<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MAY 1, 1999
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)
<TABLE>
<S> <C>
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)
</TABLE>
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 June 9, 1999: 18,444,776
1
<PAGE> 2
FURON COMPANY
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE NO.
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
May 1, 1999 and January 30, 1999 3
Condensed Consolidated Statements of Income
Three months ended May 1, 1999 and
May 2, 1998 5
Condensed Consolidated Statements of Cash Flows
Three months ended May 1, 1999 and May 2, 1998 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 23
PART II - OTHER INFORMATION 24
- ---------------------------
</TABLE>
2
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
FURON COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
May 1, January 30,
In thousands 1999 1999
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................. $ -- $ 1,358
Accounts receivable, less allowance for doubtful accounts of
$2,180 at May 1, 1999 and $2,232 at January 30, 1999 .... 73,897 81,885
Inventories, net ........................................... 56,052 53,650
Income taxes recoverable ................................... -- 3,368
Deferred income taxes ...................................... 6,983 6,625
Prepaid expenses and other current assets .................. 5,288 4,955
--------- ---------
Total current assets ............................................. 142,220 151,841
Property, plant & equipment, at cost:
Land ....................................................... 6,709 6,711
Buildings and leasehold improvements ....................... 34,663 33,341
Machinery and equipment .................................... 173,200 171,986
--------- ---------
214,572 212,038
Less accumulated depreciation and amortization ............. (106,825) (103,395)
--------- ---------
Net property, plant and equipment ................................ 107,747 108,643
Intangible assets, at cost less accumulated amortization of ...... 87,804 89,695
$40,606 at May 1, 1999 and $39,101 at January 30, 1999
Other assets ..................................................... 11,595 11,922
--------- ---------
TOTAL ASSETS ..................................................... $ 349,366 $ 362,101
========= =========
</TABLE>
See accompanying notes.
3
<PAGE> 4
FURON COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
May 1, January 30,
In thousands, except share data 1999 1999
- ------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash, less checks outstanding ......................... $ 16 $ --
Accounts payable ...................................... 23,973 26,130
Salaries, wages and related benefits payable .......... 11,190 14,046
Income taxes payable .................................. 669 --
Current portion of long-term debt ..................... 497 566
Accrued interest payable .............................. 1,802 4,373
Facility rationalization and severance ................ 5,590 6,554
Other current liabilities ............................. 13,774 14,649
--------- ---------
Total current liabilities ................................. 57,511 66,318
Long-term debt ............................................ 138,614 144,707
Other long-term liabilities ............................... 25,975 26,091
Deferred income taxes ..................................... 19,169 20,378
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, 18,445,030 shares issued and outstanding
at May 1, 1999 and 18,421,080 at January 30, 1999 .. 43,082 42,806
Employee Benefit Trust shares ......................... (2,185) (1,444)
Accumulated other comprehensive income ................ (3,663) (1,691)
Unearned ESOP shares .................................. (2,560) (2,560)
Unearned compensation ................................. (105) (124)
Retained earnings ..................................... 73,528 67,620
--------- ---------
Total shareholders' equity ................................ 108,097 104,607
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................ $ 349,366 $ 362,101
========= =========
</TABLE>
See accompanying notes.
4
<PAGE> 5
FURON COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
-----------------------
May 1, May 2,
In thousands, except per share amounts 1999 1998
- ---------------------------------------------------------------------------
<S> <C> <C>
Net sales ..................................... $ 121,437 $ 119,805
Cost of sales ................................. 82,462 82,539
--------- ---------
Gross profit .................................. 38,975 37,266
Selling, general and administrative expenses .. 27,982 27,561
Other (income), expense ....................... (573) (1,138)
Interest expense, net ......................... 2,966 2,932
--------- ---------
Income before income taxes .................... 8,600 7,911
Provision for income taxes .................... 2,709 2,492
--------- ---------
Net Income .................................... $ 5,891 $ 5,419
========= =========
Basic income per share ........................ $ 0.32 $ 0.30
========= =========
Diluted income per share ...................... $ 0.32 $ 0.29
========= =========
Cash dividends per share ...................... $ 0.03 $ 0.03
========= =========
</TABLE>
See accompanying notes.
5
<PAGE> 6
FURON COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
-------------------------
May 1, May 2,
In thousands 1999 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income .......................................................... $ 5,891 $ 5,419
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation ................................................... 4,414 4,273
Amortization ................................................... 1,528 1,528
Provision for losses on accounts receivable .................... 19 70
Deferred income taxes .......................................... 220 (369)
Loss on sale of assets ......................................... 32 62
Working capital changes, net of acquisitions and disposals:
Accounts receivable ............................................ 7,969 1,790
Inventories .................................................... (2,402) (3,064)
Accounts payable and accrued liabilities ....................... (4,998) (4,413)
Income taxes payable ........................................... 4,038 (564)
Other current assets and liabilities, net ...................... (4,328) (1,277)
Changes in other long-term operating assets and liabilities ......... (244) 88
--------- ---------
Net cash provided by operating activities ................. 12,139 3,543
INVESTING ACTIVITIES
Acquisition of businesses ...................................... -- (115)
Cash acquired in purchase of business .......................... -- 3,037
Purchases of property, plant and equipment ..................... (4,121) (5,166)
Proceeds from sale of businesses ............................... 9 5
Proceeds from sale of equipment ................................ 19 40
Increase in note receivable .................................... (314) (606)
--------- ---------
Net cash used in investing activities ..................... (4,407) (2,805)
FINANCING ACTIVITIES
Proceeds from long-term debt ................................... 141 134,194
Principal payments on long-term debt ........................... (6,059) (124,341)
Deferred debt costs ............................................ -- (3,918)
Employee benefit trust funding ................................. (342) (1,300)
Proceeds, net of cancellations, from issuance of common stock .. 276 137
Dividends paid on common stock ................................. (553) (549)
--------- ---------
Net cash provided by (used in) financing activities ....... (6,537) 4,223
EFFECT OF EXCHANGE RATE CHANGES ON CASH ............................. (2,553) 444
--------- ---------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS .................... (1,358) 5,405
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .................... 1,358 --
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .......................... $ -- $ 5,405
========= =========
</TABLE>
See accompanying notes.
6
<PAGE> 7
FURON COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 1, 1999
(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 30, 1999. Certain reclassifications have been made to prior
year amounts in order to be consistent with the current year presentation.
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary
(consisting only of normal recurring adjustments) to present fairly the
financial position of the Company as of May 1, 1999, and the results of
operations and cash flows for the three months ended May 1, 1999 and May 2,
1998. Results of the Company's operations for the three months ended May 1,
1999 are not necessarily indicative of the results to be expected for the
full year.
2. INVENTORIES
Inventories, stated at the lower of cost (first-in, first-out) or market, are
summarized as follows:
<TABLE>
<CAPTION>
May 1, January 30,
In thousands 1999 1999
- ---------------------------------------------------------------
<S> <C> <C>
Raw materials and purchased parts .. $21,445 $21,388
Work-in-process .................... 13,639 12,211
Finished goods ..................... 20,968 20,051
------- -------
$56,052 $53,650
======= =======
</TABLE>
3. INTANGIBLES
Intangible assets, primarily acquired in business combinations, net of
accumulated amortization, are summarized as follows:
<TABLE>
<CAPTION>
May 1, January 30,
In thousands 1999 1999
- ---------------------------------------------------
<S> <C> <C>
Goodwill ................. $62,953 $64,297
Other intangible assets .. 24,851 25,398
------- -------
$87,804 $89,695
======= =======
</TABLE>
7
<PAGE> 8
FURON COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 1, 1999
(Unaudited)
4. LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
May 1, January 30,
In thousands 1999 1999
- ----------------------------------------------------------------
<S> <C> <C>
Senior Subordinated Notes ........ $125,000 $125,000
Loans under bank credit agreements
due through fiscal 2002 ...... 10,000 16,000
Industrial Revenue Bonds ......... 3,600 3,600
Other ............................ 511 673
-------- --------
Total long-term debt ............. 139,111 145,273
Less current portion ............. 497 566
-------- --------
Due after one year ............... $138,614 $144,707
======== ========
</TABLE>
For the three months ended May 1, 1999, the weighted average interest rate on
the loans under the credit facility agreement was 5.5%.
Interest paid for the three months ended May 1, 1999 and May 2, 1998 was $5.4
million and $2.0 million, respectively.
5. INCOME TAXES
The Company's effective tax rate for the three months ended May 1, 1999 was
31.5% as compared with 31.5% for the same period in the prior year.
Income taxes paid for the three months ended May 1, 1999 and May 2, 1998 were
$0.2 million and $2.1 million, respectively.
6. CONTINGENCIES
At May 1, 1999, the Company had approximately $3.8 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 May 1, 1999.
At May 1, 1999, the Company is obligated under irrevocable letters of credit
totaling $5.9 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.
8
<PAGE> 9
FURON COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 1, 1999
(Unaudited)
6. CONTINGENCIES (CONTINUED)
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.
As of May 1, 1999, the Company's reserves for environmental matters totaled
approximately $1.5 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 current
environmental reserves should be sufficient to cover most, if not all, of 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.
9
<PAGE> 10
FURON COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 1, 1999
(Unaudited)
7. SHAREHOLDERS' EQUITY
Earnings Per Share
The calculation of earnings per share is presented below:
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------
May 1, May 2,
In thousands, except share and per share amounts 1999 1998
- -------------------------------------------------------------------------------------
<S> <C> <C>
Net income ............................ $ 5,891 $ 5,419
=========== ===========
Weighted average shares outstanding for
basic income per share ............ 18,142,416 18,032,374
----------- -----------
Effect of dilutive securities:
Employee stock options and awards ..... 373,194 669,146
----------- -----------
Weighted average shares outstanding for
diluted income per share ........... 18,515,610 18,701,520
----------- -----------
Basic income per share ................ $ 0.32 $ 0.30
=========== ===========
Diluted income per share .............. $ 0.32 $ 0.29
=========== ===========
</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 three months ended May 1, 1999,
the Company contributed approximately $0.3 million to the Trust to purchase
shares of the Company's common stock on the open market. During the first
three months of fiscal year 2000, the Trust purchased 25,932 shares of common
stock at an average cost of $13.34 per share (122,016 shares held at May 1,
1999). Also, during the first quarter of fiscal year 2000, the Trust released
14,219 shares of common stock to plan participants in connection with the
annual incentive plan awards.
10
<PAGE> 11
FURON COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 1, 1999
(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
-----------------------
May 1, May 2,
In thousands 1999 1998
- ---------------------------------------------------------------------
<S> <C> <C>
Net income ............................. $ 5,891 $ 5,419
Foreign currency translation
adjustments .......................... (1,972) 766
------- -------
Comprehensive income ................... $ 3,919 $ 6,185
======= =======
</TABLE>
11
<PAGE> 12
FURON COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 1, 1999
(Unaudited)
9. SEGMENT INFORMATION
The Company operates in two business segments: Commercial 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>
Commercial Medical
In thousands Products Device Products Adjustments Consolidated
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Three months ended May 1, 1999
- ---------------------------------
Sales to unaffiliated customers .. $ 93,375 $ 28,062 $121,437
Operating profit ................. 7,972 3,021 10,993
Interest expense, net ............ -- -- $ 2,966 2,966
Identifiable assets .............. 202,385 146,981 349,366
Three months ended May 2, 1998
- ---------------------------------
Sales to unaffiliated customers .. $ 97,974 $ 21,831 $119,805
Operating profit ................. 9,593 112 9,705
Interest expense, net ............ -- -- $ 2,932 2,932
Identifiable assets .............. 220,117 155,296 375,413
</TABLE>
12
<PAGE> 13
ITEM 2. 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 2000 first quarter ended May 1,
1999 and fiscal 1999 first quarter ended May 2, 1998. The fiscal 2000 and 1999
quarters each consisted of 13 weeks.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MAY 1, 1999 COMPARED WITH THREE MONTHS ENDED MAY 2, 1998
Net Sales. Consolidated net sales of $121.4 million for the three months ended
May 1, 1999 ("FY 2000 Period") increased $1.6 million, from $119.8 million for
the three months ended May 2, 1998 ("FY 1999 Period"). The increase in net sales
was the result of increased sales of medical device products, more than
offsetting lower commercial product sales.
Gross Profit. Gross profit of $39.0 million in the FY 2000 Period increased $1.7
million, or 4.6%, from $37.3 million in the FY 1999 Period. The gross profit
margin increased to 32.1% in the FY 2000 Period from 31.1% in the FY 1999
Period. The increase was due to higher volume in the medical device products
segment more than offsetting the impact of lower volumes in the commercial
products segment.
Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses of $28.0 million in the FY 2000 Period
increased $0.4 million, or 1.5%, from $27.6 million in the FY 1999 Period. SG&A
expenses as a percentage of net sales was 23.0% in the FY 2000 Period, unchanged
from 23.0% in the FY 1999 Period. The general and administrative dollar increase
was mainly the result of higher costs incurred in general insurance, relocation
and the full quarter impact of the April 1998 acquisition of Corotec GmbH,
partially offset by decreased legal and bad debt expenses. Slightly lower
selling and product development costs were also recorded.
Other Income. Other income of $0.6 million in the FY 2000 Period decreased $0.5
million, from $1.1 million in the FY 1999 Period. The decrease was primarily the
net result from the absence of gains realized in the prior year, and reduced
licensee fees.
Interest Expense, Net. Interest expense, net of $3.0 million for the FY 2000
Period remained relatively flat compared to $2.9 million in the FY 1999 Period.
This was the result of the Company's reduction in overall debt offset by a
higher interest rate associated with the Company's subordinated debt, as
compared to its previous financing source.
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Income Before Income Taxes. Income before income taxes of $8.6 million in the FY
2000 Period increased $0.7 million, or 8.7%, from $7.9 million in the FY 1999
Period. This improvement was generally the result of higher volumes and improved
margin, somewhat offset by slightly higher operating expenses and lower other
income, net from the Medical Device segment.
Provision for Income Taxes. The Company's effective tax rate for both the FY
2000 and FY 1999 Period was 31.5%.
SEGMENT RESULTS
The Company operates in two business segments: Commercial 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" contained herein.
Commercial Products
<TABLE>
<CAPTION>
May 1, May 2,
In thousands 1999 1998
- -------------------------------------------
<S> <C> <C>
Sales ............. $93,376 $97,974
Operating profit .. 7,972 9,593
</TABLE>
Net Sales. Commercial Products net sales for the FY 2000 Period decreased $4.6
million, or 4.7% from the FY 1999 Period. Domestically, net sales were strong in
several of the markets the Company serves including the truck,
telecommunications, coatings and industrial machinery markets. Improved demand
is beginning to be realized in the semiconductor market with double-digit growth
over the same period for the prior year. General softness in industrial
processing, commercial aircraft and material technology contributed to lower
shipments of products. Over the same period of the prior year, European sales
were down 11.8%, primarily from transportation and beverage hose markets.
Currency fluctuation was not a factor in this deterioration.
Gross Profit. The gross profit margin for the FY 2000 Period was 29.5%, a
decrease from 29.7% in the FY 1999 Period. This was the net result of lower
material costs, more than offset by fixed overhead increases of 0.6% of sales;
although in terms of dollars actual spending was reduced slightly. Categories
impacted in fixed overhead spending were increased depreciation, salaries, and
relocation expense, partially offset by reductions in workers compensation, and
general insurance expense.
14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Selling, General and Administrative Expenses. SG&A expenses as a percentage of
net sales increased 1.0% to 21.0% for the FY 2000 Period, from the FY 1999
Period. This was principally the result of lower sales volumes. Actual expenses
increased less than $0.1 million, due to higher general and administrative
expenses in performance based incentive compensation, benefits, insurance and
relocation, somewhat offset by lower legal and bad debt expense. Additionally,
slightly lower selling and research and development costs were recorded.
Operating Profit. Operating profit decreased 16.9% to $8.0 million for the FY
2000 Period, from $9.6 million in the FY 1999 Period. The reduction in
profitability reflects lower net sales volumes and associated margins, and
slightly higher operating expenses.
Medical Device Products
<TABLE>
<CAPTION>
May 1, May 2,
In thousands 1999 1998
- ---------------------------------------------
<S> <C> <C>
Sales ............. $28,062 $21,831
Operating profit .. 3,021 112
</TABLE>
Net Sales. Net sales for the FY 2000 Period increased $6.2 million or 28.5% over
the FY 1999 Period. Domestically, contributing factors included increased demand
in the pressure monitoring and fluid and drug product lines, somewhat offset by
softness in infusion systems and vascular access volume. Improved demand in
Europe across most product lines, along with the impact of the Corotec GmbH
acquisition resulted in a 47.1% increase in sales (a 46.1% increase after
removing the effect of foreign currency exchange rate changes) over the same
period the prior year.
Gross Profit. The gross profit margin for the FY 2000 Period was 40.6% compared
to 37.2% in the FY 1999 Period. The improvement in margin was the net result of
higher volume and spending controls in variable and fixed overhead, partially
offset by product mix. In addition, start up costs incurred in the FY 1999
Period, in connection with the move of two production facilities from California
to Ohio, were not repeated in the FY 2000 Period.
Selling, General and Administrative Expenses. SG&A expenses as a percentage of
net sales for the FY 2000 and FY 1999 Periods, was 29.8% and 36.7%,
respectively. Actual expenses for the FY 2000 Period were up slightly over the
FY 1999 Period. The increase in general and administrative expense is the net
result of the full quarter effect of the Corotec GmbH acquisition. Additionally,
slightly lower selling and research and development costs were recorded.
15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Operating Profit. Operating profit increased over 25 fold to $3.0 million for
the FY 2000 Period, from $0.1 million in the FY 1999 Period. This increase
reflects significantly higher net sales volumes and margins, slightly offset by
increased operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition remained strong at May 1, 1999. The ratio of
current assets to current liabilities was 2.5 to 1.0, an increase from 2.3 to
1.0 at January 30, 1999. Net working capital of $84.7 million decreased by $0.8
million from January 30, 1999.
Cash Provided by Operating Activities. Cash provided by operating activities for
the FY 2000 Period increased to $12.1 million from $3.5 million the same period
prior year. This increase was primarily due to an increase in collections of
accounts receivable of $6.2 million, an increase of $4.6 million in income taxes
payable due to the ability of the Company to defer payments for the current
fiscal year to subsequent quarters, and net changes in working capital and other
long-term assets and liabilities.
Cash Used in Investing Activities. Cash used in investing activities for the FY
2000 Period of $4.4 million increased $1.6 million from the same period of the
prior year. This change was due primarily to the acquisition of Corotec GmbH
during the FY 1999 Period. Cash used in investing activities for the FY 1999
Period included cash balances of $3.0 million obtained in the acquisition.
During the FY 2000 Period, the Company invested $4.1 million in renovation of
existing facilities, leasehold improvements and the replacement of existing
equipment. Capital expenditures for the FY 2000 Period decreased $1.1 million
from $5.2 million in the FY 1999 Period.
The Company believes that it generates sufficient cash flow from its operations
to finance near and long-term internal growth and capital expenditures and to
make principal and interest payments on its loans payable to banks and the
senior subordinated notes. The Company continually evaluates its employment of
capital resources, including asset management and other sources of financing.
YEAR 2000 READINESS DISCLOSURE
THE STATEMENTS SET FORTH BELOW ARE "YEAR 2000 READINESS DISCLOSURES"
WITHIN THE MEANING OF THE YEAR 2000 INFORMATION AND DISCLOSURE ACT AND INCLUDE
"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, AND ARE EXPRESSLY QUALIFIED AS DESCRIBED BELOW UNDER "STATEMENT
REGARDING FORWARD LOOKING DISCLOSURE."
16
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
YEAR 2000 READINESS DISCLOSURE (CONTINUED)
THE YEAR 2000 PROBLEM
The so-called "Year 2000 (or Y2K) Problem" arises from information and
non-information technology systems, equipment and products that process
date/time data and concerns their ability to do so accurately, including
calculating, comparing and sequencing data from, into and between the twentieth
and twenty-first centuries, the years 1999 and 2000, and leap years. A system,
equipment or product that processes date/time data will be considered "Year 2000
(or Y2K) compliant" if it is able to accurately process the date/time data in
all material respects. Similarly, a third party upon which the Company depends
will be considered Y2K compliant if its relevant internal and external systems,
equipment, products and services are Y2K compliant. The failure of the Company's
date/time dependent systems, equipment or products, or those of a third party
upon which it depends, to be Y2K compliant could affect the Company's ability to
conduct its business in the ordinary course which, in turn, could have a
material adverse effect on the Company's business, financial condition or
results of operations.
OVERVIEW OF THE COMPANY'S Y2K READINESS PROGRAM
The Company first began addressing the Y2K Problem in 1994 in connection
with a reorganization of its operations. Since then, to implement the new
organization and assimilate subsequent acquisitions and other changes, the
Company has replaced substantially all of its information technology systems and
equipment with new items that are Y2K compliant. In 1997, the Company formed a
cross-functional Year 2000 Compliance Team which began to develop and implement
its current Y2K Readiness Program covering all of the areas described below.
Today, all of the Company's business functions are involved in a comprehensive
effort to minimize, if not in some cases eliminate, the Year 2000 Problem as it
impacts their internal and external customers.
The Company has generally divided its Program into three phases to
address the Year 2000 Problem, with a particular emphasis given to "mission
critical" systems, equipment, and suppliers and other third parties. The Company
defines a "mission critical" system or equipment as one which must be working
properly to enable the Company to meet commitments to customers or other third
parties in a timely manner and without having to materially increase costs. A
"mission critical" supplier or other third party is one where it is reasonably
likely that if they fail to supply their products or services timely and
completely due to their Y2K problems or those of a third party upon which they
depend, it would materially delay the Company's product/service delivery
schedule, materially increase the Company's costs or otherwise have a material
adverse effect on the Company. The three phases of the Company's Y2K Readiness
Program generally are:
17
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
YEAR 2000 READINESS DISCLOSURE (CONTINUED)
o Inventory and Assessment. Identify all of the Company's systems,
equipment, products, suppliers and other relevant third parties
potentially impacted by the Y2K Problem, determine which of them are
mission critical and determine the likely nature and extent that
mission critical items and entities and selected others will be
impacted.
o Remediation and Validation. Make the necessary changes to make mission
critical and selected other items Y2K compliant. For the Company's
mission critical systems and equipment, perform systems testing to
ensure they are Y2K compliant and for selected mission critical
suppliers and other relevant third parties, independently audit their
relevant operations to confirm Y2K compliance.
o Contingency Planning. Determine the need for a contingency plan for
mission critical items and develop a plan for those that are selected.
PRODUCTS
The products currently offered for sale by the Company either are not
designed to process date/time data or are not functionally dependent on that
data and, thus, there are no material Y2K Problems with respect to the
performance of any of them. Similarly, the Company believes that there are no
material Y2K Problems with respect to the performance of any of its past
products that are likely to still be in use.
INFORMATION TECHNOLOGY SYSTEMS AND EQUIPMENT
The status of the Company's Program with respect to its "Information
Technology Systems and Equipment" (i.e., all of its (1) business information
systems (applications, utility, systems management tools and operating system
software programs; middleware; firmware; hardware (including mid-range, mini-
and personal computers, servers and related BIOS, other chips and microcode))
and (2) technical infrastructure (network, intranet- and internet-related, and
telecommunications equipment and related software programs)) is as follows:
o Inventory and Assessment. Completed.
o Remediation and Validation. Completed.
o Contingency Planning. In progress; scheduled to be completed by June
30, 1999. The plan is expected to include provisions for (1) redundant
U.S. system backups on December 31, 1999 at two separate locations,
(2) manual systems that do not rely on computers and (3) "swat" teams
which starting Saturday, January 1, 2000, will be either at each site
or on standby and who will be selectively re-testing mission critical
items. The Company also has designated Monday, January 3, 2000, as one
of its New Year's holidays to provide additional time for the swat
teams to remediate potential Y2K failures.
18
<PAGE> 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
YEAR 2000 READINESS DISCLOSURE (CONTINUED)
NON-INFORMATION TECHNOLOGY SYSTEMS AND EQUIPMENT
The status of the Company's Program with respect to its "Non-Information
Technology Systems and Equipment" (i.e., all of its systems and equipment which
are not "Information Technology Systems and Equipment, including: machinery and
equipment used in the research, development, testing, servicing or production of
its products; elevators; plant heating, cooling and other non-IT systems;
emissions and other pollution control systems; fire; security systems; etc.) is
as follows:
o Inventory and Assessment. Completed.
o Remediation and Validation. Over 95% complete with remainder to be
completed by June 30, 1999.
o Contingency Planning. In progress; scheduled to be completed by the
beginning of September 1999. The plan is expected to include
provisions similar to those for the Information Technology Systems and
Equipment.
SUPPLIERS
The status of the Company's Program with respect to its "Suppliers"
(i.e., all third party raw material and other suppliers, vendors, utilities
(electric, water, trash, gas, etc.), telecommunication providers, transportation
services, and other non-governmental third parties upon whose products or
services the Company depends to conduct its business (excluding distributors and
independent sales representatives which are discussed below)) is as follows:
o Inventory and Assessment. The Company has identified all of its
mission critical Suppliers and requested Y2K compliance assurances
from each of them. Over 75% have stated they expect to be Y2K
compliant at varying times prior to January 1, 2000, with almost half
of those indicating they are currently compliant. The Company is
following up with all of those who have not responded or indicated an
expected compliance date.
o Remediation and Validation. So far, none of the Company's mission
critical Suppliers have stated they will not be Y2K compliant. The
Company is in the process of performing a subjective risk assessment
of its mission critical Suppliers (excluding utilities and
telecommunication providers) who are sole or limited source, are
thinly capitalized, have indicated a stated Y2K compliance date later
than June 30, 1999, or have not stated they will be Y2K compliant by
December 31, 1999. Based on that assessment, the Company will seek to
selectively audit those that it believes pose the greatest risk and
depending on the results of the risk assessment and audit, either seek
to replace them or develop a contingency plan that reduces the risk to
an acceptable level. The Company expects to complete most of these
audits by June 30, 1999 and the remainder in July 1999.
19
<PAGE> 20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
YEAR 2000 READINESS DISCLOSURE (CONTINUED)
o Contingency Planning. The Company intends to develop a written
contingency plan for each mission critical Supplier which it believes
poses a significant risk. The Company expects to complete preliminary
contingency plans for most of these Suppliers by June 30, 1999 and the
remainder in July 1999 and then refine and finalize them over the
balance of the year. For those who are raw material Suppliers, the
contingency plans are expected to involve principally the stockpiling
in the months before January 1, 2000 of varying levels of the raw
material depending on the degree of perceived risk. Depending on the
circumstances, other raw material and service Supplier contingencies
may include using other compliant Suppliers or raw materials/services
which are already qualified as secondary sources or qualifying new
material/services from existing or new compliant Suppliers. The
Company also intends to develop contingency plans for isolated Y2K
failures of its utilities or telecommunication providers, which in
addition to the items described above for the Company's systems and
equipment, are primarily expected to involve identifying alternative
sources, if possible. However, the Company does not intend to develop
or implement further contingency plans for extended or widespread
local, regional or national utility or telecommunication provider
failures. The Company believes that even if it is possible to develop
effective plans for those risks, they would require significant
expenditures that, in the Company's view, are not warranted in light
of the perceived risk and potential benefits.
DISTRIBUTORS AND INDEPENDENT SALES REPRESENTATIVES
The Company is in the process of surveying its authorized distributors
and independent sales representatives to determine their state of Y2K readiness.
The Company expects to complete this assessment by December 31, 1999. In the
event a distributor or independent sales representative is not Y2K compliant
and, as a result, is materially unable to perform services for the Company in
the ordinary course, the Company may replace them or seek to sell direct.
CUSTOMERS
The Company is in the processing of determining the state of Y2K
readiness of customers representing over half of its annual net sales for each
of its segments. For those that are public companies, the Company is reviewing
their public filings to determine their state of readiness. The Company also
intends to survey certain of its key customers directly to determine their state
of Y2K readiness. The Company expects to complete this assessment by December
31, 1999. For the year ended January 30, 1999, no single customer accounted for
more than 4% or 8%, respectively, of the Company's net sales of Commercial and
Medical Device products.
20
<PAGE> 21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
YEAR 2000 READINESS DISCLOSURE (CONTINUED)
COSTS
The Company estimates that to date it has directly incurred the
following costs to address the Y2K Problem: (1) approximately $200,000 of
capital expenditures and other out-of-pockets costs; (2) an undetermined amount
for internal time; and (3) miscellaneous communications (postage, fax, etc.) and
other immaterial costs. In addition, the Company expended approximately $9
million between 1994 and 1998 replacing Information Technology Systems and
Equipment with systems and equipment that are Y2K compliant and has expended
approximately $1.7 million, and expects to have recurring operating costs of
approximately $1.1 million per year, to lease upgraded personal computers.
However, these latter expenditures and operating costs were scheduled to occur
without regard to the Y2K Problem or the Company's Program.
RISKS
The Company believes that the most significant Y2K-related risks it
faces include (1) unanticipated Supplier failures, especially involving
breakdowns of utilities or transportation or telecommunications services, (2)
foreign or domestic customs failures, (3) other foreign or domestic government
failures, (4) failures of foreign or domestic banking or financial systems, (5)
any other failures beyond our reasonable control and (6) unanticipated failures
on our part to address Y2K-related issues. The most reasonably likely worst case
scenario in light of these risks would involve a potential loss in sales
resulting from production and shipping delays caused by Y2K-related disruptions
and the potential costs of related legal proceedings. The degree of sales loss
and associated costs would likely depend on the severity of the disruption, the
time required to correct it, whether the sales loss was temporary or permanent,
and the degree to which our primary competitors were also impacted by the
disruption. However, subject to the risks and other cautionary statements noted
above and elsewhere in this document, at this time the Company does not
anticipate that the Y2K Problem will have a material adverse effect on the
Company's business, financial condition or results of operation, although no
assurance to that effect can be given.
EURO CONVERSION
Eleven of the fifteen member countries of the European Monetary Union agreed to
adopt the euro as their common legal currency commencing January 1, 1999. Fixed
conversion rates between these participating countries' present currencies, or
"legacy currencies", and the euro were established as of January 1, 1999. The
legacy currencies are scheduled to remain legal tender in the participating
countries as denominations of the euro until January 1, 2002. Beginning January
1, 2002, the participating countries will issue new euro-denominated bills and
coins. No later than July 1, 2002, the participating countries will withdraw all
bills and coins denominated in their legacy currencies.
21
<PAGE> 22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
EURO CONVERSION (CONTINUED)
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. For
the quarter ended May 1, 1999, approximately 16% of the Company's net sales were
made to countries that have agreed to adopt the euro as their currency. 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.
While the Company is still in the process of assessing potential issues caused
by conversion to the euro and possible ways to resolve those issues, based on
the information currently available to it, the Company does not expect that
conversion to the euro will have a material adverse impact on its results of
operations, financial position or liquidity.
OTHER CONTINGENCIES
For information regarding environmental matters and other contingencies, see
Note 6 of the "Notes to Condensed Consolidated Financial Statements" and the
"Risk Factors" section of the Company's 1999 Annual Report on Form 10-K.
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, the Company's Year 2000 Readiness Disclosure, Euro conversion,
Quantitative and Qualitative Disclosures About Market Risk, 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 1999 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 1999 Annual Report on Form 10-K.
22
<PAGE> 23
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk disclosures set forth in the Company's 1999 Annual
Report on Form 10-K have not changed significantly through the quarter
ended May 1, 1999.
23
<PAGE> 24
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.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
24
<PAGE> 25
PART II - OTHER INFORMATION (CONTINUED)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
10.3A* Amendments 1999-1 and 1999-2 to Supplemental Executive Retirement
Plan
27 Financial Data Schedule.
(b) Reports on Form 8-K:
The Company filed a Form 8-K on April 30, 1999 reporting the
adoption of a new shareholder rights plan that will replace its
current shareholder rights plan which expires on May 31, 1999.
* A management contract or compensatory plan or agreement.
25
<PAGE> 26
PART II (CONTINUED)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FURON COMPANY
REGISTRANT
<TABLE>
<S> <C>
/s/ MONTY A. HOUDESHELL /s/ DAVID L. MASCARIN
- --------------------------------------- ------------------------------------
Monty A. Houdeshell David L. Mascarin
Vice President, Chief Financial Officer Controller
</TABLE>
June 9, 1999
<PAGE> 27
EXHIBIT INDEX
10.3A* Amendments 1999-1 and 1999-2 to Supplemental Executive Retirement
Plan
27 Financial Data Schedule.
* A management contract or compensatory plan or agreement.
<PAGE> 1
Exhibit 10.3A
AMENDMENT 1999-1
FURON COMPANY SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
WHEREAS, Furon Company ("Company") maintains the Furon Company
Supplemental Executive Retirement Plan ("Plan"); and
WHEREAS, the Company has the right to amend the Plan;
NOW, THEREFORE, this Amendment 1999-1 is hereby adopted, effective as of
the later of (a) the date this amendment is adopted by the Company, or (b) the
date the Resignation and General Release Agreement ("Release Agreement") between
the Company and Terrence A. Noonan ("Noonan") becomes effective; provided,
however, that if the Resignation and General Release Agreement does not become
effective or is revoked, this Amendment shall be null and void and shall have no
effect.
The following is hereby added to the end of Appendix A:
"Notwithstanding Section 2.1(a), the Normal Retirement Date
applicable to Terrence A. Noonan shall be October 1, 2000, which is the
first day of the first month after Mr. Noonan attains age 63. The annual
benefit which shall become payable on that date is $230,767. Such benefit
shall not be reduced to take into account the fact that Mr. Noonan's age
will be 63 (instead of 65) at the time such benefits commence. Such
benefit shall be subject to reduction if Mr. Noonan's spouse is more than
five years younger than Mr. Noonan, as set forth in Section 3.3. The
benefit payable to Mr. Noonan shall be subject to all other terms and
conditions of the Plan."
IN WITNESS WHEREOF, this Amendment 1999-1 is hereby adopted this ____ day
of _____________, 1999.
FURON COMPANY
By_____________________________
Its_____________________________
<PAGE> 2
AMENDMENT 1999-2
TO FURON COMPANY
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(As Amended as of June 1, 1997)
WHEREAS, Furon Company (the "Company") maintains the Supplemental
Executive Retirement Plan (the "Plan"); and
WHEREAS, the Company's Board of Directors (the "Board") has the
authority to amend the Plan; and
WHEREAS, the Board desires to amend the Plan, effective immediately for
any benefit under the Plan not paid as of the date of adoption of this
Amendment, except as specified below:
NOW, THEREFORE, the Plan is hereby amended as follows:
1. The second sentence of Section 1.3 of the Plan is amended to read as follows;
such Amendment shall apply only to Participants whose benefit payments have not
commenced as of the date this Amendment is adopted:
"Such straight life annuity shall be calculated by converting the
Company-provided portion of the Basic Plan Benefit (including investment
earnings on such portion) as of the Participant's Retirement using (a) a
post-retirement interest rate equal to the interest rate established by the
Pension Benefit Guaranty Corporation for valuing immediate annuities as of the
date the benefit is calculated, and (b) a mortality assumption from whichever of
the following tables specifies a longer life expectancy for a person who is 65
years old as of the date the benefit is calculated: (i) the 1983 Individual
Annuity Mortality Table (Unisex), or (ii) the "applicable mortality table" under
Code Section 417(e)(3)(A)(ii)(I), or its successor."
2. The first paragraph of Section 7.1 is amended to read as follows:
"7.1 Upon the occurrence of an Event, a lump sum cash payment will be
made to each Participant who has not made an election in accordance with Section
7.3. In the case of a Participant who is retired, disabled or not actively
employed by the Company on the date of the Event, and in the case of a spouse
receiving death benefits, the cash lump sum shall be the lump sum value of the
expected remaining payments, calculated according to the assumptions to be used
for converting the Company-provided portion of the Basic Plan Benefit as
specified in Section 1.3. In the case of any Participant actively employed by
the Company on the date of the Event, the cash lump-sum benefit will equal the
benefit the Participant would be entitled to, using (both for purposes of
Sections 1.16 and 3.1) years of Service determined as follows:"
<PAGE> 3
3. Section 7.2 is amended to read as follows:
"7.2 Upon the occurrence of an Event, the Plan shall terminate and
Participants shall not be entitled to earn additional benefits following the
date of the Event; provided, however, that the Plan shall continue with respect
to:
(a) The benefits earned prior to the date of the Event by a Buyout
Participant; and
(b) The benefits earned prior to the date of the Event (modified in
accordance with Section 7.1 for a Participant who was actively employed by the
Company on the date of the Event by a Participant who has made an election under
Section 7.3."
4. Section 7.3 is added to read as follows:
"7.3 Each Participant shall have the opportunity to elect not to receive
a lump sum cash payment upon the occurrence of an Event in accordance with
Section 7.1. Such an election shall be made on the designated form provided by
the Company which shall be kept on file with the Company. Participants who are
actively employed by the Company at the time they are entitled to make their
election shall be entitled to make two separate elections. The first possible
election shall apply if they remain actively employed by the Company at the time
of an Event, and the second possible election shall apply if they are not
actively employed by the Company at the time of an Event. If a Participant has
made such an election and an Event occurs:
(a) A payment equal to the lump sum cash value of the Participant's
entire remaining benefit will be paid to the Furon Company Supplemental
Executive Retirement Plan Trust (the "SERP Trust") within ten days of the Event;
(b) If the Participant was actively employed by the Company on the date
of the Event, and then terminates employment with the Company less than two
years after the date of the Event, the Participant's entire benefit shall be
paid in a cash lump sum (valued as of the date of payment) to the Participant in
accordance with Section 7.1 as soon as administratively feasible following the
Participant's termination of employment; or
(c) If the Participant is retired, disabled or not actively employed by
the Company on the date of the Event, or the Participant remains employed by the
Company for over two years following the date of the Event, the Participant will
receive his or her benefit in the normal manner under Sections IV, V and VI of
the Plan.
<PAGE> 4
Payments under this section shall be made from the SERP Trust to the extent its
assets are sufficient. If the SERP Trust has insufficient assets to pay any
benefits due under this section, such benefits shall be paid from the general
assets of the Company. Each Participant as of April 1, 1999 must make the
election no later than May 31, 1999. Each person who becomes a Participant after
April 1, 1999 must make the election no later than 30 days after becoming a
Participant."
Executed this _____ day of April 1999.
THE FURON COMPANY
By___________________________________
Its___________________________________
By___________________________________
Its___________________________________
<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 MONTHS ENDED MAY 1, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-END> MAY-01-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 76,077
<ALLOWANCES> 2,180
<INVENTORY> 56,052
<CURRENT-ASSETS> 142,220
<PP&E> 214,572
<DEPRECIATION> 106,825
<TOTAL-ASSETS> 349,366
<CURRENT-LIABILITIES> 57,511
<BONDS> 3,600
0
0
<COMMON> 43,082
<OTHER-SE> 65,015
<TOTAL-LIABILITY-AND-EQUITY> 349,366
<SALES> 121,437
<TOTAL-REVENUES> 121,437
<CGS> 82,462
<TOTAL-COSTS> 110,444
<OTHER-EXPENSES> (686)
<LOSS-PROVISION> 19
<INTEREST-EXPENSE> 3,081
<INCOME-PRETAX> 8,600
<INCOME-TAX> 2,709
<INCOME-CONTINUING> 5,891
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,891
<EPS-BASIC> 0.32
<EPS-DILUTED> 0.32
</TABLE>
