<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 JULY 31, 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)
California 95-1947155
- ---------------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
29982 Ivy Glenn Drive
Laguna Niguel, CA 92677
- ---------------------------------------- ------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (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 August 31, 1999: 18,508,997
1
<PAGE> 2
FURON COMPANY
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
July 31, 1999 and January 30, 1999 3
Condensed Consolidated Statements of Income
Three months and six months ended July 31, 1999 and
August 1, 1998 5
Condensed Consolidated Statements of Cash Flows
Three months and six months ended July 31, 1999 and
August 1, 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 24
PART II - OTHER INFORMATION 25
- ---------------------------
</TABLE>
2
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
FURON COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
July 31, January 30,
In thousands 1999 1999
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,927 $ 1,358
Accounts receivable, less allowance for doubtful accounts of 72,630 81,885
$1,920 at July 31, 1999 and $2,232 at January 30, 1999
Inventories, net 60,606 53,650
Income taxes recoverable 2,737 3,368
Deferred income taxes 5,975 6,625
Prepaid expenses and other current assets 5,782 4,955
--------- ---------
Total current assets 150,657 151,841
Property, plant & equipment, at cost:
Land 6,711 6,711
Buildings and leasehold improvements 35,316 33,341
Machinery and equipment 176,127 171,986
--------- ---------
218,154 212,038
Less accumulated depreciation and amortization (111,298) (103,395)
--------- ---------
Net property, plant and equipment 106,856 108,643
Intangible assets, at cost less accumulated amortization of 86,465 89,695
$42,116 at July 31, 1999 and $39,101 at January 30, 1999
Other assets 9,850 11,922
--------- ---------
TOTAL ASSETS $ 353,828 $ 362,101
========= =========
</TABLE>
See accompanying notes.
3
<PAGE> 4
FURON COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
July 31, January 30,
In thousands, except share data 1999 1999
- -------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 25,117 $ 26,130
Salaries, wages and related benefits payable 13,047 14,046
Current portion of long-term debt 443 566
Accrued interest payable 4,343 4,373
Facility rationalization and severance 5,446 6,554
Other current liabilities 11,568 14,649
--------- ---------
Total current liabilities 59,964 66,318
Long-term debt 132,374 144,707
Other long-term liabilities 26,246 26,091
Deferred income taxes 19,332 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, 18,503,702 shares issued and outstanding
at July 31, 1999 and 18,421,080 at January 30, 1999 43,832 42,806
Employee Benefit Trust shares (2,373) (1,444)
Accumulated other comprehensive income (3,367) (1,691)
Unearned ESOP shares (1,983) (2,560)
Unearned compensation (93) (124)
Retained earnings 79,896 67,620
--------- ---------
Total shareholders' equity 115,912 104,607
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 353,828 $ 362,101
========= =========
</TABLE>
See accompanying notes.
4
<PAGE> 5
FURON COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
------------------------------------------------------
July 31, August 1, July 31, August 1,
In thousands, except per share amounts 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 117,221 $ 125,046 $ 238,658 $ 244,851
Cost of sales 79,872 84,849 162,334 167,388
--------- --------- --------- ---------
Gross profit 37,349 40,197 76,324 77,463
Selling, general and administrative expenses 26,267 29,271 54,249 56,832
Other (income), expense (1,105) (971) (1,678) (2,109)
Interest expense, net 2,901 3,262 5,867 6,194
--------- --------- --------- ---------
Income before income taxes 9,286 8,635 17,886 16,546
Provision for income taxes 2,210 2,720 4,919 5,212
--------- --------- --------- ---------
Net Income $ 7,076 $ 5,915 $ 12,967 $ 11,334
========= ========= ========= =========
Basic income per share $ 0.39 $ 0.33 $ 0.71 $ 0.63
========= ========= ========= =========
Diluted income per share $ 0.38 $ 0.32 $ 0.70 $ 0.61
========= ========= ========= =========
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
------------------------------------------------------
July 31, August 1, July 31, August 1,
In thousands 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 7,076 $ 5,915 $ 12,967 $ 11,334
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation 4,793 4,331 9,207 8,604
Amortization 1,518 1,633 3,046 3,161
Provision for losses on accounts receivable 75 70 94 140
Deferred income taxes 911 (5) 1,131 (374)
(Gain) loss on sale of assets (38) 40 (6) 102
Working capital changes, net of acquisitions and disposals:
Accounts receivable 1,193 (267) 9,163 1,523
Inventories (4,554) 1,386 (6,956) (1,678)
Accounts payable and accrued liabilities 2,987 (431) (2,011) (4,844)
Income taxes payable, recoverable (3,406) 412 632 (152)
Other current assets and liabilities, net 1,617 3,907 (2,711) 2,630
Changes in other long-term operating assets and liabilities 157 (412) (87) (324)
--------- --------- --------- ---------
Net cash provided by operating activities 12,329 16,579 24,469 20,122
INVESTING ACTIVITIES
Acquisition of businesses, net of cash acquired -- (14,339) -- (11,417)
Purchases of property, plant and equipment (3,792) (4,744) (7,913) (9,910)
Proceeds from sale of businesses 6 276 15 281
Proceeds from sale of equipment 8 70 27 110
Decrease in note receivable (38) 776 (353) 170
--------- --------- --------- ---------
Net cash used in investing activities (3,816) (17,961) (8,224) (20,766)
FINANCING ACTIVITIES
Proceeds from long-term debt 6 14,000 147 148,194
Principal payments on long-term debt (6,301) (13,672) (12,360) (138,013)
Deferred debt costs (2) (246) (2) (4,164)
Employee benefit trust funding (342) (342) (684) (1,642)
Proceeds, net of cancellations, from issuance of
common stock 683 16 959 153
Principal payments received from loan to ESOP 576 599 576 599
Dividends paid on common stock (555) (549) (1,108) (1,098)
--------- --------- --------- ---------
Net cash provided by (used in) financing activities (5,935) (194) (12,472) 4,029
EFFECT OF EXCHANGE RATE CHANGES ON CASH 349 48 (2,204) 492
--------- --------- --------- ---------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 2,927 (1,528) 1,569 3,877
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD -- 5,405 1,358 --
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,927 $ 3,877 $ 2,927 $ 3,877
========= ========= ========= =========
</TABLE>
See accompanying notes.
6
<PAGE> 7
FURON COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 31, 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 July 31, 1999, and the results
of operations and cash flows for the three and six months ended July
31, 1999 and August 1, 1998. Results of the Company's operations for
the three and six months ended July 31, 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>
July 31, January 30,
In thousands 1999 1999
- ------------------------------------------------------------
<S> <C> <C>
Raw materials and purchased parts $22,945 $21,388
Work-in-process 14,237 12,211
Finished goods 23,424 20,051
------- -------
$60,606 $53,650
======= =======
</TABLE>
3. INTANGIBLES
Intangible assets, primarily acquired in business combinations, net of
accumulated amortization, are summarized as follows:
<TABLE>
<CAPTION>
July 31, January 30,
In thousands 1999 1999
- -------------------------------------------------
<S> <C> <C>
Goodwill $62,325 $64,297
Other intangible assets 24,140 25,398
------- -------
$86,465 $89,695
======= =======
</TABLE>
7
<PAGE> 8
FURON COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1999
(Unaudited)
4. LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
July 31, January 30,
In thousands 1999 1999
- ------------------------------------------------------------
<S> <C> <C>
Senior Subordinated Notes $125,000 $125,000
Loans under bank credit agreements 4,000 16,000
due through fiscal 2002
Industrial Revenue Bonds 3,400 3,600
Other 417 673
-------- --------
Total long-term debt 132,817 145,273
Less current portion 443 566
-------- --------
Due after one year $132,374 $144,707
======== ========
</TABLE>
For the three and six months ended July 31, 1999, the weighted average
interest rate on the loans under the credit facility agreement was 5.5%
and 5.5%, respectively.
Interest paid for the three and six months ended July 31, 1999 was $0.3
million and $5.7 million, respectively. Interest paid for the three and
six months ended August 1, 1998 was $0.6 million and $2.6 million,
respectively.
5. INCOME TAXES
The Company's effective tax rate for the three and six months ended
July 31, 1999 was 23.8% and 27.5%, respectively and 31.5% for the same
periods in the prior year. The lower effective tax rates in the current
year are primarily due to lower foreign income taxes resulting from the
reorganization of foreign entities.
Income taxes paid for the three and six months ended July 31, 1999 were
$3.7 million and $3.9 million, respectively. Income taxes paid for the
three and six months ended August 1, 1998 were $2.8 million and $4.9
million, respectively.
6. CONTINGENCIES
At July 31, 1999, the Company had approximately $6.6 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 July 31, 1999.
At July 31, 1999, the Company is obligated under irrevocable letters of
credit totaling $5.8 million.
8
<PAGE> 9
FURON COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1999
(Unaudited)
6. CONTINGENCIES (CONTINUED)
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.
As of July 31, 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
July 31, 1999
(Unaudited)
7. SHAREHOLDERS' EQUITY
Earnings Per Share
The calculation of earnings per share is presented below:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-----------------------------------------------------------
In thousands, except share and per share July 31, August 1, July 31, August 1,
amounts 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 7,076 $ 5,915 $ 12,967 $ 11,334
=========== =========== =========== ===========
Weighted average shares outstanding for
basic income per share 18,171,784 18,013,968 18,157,100 18,023,521
----------- ----------- ----------- -----------
Effect of dilutive securities:
Employee stock options and awards 558,234 545,999 484,584 603,771
----------- ----------- ----------- -----------
Weighted average shares outstanding for
diluted income per share 18,730,018 18,559,967 18,641,684 18,627,292
----------- ----------- ----------- -----------
Basic income per share $ 0.39 $ 0.33 $ 0.71 $ 0.63
=========== =========== =========== ===========
Diluted income per share $ 0.38 $ 0.32 $ 0.70 $ 0.61
=========== =========== =========== ===========
</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 July 31, 1999, the Company contributed approximately
$0.7 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
2000, the Trust purchased 44,257 shares of common stock at an average
cost of $15.63 per share (140,341 shares held at July 31, 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
July 31, 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 Six Months Ended
-------------------------------------------------
July 31, August 1, July 31, August 1,
In thousands 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 7,076 $ 5,915 $ 12,967 $ 11,334
Foreign currency translation adjustments 296 (190) (1,676) 576
-------- -------- -------- --------
Comprehensive income $ 7,372 $ 5,725 $ 11,291 $ 11,910
======== ======== ======== ========
</TABLE>
11
<PAGE> 12
FURON COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 31, 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 July 31, 1999:
-----------------------------------
Sales to unaffiliated customers $ 92,035 $ 25,186 $ 117,221
Operating profit 9,979 1,103 11,082
Interest expense, net -- -- $ 2,901 2,901
Identifiable assets 211,920 141,908 353,828
Six months ended July 31, 1999:
-----------------------------------
Sales to unaffiliated customers $ 185,411 $ 53,247 $ 238,658
Operating profit 17,952 4,123 22,075
Interest expense, net -- -- $ 5,867 5,867
Identifiable assets 211,920 141,908 353,828
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 18,323 2,308 20,631
Interest expense, net -- -- $ 6,194 6,194
Identifiable assets 216,710 151,988 368,698
</TABLE>
10. SUBSEQUENT EVENT
During March 1999, the Company announced that it was exploring
strategic alternatives for the Company's Dekoron wire and cable
business unit, including its possible sale. Refer to Note 13 of the
"Notes to Consolidated Financial Statements" of the Company's 1999
Annual Report on Form 10-K.
On September 2, 1999, the Company announced that it had signed a
definitive agreement to sell its Dekoron wire and cable business unit,
including the products sold under the Dekoron and Unitherm brands, to
Cable USA, Inc., a member of the Marmon group of companies. The sale is
expected to be completed during the quarter ending October 30, 1999.
Terms of the transaction were not disclosed. For the fiscal year ended
January 30, 1999, the Dekoron wire and cable business unit had net
sales of approximately $29 million.
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 second quarter ended July
31, 1999 and fiscal 1999 second quarter ended August 1, 1998. The fiscal 2000
and 1999 quarters each consisted of 13 weeks.
RESULTS OF OPERATIONS
FISCAL 2000 COMPARED WITH FISCAL 1999
Net Sales. Consolidated net sales for the second quarter and first half of
fiscal 2000 of $117.2 million and $238.7 million represents a decrease of 6.3%
and 2.5%, respectively, over the same periods of the prior year. This was the
net result of continued softness in demand for commercial products, and a slow
down for medical device products in the second quarter from the first quarter
pace of fiscal 2000.
Gross Profit. Gross profit as a percentage of sales for the second quarter and
first half of fiscal 2000 was down 0.2% and up 0.4% from the same periods of the
prior year to 31.9% and 32.0%, respectively. Despite lower volumes, the
favorable impact of continued productivity improvements and cost containment
along with a favorable product mix in the commercial segment were more than
offset by weaker margins in the medical segment resulting from unfavorable
volume and product mix.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of sales, for the second quarter and
first half fiscal 2000, were 22.4% and 22.7%, down from 23.4% and 23.2%,
respectively, from the same periods a year ago. In terms of dollars, the
decrease in selling, general and administrative expenses is mainly the net
result of lower general and administrative expenses in several categories,
including lower labor and incentive compensation, amortization, depreciation,
and travel expenses, which were partially offset by higher outside services
expense. Research and development expenses of $3.3 million and $6.7 million for
the second quarter and first half fiscal 2000, respectively, decreased $0.2
million and $0.6 million, or 4.4% and 7.7%, from the same periods the prior
year. The decrease in research and development expenses was primarily due to
lower labor expense, and a reclassification of certain expenses to selling
expense.
Other Income, Expense. Other income, of $1.1 million and $1.7 million for the
second quarter and first half of fiscal 2000, respectively, increased $0.1
million and decreased $0.4 million over the same periods of the prior year. The
decrease primarily resulted from a legal settlement included in the prior year,
that was not repeated this year. Somewhat offsetting this was increased
royalties income and a reduction in foreign exchange transaction losses in both
periods of the current year over prior year periods.
Interest Expense, Net. Interest expense, net, of $2.9 million and $5.9 million
for the second quarter and first half fiscal 2000 decreased by $0.4 million and
$0.3 million from the same periods the prior year, primarily as a result of
decreases in the Company's outstanding debt.
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. Pretax results of operations improved by 7.5% to
$9.3 million and 8.1% to $17.9 million for the second quarter and first half of
fiscal 2000 over the same periods a year ago. This improvement was achieved
despite a decrease in volumes, primarily due to the impact of continued
productivity improvements and cost containment actions in the commercial
segment and lower operating and interest expense, somewhat offset by softer
margins in the medical segment reflecting unfavorable product mix and volume.
Provision for Income Taxes. The Company's effective tax rate for the three and
six months ended July 31, 1999 was 23.8% and 27.5%, respectively, and 31.5% for
the same periods in the prior year. The lower effective tax rates in the current
year are primarily due to lower foreign income taxes resulting from the
reorganization of foreign entities.
SEGMENT RESULTS
A discussion of the operations of the business segments follows. 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. For additional financial
information about industry segments, see Note 9 of the "Notes to Consolidated
Financial Statements" contained herein.
COMMERCIAL PRODUCTS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 31, August 1, July 31, August 1,
In thousands 1999 1998 1999 1998
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 92,035 $ 96,544 $185,411 $194,518
Operating profit 9,979 8,731 17,952 18,323
</TABLE>
Net Sales. Commercial net sales for the second quarter and first half of fiscal
2000 decreased $4.5 million, and $9.1 million or 4.7% over the same periods of
the prior year. Domestically, sales to heavy-duty truck, semiconductor,
telecommunications, coating and laminating and industrial machinery markets were
particularly strong during the current quarter compared to the same period of
the prior year. Continued softness in the industrial processing market, impacted
primarily by the lack of major capital projects due to low global oil prices,
and commercial aircraft and material technology markets contributed to lower
shipments for the second quarter and first half fiscal 2000 over the same
periods of the prior year. Demand in Europe weakened during the current quarter,
resulting in decreased dollar net sales of 18.3% (a 14.7% decrease after
removing the effect of foreign currency exchange rate changes) over the same
period the prior year.
14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Gross Profit. The gross profit margin for the second quarter and first half of
fiscal 2000 was 30.5% and 30.0%, respectively, an increase from 29.8%, over same
periods of the prior year. This was a net result of lower material costs and
improved direct labor productivity, partially offset by slight increase in fixed
overhead.
Selling, General and Administrative Expenses. SG&A expenses as a percentage of
net sales decreased 1.1% to 19.7% and remained flat, respectively, for the
quarter and first half of fiscal 2000 from the same periods of the prior year.
Lower general and administrative expenses in several categories, including lower
labor and incentive compensation, amortization, depreciation, and travel
expense, were partially offset by higher outside services expenditures.
Operating Profit. Operating profit, increased 14.3% to $10.0 million and
decreased 2.0% to $18.0 million for the second quarter and first half ended July
31, 1999 from the same periods of the prior year. The improvement in
profitability reflects improved margins, on lower volumes and reduced operating
expenses.
MEDICAL DEVICE PRODUCTS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 31, August 1, July 31, August 1,
In thousands 1999 1998 1999 1998
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $25,186 $28,502 $53,247 $50,333
Operating profit 1,103 2,195 4,123 2,308
</TABLE>
Net Sales. Net sales for the second quarter and first half fiscal 2000 decreased
$3.3 million, or 11.6% and increased $2.9 million or 5.8%, respectively, over
the same periods of the prior year. Domestically, new product introduction and
delivery delays and pricing pressures particularly in fluid and drug, and
vascular access product lines contributed to the lower volumes. Pressure
monitoring sales increased as the LogiCal reusable pressure transducer continues
to be successful as the market recognizes the benefits of this product. Current
fiscal year first half sales exceeded the same period of the prior year,
primarily due to increased demand in the pressure monitoring product line.
Current quarter sales in Europe decreased 13%, primarily as a result of the loss
of a major account and pricing pressures in Germany. The impact on sales of
unfavorable foreign exchange fluctuations was minimal for the second quarter and
first half of fiscal 2000.
Gross Profit. The gross profit margin for the quarter ended July 31, 1999 was
36.7% as compared to 40.0% for the same period of the prior year. Lower volumes
impact on overhead and pricing were chiefly responsible. Gross profit margin for
the first half ended July 31, 1999 was 38.7% as compared to 38.8% for the same
period of the prior year.
15
<PAGE> 16
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 for the second quarter and first half of fiscal 2000, were 32.3% and
31.0%, respectively. This represents a real dollar improvement over the 32.3%
and 34.2% for the quarter and first half of fiscal 1999, respectively. This is
the net result of lower general and administrative headcount and associated
employee related expenses, somewhat offset by higher selling expenses.
Operating Profit. Operating profit, decreased 49.8% to $1.1 million and improved
78.6% to $4.1 million, respectively, for the quarter and first half of fiscal
2000 from the same periods of the prior year. For the quarter, this reflects the
unfavorable impact of lower volumes and pricing pressures, slightly offset by
lower operating expenses. The first half reflects the favorable impact on
margins of higher volumes, further assisted by decreased operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition remained strong at July 31, 1999. The ratio of
current assets to current liabilities was 2.5 to 1.0, an improvement from 2.3 to
1.0 at January 30, 1999. Net working capital of $90.7 million increased by $5.2
million from January 30, 1999.
Cash Provided by Operating Activities. Cash provided by operations for the
second quarter and first half of fiscal 2000 was $12.3 million and $24.5
million, respectively, compared with $16.6 million and $20.1 million provided in
the same periods of the prior year. The increase in the first half of fiscal
2000 compared with the first half of fiscal 1999 is primarily the result of
increased net income of $1.6 million, net sources of cash from changes in
working capital and a source of cash from deferred income taxes of $1.5 million
due to the realization of reserve accounts.
Cash Used in Investing Activities. Cash used in investing activities for the
second quarter and first half of fiscal 2000 was $3.8 million and $8.2 million,
respectively, compared with $18.0 million and $20.8 million used in the same
periods of the prior year. This change was due primarily to the acquisition of
Corotec GmbH during April 1998 and lower capital expenditures in both the second
quarter and first half of fiscal 2000 compared to the same periods of the prior
year. Cash used in investing activities for the first half of fiscal 1999
included cash balances of $3.0 million obtained in the Corotec acquisition.
During the first half of fiscal 2000, the Company invested $7.9 million in
renovation of existing facilities, leasehold improvements and the replacement of
existing equipment. Capital expenditures for the first half of fiscal 2000
decreased $2.0 million from $9.9 million in the first half of fiscal 1999.
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.
16
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
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."
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.
17
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
YEAR 2000 READINESS DISCLOSURE (CONTINUED)
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:
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:
18
<PAGE> 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
YEAR 2000 READINESS DISCLOSURE (CONTINUED)
o Inventory and Assessment. Completed.
o Remediation and Validation. Completed.
o Contingency Planning. Completed, although the plan may be modified
or further refined over the balance of the year. The plan
currently includes provisions for (1) European system backup and
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.
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. Completed.
o Contingency Planning. Completed, although the plan may be modified
or further refined over the balance of the year. The plan
currently includes 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 80% have stated they expect to be Y2K
compliant at varying times prior to January 1, 2000, with over 80%
of those Suppliers indicating they are currently compliant. The
Company is following up with all of those who have not responded
or indicated an expected compliance date.
19
<PAGE> 20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
YEAR 2000 READINESS DISCLOSURE (CONTINUED)
o Remediation and Validation. So far, none of the Company's mission
critical Suppliers have stated they will not be Y2K compliant. The
Company has performed 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 selectively
audited those that it believes pose the greatest risk.
o Contingency Planning. The Company has developed a preliminary
written contingency plan for all of its mission critical raw
material Suppliers and for each of its other mission critical
Suppliers which it believes poses a significant risk. The Company
expects to refine and finalize the plan over the balance of the
year, especially with respect to those Suppliers that it believes
pose a significant risk. For those who are raw material Suppliers,
the contingency plan currently involves the stockpiling in the
months before January 1, 2000 of levels of raw material
subjectively determined by the Company in light of 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 has
developed 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,
currently primarily 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, telecommunication or similar
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.
20
<PAGE> 21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
YEAR 2000 READINESS DISCLOSURE (CONTINUED)
CUSTOMERS
The Company is in the process 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.
COSTS
The Company estimates that to date it has directly incurred the
following costs to address the Y2K Problem: (1) approximately $260,000 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 owns a small business in England with annual sales of less
than $10 million (the "Business"), which the Company was in negotiations to
divest prior to year end. As a result the Business was not previously included
in the Company's Y2K Readiness Program. Since it now appears that the
divestiture will not be completed before year end, the Company has added the
Business to its Y2K Program, and the Company is in the process of determining
the Y2K status of the Business. None of the products manufactured by the
Business are date/time sensitive. The Company expects to complete the three
phases of Y2K review and remediation described above with respect to the
Business by year end, and does not anticipate that costs associated with
remediating identified problems will be material. The description of the
Company's Y2K readiness set forth above does not include the Business.
21
<PAGE> 22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
YEAR 2000 READINESS DISCLOSURE (CONTINUED)
The Company believes that the most significant Y2K-related risks it
faces include (1) unanticipated Supplier failures, especially involving
breakdowns of utilities, transportation, telecommunications and similar
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.
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 six months ended July 31, 1999, approximately 15% 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.
22
<PAGE> 23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
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.
23
<PAGE> 24
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 six
months ended July 31, 1999.
24
<PAGE> 25
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 8, 1999. 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 III Directors:
J. Michael Hagan................... 15,858,124 -- 156,395 -- --
Peter Churm........................ 15,855,717 -- 158,802 -- --
William D. Cvengros................ 15,858,130 -- 156,389 -- --
2. Ratification of the Appointment of
Ernst & Young LLP as the
Company's Independent Auditors
for the Fiscal Year Ending
January 29, 2000....................... 15,184,763 26,317 -- 803,439 --
</TABLE>
ITEM 5. OTHER INFORMATION.
Not applicable.
25
<PAGE> 26
PART II - OTHER INFORMATION (CONTINUED)
---------------------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
10.3A* Amendment 1999-3 to Supplemental Executive Retirement
Plan
27 Financial Data Schedule.
(b) Reports on Form 8-K:
None
* A management contract or compensatory plan or agreement.
26
<PAGE> 27
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 3, 1999
27
<PAGE> 28
EXHIBIT INDEX
-------------
Exhibit
Number Description
------- -----------
10.3A* Amendment 1999-3 to Supplemental Executive Retirement
Plan
27 Financial Data Schedule.
<PAGE> 1
Exhibit 10.3A
- -------------
AMENDMENT 1999-3
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 1999-3 is hereby adopted, effective June
1, 1999.
The following is hereby added to the end of Appendix A:
"Notwithstanding any other provision of the Plan or this
Appendix A, Dominick A. Arena shall cease to be a Participant in this
Plan as of June 1, 1999. Mr. Arena shall not be entitled to any
benefits under the Plan, including but not limited to benefits which
may have otherwise accrued or become vested as a result of an Event
under the Plan. Mr. Arena's removal as a Participant shall be effective
regardless of any current or future relationship he may have with the
Company, including but not limited to a relationship of employee,
consultant, joint venturer, partner or independent contractor."
IN WITNESS WHEREOF, this Amendment 1999-3 is hereby adopted this 1st
day of June, 1999.
FURON COMPANY
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 and six months ended July 31, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-END> JUL-31-1999
<CASH> 2,927
<SECURITIES> 0
<RECEIVABLES> 74,550
<ALLOWANCES> 1,920
<INVENTORY> 60,606
<CURRENT-ASSETS> 150,657
<PP&E> 218,154
<DEPRECIATION> 111,298
<TOTAL-ASSETS> 353,828
<CURRENT-LIABILITIES> 59,964
<BONDS> 3,400
0
0
<COMMON> 43,832
<OTHER-SE> 72,080
<TOTAL-LIABILITY-AND-EQUITY> 353,828
<SALES> 238,658
<TOTAL-REVENUES> 238,658
<CGS> 162,334
<TOTAL-COSTS> 216,583
<OTHER-EXPENSES> (1,878)
<LOSS-PROVISION> 94
<INTEREST-EXPENSE> 6,067
<INCOME-PRETAX> 17,886
<INCOME-TAX> 4,919
<INCOME-CONTINUING> 12,967
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,967
<EPS-BASIC> 0.71
<EPS-DILUTED> 0.70
</TABLE>
