Program and the Program
is being conducted by the Company's employees. While no assurance can be given,
at this time the Company does not anticipate that the Y2K Problem will have a
material adverse impact on the Company's business, financial condition or
results of operation.
Euro Conversion
The Euro is scheduled to be introduced on January 1, 1999, at which time the
conversion rates between legacy currencies and the Euro will be set for the
eleven participating EMU member countries. However, the legacy currencies in
those countries will continue to be used as legal tender through January 1,
2002. Thereafter, the legacy currencies will be canceled and Euro bills and
coins will be used in the eleven participating countries.
Transition to the Euro creates a number of issues for the Company. Business
issues that must be addressed include product pricing policies and ensuring the
continuity of business and financial contracts. The increased price transparency
resulting from the use of a single currency may affect the ability of the
Company to price its products differently in the various European markets.
Finance and accounting issues include the conversion of accounting systems,
statutory records, tax books and payroll systems to the Euro, as well as
conversion of bank accounts and other treasury and cash management activities.
The Company is addressing these transition issues and has not yet determined
what the effect of the transition to the Euro will have on the results of
operations, financial position or cash flows of the Company.
19
<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
STATEMENT REGARDING FORWARD LOOKING DISCLOSURE
This Quarterly Report on Form 10-Q contains "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended and Section
21E of the Securities Exchange Act of 1934, as amended, including, without
limitation, statements that include the words "believes," "expects,"
"anticipates," or similar expressions and statements relating to anticipated
cost savings, the Company's Year 2000 readiness effort and progress toward that
goal, Euro conversion, the Company's strategic plans, capital expenditures,
industry trends and prospects and the Company's financial position. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause actual results, performance or achievements of the
Company to differ materially from those expressed or implied by such
forward-looking statements. Although the Company believes that its plans,
intentions and expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such plans, intentions or expectations
will be achieved. For a more complete discussion of risk factors, please refer
to the "Risk Factors" section of the Company's 1998 Annual Report on Form 10-K.
All written and oral forward-looking statements attributable to the Company or
persons acting on its behalf are expressly qualified in their entirety by the
Cautionary Statements contained in this Form 10-Q and Cautionary Statements and
the "Risk Factors" section in the Company's 1998 Annual Report on Form 10-K.
20
<PAGE> 21
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of the Shareholders of the registrant was held on
June 2, 1998. The following matters were voted upon and approved at
the meeting:
<TABLE>
<CAPTION>
VOTES CAST
----------------------------------------- BROKER
MATTER FOR AGAINST WITHHELD ABSTENTIONS NONVOTES
-------------------------- ------------- -------------- ------------ -------------- -----------
<S> <C> <C> <C> <C> <C>
1. Election of Class II
Directors:
Cochrane Chase 15,423,167 - 60,182 - -
William C. Shepherd 15,416,984 - 66,365 - -
2. Approval of an
Amendment to the
Company's 1994
Employees' Stock
Purchase Plan to
Increase the Number of
Shares Authorized to
be Issued under the
Plan From 400,000 to
800,000 Shares 15,082,045 317,406 - 83,898 -
3. Ratification of the
Appointment of Ernst &
Young LLP as the
Company's Independent
Auditors for the
Fiscal Year Ending
January 30, 1999 14,573,595 27,113 - 882,641 -
</TABLE>
21
<PAGE> 22
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
The Company's Bylaws, as amended through the date of this Report, provide that
shareholder nominations of directors may be made and other business may be
brought by shareholders before an annual or special meeting only in compliance
with certain advance notice and informational requirements. In order to be
timely with respect to the Company's 1999 Annual Meeting of Shareholders (which
is presently expected to be held in June 1999), a shareholder's notice of
director nominations or of business to be brought before such Annual Meeting
must be delivered to the Secretary of the Company no earlier than February 2,
1999 and no later than March 4, 1999. Such notice must also contain certain
additional information required by the Bylaws and otherwise comply with
applicable legal requirements. The advance notice and informational requirements
set forth in the Company's Bylaws do not alter the requirements or conditions
established by the Securities and Exchange Commission for shareholder proposals
to be included in the Company's proxy materials for the 1999 Annual Meeting.
The advance notice requirements are set forth in the amendments to the Company's
Bylaws filed as Exhibit 3.1A to this Report and are incorporated herein by this
reference. Shareholders may obtain a complete copy of the Company's Bylaws, as
amended, by submitting a request to the Secretary of the Company at the
Company's principal executive office, 29982 Ivy Glenn Drive, Laguna Niguel,
California 92677-2044, telephone number (949) 831-5350.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
3.1A Bylaw Amendments effective August 25, 1998.
27 Financial Data Schedule.
(b) Reports on Form 8-K:
None
22
<PAGE> 23
PART II (CONTINUED)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FURON COMPANY
REGISTRANT
-----------------------------------------------------
/S/MONTY A. HOUDESHELL /S/DAVID L. MASCARIN
- --------------------------------------- ------------------------------------
Monty A. Houdeshell David L. Mascarin
Vice President, Chief Financial Officer Controller
September 9, 1998
23
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<C> <S>
3.1A Bylaw Amendments effective August 25, 1998.
27 Financial Data Schedule.
</TABLE>
<PAGE> 1
Exhibit 3.1A
FURON COMPANY
Bylaw Amendments Effective August 25, 1998
(Advance Notice Provisions)
RESOLVED, that the Bylaws of this corporation are hereby amended to add
Section 14 to Article II thereof, to read in its entirety as set forth below:
Section 14. PROPER BUSINESS FOR SHAREHOLDER MEETINGS.
(a) Nominations and Shareholder Business at Annual
Meetings of Shareholders. At an annual meeting of shareholders,
only such business shall be proper as shall be brought before the
meeting (i) pursuant to the corporation's notice of meeting, (ii)
by or at the direction of the Board, or (iii) by any shareholder
of the corporation who was a shareholder of record at the time of
giving of notice provided for in this Section 14(a), who is
entitled to vote at the meeting and who complied with the notice
procedures set forth in this Section 14(a).
For nominations of persons for election to the Board or
other business to be properly brought before an annual meeting by
a shareholder pursuant to clause (iii) of paragraph (a) of this
Section 14, the shareholder must have given timely notice thereof
in writing to the Secretary of the corporation. To be timely, a
shareholder's notice shall be delivered to the Secretary at the
principal executive office of the corporation not less than
ninety (90) days nor more than one-hundred twenty (120) days
prior to the first anniversary of the preceding year's annual
meeting; provided, however, that in the event that the date of
the annual meeting is advanced or delayed by more than thirty
(30) days from such anniversary date, notice by the shareholder
to be timely must be so delivered not earlier than the
one-hundred twentieth (120) day prior to such annual meeting and
not later than the close of business on the later of the
ninetieth (90th) day prior to such annual meeting or the tenth
(10th) day following the day on which public announcement of the
date of such meeting is first made. Such shareholder's notice
shall set forth (i) as to each person whom the shareholder
proposes to nominate for election or reelection as a director,
(A) the name, age, business address and residence address of such
person, (B) the class and number of shares of capital stock of
the corporation that are beneficially owned by such person, and
(C) all other information relating to such person that is
required to be disclosed in solicitations of proxies for election
of directors, or is otherwise required, in each case pursuant to
Regulation 14A (or any successor provision) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (including
such person's written consent to being named in the proxy
statement as a nominee and to serving as a
<PAGE> 2
director if elected); (ii) as to any other business that the
shareholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the
meeting, the reasons for conducting such business at the meeting
and any material interest in such business of such shareholder
and the beneficial owner, if any, on whose behalf the proposal is
made; and (iii) as to the shareholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or
proposal is made, the name and address of such shareholder, as
they appear on the corporation's books, and of such beneficial
owner and the class and number of shares of stock of the
corporation which are owned beneficially and of record by such
shareholder and such beneficial owner.
(b) Director Nominations and Shareholder Business at
Special Meetings of Shareholders. Only such business shall be
proper at a special meeting of shareholders as shall have been
brought before the special meeting pursuant to the corporation's
notice of meeting. Nominations of persons for election to the
Board may be made at a special meeting of shareholders at which
directors are to be elected pursuant to the corporation's notice
of meeting (i) by or at the direction of the Board, or (ii)
provided that the Board has determined that directors shall be
elected at such special meeting, by any shareholder of the
corporation who is a shareholder of record at the time of giving
of notice provided for in this Section 14(b), who is entitled to
vote at the meeting and who has complied with the notice
procedures set forth in this Section 14(b). In the event the
corporation calls a special meeting of shareholders for the
purpose of electing one or more directors of the Board, any such
shareholder may nominate a person or persons (as the case may be)
for election to such position(s) as specified in the
corporation's notice of meeting, if the shareholder delivers a
notice meeting the requirements set forth in paragraph (a) of
this Section 14 to the Secretary at the principal executive
office of the corporation not earlier than the one-hundred
twentieth (120th) day prior to such special meeting and not later
than the close of business on the later of the ninetieth (90th)
day prior to such special meeting or the tenth (10th) day
following the day on which public announcement is first made of
the date of the special meeting and of the nominees proposed by
the Board to be elected at such meeting.
(c) General. Only such persons who are nominated in
accordance with the procedures set forth in this Section 14 shall
be eligible to serve as directors and only such business shall be
conducted at a meeting of shareholders as shall have been brought
before the meeting in accordance with the procedures set forth in
this Section 14.
For purposes of this Section 14, "public announcement"
shall mean disclosure in a press release reported by the Dow
Jones New Service, Associated Press, Business Wire or comparable
news service or in a document publicly filed
-2-
<PAGE> 3
by the corporation with the Securities and Exchange Commission
pursuant to Sections 13, 14 or 15(d) of the Exchange Act.
Notwithstanding the foregoing provisions of this Section
14, a shareholder shall also comply with all applicable
requirements of state law and of the Exchange Act and the rules
and regulations thereunder with respect to the matters set forth
in this Section 14. Nothing in this Section 14 shall be deemed to
affect any rights of shareholders to request inclusion of
proposals in the corporation's proxy statement pursuant to Rule
14a-8 (or any successor provision) under the Exchange Act.
RESOLVED, that Section 4 of Article II of the Corporation's Bylaws is
hereby amended and restated to read in its entirety as set forth below:
Section 4. NOTICE OF ANNUAL OR SPECIAL MEETINGS. Written notice
of each annual or special meeting of shareholders shall be given not
less than ten (10) nor more than sixty (60) days before the date of the
meeting to each shareholder entitled to vote thereat. Such notice shall
state the place, date and hour of the meeting and (i) in the case of a
special meeting, the general nature of the business to be transacted,
and that no other business may be transacted, or (ii) in the case of the
annual meeting, those matters which the Board, at the time of the
mailing of the notice, intends to present for action by the
shareholders, but subject to the provisions of applicable law, any
matter that is proper under Section 14 of this Article may be presented
at the meeting for such action. The notice of any meeting at which
directors are to be elected shall include the names of nominees intended
at the time of the notice to be presented by management for election.
Notice of a shareholders' meeting shall be given either
personally or by mail or by other means of written communication,
addressed to the shareholder at the address of such shareholder
appearing on the books of the corporation or given by the shareholder to
the corporation for the purpose of notice, or, if no such address
appears or is given, at the place where the principal executive office
of the corporation is located or by publication at least once in a
newspaper of general circulation in the county in which the principal
executive office is located. Notice by mail shall be deemed to have been
given at the time a written notice is deposited in the United States
mails, postage prepaid. Any other written notice shall be deemed to have
been given at the time it is personally delivered to the recipient or is
delivered to a common carrier for transmission, or actually transmitted
by the person giving the notice by electronic means, to the recipient.
RESOLVED, that Section 13 of Article II of the Corporation's Bylaws is
hereby amended and restated to read in its entirety as set forth below:
-3-
<PAGE> 4
Section 13. CONDUCT OF MEETING. The Chairman of the Board shall
preside as chairman at all meetings of the shareholders. The chairman
shall conduct each such meeting in a businesslike and fair manner, but
shall not be obligated to follow any technical, formal or parliamentary
rules or principles of procedure. The chairman shall have the power to
determine whether any nomination or other business is properly brought
before the meeting under these Bylaws and applicable law, and if any
such nomination or other business is not properly brought before the
meeting, the chairman shall so declare and rule that such nomination
shall be disregarded or that such business shall not be transacted (as
the case may be). Except as may be limited by applicable law, the
chairman's rulings on all procedural matters shall be conclusive and
binding on all shareholders. Without limiting the generality of the
foregoing, the chairman shall have all of the powers usually vested in
the chairman of a meeting of shareholders.
-4-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's unaudited condensed statements of income, condensed balance sheets and
condensed statements of cash flows and is qualified in its entirety by reference
to such financial statements contained within the Company's Form 10-Q for the
three and six months ended August 1, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-END> AUG-01-1998
<CASH> 3,877
<SECURITIES> 0
<RECEIVABLES> 77,065
<ALLOWANCES> 1,813
<INVENTORY> 58,299
<CURRENT-ASSETS> 154,624
<PP&E> 205,443
<DEPRECIATION> 95,487
<TOTAL-ASSETS> 368,698
<CURRENT-LIABILITIES> 73,887
<BONDS> 3,600
0
0
<COMMON> 41,084
<OTHER-SE> 50,102
<TOTAL-LIABILITY-AND-EQUITY> 368,698
<SALES> 244,851
<TOTAL-REVENUES> 244,851
<CGS> 167,388
<TOTAL-COSTS> 224,220
<OTHER-EXPENSES> (2,720)
<LOSS-PROVISION> 140
<INTEREST-EXPENSE> 6,805
<INCOME-PRETAX> 16,546
<INCOME-TAX> 5,212
<INCOME-CONTINUING> 11,334
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,334
<EPS-PRIMARY> .63
<EPS-DILUTED> .61
</TABLE>
